-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, S4RAF7nkzGNJtQ08lKAOdUQ6QVti1/mUyFvLqM9qVPTQBegzA6ErtEN2m77EB1bi OaL9RDIzxnFXfXQzcA3OEw== 0001012887-00-000037.txt : 20000515 0001012887-00-000037.hdr.sgml : 20000515 ACCESSION NUMBER: 0001012887-00-000037 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000512 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BOSTON COMMUNICATIONS GROUP INC CENTRAL INDEX KEY: 0001012887 STANDARD INDUSTRIAL CLASSIFICATION: RADIO TELEPHONE COMMUNICATIONS [4812] IRS NUMBER: 043026859 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-28432 FILM NUMBER: 627343 BUSINESS ADDRESS: STREET 1: 100 SYLVAN RD STREET 2: STE 100 CITY: WOBURN STATE: MA ZIP: 01801-1830 BUSINESS PHONE: 6174763570 MAIL ADDRESS: STREET 1: 100 SYLVAN RD STREET 2: STE 100 CITY: WOBURN STATE: MA ZIP: 01801-1830 10-Q 1 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. 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 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 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 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 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 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 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% 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 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 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 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 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 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 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 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 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. 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) 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. EX-10.58 2 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.] 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. 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, 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. 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. 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. 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. 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 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. 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). 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 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 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 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. 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. 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.] 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.] 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. 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. 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. 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 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, 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. 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). 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. 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. 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. 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. 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. EX-27 3 WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE. [DESCRIPTION] Article 5 Fin. Data Schedule for 10-Q
5 1,000 3-MOS Dec-31-2000 Jan-01-2000 Mar-31-2000 25,360 6,998 19,551 2,736 1,930 56,099 43,134 0 102,499 18,141 0 168 0 0 80,770 102,499 25,207 25,207 13,837 23,636 0 0 (314) 1,885 813 1,072 0 0 0 1,072 0.06 0.06
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