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 March 31, 2000 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.
(Exact name of registrant as specified in its charter)
Massachusetts 04-3026859
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Sylvan Road, Woburn, Massachusetts 01801
(Address of principal executive offices)
Registrant's telephone number, including area code: (617)692-7000
_________________________________________________________________
(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 April 20, 2000 the Company had outstanding 16,688,159 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.........13
Item 3. Quantitative and Qualitative Disclosures About Market
Risk...................................................17
PART II. OTHER INFORMATION:
Item 4. Legal Proceedings.......................................18
Item 6. Exhibits and Reports on Form 8-K........................18
<PAGE>
BOSTON COMMUNICATIONS GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
March December
ASSETS 31, 31,
2000 1999
Current assets:
Cash and cash equivalents $25,360 $21,145
Short-term investments 6,998 9,091
Accounts receivable, net of allowance for
billing adjustments and doubtful accounts of
$2,736 in 2000 and $2,025 in 1999 19,551 18,546
Inventory 1,930 2,007
Deferred income taxes 356 1,169
Prepaid expenses and other assets 1,904 1,758
Total current assets 56,099 53,716
Property and equipment, net 43,134 44,995
Goodwill, net 2,703 2,854
Other assets 563 516
Total assets $102,499 $102,081
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,193 $ 941
Accrued expenses 14,225 15,012
Income taxes payable 565 505
Current maturities of capital lease
obligations 2,158 2,378
Total current liabilities 18,141 18,836
Capital lease obligations, net of current 3,420 3,876
maturities
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, 16,788,579 and 16,699,874 shares
issued in 2000 and1999, respectively 168 167
Additional paid-in capital 93,673 93,177
Treasury stock (101,420 shares, at cost) (673) (673)
Accumulated deficit (12,230) (13,302)
Total shareholders' equity 80,938 79,369
Total liabilities and shareholders' $102,499 $102,081
equity
<PAGE>
BOSTON COMMUNICATIONS GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Three months ended
March 31,
2000 1999
Revenues:
Prepaid wireless services $12,344 $7,872
Teleservices 7,665 9,843
Roaming services 4,807 5,435
Systems 391 1,014
25,207 24,164
Expenses:
Cost of service revenues 13,403 15,471
Cost of system revenues 434 735
Engineering, research and development 1,807 1,263
Sales and marketing 1,548 1,606
General and administrative 1,994 1,640
Depreciation and amortization 4,450 3,372
Total operating expenses 23,636 24,087
Operating income 1,571 77
Interest income 314 274
Income before income taxes 1,885 351
Provision for income taxes 813 161
Net income per common share $1,072 $ 190
Basic net income per common share $ 0.06 $ 0.01
Shares used in computing basic net income
per share 16,628 16,442
Diluted net income per common share $ 0.06 $ 0.01
Shares used in computing diluted net income
per share 17,009 17,108
<PAGE>
BOSTON COMMUNICATIONS GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Three months ended
March 31,
2000 1999
OPERATING ACTIVITIES
Net income $ 1,072 $ 190
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 4,450 3,372
Deferred income taxes 813 161
Changes in operating assets and liabilities:
Accounts receivable (1,005) (2,038)
Inventory 77 (1,392)
Prepaid expenses and other assets (193) (41)
Accounts payable and accrued expenses (535) 3,403
Income taxes payable 60 (32)
Net cash provided by operations 4,739 3,623
INVESTING ACTIVITIES
Purchases of property and equipment (2,438) (3,915)
Sales of short-term investments 6,074 5,946
Purchases of short-term investments (3,981) (6,967)
Net cash used in investing activities (345) (4,936)
FINANCING ACTIVITIES
Proceeds from exercise of stock options and
employee stock purchase plan 497 839
Repayment of capital leases (676) (301)
Net cash provided by(used in) financing
activities (179) 538
Increase (decrease) in cash and cash equivalents 4,215 (775)
Cash and cash equivalents at beginning of period 21,145 18,523
Cash and cash equivalents at end of period $25,360 $17,748
Supplemental disclosure of non-cash transactions:
Capital lease obligations $ 188
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
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. 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 to the Company's audited consolidated
financial statements contained in the Company's Form 10-K for the fiscal
year ended December 31, 1999.
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.
2. Earnings Per Share
The following table sets forth the computation of basic and diluted net
income per share (in 000's except per share amounts):
Three Months
Ended March 31,
2000 1999
Numerator for basic and diluted earnings per share:
Net income $1,072 $190
Denominator:
Denominator for basic earnings per share -
weighted average shares 16,628 16,442
Effect of dilutive securities:
Employee stock options 381 666
Denominator for diluted earnings per share -
adjusted weighted average shares and assumed
conversion 17,009 17,108
Basic net income per common share $ 0.06 $ 0.01
Diluted net income per common share $ 0.06 $ 0.01
<PAGE>
3. Inventory
Inventories consisted of the following at (in 000's):
March 31, December 31,
2000 1999
Purchased parts $1,078 $ 1,356
Work-in-process 852 651
$1,930 $ 2,007
4. Segment Reporting
Divisional Data (in 000's)
Prepaid
Three months Wireless Roaming
ended Service Teleservic Service System Eliminations Total
March 31,
2000
Revenues $12,344 $7,665 $4,807 $2,360 $(1,969) $25,207
Gross margin 8,734 1,736 943 723 (766) 11,370
Operating income
(loss) 2,911 (153) 161 (582) (766) 1,571
1999
Revenues $7,872 $9,843 $5,435 $2,670 $(1,656) $24,164
Gross margin 4,743 2,056 880 924 (645) 7,958
Operating income
(loss) 587 536 146 (547) (645) 77
5. Recent Accounting Pronouncements
In March 2000, the FASB issued Interpretation No. 44, Accounting for Certain
Transactions Involving Stock Compensation (the Interpretation). This
Interpretation clarifies how companies should apply the Accounting Principles
Board's Opinion No. 25, Accounting for Stock Issued to Employees. The
Interpretation will be applied prospectively to new awards, modifications
to outstanding awards, and changes in employee status on or after July 1,
2000, except as follows: the definition of an employee applies to awards
granted after December 15, 1998; the Interpretation applies to modifications
that reduce the exercise price of an award after December 15, 1998; and the
Interpretation applies to modifications that add a reload feature to an award
made after January 12, 2000. At the present time, there are no awards granted
by the Company which would result in an adjustment at July 1, 2000 as a result
of this Interpretation.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) 101, Revenue Recognition in Financial Statements.
SAB 101 clarifies the SEC staff's views on applying generally accepted
accounting principles to revenue recognition in financial statements.
In March 2000, the SEC issued an amendment, SAB 101A, which deferred the
effective date of SAB 101. The Company will adopt SAB 101 in the second
<PAGE>
quarter of 2000 in accordance with the amendment. The adoption of this
SAB is not expected to have a significant impact on the Company's financial
statements.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Consolidated Results of Operations
The Company's total revenues increased 4% from $24.2 million in the three
months ended March 31, 1999 to $25.2 million in three months ended March 31,
2000. The growth was primarily attributable to a 57% increase in the
Company's principal business, prepaid wireless, partially offset by a 22%
decline in teleservices revenues, a 12% decline in roaming service revenues
and a 12% decline in systems revenues, including interdivisional revenue. In
2000, for internal financial reporting purposes, the Company began reporting
interdivision sales from the Systems Division to the Prepaid Services
Division for voice nodes and related equipment shipped during the quarter.
Prior year amounts have been reclassified to permit comparison.
The Company generated operating income of $1.6 million during the quarter ended
March 31, 2000 compared to operating income of $77,000 for the same period in
the prior year. The Company also generated net income of $1.1 million during
the quarter ended March 31, 2000 compared to net income of $190,000 for the
same period in the prior year. The increases in operating income and net income
resulted from a significant improvement in the operating results of prepaid
wireless services, partially offset by a decline in operating results from the
teleservices and systems divisions. The specifics of each division's revenues
and operating results are discussed in greater detail below:
Divisional Data
(in 000's except percentages)
Prepaid
Quarter ended Wireless Roaming
March 31, Services Teleservices Services Systems Eliminations Total
2000
Revenues $12,344 $7,665 $4,807 $2,360 $(1,969) $25,207
Gross margin $ 8,734 1,736 $943 $723 $(766) $11,370
Gross margin
percentage 71% 23% 20% 31% 45%
Operating income
(loss) $2,911 $(153) $161 $(582) $(766) $1,571
Percentage of
total revenues 24% (2)% 3% (25)% 6%
1999
Revenues $7,872 $9,843 $5,435 $2,670 $(1,656) $24,164
Gross margin $4,743 2,056 $880 $924 $(645) $7,958
Gross margin
percentage 60% 21% 16% 35% 33%
Operating income
(loss) $587 $536 $146 $(547) $(645) $77
Percentage of
total revenues 7% 5% 3% (20)% 0%
<PAGE>
Prepaid Wireless Services Division
Prepaid Wireless Services Division revenues increased 57% from $7.9 million
in the first quarter of 1999 to $12.3 million in the first quarter of 2000.
The increase was primarily due to the increased number of subscribers and
greater minutes of use, offset by a decrease in the average price per minute.
As of March 31, 2000 there were approximately 2.3 million prepaid subscribers
on the C2C network, compared to 1.2 million subscribers at March 31, 1999,
an increase of 92%. The Company expects the average price per minute to
continue to decline as carrier growth results in higher volume discounts.
Additionally, the full effect of renegotiated pricing in recent contract
renewals will contribute to a decreased average price per minute. During the
first quarter, two significant prepaid services contracts were renewed.
Gross margins for the Prepaid Wireless Services Division improved from 60% of
prepaid wireless services revenues in the first quarter of 1999 to 71% in the
first quarter of 2000. The improvement resulted from higher revenues, improved
system performance, reduced telecommunications costs and management's focus on
effectively managing operating expenses.
In the first quarter of 2000, the Prepaid Wireless Services Division generated
operating income of $2.9 million compared to $587,000 in the first quarter of
1999. The continued increase in revenue helped to offset increases in operating
costs which are more fixed than variable.
Going forward, management expects that the seasonal trends experienced in 1999
for subscriber additions, churn and average minutes of use will continue, with
the growth in fourth and first quarter showing much stronger usage and
subscriber trends than the slower seasons in the second and the third quarters.
Teleservices Division
Teleservices Division revenues decreased 22% from $9.8 million in the first
quarter of 1999 to $7.7 million in the first quarter of 2000. The decrease in
Teleservices revenues primarily reflects the Company's previously announced
November 1999 closing of its Woburn, Massachusetts call center. In addition,
the decrease reflects the Company's strategy to provide its prepaid carrier
customers the opportunity to license the Company's prepaid customer
service software product and operate their own in-house call centers or
outsource their prepaid subscriber customer care to the Company. Licensing
revenue for the prepaid customer service software product is recorded in
the Prepaid Wireless Services Division.
Gross margins for the Teleservices Division increased from 21% to 23% for the
quarters ended March 31, 1999 and 2000. The improvement was due to the closing
of the Woburn call center which reduced labor costs. In addition, in October
1999, the Company cancelled the facilities management contract for the DeLand
call center and acquired the underlying leases for the call center facilities
to achieve additional cost savings. This buyout also had a positive effect on
the gross margin for the first quarter of 2000 given that a portion of the
related expenses are now classified as depreciation or general and
<PAGE>
administrative expenses. These factors were partially offset by costs
associated with transferring certain customer services to the Company's call
centers that had previously been outsourced to a third party.
Operating income for the Teleservices Division was $536,000 in the quarter
ended March 31, 1999 compared to an operating loss of $153,000 in the quarter
ended March 31, 2000. The operating loss in 2000 was primarily due to the
reduction in revenue, including the loss of two customers in 1999, as well as
the costs associated with transferring services to the Company's call centers
that had been previously outsourced to a third party.
In April 2000 the Company announced that it is exploring strategic business
alternatives for the Teleservices Division. This effort reflects the Company's
intention to focus its attention and resources on further improving its
prepaid wireless business.
Roaming Services Division
Roaming services revenues decreased 12% from $5.4 million in the first quarter
of 1999 to $4.8 million in the first quarter of 2000. The decrease in roaming
services revenues in 2000 was primarily attributable to fewer suspensions of
inter-carrier automatic roaming agreements and some cannibalization of
unregistered roaming use by prepaid wireless growth. In addition, demand for
the Company's roaming service, whose premium rates are set by the Company's
carrier customers, has been adversely affected by an increase in one-rate
registered roaming plans offered by some national carriers. The Company
anticipates that these trends will continue and, therefore, roaming services
revenues will continue to decrease over time as compared to prior periods.
Gross margins for the Roaming Services Division increased from 16% of roaming
services revenues in 1999 to 20% in 2000. The increase was primarily a
result of management's efforts to reduce the costs associated with delivering
unregistered roaming calls.
Operating income for the Roaming Services Division increased from $146,000 in
1999 to $161,000 in 2000. The increase in 2000 was primarily a result of the
increased gross margins for the first quarter. The Company does not anticipate
that these margins will continue to improve as revenue continues to decline.
Systems Division
In 2000, the Company began reporting interdivision revenues to the Prepaid
Services Division for voice nodes and related equipment deployed during the
quarter. Including such sales, Systems revenues decreased 12% from $2.7 million
in the first quarter of 1999 to $2.4 million in the first quarter of 2000. The
decrease in sales reflects fewer international system sales, offset slightly
by an increase in shipments of prepaid voice nodes.
Gross margins for the Systems Division decreased from 35% of systems revenues
in the first quarter of 1999 to 31% in the first quarter of 2000. The decrease
<PAGE>
resulted from decreased systems revenue for the period that could not absorb
fixed manufacturing overhead.
The operating loss for the Systems Division increased from an operating loss of
$547,000 in the first quarter of 1999 to an operating loss of $582,000 in the
first quarter of 2000. The increase in 2000 was primarily a result of the
reduced gross margin that was mostly offset by reduced operating costs, which
were a result of the 1999 restructuring.
Operating Data
(in 000's except percentages)
2000 1999
% of Total % of Total
($ in thousands) Total Revenues Total Revenues
Total revenues $25,207 100% $24,164 100%
Engineering, research and development 1,807 7% 1,263 5%
Sales and marketing 1,548 6% 1,606 7%
General and administrative 1,994 8% 1,640 7%
Depreciation and amortization 4,450 18% 3,372 14%
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. Engineering, research and development expenses increased as a
percentage of total revenues from 5% to 7% for the quarter ended March 31, 1999
and 2000, respectively. This increase primarily resulted from additional
resources devoted to expanding and enhancing the capabilities of the Company's
prepaid micropayment processing system.
Sales and marketing expenses
Sales and marketing expenses include direct sales, marketing and product
management salaries, commissions, travel and entertainment expenses, in addition
to the cost of trade shows, advertising and other promotional expenses. As a
percentage of total revenues, sales and marketing expenses decreased from 7% to
6% for the quarters ended March 31, 1999 and 2000, respectively. The decrease is
due to the integration of the Company's Systems Division sales force into the
corporate sales force to leverage relationships with existing carrier customers
and expand the customer base. In addition, the decrease resulted from the use
of distribution arrangements in the Systems Division.
General and administrative expenses
General and administrative expenses include salaries and benefits of employees
and expenses for other administrative support services provided to the Company.
General and administrative expenses as a percentage of total revenues increased
<PAGE>
from 7% to 8% for the quarters ended March 31, 1999 and 2000, respectively.
The increase was due to increased personnel and other related costs to support
the Company's growth.
Depreciation and amortization expense
Depreciation and amortization expense includes depreciation of
telecommunications systems, furniture and equipment, building and leasehold
improvements. The Company provides for depreciation using the straight-line
method over the estimated useful lives of the assets, which range from three
to twenty years. Goodwill related to acquisitions is amortized over eight
years. Depreciation and amortization expense increased from 14% of total
revenues in the first quarter of 1999 to 18% of total revenues in the first
quarter of 2000. The increase in 2000 was primarily due to the depreciation of
additional technical equipment and software to support the rapid expansion
and enhancement of the Company's prepaid wireless network. Depreciation and
amortization expenses are expected to increase in absolute dollars due to
increased capital expenditures for telecommunications hardware and software,
primarily related to new C2C features and functionality and the continued
enhancement and expansion of the C2C network.
Interest income
Interest income increased from $274,000 for the quarter ended March 31, 1999
to $314,000 for the quarter ended March 31, 2000. Interest income was earned
from investments of the proceeds of the Company's secondary public offering
and was offset slightly by interest expense from the Company's capital leases.
The Company's interest income increased in 2000 due to additional cash flow
generated from operations. This increase was partially offset by interest
expense generated from additional capital leases entered into during the
second half of 1999.
Provision for income taxes
Income tax expense of $813,000 for the quarter ended March 31, 2000 yielded
a 43% income tax rate compared to $161,000 or a 46% rate for the quarter ended
March 31, 1999. The Company's effective income tax rate is greater than the
statutory rate of 40% due to the impact of non-deductible goodwill from the
Company's acquisitions. The Company's effective income tax rate may be greater
than 40% in future periods due to the continued impact of non-deductible
goodwill.
The Company has recorded a net deferred tax asset for net operating loss carry
forwards and other temporary differences based on management's assessment that
it is more likely than not that future results of operations will be sufficient
to realize this asset.
Liquidity and Capital Resources
Cash, cash equivalents and short-term investments increased to $32.4 million
at March 31, 2000 compared to $30.2 million at December 31, 1999. Net cash
<PAGE>
provided by operations of $4.7 million in 2000 was primarily generated from
$4.5 million in depreciation and amortization expense, which resulted from
the continued significant investment in telecommunications systems and
equipment. Accounts Receivable increased $1.0 million in the first quarter of
2000 due to the significant increase in prepaid wireless services revenues. The
increase in accounts payable and accrued expenses of $535,000 resulted
from the timing of payments.
The Company's investing activities utilized $345,000 of net cash in the first
quarter of 2000. The Company expended $2.4 million in the first quarter of
2000, of which $2.3 million was for telecommunications systems equipment and
software for expansion of the Company's C2C network. The Company also had
$2.1 million in sales of short-term investments, net of purchases, during the
quarter. The Company anticipates that over the next 12 months it will continue
to make significant capital investments for additional equipment and enhanced
feature capabilities to enhance its prepaid wireless services.
The Company's financing activities utilized $179,000 in net cash during the
quarter ended March 31, 2000, mainly due to payments of capital lease
obligations, partially offset by proceeds from the exercise of stock options.
The Company believes that its cash and cash equivalents, short-term investments
and the funds anticipated to be generated from operations will be sufficient
to finance the Company's operations for at least the next 12 months.
Certain Factors That May Affect Future Results
This Quarterly Report contains forward-looking statements that involve risks
and uncertainties, including without limitation, statements regarding seasonal
trends in Prepaid Wireless revenues, trend of decreased suspensions of
inter-carrier automatic roaming agreements, prepaid cannibalization of
unregistered roaming and carrier marketing of one-rate registered roaming plans
to reduce roaming service revenues, greater costs of depreciation and
amortization and an effective income tax rate greater than 40%. The Company's
actual results may differ significantly from the results discussed in the
forward-looking statements. A number of important factors 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 successfully support its C2C network, the ability of the Company's
carrier customers to successfully continue to 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.
The Company is currently in the process of exploring strategic business
alternatives relating to the Teleservices Division. The Company feels that
this type of transaction will allow management to focus on the core
competencies and further expand the prepaid wireless services business.
However, there can be no assurances that the Company will successfully identify
a strategic partner, or that the results of any successful strategic alliances
would not have an adverse affect on the Company's operations. There can also
be no assurances that members of the Teleservices Division management team will
<PAGE>
remain with the Company, which could have a material adverse effect on the
success of strategic alternatives and the Company's operations.
The Company is exploring opportunities to utilize its prepaid network and
real-time rating engine for mobile and electronic commerce applications. There
can be no assurances that there will be a market for the Company's network in
the mobile and electronic commerce arena. In addition, this market could be
so highly competitive that the Company may not be able to enter it.
Historically, a significant portion of the Company's revenues in any particular
period have been attributable to a limited number of customers. This
concentration of customers can cause the Company's revenues and earnings to
fluctuate from quarter to quarter, based on the volume of call traffic
generated through these customers, the services being performed for the
teleservices 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 recently developed a distributed architecture that will enable
carriers to use the Company's proprietary software to deliver prepaid billing
inquiry in-house. However, any revenues generated from this application will
reduce the need for the Teleservices Division to provide customer care services
and therefore may reduce teleservices revenues in future quarters.
Certain Teleservices and Prepaid Division contracts are beyond their expiration
dates or will expire in 2000 and beyond. There can be no assurances that the
Company will be successful in renewing any of these contracts. If these
contracts are not renewed, the Company's business, financial condition and
results of operations could be materially adversely affected. Also, when and
if the contracts are renewed, some contractual rates per minute will likely be
lower than in previous years. If subscriber levels begin to drop off,
revenue could be adversely affected due to these lower rates.
The Company has experienced fluctuations in its quarterly operating results and
anticipates that such fluctuations will continue and could intensify. The
Company experienced operating losses during the first three quarters of 1998,
primarily due to expenses associated with the development and expansion of its
C2C network. During the quarter ended September 30, 1999, an operating loss
was also incurred due to the Systems Division one-time charge, system outages
in Prepaid Division and a software problem in Teleservices Division. In
addition, the Company's Systems Division has experienced operating losses
during each of the last seven quarters due to fewer sales of international
prepaid systems. 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, the ability to identify,
hire and retain qualified personnel and general economic conditions. Due to
all of the foregoing factors, it is possible that in some future quarter the
<PAGE>
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 has recently taken steps in an attempt to reduce the operating
expenses of the Systems Division, which has generated losses during each of the
last seven quarters. A reorganization plan was implemented in September 1999
in an effort to realign the division and reduce operating expenses.
However, should these reorganization efforts not be successful, the Systems
Division may incur additional operating losses, asset impairment charges or
other write-offs that could materially and adversely affect the Company's
overall business, operating results and financial condition.
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. The Company expects
that demand for its roaming services will continue to decline as fewer
inter-carrier roaming agreements are suspended, prepaid cannibalization of
unregistered roaming use increases and carriers offer more one-rate roaming
plans. In addition, prepaid wireless 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.
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
or adapt existing services or systems to 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 to address the particular needs of the providers of such new
services. There can be no assurance that the Company will be successful in
developing or marketing its existing or future service offerings or systems
in a timely manner, or at all.
The Company is currently devoting significant resources toward the support and
enhancement of its prepaid wireless services and systems to maintain system
reliability and expand the C2C network. The Company has experienced network
outages that provide for reductions in revenue in accordance with penalty
clauses contained in certain of the Company's carrier customer contracts. If
the Company's future efforts to avoid outages are unsuccessful, such outages
can result in additional lost revenue for the Company and damage the Company's
reputation. The occurrence of one or more outages could have a material
adverse effect on the Company's business, operating results and financial
condition.
There can be no assurance that the Company will successfully support and
enhance the C2C network effectively to avoid system outages and any associated
loss in revenue, that the market for the Company's prepaid service will
<PAGE>
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.
Revenues from the Company's C2C network are dependent on the ability to retain
subscribers on the network and there can be no assurance that the Company's
churn rate (percentage of total subscribers that terminate service on the
network) will not increase, which may result in reductions in subscriber growth
and related revenues. Teleservices revenues associated with billing inquiry
support for C2C carrier customers are a significant portion of teleservices
revenues and therefore these revenues are dependent upon the size and growth
of the C2C subscriber base. In addition, the Company has enabled carrier
customers to license software that enables C2C customers to perform their
billing inquiry in-house if they choose. This may reduce the Company's
Teleservices revenues significantly and reduce profits accordingly.
The Company has expanded its operations rapidly, creating significant demands
on the Company's administrative, operational, development and financial
personnel and other resources. In addition, the growth of the Company's
Teleservices Division is dependent on recruiting, training and retaining
employees to perform customer services responsibilities. Additional expansion
by the Company may further strain the Company's management, financial and other
resources. There can be no assurance that the Company's systems, procedures,
controls and existing space will be adequate to support expansion of the
Company's operations. If the Company's management is unable to manage growth
effectively, the quality of the Company's services, its ability to retain key
personnel and its business, financial condition and results of operations could
be materially and adversely affected.
The Company's operations are supported by many hardware components and software
applications from third party vendors. There can be no assurances that these
hardware components and software applications will function in accordance with
specifications agreed upon by the Company and its vendors. If the hardware
and software do not function as specified, the Company's business, financial
condition and results of operations could be materially and adversely affected.
All products sold to international customers are priced in U.S. dollars.
In addition, many Systems Division customers are multinational corporations
that are publicly traded in the U.S. All payments are received in U.S.
dollars which helps to protect the Company from the need to hedge against
foreign currency risk. While these provisions serve to protect the Company from
accounts receivable losses, there can be no assurances that systems sales to
foreign countries will not result in losses due to devaluation of foreign
currencies or other international business conditions outside of the Company's
control.
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
<PAGE>
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.
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.
The Company has recorded a net deferred tax asset for net operating loss carry
forwards and other temporary differences based on management's assessment that
it is more likely than not that future results of operations will be sufficient
to realize this asset. However, there can be no assurances that future
results of operations will be sufficient to fully realize this asset.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
All products sold to international customers are priced in U.S. dollars. In
addition, many Systems Division customers are multinational corporations that
are publicly traded in the U.S. All payments are received in U.S. dollars which
helps to protect the Company from the need to hedge against foreign currency
risk. While these provisions serve to protect the Company from accounts
receivable losses, there can be no assurances that systems sales to foreign
countries will not result in losses due to devaluation of foreign currencies
or other international business conditions outside of the Company's control.
The Company does not believe that there is any material market risk exposure
with respect to derivative or other financial instruments which would require
disclosure under this item.
<PAGE>
PART II. OTHER INFORMATION:
Item 4. Legal Proceedings
On March 30, 2000, Freedom Wireless, Inc. filed a complaint in the United
States District Court for the Northern District of California against the
Company and a number of wireless carriers, including customers and former
customers of the Company. The suit alleges that the defendants infringe a
patent held by Freedom Wireless, Inc. and seeks injunctive relief and damages
in an unspecified amount. The Company does not believe it infringes this
patent and believes that it has meritorious defenses to the action.
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
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: May 11, 2000 By: /s/ Karen A. Walker
Karen A. Walker
Vice President, Financial
Administration and Chief
Financial Officer (Principal
Financial and Accounting
Officer and Duly Authorized
Officer)
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description
10.58* Distribution agreement between Centigram Communications
Corporation and Boston Communications Group, Inc. dated
January 17, 2000.
27 Financial Data Schedule
* Confidential treatment requested as to certain portions,
which portions have been deleted and filed separately with
Securities and Exchange Commission.
Exhibit 10.58
DISTRIBUTION AGREEMENT
This Agreement is made this 17th day of January, 2000,by and between
Centigram Communications Corporation, a Delaware corporation having its
principal office at 91 East Tasman Drive, San Jose, CA 95134 (hereinafter
"Distributor") and Voice Systems Technology, Inc. d/b/a Boston Communications
Group, a Delaware corporation having its principal office at 621 East Fourth
Street, Tulsa, OK 74120-3017 (hereinafter "BCGI").
WHEREAS, BCGI designs, manufactures, and supplies telecommunications
systems and services; and
WHEREAS, Distributor desires to purchase such systems and services from
BCGI for sale on a non-exclusive basis.
NOW, THEREFORE, in consideration of the foregoing, and other good and
valuable consideration, the receipt and sufficiency of which both parties
acknowledge, the parties agree as follows:
1. TERRITORY
During the term of this Agreement, Distributor shall have the nonexclusive
right to sell BCGI Products and Services (as the terms are defined below) to
customer segments and in market area(s) as described in Exhibit A which is
attached hereto and made a part hereof (the "Territory").
2. PRODUCTS
During the term of this Agreement BCGI shall provide the products and
services (the "Products and Services") set forth in Exhibit B which is attached
hereto and made a part hereof to Distributor for sale and distribution in the
Territory. Each sale of Products and Services shall be subject to the terms
and conditions of this Agreement.
3. PRICES
During the term of this Agreement BCGI shall provide and bill the Products
and Services to the Distributor at the prices and applicable discounts
("Prices") as set forth in Exhibit C which is attached hereto and made a part
hereof.
All prices paid by Distributor under this Agreement do not include any
federal, state or local sales or excise taxes, foreign taxes, import duties,
customs fees, value added taxes, etc. (with the exception of taxes imposed upon
or measured by BCGI's income) which shall be the responsibility of Distributor
or Distributor's agents.
4. TERMS OF SHIPMENT
During the term of this Agreement BCGI shall provide the Products and
Services to Distributor in accordance with the shipping terms and conditions
("Terms of Shipment") as set forth in Exhibit D which is attached hereto and
made a part hereof.
[Information marked with a "*" has been omitted pursuant to a request for
confidential treatment. This information has been filed separately with the
Secretary of the Securities Exchange Commission.]
<PAGE>
5. PAYMENT
During the term of this Agreement, Distributor shall comply with the
payment terms as outlined in Exhibit E which is attached hereto and made a
part hereof.
6. TERM
This Agreement shall be effective on the date hereof (the "Commencement
Date") and shall continue for an initial term ("Term") of three (3) years.
This Agreement shall be automatically renewed in one-(1) year increments,
thereafter. However, either party hereto may terminate this Agreement as of
the end of the Term, or as of the end of any one (1)-year renewal term, with
six (6) months' notice in writing to the other party to such effect.
7. WARRANTY
The Products are subject to the terms of the BCGI Standard Warranty, a
copy of which is attached to this Agreement as Exhibit F which is attached
hereto and made a part hereof.
8. MAINTENANCE AND SUPPORT SERVICES
Pursuant to its standard maintenance agreement, BCGI will offer Distributor
maintenance and support services ("Maintenance and Support Services") for the
Products at BCGI's then current Preferred Prices, as the term is defined in
Section 39. below, and are described in Exhibit G which is attached hereto and
made a part hereof.
9. DISTRIBUTOR RESPONSIBILITIES
During the term of this Agreement, Distributor shall have the specific
additional responsibilities ("Distributor Responsibilities") as described in
Exhibit H which is attached hereto and made a part hereof.
10. BCGI RESPONSIBILITIES
During the term of this Agreement, BCGI shall have the specific additional
responsibilities ("BCGI Responsibilities") as described in Exhibit I which is
attached hereto and made a part hereof.
11. TERMINATION
A. Termination for Breach. If either party hereto materially defaults
in the performance of, or fails to perform, any of its material obligations
under this Agreement and fails to cure such default within thirty (30) days
after receiving written notice of the default, the non-defaulting party shall
have the right to terminate this Agreement at any time.
B. Termination for Insolvency. Either party hereto may terminate this
Agreement, effective immediately upon written notice, if the other party becomes
the subject of a voluntary or involuntary petition in bankruptcy or any
proceeding relating to insolvency, receivership, liquidation or composition for
the benefit of creditors, if that petition or proceeding is not dismissed with
prejudice within sixty (60) days after filing.
<PAGE>
C. Termination for Breach of Confidentiality Obligations. Either party
hereto may terminate this Agreement, effective immediately upon written notice,
if the other breaches its obligations as set out in Section 13. below.
D. Survival of Provisions. Sections 7., 8. (provided Distributor is not
in default of payments due to BCGI and shall continue to pay any amounts due for
the provision of Maintenance and Support Services under such Section 8.), 13.,
14., and 30. shall survive the cancellation or termination of this Agreement
for any reason.
12. INDEMNIFICATION AND LIMITATION OF LIABILITY
A. Indemnification. Each party to this Agreement hereby agrees to
indemnify, defend and otherwise hold the other harmless from and against all
suits, claims and any other losses (any of the foregoing, a "Loss"), including
but not limited to attorneys' fees, that arise from or are in any way related
to the Services or this Agreement, but only to the extent that such Loss
results directly from the gross negligence, willful misconduct or fraudulent
act of or by the party obligated to indemnify, and does not result proximately
from the gross negligence, willful misconduct or fraudulent act of or by the
party seeking indemnification. In the event a party receives notice of any
action or event which would give rise to the indemnification obligations
contained herein, such party shall within twenty (20) days of receipt of such
notice, notify the other of the occurrence of such action or event, as the case
may be; provided, however, that the indemnitor's failure to receive such notice
shall not relieve it of its obligation to provide such indemnity except to the
extent such failure prejudices the indemnitor's ability to avoid liability under
this Section 12. Upon receipt of such notice, the indemnifying party shall
immediately take all actions necessary to protect the indemnitee's interests
and to defend, settle or otherwise resolve such Loss.
B. Limitation of Liability. EXCEPT AS SET FORTH IN SECTION 12.A. ABOVE,
EACH PARTY'S MAXIMUM AGGREGATE LIABILITY ARISING OUT OF THIS AGREEMENT AND/OR
SALE OF THE PRODUCTS AND SERVICES, AND ANY CLAIMS RELATED THERETO, SHALL BE
LIMITED TO DIRECT DAMAGES SUFFERED BY THE OTHER PARTY AND SHALL BE LIMITED TO
A REFUND OF THE PURCHASE PRICE OF THE PRODUCTS AND SERVICES (PRORATED OVER A
THIRTY-SIX [36] MONTH TERM) WHICH SHALL THEN HAVE BEEN PAID BY DISTRIBUTOR
UNDER THIS AGREEMENT. IN NO EVENT SHALL EITHER PARTY HERETO HAVE ANY LIABILITY
TO THE OTHER FOR ANY LOST PROFITS, LOSS OF DATA OR COSTS OF PROCUREMENT OF
SUBSTITUTE GOODS OR SERVICES INCURRED BY THE OTHER, OR FOR ANY SPECIAL,
INDIRECT, OR CONSEQUENTIAL DAMAGES INCURRED BY THE OTHER ARISING OUT OF THIS
AGREEMENT, HOWEVER CAUSED AND UNDER ANY THEORY OF LIABILITY, WHETHER OR NOT
THE OTHER PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH LOSS, INCLUDING,
WITHOUT LIMITATION, THOSE RESULTING FROM THE USE OF PRODUCTS AND SERVICES
PURCHASED HEREUNDER, OR THE FAILURE OF THE PRODUCTS OR SERVICES TO PERFORM, OR
FOR ANY OTHER REASON. THESE LIMITATIONS SHALL APPLY NOTWITHSTANDING THE FAILURE
OF THE ESSENTIAL PURPOSE OF ANY LIMITED REMEDY. NOTWITHSTANDING THE FOREGOING,
<PAGE>
THE TERMS OF THIS SECTION 12. SHALL NOT APPLY TO ANY LIABILITY OF ONE PARTY TO
THE OTHER WHICH MAY ARISE UNDER SECTION 13. BELOW, OR TO ANY LIABILITY WHICH
BCGI MAY HAVE TO DISTRIBUTOR UNDER SECTION 30. BELOW.
13. NONDISCLOSURE
A. Nondisclosure. Neither party hereto shall, directly or indirectly,
divulge or communicate, to any other person or entity, any confidential
information concerning any matters affecting or relating to the business of
the other party. This nondisclosure obligation applies, but is not limited to,
software, documentation, data, pricing, methods of operation, or other
proprietary information which is identified at the time of disclosure as being
confidential information. The parties hereto stipulate that as between them,
this information is important, material and confidential and gravely affects
the success of the business of the parties. This obligation shall not apply to
information which: (i) is or becomes a part of the public domain through the
act or omission of the disclosing party; (ii) was in the receiving party's
lawful possession prior to such disclosure; or (iii) is required to be disclosed
pursuant to subpoena or other legal process; provided, however, that the
receiving party first provides written notice to the disclosing party of the
request. Any breach of the terms of this Section 13.A. shall be a material
breach of this Agreement. This Section 13.A. shall survive the termination
of the business relationship between the parties for any reason.
B. Promotion. Notwithstanding Section 13.A, the parties hereto may
disclose the existence and general nature of this contractual relationship for
marketing purposes only.
14. SOFTWARE LICENSE
A. License. BCGI hereby grants to Distributor, and Distributor accepts,
a nonexclusive, nontransferable right and license to:
(i) use the software included in the Product ("Software")
and the associated documentation to facilitate Distributor's
selling and servicing the Products to its customers in the
Territory in accordance with this Agreement; and
(ii) revise the documentation associated with the Product so
as to refer to Distributor as the distributor of the Product
("Revised Documentation"). To facilitate these revisions,
BCGI agrees to provide Distributor with any/all "soft"
copies of such documentation, and to provide all reasonable
assistance in effecting any such revisions. All rights,
title and interest in and to such Revised Documentation
shall immediately vest in BCGI; and
(iii) sublicense the Software and the associated
documentation to its customers in the Territory in
accordance with this Agreement.
Distributor acknowledges that it and its customers will receive only the
object code of the Software and will not receive nor be entitled to materials
exclusively associated with the design and creation of the Software.
<PAGE>
The Software is proprietary to BCGI and/or its supplier(s), and shall at
all times remain the sole and absolute property of BCGI and/or its supplier(s).
Distributor shall not have any interest in the Software except for the license
to use the Software and the associated documentation to facilitate the selling
and servicing of the Products and to sublicense the Software and the associated
documentation.
B. Permission to Copy. Distributor shall not (and shall not allow its
customers to) copy, in whole or in part, any Software or the associated
documentation, whether in the form of computer tape, disk, print, or any other
form; provided, however, that Distributor may (and Distributor may allow each
of its customers to) make one (1) copy of the Software only for archival backup
purposes in conjunction with Distributor's selling and servicing of the Products
and customers' use of the Products. Distributor agrees that it will (and it
will require its customers to) affix to the back-up copy of the Software, the
copyright notice and other proprietary notices mutually agreed by BCGI and
Distributor.
C. Sublicensing. Any distribution of the Products by Distributor
to its customers shall be effected only by a written agreement between
Distributor and its customers to contain, at a minimum, software licensing
terms and conditions and obligations of confidentiality which are at least as
limiting and protective as such terms are set out in this Agreement. Upon
BCGI's request, Distributorshall make copies of the portions of such
agreements which regard software licensing and confidentiality available to
BCGI for BCGI's review.
15. TITLE TO THE PRODUCT
A. Software. Any and all software provided to Distributor by BCGI
pursuant to this Agreement shall remain the property of BCGI, which retains
all rights, title and interest in said software, including all derivative
works prepared from the software, and any enhancements or modifications
thereto, whether made by BCGI or Distributor.
B. Hardware. Title to the hardware included in the Product shall pass
to Distributor and delivery is deemed to occur upon BCGI's delivery of the
Product to the commercial carrier F.O.B. point of shipment. In all cases,
risk of loss or damage in transit shall fall upon Distributor, whose
responsibility it shall be to file claims with the carrier. Unless BCGI
receives specific shipping instructions from Distributor, BCGI will exercise
its own discretion in the selection of the method of shipment. BCGI shall
have and retain a purchase money security interest in and to each Product
sold to Distributor until such time as BCGI has received payment in full
for each such Product. Distributor shall, and shall cause its customers
to, execute any/all documents as may be necessary for BCGI to perfect or
enforce such security interest(s).
16. ASSIGNMENT
This Agreement may not be assigned by either party hereto, in whole or in
part, unless the express written consent of the other party has been obtained
prior to any assignment; such consent shall not be unreasonably delayed or
withheld.
<PAGE>
Notwithstanding the foregoing, should either party hereto be acquired by
or merged into another entity, this Agreement will survive and shall
automatically be assigned to the acquiring/resulting entity. However, either
party hereto may terminate this Agreement in the event of such an acquisition
or merger by giving the other party hereto no less than a ninety (90)-day
written notice to such effect.
<PAGE>
17. NOTICES
All notices pursuant to this Agreement shall be in writing and shall be
delivered by hand or sent by registered or certified mail, return receipt
requested, to the addresses as set forth below. If mailed, notices will be
deemed effective three (3) days after mailing, postage prepaid, in the United
States.
As to Distributor: As to BCGI:
Centigram Communications CorporationBoston Communications Group
Attn: Senior Director Legal Affairs Attn: Gary Eubanks
91 East Tasman Drive 621 East Fourth Street
San Jose, CA 95134 Tulsa, OK 74120-3017
Tel #: (408) 428-3890 Tel #: (918) 582-8781
Fax #: (408) 432-2645 Fax #: (918) 582-8782
With a copy to:
Boston Communications Group
Attn: General Counsel
100 Sylvan Road, Suite 100
Woburn, MA 01801
Tel #: (617) 692-7000
Fax #: (617) 692-6230
18. CUMULATIVE RIGHTS
The rights and remedies reserved to the parties herein are cumulative and
in addition to any further rights and remedies available at law or in equity.
19. APPLICABLE LAW
This Agreement shall be deemed to have been entered into in the State of
Oklahoma and shall be governed by, construed and interpreted in accordance with
the laws of the State of Oklahoma.
20. INTERPRETATION
This Agreement, together with any Exhibits or Attachments hereto, and any
subsequent amendments hereto, and nondisclosure agreements entered into between
the parties, contains the entire agreement between the parties hereto with
respect to the subject matter hereof, and supersedes all existing agreements,
prior negotiations and representations by or between them, whether oral or
written,and all prior or contemporaneous agreements, whether oral or written
regarding the subject matter of this Agreement. This Agreement may be amended
from time to time only by written agreement signed by a duly authorized
representative of both parties hereto. The headings used in this Agreement are
for the convenience of the parties hereto and are not deemed to be part of this
Agreement.
<PAGE>
21. SEVERABILITY
If any portion of this Agreement is found to be invalid, illegal or
unenforceable, the parties agree that the remaining portions shall remain in
effect. The parties further agree that in the event such invalid or
unenforceable portion is an essential part of this Agreement, they shall
promptly commence negotiations, in good faith, for its replacement with a
substitute provision which most clearly reflects the original intent for
entering into this Agreement.
22. WAIVER
No delay or omission to exercise any right or remedy accruing to BCGI or
Distributor hereunder upon any breach or breaches or event of default or
defaults by BCGI or Distributor shall impair any right or remedy of any
subsequent breach or default of the same, or any different, breach or default.
23. SCOPE
Nothing contained herein shall be construed to constitute the parties
hereto as partners, joint venturers or as agents of each other, but the
relationship shall be one of independent contractors with BCGI providing the
Services described hereunder to Distributor for the consideration set forth
in this Agreement and any Exhibits/Attachments hereto.
24. BENEFIT
This Agreement and the rights granted are solely for the benefit of the
parties hereto, their successors and assigns. No third person shall acquire
any rights or claims by reason of or under this Agreement, except as both
parties hereto shall agree in writing, or in cases as set out in Section 15.
above.
25. FORCE MAJEURE
No default in performance of any obligation hereunder shall constitute
an event of default or a breach of this Agreement, to the extent that such
failure to perform, delay or other default arises out of a cause that is
beyond the reasonable control and without negligence of the party otherwise
chargeable with such default, including, but not limited to, acts of God,
interruption of power, utility, transportation or communications services,
action of civil or military authority, sabotage, national emergencies or
catastrophe. Either party desiring to rely upon any of the foregoing as an
excuse for default shall give to the other party prompt written notice of the
facts which constitute such excuse, and when such excuse ceases to exist,
prompt notice thereof to the other party. This Section shall in no way limit
the right of either party to make any claim against any third party for any
damages suffered due to said causes.
26. ARBITRATION
Except for any disputes which may arise pertaining to Section 13.A. above,
all disputes between the parties, their successors and assigns, arising under
this Agreement, not involving injunctive relief, which have not been resolved
within thirty (30) days after notice by one party to the other of such dispute
in the manner set forth above, shall conclusively and finally be settled by
<PAGE>
arbitration in accordance with the Commercial Arbitration rules of the American
Arbitration Association then obtaining. Either party may institute arbitration
by giving written notice to the other party of intention to arbitrate, which
noticeshall contain the name of the arbitrator selected by the party, the
nature of the controversy, the amount involved, if any, the remedies sought,
and any other pertinent matter. Within fifteen (15) days after the giving of
such notice, the other party shall submit to the initiating party the name of
an arbitrator whom it has appointed and may submit an answering statement.
Within fifteen (15) days thereafter the two (2) arbitrators so appointed shall
select a third arbitrator. If any party fails to choose an arbitrator within
the fifteen (15)-day period herein provided, or if the arbitrators appointed
by the parties cannot agree on the other arbitrator within fifteen (15) days
of the appointment of the second arbitrator, such arbitrator(s) shall be
appointed by the American Arbitration Association. The arbitration hearings
shall be held, unless otherwise mutually agreed upon by the parties, in Tulsa,
Oklahoma. Any decision or award signed by at least two (2) of the arbitrators
shall be final and binding upon the parties and may be entered in any court
having jurisdiction thereof. The losing party agrees to pay to the prevailing
party reasonable attorney's fees and costs awarded in such arbitration.
27. CUSTOMS, DUTIES, IMPORT OR EXPORT LICENSES
As the Territory is located outside of the United States, all customs,
dutiesand other governmental charges attributable to export or the import of
BCGI Products by Distributor shall be paid by Distributor. If export or import
of BCGI Products requires a license or approval by governmental authorities,
acceptance or shipment of any order shall be subject to the issue of such
license or approval by the appropriate governmental agency having jurisdiction
thereof.
28. COMPLIANCE WITH UNITED STATES EXPORT LAWS
BCGI and Distributor understand and agree as follows:
A. Distribution or re-export by Distributor of the Products to any country
other than the country authorized as part of the Territory is strictly forbidden
and may constitute a violation of United States ("U.S.") law. Exports of the
Products from the Territory may require prior U.S. governmental approval.
B. Distributor hereby agrees that it will abide by U.S. export laws and
regulations that apply to the distribution of the Products, including any and
all U.S. Department of Commerce regulations under 15 C.F.R. 373.3 (governing
Distribution licenses). Distributor shall consult BCGI on all matters that
may involve controlled exports under U.S. laws.
C. Distributor agrees to retain for a period of at least two (2) years and
to make available for inspection by the U.S. Office of Export Administration
or other U.S. government agency all records of any sales or re-export of the
Products by Distributor and all other forms, documents, correspondence,
memoranda, books or other records relating to sales of the Products by
Distributor.
D. Distributor agrees not to sell, re-export, or otherwise transfer any
Product if Distributor has reason to know that the Product will be delivered
or re-exported to unauthorized destinations or end-users.
<PAGE>
E. Distributor certifies that it will not drop-ship any Product unless it
is being sent to an authorized customer in the Territory.
29. COMPLIANCE WITH OTHER LAWS
Each party agrees to comply with all laws and governmental regulations
applicable to the conduct of its business and the performance of its
obligations under this Agreement.
30. INFRINGEMENT INDEMNIFICATION
Distributor shall promptly notify BCGI if any person or entity claims that
any Product infringes any patent, copyright or other right of any third party.
BCGI shall at its expense defend, indemnify and hold harmless Distributor and
its customers against any suit, proceeding or claim brought against Distributor
and/or its customers to the extent it is based on a claim that any Product
furnished hereunder constitutes an infringement of any patent, copyright or
the intellectual property rights of any third party in the Territory, provided
that: (i) BCGI is promptly informed in writing and furnished a copy of each
communication, notice or other action relating to the alleged breach or
infringement; (ii) BCGI shall have control over the defense and negotiations
for a settlement or compromise; (iii) BCGI is given, by Distributor and its
customers, all reasonable authority, information and assistance (at BCGI's
expense) necessary to defend or settle such suit or proceeding; and (iv)
Distributor or its customers incurs no obligation or liability without the
prior writing consent of BCGI. The foregoing obligation of BCGI does not apply
to any Product or portion or component thereof: (a) which is modified by persons
or entities other than BCGI (or persons or entities employed or contracted by
BCGI) if the alleged infringement relates to such modification; or (b) which
is combined with other products, processes or materials not supplied or
recommended by BCGI where the alleged infringement relates to such combination.
If the event that any Product is held to constitute such an infringement, BCGI
shall, at its option, either: (i) procure for Distributor and its customers
the right to continue to use the applicable Product; (ii) replace or modify the
applicable Product so it becomes non-infringing; or (iii) remove the Product
and refund Distributor the undepreciated portion of the Price paid by
Distributor for such Product, assuming a thirty-six (36)-month straight-line
depreciationschedule. This Section states the entire liability of BCGI with
respect to infringement of any copyrights, patents, or other intellectual
property rights by the Products.
31. FINDER'S FEE
In the event that the end user customer or BCGI desires to have a direct
sale, leasing or service bureau relationship with each other, and if
Distributor has provided the customer lead (as mutually agreed upon between
BCGI and Distributor), BCGI will pay Distributor a finder's fee ("Finder's Fee")
equal to ten percent (10%) of the fee BCGI charges such end user customer for
such Product. Such Finder's Fee(s) will be due to Distributor upon BCGI's
shipping the Product to such end user customer and payable to Distributor
within forty-five (45) days from the date of such shipment. BCGI agrees to
notify Distributor, in writing, each time BCGI so enters into an agreement with
any such end user customer, and to keep Distributor advised as to the planned
and actual shipment date for such Product(s). This Finder's Fee arrangement
will apply to the Territory, and only for the Products (excluding custom
development or Services).
<PAGE>
32. FUTURE RELATIONSHIP(S)
It is the intent of both parties hereto to transition toward a business
relationship as described in Phases 2, 3 and 4 below. The timing of such a
transition would be subject to mutual agreement by the parties hereto and may
require separate, negotiated agreements and or amendments and/or addenda to
this Agreement.
Phase 2: Distributor would resell BCGI's then-existing prepaid
application and database platform, but would use industry-standard Voice Node
and Database hardware components directly purchased by Distributor. In this
scenario, Distributor would pay BCGI a license fee for theBCGI software
applications and documentation and purchase any unique BCGI hardware components.
Distributor would be responsible for integration, final assembly and testing of
the systems. Distributor would also be responsible for BCGI's costs in
shipping all software, documentation and unique components to Distributor's
San Jose facility.
Phase 3: Distributor would resell BCGI's then-existing prepaid application
that would utilize Distributor's Series 6 product platform as the voice node.
BCGI would assist Distributor in interfacing BCGI's database platform to
Distributor's voice node. Distributor would continue to use industry standard
hardware components for the database platform. In this scenario, Distributor
would pay BCGI a license fee for the BCGI software applications and
documentation and purchase any unique BCGI hardware components. Additionally,
this scenario would require Distributor and BCGI to undertake joint research
and development. Further agreement as to ownership and marketing rights
regarding such joint research and development would be addressed by the parties.
Distributor would be responsible for integration, final assembly and testing of
the systems. BCGI would be responsible for shipping all software, documentation
and unique components to Distributor's San Jose facility.
Phase 4: WIN Platform. Both parties hereto agree to work jointly to
determine, under a separate agreement, a WIN-based BCGI-Distributor prepaid
offering.
33. F.C.C. CERTIFICATION
BCGI agrees that, at the time of shipment, all Products sold to Distributor
hereunder shall, when required, be in compliance with Parts 15 and 68 of the
United States FederalCommunications Commission's Rules and Regulations.
Distributor is responsible to obtain all local type approvals when required to
install, maintain and connect to the public telephone network. BCGI agrees to
cooperate with Distributor to secure all such approvals.
34. LIMITATION
No action, regardless of form, arising out of or related to this Agreement,
may be brought by either party more than one (1) year after the cause of action
has accrued.
35. LICENSING OF SOFTWARE
All references herein to the "sale" of software (or to the "sale" of
Products, to the extent Products incorporate software) shall mean solely the
<PAGE>
grant of a license to use the software on the terms set forth herein. All
references to the "purchase" of software (or to the "purchase" of Products, to
the extent Products incorporate software) shall mean solely the obtaining of a
license to use the software on the terms set forth herein.
36. BRANDING
BCGI and Distributor agree to co-brand the Prepaid System under a
trademark to be mutually agreed upon.
37. ORDER OF PRECEDENCE
Should the terms and conditions of any Exhibit to this Agreement conflict
with the terms and conditions of the principal portion of this Agreement, the
terms and conditions of the principal portion of this Agreement shall govern
38. NON-SOLICITATION
Each party hereto acknowledges that the other party has spent considerable
time and effort building expertise in prepaid wireless technology and that the
loss of an employee would harm such party. Therefore, each party hereto agrees
that during the term of this Agreement it will not solicit the employment of
any then-current or previous employee of the other party ("Employer") unless
a period of six (6) months has elapsed from the last date that such employee
was employed by such Employer, without the prior written consent of such
Employer.
39. MOST FAVORED CUSTOMER
In the event that BCGI shall enter into any agreement with any other
person, firm or corporation which provides lower prices for the same products
and services provided by this Agreement for comparable volumes and upon
comparable terms and conditions as those contained herein ("Preferred Prices"),
Distributor shall have full right and power to avail itself of such prices as
if the same were written into this Agreement; and BCGI agrees to notify
Distributor promptly of any such other agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective executive officers being hereunto duly
authorized.
BCGI Distributor:
By:/s/ Bill Hampton By: /s/ Thomas E. Burton
Name:Bill Hampton Name: Thomas E. Burton
Title: VP of Operations Title:
Date: January 17, 2000 Date: January 11, 2000
<PAGE>
DISTRIBUTION AGREEMENT
Exhibit A
Territory
The "Territory" is:
North America - United States and Canada (for any wireline or
wireless customer mutually agreed upon on a case by case basis);
and
The remainder of the world outside of North America
<PAGE>
DISTRIBUTION AGREEMENT
Exhibit B
Products and Services
The Products and Services covered by this Agreement include
the following:
BCGI's existing Prepaid Systems (including software applications,
voice node and other hardware components, and database platform, but
excluding Prepaid Connection.)
Custom development of BCGI Prepaid System features and functionality,
as set out in Exhibit C, Section II.
Tier 2 Maintenance and Support services (as described in Exhibit G
below) during the Warranty and Post-Warranty period.
<PAGE>
DISTRIBUTION AGREEMENT
Exhibit C
Pricing
I. Products
The prices which Distributor shall pay BCGI for the Products are set
forth in the price list which begins on the following page and is
incorporated into this Exhibit C.
Prices are subject to change during the Term by mutual, negotiated
agreement of the parties. However, prices will not change within ninety
(90) days from any previous change, any price increases will not become
effective until ninety (90) days from the date BCGI notifies Distributor
in writing, and any price decreases will become effective on the day
BCGI notifies Distributor in writing.
II. Custom Development Services
Prices shall be based on scope of work provided by the Distributor
and/or its end user customer or sub-distributor.
Prices shall be based on the development time required and prevailing
BCGI hourly rates and other charges. Such rates and charges shall be
provided to Distributor at the then current Preferred Prices. See the
attached current price list for the initial rates.
III. Tier 2 Maintenance and Support Services
During the warranty period, such Tier 2 maintenance and support
Services will be provided to Distributor by BCGI at no charge.
Subsequent to the warranty period, any and all such Services requested
by Distributor will be provided by BCGI at prices equal to BCGI's then
current Preferred Prices. See the attached current price list for the
initial rates.
<PAGE>
PRICE LIST
*
BCGI Part Description BCGI List Centigram
Number Cost
Hardware
TSC-99 Tri-Server * *
BMS-R1 Base Mini-Server * *
DMS-R2 Dual Mini-Server * *
RES-200-5-256 Responder (200/5.0gig IDE 256 ram) * *
TIN-200-5-128 TIN's IDE (200/5.0 gig IDE 128 ram) * *
ST-RAS-5-128 Spare TIN's IDE (200/5.0 gig IDE 128 ram) * *
& RAS Server
9GB-TNRD-SCSI TIN SCSI Non-Redundant Data * *
(200/9.0x1 128 ram)
9GB-STNRD-200 Spare TIN SCSI Non-Redundant Data * *
(200/9.0x1 128 ram)
4.5-SCSI-TRD TIN SCSI Redundant Data * *
(200/4.5x2 128 ram)
4.5-200-STRD Spare TIN SCSI Redundant Data * *
(200/4.5x2 128 ram)
TRD-SCSI-9GB TIN SCSI Redundant Data * *
(200/9.0x2 128 ram)
STRD-200-9GB Spare TIN SCSI Redundant Data * *
(200/9.0x2 128 ram)
99-0831-015 D480 2xT1 * *
99-0831-015 D480 2xT1 N+1 (Spares) * *
ADC-DAM Admin Cabinet * *
EXC-DAM Expansion Cabinet * *
99-2123-101 D300 2xE1 * *
99-2123-101 D300 2xE1 N+1 (Spares) * *
460RC Balun Panel * *
460F Baluns with cables * *
HC-ANI99 Hydra Cable * *
VL400 14" SVGA Monitor * *
CHAT-40108-519 Monitor Shelf * *
SHL-KBD RackMount Keyboard/mouse * *
AS/O-99 Arc Servit w Oracle option * *
242456-001 Dlt Backup 15/30 with 2 tapes * *
BCA0026 Filler Panels * *
1654-48-120-60-P Wilmore Power Supply * *
02164-01 Heatshield * *
ALSX-6 Seismic install kit * *
CHAT-46353515 Chatsworth Rack * *
3C16670A Hub 10 base * *
3C16981 12 port Switch * *
3C16980 24 Port switch * *
729797 Jazz Drive 2 gig w (1) 2 gig cartridge * *
010-0B13-ND-5CON Oracle 8 (5) concurrent * *
O8E-WG-8CON Oracle 8 (8) concurrent * *
SVX-16U/LDG 16 position continuity switch * *
KVM-4UPA 4 position continuity switch * *
PP-RK-9909 Rackmount Kit * *
99-3473-001 SS7 Card * *
99-3477-001 SIU 131 * *
99-3482-001 SIU 231 * *
[Information marked with a "*" has been omitted pursuant to a request for
confidential treatment. This information has been filed with the secretary
of the Securities Exchange Commissionb.]
<PAGE>
SHL-S20 Rack Adapter * *
PACK-DAMAC Packaging & Freight * *
Software
PPD301000 PrePaid Software, per port, 1-1199 ports * *
PPD301000 PrePaid Software, per port, 1200-2159 ports * *
PPD301000 PrePaid Software, per port, 2160 +++ ports * *
CCD301000 Calling Card Software, per port add-on *
TLS301000 TLS Software, per port add-on *
Services
TBD Custom Languages - BCGI records prompts *
TBD Custom Languages - customer records prompts *
TBD Training (per person per day, not including T&E)* *
TBD Installation (quoted case-by-case)
TBD Annual Support Fee (price per port) *
TBD Post Warranty Maintenance (annual %) *
2nd/or 3rd year only
[Information marked with a "*" has been omitted pursuant to a request for
confidential treatment. This information has been filed separately with the
secretary of the Securities Exchange Commission.]
<PAGE>
DISTRIBUTION AGREEMENT
Exhibit D
Terms of Shipment
I. All shipments made by BCGI under this Agreement are FOB Tulsa, Oklahoma.
II. The provision of all shipping instructions for BCGI to adhere to shall be
the responsibility of Distributor. The Products will be shipped directly from
BCGI to the end user customer of Distributor or Distributor's sub-distributor
unless specified otherwise in the System Sale Agreement.
III. All transportation, rigging and draying charges are the responsibility of
Distributor.
IV. The time schedule between BCGI's receipt of an order from Distributor and
BCGI's shipment of the Product will be specified in the System Sale Agreement.
Any Distributor-initiated delays in shipping beyond this schedule may subject
Distributor to carrying charges as reasonably determined by BGCI. BCGI shall
notify Distributor within three (3) business days if any order cannot be filled
according to the delivery schedule requested, and will use its best efforts to
ship Products on the delivery dates specified in its written acceptance of any
purchase order.
<PAGE>
DISTRIBUTION AGREEMENT
Exhibit E
Payment Terms
I. Timing. Invoices shall be due and payable forty-five (45) days after
shipment of product or delivery of service.
II. Payment shall be made to BCGI in U.S. funds by check or wire transfer, at
Distributor's option.
III. Late Payments. Payments of any invoiced amount received after the invoice
due and payable date shall be considered late payments, and shall bear interest
at the rate of one and one half percent (1.5%) per month or the maximum allowed
by applicable law, whichever is less.
IV. If Distributor becomes the subject of a voluntary or involuntary petition
in bankruptcy or any proceeding relating to insolvency, receivership,
liquidation or composition for the benefit of creditors and therefore BCGI
determines that the financial condition of Distributor does not justify the
terms of payment extended herein, BCGI may require, in advance, full payment
or require other payment arrangements.
V. Payments contracted for post-warranty maintenance and support are payable
quarterly in advance.
<PAGE>
DISTRIBUTION AGREEMENT
Exhibit F
Standard Warranty
I. Equipment. BCGI warrants that Distributor shall acquire good
title to the equipment included in the Products purchased by Distributor, and
that upon payment in full of the purchase price, such equipment shall be free
and clear of any security interest, lien, claim, or encumbrance of any kind
imposed by or through BCGI. BCGI warrants that the equipment shall be free
from defects in material and workmanship under normal use and service for a
period of fifteen (15) months from the date of shipment. The equipment must
be plugged into a functioning Uninterruptable Power Supply (UPS), which
provides battery back-up and surge/spike protection, or the warranty is void.
The obligation of BCGI under this warranty does not arise until the equipment
is returned to BCGI in Tulsa, Oklahoma, or to Distributor. Upon receipt ,
BCGI shall, at its option, as soon as practicable or, in any event, within
thirty (30) days of receipt, either repair or replace, without charge, the
defective component part(s) and return the equipment, shipping prepaid and
billed. If repair or replacement is not possible, BCGI shall retain such
defective component and refund the purchase price and freight of such
defective component.
II. Software. BCG warrants that the software included in the Products
shall conform to the then-current published documentation applicable to such
software for a period of fifteen (15) months from the shipment date. In the
event that BCGI receives notice from Distributor during the warranty period
that the software does not conform to this warranty, BCGI will, as soon as
practicable or, in any event, within thirty (30) days of notice, at its
option, resolve or provide a solution for such software faults at no charge to
Distributor, providing Distributor (or Distributor's customer) can replicate
the symptoms of the fault. If resolution or provision of a solution is not
available, BCGI shall refund the purchase price of the software and hardware
upon which it operates, in exchange for return of such software and hardware.
III. DISCLAIMER. EXCEPT AS EXPRESSLY PROVIDED IN THIS EXHIBIT F.,
BCGI MAKES NO WARRANTIES WITH RESPECT TO THE PRODUCTS, DOCUMENTATION AND/OR
ANY HARDWARE AND/OR SOFTWARE INCLUDED IN ANY PRODUCT, EITHER EXPRESS OR
IMPLIED, INCLUDING WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
THE WARRANTY OBLIGATIONS OF BCGI SHALL IN NO EVENT INCLUDE RESPONSIBILITY
FOR DAMAGE RESULTING FROM ACCIDENT, TRANSPORTATION, NEGLECT OR MISUSE,
MODIFICATION WITHOUT BCGI'S PRIOR CONSENT, UNAUTHORIZED ATTEMPTS TO REPAIR, OR
FAILURE OF ELECTRICAL POWER OR ENVIRONMENTAL CONTROL.
<PAGE>
DISTRIBUTION AGREEMENT
Exhibit G
Maintenance and Support Services
BCGI will provide Tier 2 maintenance Service during the warranty period of
each Product. This Service is continued under a post-warranty Maintenance
Agreement which is renewable on an annual basis. The Tier 2 maintenance
includes:
I. Software maintenance
II. 24X7 telephone technical support
III. Return to factory repair or replacement
IV. On-site Service, when remote support fails to resolve a problem
I. Software Maintenance
A. Maintenance Releases
BCGI engineering is committed to continuing to improve the quality and
performance of all the Products. These improvements are reflected in periodic
Maintenance Releases, which shall include regular updates (minor releases) and
upgrades (major releases) issued by BCGI that are typically installed by
Distributor with BCGI support services. Maintenance Releases are primarily
focused on improving existing functionality and performance as well as fixing
software problems.
B. Hot Fixes
Some service calls may uncover software problems that may not have a
temporary work-around solution. These problems require a "hot fix". These
fixes are developed as needed and installed immediately. These fixes are
typically installed by Distributor, with BCGI support services as needed.
C. New Versions
BCGI will continue to expand its product line, developing new products,
or significantly changing or enhancing existing products. In contrast to
Maintenance Releases, these products will be made available at additional
cost, upon request through the BCGI sales department.
II. 24X7 Telephone Technical Support
The primary support vehicle of BCGI is the Telephone Technical Support Hot
Line. It will be provided during the term of this Agreement to Distributor on
<PAGE>
a twenty-four (24) hours by seven (7) days basis and will provide access to
Distributor's skilled technical support personnel.
The Hot Line is used to initiate the following BCGI Service activity:
Installation, technical or operational inquiries
Post Installation Technical or operational inquiries
Product failure diagnosis and repair
Defective parts replacement
To maximize the effectiveness and timeliness of support actions,
Distributor is responsible for notifying BCGI support (Hot Line) as soon as a
serious condition has been identified to be beyond Distributor's capability to
resolve.
III. Return to Factory Repair or Replacement
BCGI repairs or replaces failed components via a Return Material
Authorization ("RMA") process. An RMA is issued by BCGI Telephone Technical
Support upon completed diagnosis or provision of failure data.
BCGI shall, when requested by Distributor, provide Distributor with
advance replacement hardware part(s) required for Distributor's correction
of defective Product(s) which has been assigned an RMA. In the event
Distributor does not return to BCGI the part(s) advance shipped under the
RMA within sixty (60) calendar days, BCGI may at its option issue an invoice
to Distributor for the then-current preferred pricing for the part(s) advance
shipped under the RMA. All defective hardware parts, which have been replaced,
shall become the property of BCGI, and Distributor shall return such hardware
parts, prepaid by Distributor, to BCGI's designated place of repair. All
defective hardware parts that have been repaired shall become the property of
Distributor.
BCGI will only issue RMA's for hardware components that are covered under
the BCGI initial warranty term or BCGI extended hardware warranty term. If the
hardware components are not under the initial warranty term or the extended
warranty term, then BCGI will charge Distributor the then current preferred
replacement and repair rates. If BCGI issues an RMA to Distributor prior to
3 p.m., BCGI will ship the subject components to Distributor/Distributor's
end-user on that same day.
Unauthorized modifications using non-BCGI-provided products or components
to either Product components, network configurations or software will void
BCGI warranty and post-warranty Maintenance Agreement terms.
Unauthorized installation of any non-BCGI software onto BCGI Product
components will void BCGI warranty and post-warranty Maintenance Agreement
terms.
If any or all of the hardware or software was not subject to continuous
maintenance coverage for any period of time after the initial maintenance term,
<PAGE>
the hardware and software is subject to a complete on-site Product inspection
by BCGI personnel and the Product must be upgraded to currently BCGI-supported
revision levels and minimum hardware performance specifications. The
inspection and upgrade costs will be billed in addition to the maintenance
contract fee, including necessary travel related expenses.
IV. On-Site Assistance
On-site assistance, when all reasonable activity has not produced a
resolution path and the Product is covered by either warranty, post-warranty
maintenance, or extended warranty, will be provided by BCGI at no additional
cost. BCGI and Distributor must mutually agree that on-site support is
necessary. BCGI personnel will arrive at the customer site as soon as possible
after agreement that on-site support is needed.
If it is determined that BCGI's hardware or software did not cause the
problem, then Distributor shall reimburse BCGI for the on-site assistance at
Preferred Prices.
<PAGE>
DISTRIBUTION AGREEMENT
Exhibit H
Distributor Responsibilities
Distributor will undertake the following:
I. Sales and Service Coverage. To provide BCGI-trained sales, technical and
service coverage to Distributor's customers for the Products.
II. Warranty Registration and Service Log. To properly register the warranty
for each and every Product sold, including customer name and location, and to
maintain a log of all service activity, reporting such data periodically to
BCGI, such that BCGI can properly track, investigate, and resolve Product
service problems. Distributor agrees to accomplish via its "Clarify" system.
BCGI agrees to provide Distributor with all information required by
Distributor in order for Distributor to accomplish this task.
III. Customer Service. To respond to customer service requests with
trained technicians in a timely fashion.
IV. Lead Follow Up. To follow up on each and every qualified sales lead from
BCGI and report on the results of such field sales efforts.
V. Customer Complaints. To respond promptly to any customer complaints which
may be referred to Distributor from BCGI.
VI. Change Orders and Cancellations.
A. Distributor may make a change in an order provided such change
does not affect the price of the order by more than ten percent (10%) and
further provided that such change is received by BCGI no less than ten (10)
days prior to its scheduled shipment date.
B. Distributor may cancel an order, or any portion thereof, without
charge, provided such notice of cancellation is received by BCGI no less than
thirty (30) days prior to its scheduled shipment date.
VII. System Environment
The Products contain delicate electronic components that require special
care in:
A. Physical handling
Product components must be handled with care. If transportation of
components is required, the components must be packed either in their
original packaging or such that they are able to withstand a drop of
three (3) feet (one [1] meter).
<PAGE>
B. Air conditioning
Product components are rated to operate within fifty-four (54) to
eighty-six (86) degrees Fahrenheit (twelve [12] to thirty [30] degrees
Celsius) and a relative humidity level less than seventy percent (70%)
non-condensing.
C. Power conditioning
The Product must be connected to Uninterruptable Power Supply with
appropriate surge/spike protection.
Non-conformance with this requirement will void BCGI's warranty and
Extended warranty agreement terms.
VIII. Integration
Some BCGI systems may require an interface to another system. It is
the Distributor's responsibility to provide the correct interface not supported
in BCGI's standard product offering as outlined in Exhibit B to this Agreement.
IX. Site Data Capture
Upon completing any given installation, it is Distributor's responsibility
to complete the attached BCGI data capture form and send it to BCGI.
X. System Configuration
During the Product warranty period and subsequent maintenance contract, no
modifications to any Product components or network configurations may be made
without prior approval and assistance of BCGI technical support. Nonconformance
will void BCGI's warranty and post warranty Maintenance Agreement terms.
XI. First Level Technical Support
During the initial warranty period and all post warranty maintenance
periods, Distributor shall provide end user training and day-to-day technical
support. In no event will BCGI be obligated to provide hot-line or other
technical support service directly to end-users, except as mutually agreed to
by BCGI and Distributor.
XII. Technical Skills and Training
The Product requires specialized training to operate effectively and
efficiently. It is important that the Product's operational staff be properly
trained and skilled in operating and managing Windows NT networking systems.
BCGI recommends Distributor's technical support personnel and end-user's
operational staff attend locally available training classes for Windows NT
network operation and management.
<PAGE>
XIII. System Backup
To protect against possible loss of data, Distributor should inform
end-users of the importance of backing up the Product on a regular basis in
accordance with the Product's users guide.
XIV. Dial-in Access
The support Services offered by BCGI are based on the premise of being
able to remotely access, diagnose, analyze, and tune each Product. To that
end, Distributor should ensure the end-user provides a dedicated, direct-dial,
data-grade telephone line for each physical site/location and provide
permission to access that line to BCGI technical support as needed.
XV. BCGI Privileges
Diagnosis, fixes, performance analysis and tuning activities that can be
performed via remote dial-in access require unrestricted Product access
privileges granted to BCGI telephone technical support personnel. Access is
protected via "Username/Password" combinations.
Remote dial-in access requires knowledge of "Remote Access Telephone
Number", "Domain Name", "Username" and "Password". The Windows NT "Remote
Access Services" (RAS) will reject any unauthorized access.
Only BCGI and Distributor will be authorized to utilize remote dial-in
access. BCGI and Distributor personnel are obligated not to reveal phone
numbers or access passwords to unauthorized parties.
XVI. Physical Access
During Product installation, major repairs or major Product upgrades, it
may be necessary for Distributor to have physical access to the Product.
To maximize the responsiveness and expediency of Distributor or BCGI
Service activities, it may be necessary for the end-user to grant twenty-four
(24)-hour access to Distributor or BCGI technical support personnel.
XVII. Country-Level/On-Site Spares Kits
Distributor will exercise diligence in selling a minimum of N+1 redundant
spares at each customer site. Additionally, Distributor will exercise diligence
in maintaining in-country spares sufficient to avoid excessive down time due
to material shortages caused by delays in importing spare parts.
<PAGE>
DISTRIBUTION AGREEMENT
Exhibit I
BCGI Responsibilities
BCGI shall have the following additional responsibilities during the term
of the Agreement:
I. Sales Materials.
To make available, at reasonable cost, "soft" copies of sales support
materials such as product brochures, data sheets, user guides, applications
briefs, sales notebooks, formal sales presentations in overhead, slide, or
flip chart form, and other such material necessary to aid in the selling
process, as such materials are updated from time to time.
II. Marketing Support.
To provide Distributor with timely reports detailing marketing or
technical information on the Products, competitive comparisons, special sales
or service suggestions, competitive announcements, and to respond promptly to
all inquiries and requests for help from Distributor.
III. Advertising Permission.
To permit Distributor to advertise the Products under tradename(s) and
trademark(s) to be mutually agreed by BCGI and Distributor.
IV. Sales and Technical Training.
To provide field sales and sales technical support training for
Distributor's sales force at BCGI's corporate offices, or Distributor's
location as agreed upon, and to assist in direct customer contacts as required.
V. Sales Leads.
To periodically provide Distributor, at BCGI's discretion, with qualified
sales leads applicable to Distributor sales from BCGI's advertising publicity
campaigns; provided however, that Distributor pursues and further qualifies
such leads with its sales force.
<PAGE>
VI.
Installation and Cutover Assistance.
BCGI shall, upon request from Distributor, make available at the
installation site and at such other times as may be requested by Distributor,
a qualified field engineer to render installation, cutover and customer
assistance as may be required by Distributor. Distributor shall pay BCGI its
then-current preferred time and materials rates for such assistance.
VII. Support Assistance.
BCGI shall provide Distributor with support Services as set out in
Exhibit G during the warranty period for each Product, at no charge to
Distributor.
VIII. Hardware Life Support.
BCGI shall use commercially reasonable efforts in accordance with
reasonable inventory and sourcing practices to offer functionally equivalent
spare hardware parts as available from industry sources for a period of five
(5) years from the date of last manufacture of the respective Product.
IX. Documentation.
One (1) set of English language manuals, in modifiable electronic format,
for the Products will be provided by BCGI to Distributor at every release of
the Products (includes one [1] set of any and all updates to such manuals).
Additional copies of such manuals are available from BCGI at the then current
Preferred Prices. The translation of the manual into a language other than
English is at the discretion of Distributor, who assumes all risk of
translation error.
X. Installation Planning
BCGI provides a site preparation document describing in detail the
necessary steps that have to be completed before an installation can begin.
If Distributor has received written approval from BCGI to perform system
installations of the Product, BCGI service personnel will be available to
consult and assist Distributor in the planning process; however, ultimately
the project plan is the responsibility of Distributor. In general, these
activities do not require on-site presence of BCGI personnel. However, BCGI
personnel may be requested to inspect a site for its then-current fees for
such services.
In the event BCGI personnel are to be involved in the installation, and
upon the return to BCGI of a completed Site Preparation CheckList, BCGI will
work with Distributor to schedule an installation as quickly as possible. In
the event BCGI personnel are to be involved in the installation, Services will
be provided at a rate as set forth in the then-current preferred BCGI
Installation Price List.
<PAGE>
XI. Installation, Setup and Test
In the event BCGI personnel are to be involved in the installation, BCGI
will, at Distributor's request, help setup, install and configure all Product
components and ensure that all functions work as represented. It is the
end-user's responsibility to provide the necessary space and to install power
and other environment requirements.
In the event that BCGI support personnel need to work with the end-user
to resolve a problem, they will ask Distributor to initiate the call and
remain involved in the resolution process. BCGI support personnel may not
contact Distributor customers on their own.
If BCGI receives a call from a known Distributor customer, that call will
be redirected to Distributor immediately, via a supervised transfer. Any call
to the BCGI Technical Support HotLine will be sent to Distributor's Customer
Support Center - 408-432-2600.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
[DESCRIPTION] Article 5 Fin. Data Schedule for 10-Q
<ARTICLE> 5
<MULTIPLIER> 1,000
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-2000
<PERIOD-START> Jan-01-2000
<PERIOD-END> Mar-31-2000
<CASH> 25,360
<SECURITIES> 6,998
<RECEIVABLES> 19,551
<ALLOWANCES> 2,736
<INVENTORY> 1,930
<CURRENT-ASSETS> 56,099
<PP&E> 43,134
<DEPRECIATION> 0
<TOTAL-ASSETS> 102,499
<CURRENT-LIABILITIES> 18,141
<BONDS> 0
<COMMON> 168
0
0
<OTHER-SE> 80,770
<TOTAL-LIABILITY-AND-EQUITY> 102,499
<SALES> 25,207
<TOTAL-REVENUES> 25,207
<CGS> 13,837
<TOTAL-COSTS> 23,636
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (314)
<INCOME-PRETAX> 1,885
<INCOME-TAX> 813
<INCOME-CONTINUING> 1,072
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,072
<EPS-BASIC> 0.06
<EPS-DILUTED> 0.06
</TABLE>
