Boston Communications Group, Inc. Signs Definitive Settlement Agreement to End Freedom Wireless Litigation; Company is Reviewin
July 21 2006 - 2:32PM
Business Wire
Boston Communications Group, Inc. (NASDAQ: BCGI), a leading
provider of products and solutions that enable mobile operators and
MVNOs worldwide to differentiate their offerings and increase
market penetration while reducing costs, and Freedom Wireless, Inc.
today announced that they have signed a definitive settlement and
license agreement settling and dismissing, with prejudice, Freedom
Wireless' patent litigation against bcgi and its carrier customers,
including its co-defendants. "We are thankful to be able to end
this chapter in bcgi's history, and we believe that the decision
we've made to enter into a settlement with Freedom Wireless is the
most prudent path forward to preserve and enhance the value of our
business by alleviating the risk our customers and other
stakeholders might have borne in the course of our continuing legal
battle," said E.Y. Snowden, bcgi president and CEO. "With this
agreement, and our ability to offer the wireless industry bcgi's
best in class, 3GPP-compliant, Intelligent Network-based Real-Time
Billing platform together with the protection of a license for the
Freedom Wireless patents, we believe bcgi 's competitive position
is dramatically enhanced, as evidenced by today's 8-K filing
disclosing a long-term contract renewal." The terms of the
settlement and license agreements have been finalized, and the
settlement is conditioned upon the entry of orders vacating certain
orders and judgments in the U.S. District Court for the District of
Massachusetts. The license agreement allows bcgi to continue
business, including the sale of its real-time prepaid billing
product, without the burden of any infringement claim by Freedom
Wireless. The license agreement protects bcgi's mobile operator
customers, channel partners and suppliers in connection with bcgi
products, services and technologies. However, it does not resolve
or settle any claims, disputes or liabilities relating to the use
or infringement of the Freedom patents by mobile operators in
connection with any prepaid wireless system or service other than
services provided by bcgi. Pursuant to the settlement agreement,
bcgi will pay to Freedom Wireless $55.3 million in full and final
settlement of all claims against bcgi through June 30, 2006,
including $12.6 million that will be a prepayment of royalties
under the license agreement. The prepayment is anticipated to cover
bcgi's royalty obligations to Freedom Wireless for the period from
July 1, 2006, through approximately Feb. 28, 2007. The total
settlement to be paid collectively by all of the defendants to
Freedom Wireless is $87 million. As part of the settlement, bcgi's
co-defendants have agreed to release bcgi from its indemnification
obligations to such parties. The license agreement enables bcgi to
provide mobile operators real-time prepaid wireless services that
are fully licensed under the Freedom patents. Pursuant to the
license agreement, bcgi will be required to pay ongoing future
royalties for prepaid subscribers beginning on or about March 1,
2007, in accordance with the terms in the license agreement. The
license agreement also provides for a contingent payment equal to 5
percent of any increase in bcgi's average market capitalization for
the six months ending June 30, 2007, compared to the six months
ended June 30, 2006, payable in four quarterly installments
beginning September 30, 2007. "In terms of prepaid subscribers
served, this license agreement makes bcgi the largest Freedom
Wireless licensee," Snowden said. "We believe that the protection
this license affords our customers will allow future pricing to
accommodate the cost of the royalties. With our license of these
patents, and our industry leading Real-Time Billing features,
performance and flexibility, we look forward to reinforcing our
prepaid wireless leadership as the segment continues to grow."
bcgi, its codefendants and Freedom have filed a Joint Motion for
Relief from Orders and Judgment in the District Court, requesting
the court to vacate certain orders, including vacating the finding
of willful infringement against bcgi. If the District Court denies
the joint motion, the settlement will not be consummated; the
parties have asked the District Court to rule on this joint motion
expeditiously. bcgi Accounting Treatment With respect to the
accounting treatment of bcgi's $55.3 million cash payment, bcgi had
previously accrued a $64.3 million estimated loss related to the
Freedom litigation. While the Company is still evaluating the
accounting treatment relating to the payments and obligations of
the Settlement and License Agreements, for the quarter ended June
30, 2006, bcgi expects to reverse a portion of the previously
recorded loss, resulting in a net gain to operating income to
reflect the amount of settlement related to past damages. The
royalty prepayment of $12.6 million is expected to be recorded as
an asset as of June 30, 2006, and amortized to expense over the
period from July 2006 through February 2007. bcgi expects to
finalize and report the accounting details of the settlement and
license agreement in its second quarter earnings release, which is
expected to be on July 28, 2006. Absent the impact of the
settlement and license agreement on the Company's financial
statements as of June 30, 2006, the Company reiterates its previous
guidance of lower sequential revenues and a net loss for the second
quarter. bcgi's cash, cash equivalents and restricted cash totaled
$70.3 million as of March 31, 2006. Under the terms of the Appeal
Agreement with Cingular Wireless, the $41.9 million restricted cash
amount in escrow as of March 31, 2006, will be applied toward
bcgi's settlement payment to Freedom. Option Grants bcgi also
announced today that Staff of the Securities and Exchange
Commission had contacted it by telephone regarding an informal
inquiry relating to certain option grants made between 1998 and
2002. The Board of Directors has retained outside counsel which,
along with bcgi, has begun to review bcgi's historical option
grants practices. The results of that review will be reported by
outside counsel to a Special Committee of the Board. The review is
still ongoing and the Special Committee is continuing to review
these matters. Based on the investigation conducted to date, the
actual measurement dates for accounting purposes for certain stock
option grants during prior periods may differ from the recorded
grant dates for such awards. As a result, the Company may need to
record additional non-cash charges for stock-based compensation
expense related to those prior periods, however, the impact of any
such compensation charges, if any, for any relevant fiscal period
has not been determined. Conference bcgi will hold a conference
call and Web cast at 8 a.m. Monday, July 24, 2006, to discuss the
settlement. bcgi President and CEO E.Y. Snowden and Chief Financial
Officer Karen A. Walker will host the call. Parties interested in
listening to the call should dial 1-800-423-5972 at least 10
minutes prior to the scheduled start of the call. For those unable
to participate at the designated time, a replay will be available
for seven days following the call via telephone at 1-800-642-1687
(Conference ID: 3457474) and will be available for 90 days on the
Web at www.bcgi.net. CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
STATEMENTS This press release contains, in addition to historical
information, forward-looking statements that involve risks and
uncertainties, including statements regarding the timing and terms
of the settlement with Freedom Wireless, bcgi's competitive
position, the time period covered by the royalty prepayment to
Freedom Wireless, future pricing including the cost of the
royalties, the impact on previously issued financial statements as
a result of the stock option review, and revenue and earnings
guidance. Such statements are based on management's current
expectations and are subject to a number of uncertainties and risks
that could cause actual results to differ materially from those
described in the forward-looking statements. Among the important
factors that would cause actual results to differ materially from
those indicated by such forward looking statements are: the entry
of orders vacating certain orders and judgments in the U.S.
District Court for the District of Massachusetts and the Courts
ruling on those orders, bcgi's ability to sell its Real-Time
Billing product to new customers, the growth of bcgi's carrier
customers during the prepayment period, the results of the review
of bcgi's historical option grants practices and additional
information that may cause the current quarter results to differ
from bcgi's guidance as well as the other factors that may affect
future operating results detailed in bcgi's form 10-Q for the
quarter ended March 31, 2006 filed with the Securities and Exchange
Commission. About bcgi bcgi delivers innovative products and
services that enable mobile operators and MVNOs worldwide to
differentiate their offerings and increase market penetration while
reducing costs. Founded in 1988, bcgi is a leader in identifying
and addressing new market needs with proven solutions, including
prepaid and postpaid billing, payments and access management. For
more information, visit www.bcgi.net.
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