<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
FILED BY THE REGISTRANT /X/ FILED BY A PARTY OTHER THAN THE REGISTRANT / /
- - --------------------------------------------------------------------------------
Check the appropriate box:
/ / Preliminary Proxy Statement
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
BOLT BERANEK AND NEWMAN INC.
(Name of Registrant as Specified In Its Charter)
BOLT BERANEK AND NEWMAN INC.
(Name of Person(s) Filing Proxy Statement)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act
Rule 0-11:
4) Proposed maximum aggregate value of transaction:
Set forth the amount on which the filing fee is calculated and state how it
was determined.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
- - --------------------------------------------------------------------------------
<PAGE> 2
[LOGO] BOLT BERANEK AND NEWMAN INC.
150 CAMBRIDGEPARK DRIVE
CAMBRIDGE, MASSACHUSETTS 02140
SEPTEMBER 28, 1994
Dear Shareholder:
You are cordially invited to attend the 1994 Annual Meeting of
Shareholders of Bolt Beranek and Newman Inc. The Annual Meeting will be held in
the Enterprise Room, 5th floor, State Street Bank Building, 225 Franklin Street,
Boston, Massachusetts, on Thursday, November 3, 1994, at 10:30 a.m.
As set forth in the accompanying Notice and Proxy Statement, the primary
business to come before this year's Meeting will include not only the election
of directors, but also the approval of an increase in the number of shares
available and an extension of the time for granting awards under the Company's
1986 Stock Incentive Plan, together with amendments to the plan to comply with
Internal Revenue Code Section 162(m), as well as the approval of amendments to
the plan as it relates to options for non-employee directors of the Company. The
enclosed Proxy Statement fully describes these proposals, as well as other items
to come before the Annual Meeting. We urge you to review the Proxy Statement
carefully.
We appreciate your continuing interest in the business of the Company and
I personally hope that many of you will plan to attend this year's Annual
Meeting, which will be my first as Chief Executive Officer of the Company.
Whether or not you are able to attend, it is important that your shares be
represented at the Annual Meeting. You are urged to vote, and then to sign,
date, and mail the enclosed proxy card promptly.
Very truly yours,
GEORGE H. CONRADES
President and
Chief Executive Officer
<PAGE> 3
BOLT BERANEK AND NEWMAN INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
NOVEMBER 3, 1994
To the Shareholders of
BOLT BERANEK AND NEWMAN INC.
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Bolt
Beranek and Newman Inc. will be held in the Enterprise Room, 5th floor, State
Street Bank Building, 225 Franklin Street, Boston, Massachusetts on Thursday,
November 3, 1994, at 10:30 a.m. (local time) for the following purposes:
1. To elect two directors to serve as a class of directors, each for
a term of three years and until his successor is chosen and qualified.
2. To amend the Company's 1986 Stock Incentive Plan by increasing the
number of shares available for purchase under the Plan from 1,800,000
shares to 3,000,000 shares, by extending the period for granting awards
under the Plan until December 1, 1999, and by making certain changes
described in the accompanying Proxy Statement to conform to Internal
Revenue Code Section 162(m); and to authorize the issuance of the
additional shares of Common Stock under the Plan.
3. Subject to approval of the proposal referred to in Item 2 above,
to further amend the Company's 1986 Stock Incentive Plan to provide that in
addition to the existing, outstanding options to purchase 10,000 shares
under the Plan, each non-employee director will be automatically granted a
3,000 share option each year while serving as a director, and that the
number of shares reserved for all non-employee director options under the
Plan be increased from 100,000 to 150,000.
4. To ratify the selection of the firm of Coopers & Lybrand as
auditors of the Company for the fiscal year ending June 30, 1995.
5. To consider and act upon any matters incidental to the foregoing
purposes, or any of them, and any other matters which may properly come
before said meeting and at any or all adjourned sessions thereof.
The Board of Directors has fixed the close of business on September 13,
1994 as the record date for determination of shareholders entitled to notice of
and to vote at the Annual Meeting.
Whether or not you expect to attend the meeting, you are urged to complete
and sign the accompanying form of proxy and return it promptly in the enclosed
envelope.
NANCY J. NITIKMAN
Clerk
Cambridge, Massachusetts
September 28, 1994
<PAGE> 4
BOLT BERANEK AND NEWMAN INC.
150 CAMBRIDGEPARK DRIVE
CAMBRIDGE, MASSACHUSETTS 02140
TELEPHONE (617) 873-2000
PROXY STATEMENT
The enclosed form of proxy is solicited on behalf of the Board of Directors
of Bolt Beranek and Newman Inc. (the "Company" or "BBN") for use at the Annual
Meeting of Shareholders (the "Annual Meeting") to be held in the Enterprise
Room, 5th floor, State Street Bank Building, 225 Franklin Street, Boston,
Massachusetts on Thursday, November 3, 1994, at 10:30 a.m., and at any and all
adjourned sessions thereof. A proxy once given may be revoked by a shareholder,
at any time before it is voted, by returning to the Company another properly
signed proxy representing such shares and bearing a later date, or by otherwise
delivering a written revocation to the Clerk of the Company. Shares represented
by the enclosed form of proxy properly executed and returned, and not revoked,
will be voted at the Annual Meeting.
In the absence of contrary instructions, the persons named as proxies will
vote in accordance with the intentions stated below. As of September 13, 1994,
the record date for determination of shareholders entitled to notice of and to
vote at the Annual Meeting, the Company had issued and outstanding and entitled
to vote 16,768,449 shares of Common Stock, $1.00 par value. Each such share of
Common Stock is entitled to one vote on each matter to come before the Annual
Meeting.
The presence (in person or represented by proxy) of the holders of a
majority in interest of the issued and outstanding shares of Common Stock
entitled to vote at the meeting will constitute a quorum for the transaction of
business at the Annual Meeting.
The nominees for election as directors at the Annual Meeting who receive a
plurality of the votes properly cast for the election of directors shall be
elected directors. The affirmative vote of a majority of the votes properly cast
upon the question is required for the approval of the increase in the number of
shares available (and the authorization of their issuance) and the extension of
the period for granting options under the 1986 Stock Incentive Plan, and the
approval of Section 162(m) amendments to the Plan (Item 2 of the accompanying
Notice), and the approval of amendments to the 1986 Stock Incentive Plan as it
relates to options for non-employee directors (Item 3 of the accompanying
Notice), although in order to list on the New York Stock Exchange the additional
shares to be issuable under the amended 1986 Stock Incentive Plan (including to
the non-employee directors), the total votes cast on Item 2 and on Item 3,
respectively, of the accompanying Notice must each represent over 50% in
interest of all shares entitled to vote on the proposal. The language of Section
162(m) of the Internal Revenue Code, as it pertains to shareholder approval of
proposals such as Item 2, requires that approval by a "majority of the vote in a
separate shareholder vote" be received on a proposal; final interpretive
regulations under Section 162(m) have not yet been issued. The affirmative vote
of a majority of the votes properly cast upon the question is required for the
ratification of the selection of Coopers & Lybrand as independent auditors for
the Company for 1995 (Item 4 of the accompanying Notice). The Company will count
the total number of votes cast "for" approval of Items 2, 3, and 4 for purposes
of determining whether sufficient affirmative votes have been cast.
The Company will count shares represented by proxies that withhold
authority to vote for a nominee for election as a director, or that reflect
abstentions and "broker non-votes" (i.e., shares represented at the meeting held
by brokers and nominees as to which instructions have not been received from the
beneficial owners or persons entitled to vote, and the broker or nominee does
not have the discretionary voting power in the particular matter) on any other
matter, only as shares that are present and entitled to vote for purposes of
determining the presence of a quorum, but none of the withheld votes,
abstentions, or broker non-votes will be counted as "cast" or have any effect
(outside of the NYSE listing requirements) on the outcome of voting on the
particular matter, even though persons analyzing the results of the voting may
interpret the results differently.
<PAGE> 5
It is expected that this Proxy Statement and the enclosed form of proxy
will be mailed to shareholders commencing on or about September 28, 1994.
The Annual Report of the Company, including consolidated financial
statements for the year ended June 30, 1994, is being mailed to the Company's
shareholders with this Proxy Statement. The Annual Report is not a part of the
proxy soliciting material.
1. ELECTION OF DIRECTORS
The Company's Board of Directors is divided into three classes of
directors, with each class having a staggered three-year term. The total number
of directors is divided among the three classes so that, as nearly as may be
possible, each of the classes has the same number of directors. As a result of
action taken at the 1992 Annual Meeting, the Board consisted of six directors.
In December 1993, George H. Conrades was elected a Class I director, with a term
expiring in 1996, by action of the Board. On August 17, 1994, John A. Gilmartin,
who had served as a director since 1992, resigned as a director for personal
reasons. To fill the vacancy created by Mr. Gilmartin's resignation, on August
17, 1994 Lucie J. Fjeldstad was elected a Class III director, with a term
expiring in 1995, by action of the Board. As a result, the Board currently
consists of seven directors.
Consistent with Massachusetts law and notwithstanding any inconsistent
terms of the Company's Bylaws superseded by the law, for purposes of election at
the Annual Meeting, the Board has fixed the number of directors at seven. As a
result, two directors are to be elected at the Annual Meeting as Class II
directors, with terms which expire at the annual meeting to be held in 1997. The
Board has nominated John M. Albertine and Roger D. Wellington for election as
Class II directors, as listed below.
The current terms of office of the Class I and Class III directors do not
expire this year, and each of the directors in these classes continues in
office. Such directors' current terms expire in 1996 and 1995, respectively.
Each director will continue in office until his or her term expires and
until his or her successor is chosen and qualified, or until earlier death,
removal, or resignation.
Unless authority to do so has been withheld or limited in the proxy, it is
the intention of the persons named as proxies to vote the shares to which the
proxy relates for the election to the Board of Directors as Class II directors
of the two nominees listed below.
Management knows of no reason why either nominee should not be available
for election to the Board of Directors at the time of the Annual Meeting.
However, should either of the nominees not be available, it is the intention of
the persons named as proxies to act with respect to the filling of that office
by voting the shares to which the proxy relates, unless authority to do so has
been withheld or limited in the proxy, for the election of such other person or
persons as may be designated by the Board of Directors or, in the absence of
such designation, in such other manner as they may, in their discretion,
determine. In no event will the proxy be voted for any number of directors
greater than two.
BIOGRAPHICAL INFORMATION
The biographical information that follows includes (1) the name and age of
each nominee as a Class II director and for each director continuing in office,
(2) the principal occupation or employment of each during the past five years,
(3) the period during which each has served as a director of the Company, (4)
the principal other directorships held by each, (5) the number of whole shares
of Common Stock of the Company beneficially owned by each (as determined under
the rules and regulations of the Securities and Exchange Commission), directly
or indirectly, as of September 13, 1994, based upon information furnished by the
nominee or director, (6) the percentage of the class outstanding so owned by
each (where such percentage exceeds 1%), and (7) the date of the expiration of
the term for which each nominee is a candidate and for which each continuing
director holds office, and the class designation. Except as otherwise indicated,
beneficial ownership consists of sole voting and investment power. Each of the
nominees for election as a Class
2
<PAGE> 6
II director is currently a director of the Company, most recently elected by the
shareholders at the 1991 Annual Meeting.
<TABLE>
<CAPTION>
SHARES OF
COMMON
STOCK BENEFICIALLY
OWNED AS OF
TERM SEPTEMBER 13,
DIRECTOR EXPIRES/ 1994;
NAME AND PRINCIPAL OCCUPATION AGE SINCE CLASS PERCENT OF CLASS
- - ----------------------------- --- -------- -------- ------------------
<S> <C> <C> <C> <C> <C>
NOMINEES FOR DIRECTOR:
+ John M. Albertine......................... 50 1986 1997/ 28,725(3)
Chairman of the Board and Chief Executive II
Officer of Albertine Enterprises, Inc.
(1)(2)
*+ Roger D. Wellington....................... 67 1981 1997/ 31,786(5)
Consultant (4) II
DIRECTORS CONTINUING IN OFFICE:
George H. Conrades........................ 55 1993 1996/ 222,202(7)
President and Chief Executive Officer (6) I 1.3%
Lucie J. Fjeldstad........................ 50 1994 1995/ 0
President and Chief Executive Officer of III
Fjeldstad International (8)
* George N. Hatsopoulos..................... 67 1990 1996/ 11,000(10)
Chairman of the Board, President, and I
Chief Executive Officer of Thermo
Electron Corporation (9)
Stephen R. Levy........................... 54 1973 1996/ 387,991(12)
Chairman of the Board (11) I 2.3%
+ Andrew L. Nichols......................... 58 1978 1995/ 10,400(14)
Partner of Choate, Hall & Stewart (13) III
<FN>
- - ---------------
+ Member of the Audit Committee of the Board of Directors.
* Member of the Compensation and Stock Option Committee of the Board of Directors.
(1) Dr. Albertine has been Chairman of the Board and Chief Executive Officer of
Albertine Enterprises, Inc., economic and public policy consultants, since
its organization in 1990. Dr. Albertine was Vice Chairman of the Board of
Farley Inc., a diversified manufacturing company, from 1986 to 1990, and
Vice Chairman of the Board of its affiliate, Fruit of the Loom, Inc., a
manufacturer of personal apparel, from 1987 to 1990. Dr. Albertine also
held the office of Vice Chairman of the Company of West Point-Pepperell
Inc., a textile manufacturer and an affiliate of Farley Inc., from 1989 to
1990. Dr. Albertine is a director of Thermo Electron Corporation and
American Precision Industries, Inc.
(2) In July, 1991, an involuntary petition was filed against Farley Inc., of
which Dr. Albertine was Vice Chairman of the Board from 1986 to 1990, under
Chapter 7 of the Federal bankruptcy laws. In September, 1991, Farley Inc.
converted the Chapter 7 proceeding into a Chapter 11 reorganization, and a
plan of reorganization was confirmed in December, 1992. Also in 1992,
Farley Inc.'s holdings in West Point-Pepperell Inc., of which Dr. Albertine
served as Vice Chairman of the Company from 1989 to 1990, was financially
restructured by exchanging equity for debt forgiveness, as part of a
so-called "pre-packaged" Chapter 11 bankruptcy reorganization of the Farley
Inc. affiliate owning West Point-Pepperell. Dr. Albertine had also served
as Vice Chairman of the Farley Inc. affiliate owning West Point-Pepperell
from 1989 to 1990.
(3) The shares shown as owned beneficially by Dr. Albertine include 324 shares
owned by Dr. Albertine's spouse, as to which shares Dr. Albertine disclaims
beneficial ownership, and 7,500 shares as to which Dr. Albertine has the
right to acquire ownership through the exercise of those options, held by
him
</TABLE>
3
<PAGE> 7
under the stock option plans of the Company, which are exercisable within
60 days of September 13, 1994. The shares shown as owned beneficially also
include 15,367 shares represented by units allocated under the Company's
deferred compensation plan for non-employee directors entitling Dr.
Albertine as of July 1, 1994 to receive that number of shares on or after
his deferral termination date.
(4) Mr. Wellington serves as President and Chief Executive Officer of
Wellington Consultants, Inc. and of Wellington Associates, international
business consulting firms he founded in 1994 and 1989, respectively. Prior
to 1989, Mr. Wellington served as Chairman of the Board of Augat Inc., a
manufacturer of electromechanical components, for more than five years.
Prior to 1988, he also held the positions of President and Chief Executive
Officer of Augat Inc. Mr. Wellington is a director of Thermo Electron
Corporation.
(5) The shares shown as owned beneficially by Mr. Wellington include 7,500
shares as to which Mr. Wellington has the right to acquire ownership
through the exercise of those options, held by him under the stock option
plans of the Company, which are exercisable within 60 days of September 13,
1994. The shares shown as owned beneficially also include 18,286 shares
represented by units allocated under the Company's deferred compensation
plan for non-employee directors entitling Mr. Wellington as of July 1, 1994
to receive that number of shares on or after his deferral termination date.
(6) Mr. Conrades has been the President and Chief Executive Officer of the
Company since his appointment by the Board effective in January 1994. Prior
to that time, he had been employed for over 30 years at International
Business Machines Corporation. During his employment with IBM, Mr. Conrades
held a number of marketing-management and general-management positions,
including most recently senior vice president, corporate marketing and
services and general manager of IBM United States, with responsibility for
all of that company's customer-related operations in the United States,
including hardware, software, maintenance, and services, and for over
100,000 employees and approximately $27 billion in revenue. Mr. Conrades
retired from IBM in March of 1992, and since that time and prior to his
appointment as President of the Company, Mr. Conrades was consulting in
venture capital businesses and was on the board of directors of several
small technology ventures, including since 1993 the board of LightStream
Corporation, a subsidiary of the Company. Mr. Conrades is a director of
Westinghouse Electric Corporation.
(7) The shares shown as owned beneficially by Mr. Conrades are comprised of
22,202 shares owned jointly with his spouse, as to which shares Mr.
Conrades and his spouse share voting and investment power, and 200,000
shares as to which Mr. Conrades has the right to acquire ownership through
the exercise of those options, held by him under the stock option plans of
the Company, which are exercisable within 60 days of September 13, 1994. If
the shareholders do not approve the amendments to the Company's 1986 Stock
Incentive Plan provided for in Item 2 (see information under the caption
"2. Proposal to Amend the 1986 Stock Incentive Plan Relative to Increase in
Shares, Extension of Period for Awards, and Changes to Conform to the Tax
Code" below), options for 75,000 of such shares will be void. Mr. Conrades
also owns $50,000 principal amount of the Company's 6% Convertible
Subordinated Debentures due 2012.
(8) Ms. Fjeldstad has been President and Chief Executive Officer of Fjeldstad
International, computing, telecommunications, media/entertainment, and
consumer electronics industries consultants, since its organization by her
in 1993. Prior to that time, she had been employed for 25 years at
International Business Machines Corporation. During her employment with
IBM, Ms. Fjeldstad held a number of senior technical and management
positions, including most recently corporate vice president, and general
manager of multimedia (1992 to 1993); corporate vice president, and
president of the multimedia and education division (1990 to 1992); and
corporate vice president, and general manager of the general and public and
academic section (1988 to 1990). Ms. Fjeldstad is also a director of
Entergy Corporation, KeyCorp., PPG Industries, Inc., and Recognition
International Inc.
(9) Dr. Hatsopoulos is the founder and has been Chairman of the Board,
President, and Chief Executive Officer of Thermo Electron Corporation, a
manufacturer (including through subsidiaries) of analytical instruments,
cogeneration systems, biomedical products, and industrial processing
equipment, and a
4
<PAGE> 8
provider of environmental and engineering services worldwide, since 1956.
Dr. Hatsopoulos is a director of Thermedics Inc., Thermo Fibertek Inc.,
Thermo Instrument Systems Inc., Thermo Power Corporation, Thermo Process
Systems Inc., and ThermoTrex Corporation.
(10) The shares shown as owned beneficially by Dr. Hatsopoulos are comprised of
1,000 shares owned jointly with his spouse, as to which shares Dr.
Hatsopoulos and his spouse share voting and investment power, and 10,000
shares as to which Dr. Hatsopoulos has the right to acquire ownership
through the exercise of those options, held by him under the stock option
plans of the Company, which are exercisable within 60 days of September 13,
1994.
(11) Mr. Levy has been an officer of the Company since 1970, serving as
President and Chief Executive Officer from 1976 to 1983, as Chairman of the
Board and Chief Executive Officer from 1983 to 1993, as Chairman of the
Board, President, and Chief Executive Officer in 1993, and as Chairman of
the Board in 1994.
(12) The shares shown as owned beneficially by Mr. Levy include 32,995 shares
held in his participant account under the BBN Retirement Trust, and 154,500
shares as to which Mr. Levy has the right to acquire ownership through the
exercise of those options, held by him under the stock option plans of the
Company, which are exercisable within 60 days of September 13, 1994.
(13) Mr. Nichols has been a partner of the law firm of Choate, Hall & Stewart,
Boston, Massachusetts, since 1969.
(14) The shares shown as owned beneficially by Mr. Nichols include 900 shares
owned by a partnership of which Mr. Nichols is a general partner and has a
50% beneficial interest, and 7,500 shares as to which Mr. Nichols has the
right to acquire ownership through the exercise of those options, held by
him under the stock option plans of the Company, which are exercisable
within 60 days of September 13, 1994.
BOARD OF DIRECTORS AND COMMITTEE ORGANIZATION
During the Company's fiscal year ended June 30, 1994, the Board of
Directors of the Company held a total of seven meetings. Each director who was
not a full-time employee of the Company received an annual retainer of $10,000
for services as a director, plus $750 for each Board meeting attended by him
during the year and for each date (other than the date of a meeting of the
Board) on which he attended one or more meetings of committees of the Board,
plus $375 for each date of a meeting of the Board on which he also attended one
or more separate meetings of committees of the Board. Each incumbent director
attended not less than 75% of the aggregate of the meetings of the Board and of
the committees of which he was a member held during the fiscal year ended June
30, 1994.
Under the Company's deferred compensation plan, each non-employee director
has the option to make an annual election to defer his or her compensation as a
director and to receive the deferred amounts in shares of the Company's Common
Stock, either after the individual ceases to be a director or after the
individual retires from his or her principal occupation. Deferred compensation
is credited in units of stock of the Company, based on the value of the Common
Stock at the time so credited. Messrs. Albertine and Wellington currently
participate in this plan; at July 1, 1994, the two individuals had units under
the plan entitling them to an aggregate of 33,653 shares of Common Stock.
Audit Committee. The Audit Committee of the Board of Directors held four
meetings during the fiscal year ended June 30, 1994. In general, the function of
the Audit Committee is to recommend to the Board of Directors the engagement or
discharge of the independent auditors; to consider with the independent auditors
the scope of their audit and their audit fees; to review with the independent
auditors the scope and results of their audit and their report and management
letters; to review non-audit professional services by generic classification to
be provided by the independent auditors, to review the magnitude of the range of
fees for such non-audit services, and to consider the independence of the
independent auditors; to review with the independent auditors and with the
internal auditors and management of the Company, the Company's policies and
procedures with respect to internal auditing, accounting, and financial
controls; and to review the financial reporting and accounting standards and
principles of the Company. Messrs. Albertine, Nichols, and
5
<PAGE> 9
Wellington, none of whom is or has been an officer or employee of the Company,
currently serve as the Audit Committee.
Compensation Committee; Compensation Committee Interlocks and Insider
Participation. The Compensation and Stock Option Committee of the Board of
Directors (the "Compensation Committee") held eight meetings during the fiscal
year ended June 30, 1994. In general, the function of the Compensation Committee
is to administer the executive compensation and incentive compensation and stock
option programs of the Company; to establish the compensation of the chief
executive officer of the Company; to review salary and incentive bonus awards
for other executive officers; and to award stock options.
Messrs. Hatsopoulos and Wellington currently serve on the Compensation
Committee. Mr. Gilmartin also served on the Compensation Committee until his
resignation from the Board in August 1994. None of these individuals is or has
been an officer or employee of the Company.
Nominating Committee. The Board of Directors has not appointed a standing
nominating committee.
2. PROPOSAL TO AMEND THE 1986 STOCK INCENTIVE
PLAN RELATIVE TO INCREASE IN SHARES,
EXTENSION OF PERIOD FOR AWARDS, AND CHANGES
TO CONFORM TO THE TAX CODE
GENERAL
For a number of years, the Company has utilized stock options in its
overall compensation program. The most recent option plans in the Company's
option program are the Company's 1983 Stock Option Plan and its 1986 Stock
Incentive Plan (the "1986 Plan"). No further options may be granted under the
Company's 1983 Stock Option Plan. As of September 13, 1994, under the 1983 and
1986 Plans, options to purchase an aggregate of 1,437,197 shares had been
exercised, options to purchase 2,028,525 shares were outstanding and held by an
aggregate of 182 individuals, and 89,274 shares were available on that date for
the grant of future options under the 1986 Plan. Up to 1,501,850 additional
shares could become available for options under the 1986 Plan if those options
outstanding on September 13, 1994 under the 1986 Plan lapse or terminate. (Not
included in these figures are options to purchase an aggregate of 400,000 shares
which were granted under the 1986 Plan as proposed to be amended but which will
be void if shareholder approval of this Item 2 is not received.)
Under current accounting rules, neither the grant nor the exercise of stock
options of the type typically granted by the Company results in a charge against
the Company's earnings. However, the Financial Accounting Standards Board is
considering new accounting rules for the treatment of stock options, which could
require the Company in the future to expense the cost of stock option
compensation on its statement of operations. Under current accounting rules,
other types of awards permitted under the 1986 Plan although not typically used
by the Company to date, including SARs and performance stock rights, may result
in charges against the Company's earnings.
PROPOSAL
The Company's shareholders approved and adopted the 1986 Plan at the
Company's 1986 Annual Meeting. The 1986 Plan permits the granting to selected
key employees of the Company and its subsidiaries, to a limited extent to
non-employee directors of the Company, and to other key persons, of a variety of
stock and stock based awards (collectively, the "Awards"), including stock
options; automatic stock option grants to non-employee directors; the award of
restricted and unrestricted shares; the granting of rights to receive cash or
shares on a deferred basis or based on performance; the granting of rights to
receive cash or shares in respect of increases in the value of the Common Stock
("SARs"); cash payments (so-called "tax offset payments") sufficient to offset
the Federal income taxes of participants resulting from transactions under the
1986 Plan; loans to participants in connection with awards; and other Common
Stock-based awards, including the sale or award of convertible securities, that
meet the requirements of the 1986 Plan. Under the 1986 Plan as currently in
effect, an aggregate of 1,800,000 shares of Common Stock of the Company is
authorized for
6
<PAGE> 10
issuance. Of these, 100,000 are reserved for issuance under stock options
granted or to be granted to non-employee directors. Of the shares currently
authorized for issuance under the 1986 Plan other than for non-employee
directors, 208,876 shares have been issued, and 1,456,850 shares are subject to
outstanding options, leaving 34,274 shares currently available for option grants
other than to non-employee directors. No Awards may be made under the 1986 Plan
as currently in effect after August 17, 1996.
The Board of Directors has adopted and is submitting to shareholders for
their approval, amendments to the 1986 Plan which would (i) increase by
1,200,000 shares the number of shares of the Company's Common Stock authorized
for issuance in respect of Awards made under the 1986 Plan; (ii) extend to
December 1, 1999 the latest grant date for Awards under the 1986 Plan; and (iii)
establish 750,000 as the maximum number of shares as to which stock options or
as to which stock appreciation rights, respectively, may be granted under the
1986 Plan to any participant during the period January 1, 1994 to December 1,
1999, and make other changes to satisfy certain requirements of Section 162(m)
of the Internal Revenue Code and the recently proposed regulations under that
section ("Section 162(m)"). (See also "3. Proposal to Amend the Company's 1986
Stock Incentive Plan Relative to Non-Employee Director Options" below for
information with respect to a separate proposal to amend the 1986 Plan.)
The Company believes that the 1986 Plan is serving its purpose in helping
to attract, retain, and reward key persons, and in strengthening the commonality
of interest between key persons and the shareholders. To continue to meet these
objectives, the Company believes that the availability of additional shares for
Awards under the 1986 Plan is needed, and that the time for making Awards under
the 1986 Plan should be extended.
Of the 1,200,000 additional shares proposed to be made available for Awards
under the amended 1986 Plan, options for 300,000 shares were granted to George
H. Conrades at the time of his hiring as chief executive officer of the Company
in December 1993, under the plan as proposed to be amended but subject to
shareholder approval of the plan amendments. Such provisional options were
granted at a price of $12.375 per share, and would expire on December 28, 2003.
Also, options for 50,000 shares were granted to Jonathan C. Crane at the time of
his appointment as Vice President of the Company in February 1994, under the
plan as proposed to be amended but subject to shareholder approval of the plan
amendments. Such provisional options were granted at a price of $15.25 per
share, and would expire on February 3, 2001. Also, options for 50,000 shares
were granted to John T. Kish, Jr., at the time of his appointment as Vice
President of the Company in August 1994, under the plan as proposed to be
amended but subject to shareholder approval of the plan amendments. Such
provisional options were granted at a price of $14.125 per share, and would
expire on August 17, 2001. In the event that the shareholders do not approve the
amendments to the 1986 Plan as proposed in Item 2, the 300,000 share option to
Mr. Conrades, the 50,000 share option to Mr. Crane, and the 50,000 share option
to Mr. Kish will be void and of no effect.
Except as described with respect to Messrs. Conrades, Crane, and Kish and
to the automatic grants to non-employee directors, no determination has been
made as to which individuals may receive options or rights under the amended
1986 Plan; as to the number of shares, up to the maximum limit provided in the
amended 1986 Plan, to be covered by any such options or rights to a single
individual; or as to the number of individuals to whom such options or rights
will be granted. The proceeds received by the Company from the sale of stock
pursuant to the 1986 Plan will be used for the general purposes of the Company
or, in the case of the receipt of payment in shares of Common Stock, as the
Board of Directors may determine, including redelivery of the shares received
upon exercise of options.
Subject to adjustment for stock splits and similar events, the total number
of shares of Common Stock that can be issued under the 1986 Plan, as amended, is
3,000,000 shares, of which a maximum of 150,000 shares will be available for
stock options for non-employee directors. Awards and shares which are forfeited,
reacquired by the Company, satisfied by a cash payment by the Company, or
otherwise satisfied without the issuance of Common Stock are not counted. As
described under the caption "Summary of the 1986 Stock Incentive Plan -- Other
Stock-based Awards", the 1986 Plan would also permit the issuance of debt
securities convertible into Common Stock. The 1986 Plan authorizes the Committee
to issue Awards (on such terms and conditions as it deems are appropriate
substitutions) in substitution for awards held by employees of companies or
businesses acquired by the Company. The shares that could be delivered under
such substitute
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<PAGE> 11
awards would be in addition to the maximum number of shares authorized under the
1986 Plan but only to the extent that the substitute awards are both granted to
persons whose relationship to the Company does not make (and is not expected to
make) them subject to Section 16(b) of the Securities Exchange Act of 1934 and
are granted in substitution for awards issued under a plan approved, to the
extent then required, under Rule 16b-3 (or any successor rule under the
Securities Exchange Act of 1934), by the stockholders of the entity which issued
such predecessor awards.
In addition to the increase in the number of shares authorized for issuance
and the extension of the latest grant date for Awards under the 1986 Plan, the
Company also proposes to amend the 1986 Plan to establish 750,000 as the maximum
number of shares as to which stock options, and 750,000 shares as the maximum
number of shares as to which stock appreciation rights, may be granted to any
participant under the 1986 Plan during the period between January 1, 1994 and
December 1, 1999. This amendment is necessary in order to ensure that
remuneration attributable to stock options and stock appreciation rights will
qualify as "performance based" under Section 162(m) of the Internal Revenue Code
and, consequently, will not be subject to the deduction limitations imposed by
that Section on executive compensation. Section 162(m), in general, limits to
$1,000,000 the amount of compensation a publicly-traded corporation may deduct
for compensation in any year to any of certain key officers, but makes an
exception for performance-based compensation that meets specified requirements.
Proposed regulations under Section 162(m) exempt from the deduction limit stock
options and stock appreciation rights which have been granted pursuant to a plan
approved by the stockholders and which limits the number of shares for which
options and rights may be granted to any one individual during a specified
period. The proposed amendment to the 1986 Plan is intended to provide that
limit. Also, the Company proposes to amend the 1986 Plan to track more closely
the language of Section 162(m) by providing that the Committee of the Board
which administers the 1986 Plan, currently required to be comprised of not less
than three directors, would in the future be required to consist of directors,
not fewer than two, all of whom would be required to be both "Disinterested
Persons" as defined in the 1986 Plan and, to the extent required under Section
162(m), "outside directors" as that term is used in Section 162(m).
<TABLE>
AMENDED 1986 PLAN BENEFITS
The table below sets forth information with respect to the stock options
granted to date under the 1986 Plan as proposed to be amended, conditioned upon
shareholder approval of the plan amendments.
<CAPTION>
1986 PLAN, AS PROPOSED TO BE AMENDED
NAME AND POSITION NUMBER OF PROVISIONAL OPTIONS
- - ----------------- ------------------------------------
<S> <C>
George H. Conrades, President and Chief Executive
Officer............................................... 300,000
Jonathan C. Crane, Vice President....................... 50,000
John T. Kish, Jr., Vice President....................... 50,000
</TABLE>
RECOMMENDATION
The Board believes that the Company's stock option plans have contributed
to the progress of the Company by providing incentives to persons key to its
success. Intense competition among business firms for directors and executives
and other key persons makes it important for the Company to maintain an
effective compensation program in order to continue to attract, motivate, and
retain persons necessary to further the Company's growth. Competing compensation
programs of other companies make it important that the Company's program
continues and has maximum flexibility. The Board believes that the 1986 Plan, as
amended, will continue to assist the Company in meeting the competitive
situation created by the varied compensation programs of other companies.
Accordingly, the Board believes that the proposal is in the best interests of
the Company and its shareholders and recommends that the shareholders approve
the amendments to the 1986 Plan.
It is the intention of the persons named as proxies to vote the shares to
which the proxy relates to approve the amendments to the 1986 Plan outlined in
the proposal under Item 2 and to authorize the issuance under the 1986 Plan of
up to 1,200,000 additional shares of Common Stock (making the aggregate
3,000,000), unless instructed to the contrary. The outlined amendments to the
1986 Plan will not take effect, and the
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<PAGE> 12
300,000, 50,000, and 50,000 share options conditionally granted to Mr. Conrades,
Mr. Crane, and Mr. Kish, respectively, will be voided, if the proposal is not
approved.
The Board of Directors recommends a vote FOR this proposal.
SUMMARY OF THE 1986 STOCK INCENTIVE PLAN
The full text of the existing 1986 Plan is set forth in Exhibit A to this
Proxy Statement, together with language, printed in brackets and lined-through,
proposed to be deleted and language, printed with underscoring, proposed to be
added, together constituting the amendments submitted for approval. (Proposed
changes to Section 6(m) of the 1986 Plan are not included in the vote for this
Item 2 but are voted upon separately under Item 3 below.) Reference is made to
Exhibit A for the text of the plan, and the following description of certain
features of the 1986 Plan is qualified in its entirety by that reference.
Administration; Eligible Persons. The 1986 Stock Incentive Plan is
administered by a Committee of the Board of Directors (which currently is the
Compensation and Stock Option Committee) consisting of no fewer than three
directors. All members of the Committee must be "disinterested persons" as that
term is defined under rules promulgated by the Securities and Exchange
Commission. All members of the Committee serve at the pleasure of the Board of
Directors. As proposed to be amended, the Committee would be required to consist
of directors, not fewer than two, all of whom would be required to be both
"Disinterested Persons" as defined in the 1986 Plan and, to the extent required
under Section 162(m) of the Internal Revenue Code, "outside directors" as that
term is used in Section 162(m).
The Committee has full power to select, from among the persons eligible for
Awards, the individuals to whom Awards will be granted, to make any combination
of Awards to any participants, and to determine the specific terms of each
grant, subject to the provisions of the 1986 Plan. Persons eligible to
participate in the 1986 Plan will be those officers and other full-or part-time
key employees of the Company and its subsidiaries (excluding any director who is
not a full-time employee except as to a fixed number of stock options granted to
each non-employee director, as described below under Item 3) and other key
persons, who are responsible for or contribute to the management, growth, or
profitability of the business of the Company and its subsidiaries, as selected
from time to time by the Committee.
Stock Options. The 1986 Plan permits the granting of non-transferable
stock options that qualify as incentive stock options under Section 422(b) of
the Internal Revenue Code ("incentive options" or "ISOs") and non-transferable
stock options that do not so qualify ("nonstatutory options"). The option
exercise price of each option shall be determined by the Committee in its
discretion but may not be less than the fair market value of the Common Stock on
the date the option is granted in the case of incentive options, and not less
than 50% of such fair market value in the case of nonstatutory options.
The term of each option will be fixed by the Committee but may not exceed
10 years (5 years in certain circumstances) from the date of grant in the case
of an incentive option or 10 years and one day from the date of grant in the
case of a nonstatutory option. On September 20, 1994, the closing price of the
Common Stock on the New York Stock Exchange, as reported in The Wall Street
Journal, was $17.125. Based on current accounting and reporting standards, the
amount of excess, if any, of the fair market value of the Common Stock on the
date the option is granted over the option price will be accounted for on the
books of the Company, in general, as compensation to the optionee and generally
amortized over the vesting period.
The Committee will determine at what time or times each option may be
exercised. Options may be made exercisable in installments, and the
exercisability of options may be accelerated by the Committee. The Committee may
in its discretion provide that upon exercise of an option, instead of receiving
shares free from restrictions under the 1986 Plan, the participant will receive
shares of Restricted Stock or Deferred Stock.
The option exercise price of options granted under the 1986 Plan must be
paid in cash or, if the Committee so determines, by delivery of shares of
unrestricted Common Stock or a combination of cash and shares. The 1986 Plan
authorizes the Committee to permit "pyramiding", which involves the exercise of
an option in successive stages using as the payment at each stage shares which
have been acquired under the
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<PAGE> 13
option in preceding stages. Under current accounting standards, pyramiding would
result in an accounting treatment more like stock appreciation rights than
options, resulting in a charge to earnings.
In the event of termination of employment by reason of normal retirement,
disability, or death, an option may thereafter be exercised (to the extent it
was then exercisable) for a period of up to three years, as determined by the
Committee at or after the grant date, subject to the stated term of the option.
(For this purpose and except as otherwise determined by the Committee, options
will be deemed to have become fully exercisable immediately prior to death if
not already fully exercisable.) If an optionee terminates employment by reason
of normal retirement or disability and thereafter dies while the option is still
exercisable, the option will in general be exercisable for at least a year
following death, subject to the stated term of the option. The Committee may at
or after the grant date provide for acceleration of the exercisability of an
option upon termination of employment.
If the employment of an optionee terminates for any reason other than
normal retirement, disability, or death, his or her options will remain
exercisable, to the extent then exercisable, for 60 days (or such longer period
up to three years as the Committee shall determine at or after the grant date)
following termination, subject to the stated term of the option. In the case of
optionees receiving other severance benefits in connection with the termination
of employment, a portion of any options not otherwise exercisable at termination
of employment may be accelerated. The Committee may also provide for the
forfeiture or recision of Awards in the event an optionee competes with the
Company or its subsidiaries or discloses confidential information, either before
or after exercise.
Without taking into account the proposed plan amendments described under
Item 3 below, the 1986 Plan provides that each person who is a non-employee
director is automatically granted a nonstatutory option for 10,000 shares of
Common Stock, at an option exercise price equal to the fair market value of the
Common Stock on the date of grant. Non-statutory options granted to non-employee
directors are for a term of 5 years and vest in equal annual installments over
the first four years. Upon expiration of the original 5-year term of these
options, a new option is automatically granted at a new option price (equal to
the fair market value of the Common Stock on the date of grant) for a new 5-year
period, exercisable for 10,000 shares (or such lower amount available under the
overall program limits). Non-employee directors are not be eligible for stock
appreciation rights or other Awards under the 1986 Plan, other than the
automatic grants of nonstatutory options described in this paragraph.
Stock Appreciation Rights. The Committee may also grant non-transferable
stock appreciation rights, alone or in conjunction with options, entitling the
holder upon exercise to receive an amount in any combination of cash or shares
of unrestricted Common Stock, Restricted Stock, or Deferred Stock (as determined
by the Committee), not greater in value than the increase since the date of
grant in the value of the shares covered by such right. Stock appreciation
rights may be granted separately from or in tandem with the grant of an option.
Each tandem stock appreciation right terminates upon the termination or exercise
of any accompanying option.
In addition to stock appreciation rights exercisable at the discretion of
the holder, the Committee may also determine in its sole discretion that, if so
requested by an option holder, the Company will pay the optionee, in
cancellation of the related option, any combination of cash, unrestricted Common
Stock, Restricted Stock, or Deferred Stock (as determined by the Committee) not
greater in value than the increase since the date of grant of the option in the
value of the shares covered by the option.
The fair market value of a share will generally be the closing sale price
on the date of exercise. However, the 1986 Plan gives the Committee discretion
to establish a uniform "fair market value" that would apply to any rights which
are exercised or requests which are made and honored with respect to officers
(including officers who are directors) of the Company during certain designated
periods, irrespective of the market price of the Common Stock on the particular
day during such period on which such rights are exercised. This authority has
been included in order to eliminate differences in the appreciation payable with
respect to rights exercised by officers who may be subject to potential
liability under Section 16(b) of the Securities Exchange Act of 1934 in respect
of rights settled in cash unless they exercise such rights during certain
limited periods. At present, such periods consist of four ten-day "window
periods" each year following publication of quarterly
10
<PAGE> 14
or annual earnings results of the Company. The Committee may not establish for
this purpose a "fair market value" for any period which exceeds the highest
closing sale price of the Common Stock reported on the New York Stock Exchange
during such period.
Based on current accounting and reporting standards, there would be a
charge to earnings with respect to any stock appreciation rights which have been
granted, based upon the amount of appreciation, if any, in the market value of
the shares covered under the related options over the option price, and there
would be a credit to earnings, to the extent of previously recognized charges
for appreciation, for decline in the market value of such shares. Based on
current accounting and reporting standards, applicable charges and credits would
commence with the granting of stock appreciation rights based on market
appreciation or depreciation above or below the option price and would continue
to be recorded quarterly until the exercise, surrender, or termination of the
rights.
Restricted Stock and Unrestricted Stock. The Committee may also award
shares of Common Stock subject to such conditions and restrictions as the
Committee may determine ("Restricted Stock"). The purchase price, if any, of
shares of Restricted Stock shall be determined by the Committee, but if any
purchase price is payable in an amount which exceeds the lesser of the par value
of the shares or 10% of the fair market value of the Common Stock on the award
date, it shall be equal to at least 50% of the fair market value of the Common
Stock on the award date.
Recipients of Restricted Stock must enter into a Restricted Stock award
agreement with the Company, in such form as the Committee determines, setting
forth the restrictions to which the shares are subject and the date or dates on
which the restrictions will lapse. The Committee may at any time waive such
restrictions or accelerate such dates. Shares of Restricted Stock are
non-transferable and if a participant who holds shares of Restricted Stock
terminates employment for any reason (including death) prior to the lapse or
waiver of the restrictions, the Company will have the right within 60 days
following termination of employment to require the forfeiture or repurchase of
the shares in exchange for the amount, if any, which the participant paid for
them. Prior to the lapse of restrictions on shares of Restricted Stock, the
participant will have all rights of a shareholder with respect to the shares,
including voting and dividend rights, subject only to the conditions and
restrictions generally applicable to Restricted Stock or specifically set forth
in the Restricted Stock award agreement.
The Committee may also grant shares (at no cost or for a purchase price
equal to par value or less) which are free from any restrictions under the 1986
Plan ("Unrestricted Stock"). Unrestricted Stock could be issued in recognition
of past services or in other circumstances where the Committee determines the
grant to be in the best interests of the Company.
Deferred Stock. The Committee may also make Deferred Stock awards under
the 1986 Plan. These are non-transferable Awards entitling the recipient to
receive shares of Common Stock without any payment in one or more installments
at a future date or dates, as determined by the Committee. Receipt of Deferred
Stock may be conditioned on such matters as the Committee shall determine,
including continued employment or attainment of performance goals. A recipient
of a Deferred Stock award must enter into an agreement setting forth the
applicable provisions for deferral and receipt of stock, as determined by the
Committee. Except as otherwise determined by the Committee, all such rights will
terminate upon the participant's termination of employment. Any deferral
restrictions under a Deferred Stock award may be waived by the Committee at any
time prior to termination of employment.
Performance Units. The Committee may also award non-transferable
Performance Units entitling the recipient to receive shares of Common Stock or
cash in such combinations as the Committee may determine. Payment of the Award
may be conditioned on achievement of individual or Company performance goals
over a fixed or determinable period and such other conditions as the Committee
shall determine. A recipient of the Award must enter into an agreement setting
forth the applicable conditions, as determined by the Committee. Except as
otherwise determined by the Committee, rights under a Performance Unit award
will terminate upon a participant's termination of employment. Any conditions in
an Award may be waived or modified by the Committee at any time prior to
termination of employment.
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<PAGE> 15
Performance Units may be awarded independently or in connection with stock
options or other Awards under the 1986 Plan. Unless otherwise determined by the
Committee, exercise of Performance Units issued in connection with stock options
shall reduce the number of shares subject to the option on such basis as is
specified in the award agreement.
Other Stock-based Awards. The Committee may in its discretion grant other
types of Awards of, or based on, Common Stock ("Other Stock-based Awards"). Such
Awards may include debt securities convertible into or exchangeable for shares
of Common Stock upon such conditions, including attainment of performance goals,
as the Committee shall determine. Subject to the purchase price limitations
described below in this paragraph, such convertible or exchangeable securities
may have such terms and conditions as the Committee may determine at the time of
grant. However, no convertible or exchangeable debt security shall be issued
unless the Committee shall have provided (by Company right of repurchase, right
to require conversion or exchange, or other means deemed appropriate by the
Committee) a means of avoiding any right of the holders of such debt security to
prevent a Company transaction by reason of covenants in such debt security. The
Committee may determine the amount and form of consideration, if any, payable
upon the issuance of convertible securities, except that no shares of Common
Stock, other than Common Stock issued for a price, if any, of par value or less,
shall be issued unless the Company has received payment for the Common Stock (or
for the securities convertible into the Common Stock) equal to at least 50% of
the fair market value of the Common Stock on the grant or effective date, or the
exchange or conversion date, under the Award, as determined by the Committee.
The Committee may prescribe limitations or conditions requiring forfeiture
by the participant, or permitting repurchase by the Company, of Other
Stock-based Awards or related Common Stock or securities, and may at any time,
if it determines such action to be in the best interests of the Company,
accelerate or waive any such limitations or conditions. Participants receiving
an Other Stock-based Award must enter into Other Stock-based Award agreements
with the Company, setting forth the applicable limitations and conditions.
Other Stock-based Awards may not be sold, assigned, transferred, pledged,
or encumbered except as may be provided in the Other Stock-based Award
agreement, and in no event may be transferred other than by will or by the laws
of descent and distribution or be exercised, during the life of the participant,
other than by the participant's guardian or legal representative.
The recipient of an Other Stock-based Award will have rights of a
shareholder only to the extent, if any, specified by the Committee in the Other
Stock-based Award agreement.
Supplemental Grants. In connection with Awards granted or exercised under
the 1986 Plan, the Committee may authorize loans from the Company to the
participant. Loans, including extensions, may be for up to 10 years and may be
either secured or unsecured. Each loan shall be subject to such terms and
conditions and shall bear such rate of interest, if any, as the Committee shall
determine. However, no such loan shall be used to pay the par value of any
shares issued to the borrower, and the amount of any such loan shall not exceed
the total exercise or purchase price paid by the borrower under an award or for
related stock plus an amount equal to the cash payment which could have been
paid to the borrower in respect of taxes as described in the next paragraph.
Loans may be made at any time, subject to such limitations as the Committee
shall prescribe.
The Committee may at any time also grant to a participant the right to
receive a cash payment in connection with taxable events (including the lapse of
restrictions) under grants or awards. The amount of such payment will be
determined in relation to the taxable amount recognized in respect of such other
grant or award, on the assumption that the affected participant is subject to
the maximum marginal Federal tax rate (or such lower rate as the Committee may
determine) as in effect at the time such taxable income is recognized. The
amount of any such payment may be up to but may not exceed the amount estimated
to be necessary to cover the Federal income tax so calculated as due with
respect to such other grant or award and with respect to the cash payment
itself.
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<PAGE> 16
Dividends and Deferrals; Nature of Company's Obligations Under the
Plan. The Committee may require or permit the immediate payment or the waiver,
deferral, or investment of (i) dividends paid on Awards under the 1986 Plan, and
(ii) amounts equal to dividends which would have been paid if shares subject to
an Award had been outstanding. It may also permit participants to make elections
to defer receipt of benefits under the 1986 Plan. The Committee may also permit
participants to make elections to defer receipt of benefits under the 1986 Plan.
The Committee may also provide for the accrual of interest or dividends on
amounts deferred under the 1986 Plan on such terms as the Committee may
determine. Unless the Committee expressly determines otherwise, participants in
the 1986 Plan will have no rights greater than those of a general creditor of
the Company. The Committee may authorize the creation of trusts and other
arrangements to facilitate or ensure the Company's obligations under the 1986
Plan, provided that such trusts and arrangements are consistent with the
foregoing provisions.
Adjustments for Stock Dividends, Mergers, etc. The Committee is required
to make appropriate adjustments in connection with outstanding Awards to reflect
stock dividends, stock splits, and similar events. In the event of a merger,
liquidation, or similar event, the Committee in its discretion may provide for
substitution or adjustments or may accelerate or, upon payment of other
consideration for the vested portion of any Award as the Committee deems
equitable in the circumstances, terminate such Awards.
Amendment and Termination. The Board of Directors may at any time amend or
discontinue the 1986 Plan and the Committee may at any time amend or cancel
Awards (or provide substitute awards at the same or reduced exercise or purchase
price, including lower priced Awards upon the termination of any then
outstanding awards) for the purpose of satisfying changes in the law or for any
other lawful purpose. However, no such action shall adversely affect any rights
under outstanding Awards without the holder's consent. Moreover, any amendment
requiring shareholder approval for purposes of satisfying any then-applicable
incentive stock option rules or the requirements of Rule 16b-3 under the
Securities Exchange Act of 1934 shall be subject to such shareholder approval to
the extent then required. Currently, the incentive stock option regulations
would require shareholder approval for an increase in the maximum number of
shares issuable pursuant to incentive options under the 1986 Plan or a
modification in incentive stock option eligibility requirements under the 1986
Plan. Rule 16b-3 would currently require such approval if the amendment
materially increased benefits accruing to Company directors and officers under
the 1986 Plan, materially increased the number of securities issuable under the
1986 Plan, or materially modified eligibility requirements under the 1986 Plan.
FEDERAL INCOME TAX CONSEQUENCES
The Company is advised that under the Federal income tax laws as now in
effect, the income tax consequences associated with stock options awarded under
the 1986 Plan are, in summary, as follows:
Incentive Options. No ordinary taxable income is realized by the optionee
upon the grant or exercise of an ISO. If no disposition of shares issued to an
optionee pursuant to the exercise of an ISO is made by the optionee within two
years from the date of grant or within one year after the transfer of such
shares to the optionee, then (a) upon sale of such shares, any amount realized
in excess of the option price (the amount paid for the shares) will be taxed to
the optionee as a long-term capital gain and any loss sustained will be a
long-term capital loss, and (b) no deduction will be allowed to the Company. The
exercise of an ISO will, however, increase the optionee's alternative minimum
taxable income and may result in alternative minimum tax liability for the
optionee.
If shares of Common Stock acquired upon the exercise of an ISO are disposed
of prior to the expiration of the two-year and one-year holding periods
described above (a "disqualifying disposition"), generally (a) the optionee will
realize ordinary income in the year of disposition in an amount equal to the
excess (if any) of the fair market value of the shares at exercise (or, if less,
the amount realized on a sale of such shares) over the option price thereof, and
(b) the Company will be entitled to deduct such amount. Any further gain
realized will be taxed as short-term or long-term capital gain and will not
result in any deduction by the Company. Special rules may apply where all or a
portion of the exercise price of the ISO is paid by tendering shares of Common
Stock. A disqualifying disposition will eliminate the alternative minimum
taxable income
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<PAGE> 17
adjustment associated with the exercise of the ISO if it occurs in the same
calendar year in which the adjustment occurred.
If an ISO is exercised at a time when it no longer qualifies for the tax
treatment described above, the option is treated as a nonstatutory option.
Generally, an ISO will not be eligible for the tax treatment described above if
it is exercised more than three months following termination of employment (one
year following termination of employment, in the case of termination by reason
of permanent and total disability), except in certain cases where the ISO is
exercised after the death of the optionee. Options otherwise qualifying as ISOs
will also be treated for federal income tax purposes as nonstatutory options to
the extent they (together with other ISOs held by the optionee) first become
exercisable in any calendar year for shares having a fair market value,
determined at the time of the option grant, exceeding $100,000.
Nonstatutory Options. With respect to nonstatutory options under the 1986
Plan, no income is realized by the optionee at the time the option is granted.
Generally, (a) at exercise, ordinary income, subject (in the case of options
granted to an employee) to withholding, is realized by the optionee in an amount
equal to the difference between the option price and the fair market value of
the shares on the date of exercise, and the Company, provided it satisfies
applicable withholding requirements, receives a tax deduction for the same
amount, and (b) at disposition, appreciation or depreciation after the date of
the exercise is treated as capital gain or loss, either short-term or long-term
depending on how long the shares have been held.
Certain Limitations. The Internal Revenue Code limits to $1 million the
deduction a public corporation may claim for remuneration paid to any of its
five top officers, subject to a number of exceptions and special rules. Eligible
performance-based compensation is exempt from this limit. The Company intends
that compensation associated with the exercise of stock options (and stock
appreciation rights) awarded under the 1986 Plan at an option price at least
equal to fair market value will qualify for this performance-based exemption,
although the Internal Revenue Service has not yet issued final regulations
explaining all relevant details of the $1 million deduction limitation.
The Internal Revenue Code also limits the amount of compensation that may
be paid without penalty in connection with a change in control. In general, if
the total of an individual's change-in-control related compensation equals or
exceeds three times his or her average annual taxable compensation over the five
calendar years preceding the change in control, all of the change-in-control
related compensation in excess of that average is nondeductible and subject to
an additional 20% tax. In making these determinations, some portion or all of
the value of options accelerated in connection with a change in control may be
taken into account.
The foregoing discussion is provided for the information of shareholders
and does not purport to be a complete description of the Federal tax
consequences in respect of option transactions under the 1986 Plan, nor does it
describe state or local tax consequences.
3. PROPOSAL TO AMEND THE COMPANY'S 1986 STOCK INCENTIVE
PLAN RELATIVE TO NON-EMPLOYEE DIRECTOR OPTIONS
PROPOSAL
As stated briefly under Item 2, Section 6(m) of the 1986 Plan ("Section
6(m)") provides for automatic stock option grants to non-employee directors.
Under this provision of the existing 1986 Plan, 100,000 shares are reserved for
issuance under options for non-employee directors. Subject to such limit, each
eligible non-employee director is granted a non-statutory stock option for
10,000 shares of stock, at a purchase price equal to the fair market value of
the stock on the date of grant. The number of shares and purchase price are
subject to adjustment upon changes in the capitalization of the Company. The
options may only be exercised during the 5-year period beginning on the date of
grant. Under the 1986 Plan as amended by vote of the shareholders in 1991, upon
expiration of the 5-year term of the original option granted to a non-employee
director, a new option will automatically be granted to the eligible director to
purchase an additional 10,000 shares, at an exercise price equal to the fair
market value of the Common Stock on the date of the new grant. (The number
14
<PAGE> 18
of shares is subject to reduction if at the time of grant, the number of shares
then available under the overall program limits of Section 6(m) is less than
10,000.) The new option, like the original option, has a 5-year term and vests
in twenty-five percent annual installments over the first four years of its
term.
As of September 13, 1994, under Section 6(m) options to purchase an
aggregate of 45,000 shares were outstanding, and 55,000 shares were available on
that date for the grant of future options under that Section. Up to 45,000
additional shares could become available for options under Section 6(m) if those
options outstanding on September 13, 1994 lapse or terminate. Currently, four of
the five non-employee directors of the Company hold options under Section 6(m)
to purchase 10,000 shares each, which options are exercisable at prices and
expire on dates, as follows: John M. Albertine -- 10,000 shares at $5.125 per
share, expiring October 21, 1996; George N. Hatsopoulos -- 10,000 shares at
$5.125 per share, expiring October 23, 1995; Andrew L. Nichols -- 10,000 shares
at $5.125 per share, expiring October 21, 1996; and Roger D. Wellington --
10,000 shares at $5.125 per share, expiring October 21, 1996. Lucie J.
Fjeldstad, who was elected a director after the amended Section 6(m) was adopted
by the directors (subject to approval by the shareholders), is not eligible to
receive a 10,000 share award (unless the shareholders do not approve the
proposed amendments to Section 6(m) -- in which event the provisions of Section
6(m), as in effect prior to the proposed amendments, remain operative).
If approved by the shareholders, amended Section 6(m) provides that an
option to purchase 3,000 shares of Common Stock would be granted automatically
on an annual basis to each eligible director on the third business day following
the date of each Annual Meeting of Shareholders at which the eligible director
is elected or continues to serve under an unexpired term. The exercise price of
each option would be equal to the fair market value per share of the Common
Stock on the date the option is granted. Under the proposed amendments to the
1986 Plan, 150,000 shares of Common Stock (out of the new total of 3,000,000
shares) would be reserved for issuance under options for non-employee directors,
an increase of 50,000 shares from the current limit. Consistent with the
revisions to the 1986 Plan proposed in Item 2, if approved by the stockholders,
no option may be granted to the non-employee directors under amended Section
6(m) of the 1986 Plan after December 1, 1999. Pursuant to the amendments to
Section 6(m), Directors Albertine, Fjeldstad, Hatsopoulos, Nichols, and
Wellington would (if serving on that date and otherwise eligible) be granted
options for 3,000 shares each on November 8, 1994, and annually thereafter (if
serving and otherwise eligible). The options held currently by non-employee
directors would not be affected, but would not be renewed upon the expiration of
the respective 5-year option term. If the proposal outlined in Item 3 is not
approved by shareholders, the proposed amendments to Section 6(m) would not
become effective and Section 6(m) would be applied as currently drafted (and Ms.
Fjeldstad would be automatically granted a 10,000 share option, effective on the
date of the Annual Meeting).
Exhibit A to the Proxy Statement contains the text of the existing Section
6(m), together with language, printed in brackets and lined-through, proposed to
be deleted and language, printed with underscoring, proposed to be added,
together constituting the amendments submitted for approval. If the proposal
outlined in Item 2 is not approved by stockholders, however, Item 3 will not be
presented for action at the Annual Meeting, but will be withdrawn.
AMENDED 1986 PLAN BENEFITS
The table below sets forth information with respect to the stock options
that would automatically be granted to current non-employee directors on
November 8, 1994 under the 1986 Plan as proposed to be amended, subject to
stockholder approval of the amendments to Section 6(m) of the 1986 Plan.
<TABLE>
<CAPTION>
1986 PLAN AS PROPOSED TO BE AMENDED
NAME AND POSITION NUMBER OF PROVISIONAL OPTIONS
- - ----------------- -----------------------------------
<S> <C>
Non-Executive Officer, Non-Employee Director Group....... 15,000(1)
<FN>
- - ---------------
(1) Will increase annually at 3,000 options per non-employee director on
the third business day following the date of each annual meeting, for
each non-employee director serving on such date(s).
</TABLE>
15
<PAGE> 19
RECOMMENDATION
The Board of Directors believes that Section 6(m) of the 1986 Plan, as
amended, will better provide for the recruitment and retention of highly
qualified outside directors, and will strengthen the linkage of interest between
directors and shareholders. The Board of Directors believes that the amendments
are in the best interests of the Company and its shareholders and recommends
that the shareholders approve the described amendments.
It is the intention of the persons named as proxies to vote the shares to
which the proxy relates to approve the amendments to Section 6(m) of the 1986
Plan, unless instructed to the contrary.
The Board of Directors recommends a vote FOR this proposal.
SUMMARY OF SECTION 6(M) OF THE 1986 STOCK INCENTIVE PLAN
The full text of Section 6(m), currently in effect and as proposed to be
amended, of the 1986 Plan is set forth in Exhibit A to this Proxy Statement, to
which reference is made, and the following description of Section 6(m) is
qualified in its entirety by that reference.
Subject to approval of the described amendments by the shareholders,
Section 6(m) would provide that non-employee directors are each automatically
granted a non-statutory option for 3,000 shares of Common Stock on an annual
basis on the third business day following the date of each Annual Meeting of
Shareholders at which the eligible director is elected or continues to serve
under an unexpired term. The options are at an exercise price equal to the fair
market value of the Common Stock on the date of grant. Individuals who in the
future first become non-employee directors of the Company will likewise be
eligible (subject in each case to availability under the aggregate limit of
150,000 available shares under the program). Options so granted to non-employee
directors are for a term of 5 years and vest in twenty-five percent annual
installments over the first four years of the option. It is proposed to amend
the vesting schedule to provide that upon the death of a non-employee director,
any option held by the individual under the 1986 Plan would become fully
exercisable by the deceased director's representative. Non-employee directors
are not eligible for awards under the 1986 Plan, other than the automatic grants
of options described herein.
Certain other general provisions of the 1986 Plan affect Section 6(m),
including the following: Under the 1986 Plan, the Compensation and Stock Option
Committee of the Board of Directors is required to make appropriate adjustments
in connection with outstanding awards to reflect stock dividends, stock splits,
and similar events. In the event of a merger, liquidation, or similar event, the
Committee in its discretion may provide for substitution or adjustments or may
accelerate or, upon payment of other consideration for the vested portion of any
award as the Committee deems equitable in the circumstances, terminate such
awards (although the 1986 Plan provides that no adjustment shall affect options
under Section 6(m) if the adjustment would cause non-employee directors to fail
to be eligible as "disinterested persons" under the Securities Exchange Act of
1934).
The Board of Directors may at any time amend or discontinue the 1986 Plan
and the Committee may at any time amend or cancel awards (or provide substitute
awards at the same or reduced exercise or purchase price, including lower-priced
awards upon the termination of any then outstanding awards) for the purpose of
satisfying changes in the law or for any other lawful purpose. However, no such
action shall adversely affect any rights under outstanding awards without the
holder's consent. Moreover, any amendment requiring shareholder approval for
purposes of satisfying any then applicable rules under Federal tax law or the
requirements of Rule 16b-3 under the Securities Exchange Act of 1934 shall be
subject to such shareholder approval to the extent then required. Rule 16b-3
would currently require such approval if the amendment materially increased
benefits, materially increased the number of securities issuable under the 1986
Plan, or materially modified eligibility requirements under the 1986 Plan. In
addition, Section 6(m) currently provides that notwithstanding the general
amendment provisions described above, Section 6(m) cannot be amended more often
than once every 6 months; this latter provision is proposed to be eliminated
from the section, subject to shareholder approval.
16
<PAGE> 20
Stock options granted to non-employee directors under Section 6(m) of the
1986 Plan are treated as nonstatutory options for federal income tax purposes.
For a general description of the federal income tax treatment associated with
nonstatutory options granted under the 1986 Plan, see information under the
caption "2. Proposal to Amend the 1986 Stock Incentive Plan Relative to Increase
in Shares, Extension of Period for Awards, and Changes to Conform to the Tax
Code -- Federal Income Tax Consequences" above.
4. SELECTION OF AUDITORS
The Board of Directors, upon recommendation by its Audit Committee, has
selected Coopers & Lybrand as auditors of the Company for the fiscal year ending
June 30, 1995, subject to ratification by the shareholders. Coopers & Lybrand
has acted as the Company's auditors since 1965. The Company has been advised by
Coopers & Lybrand that neither such firm nor any of its members has any
financial interest in the Company or any of its subsidiaries or has had any
connection during the past three years with the Company or any of its
subsidiaries in the capacity of promoter, underwriter, voting trustee, director,
officer, or employee. Representatives of the firm will attend the Annual
Meeting, where they will have the opportunity to make a statement if they wish
to do so and will be available to respond to appropriate questions from the
shareholders. It is the intention of the persons named as proxies to vote the
shares to which the proxy relates for ratifying the selection of such firm as
auditors of the Company, unless instructed to the contrary. Should the selection
of Coopers & Lybrand as auditors of the Company not be ratified by the
shareholders, the Board of Directors will reconsider the matter.
The Board of Directors recommends a vote FOR this proposal.
<TABLE>
PRINCIPAL HOLDERS OF COMPANY COMMON STOCK
As of September 13, 1994, there were 16,768,449 shares of Common Stock of
the Company outstanding. The Company knows of no person who may be deemed to own
beneficially more than five percent of the outstanding Common Stock, except as
follows:
<CAPTION>
AMOUNT PERCENT
TITLE OF NAME AND ADDRESS OF BENEFICIALLY OF
CLASS BENEFICIAL OWNER OWNED CLASS
-------- ------------------- ------------ -------
<S> <C> <C> <C>
Common Stock............. Kopp Investment Advisors, Inc. 1,665,680(1) 9.9%(1)
<FN>
- - ---------------
(1) Kopp Investment Advisors, Inc., a registered investment advisor, has
informed the Company, by a report dated April 8, 1994, that it holds such
number of shares for the benefit of investment accounts managed by the firm,
and as to which accounts it has no voting power but has shared investment
power. Kopp further reported that no individual account managed by Kopp
owned more than 5% of the Company's shares.
</TABLE>
<TABLE>
As of September 13, 1994, the executive officers and former executive
officers of the Company named in the Summary Compensation Table below and all
directors and executive officers of the Company at that date as a group owned
beneficially shares of Common Stock as follows:
<CAPTION>
AMOUNT
BENEFICIALLY PERCENT
TITLE OF CLASS NAME OR GROUP OWNED(1)(2) OF CLASS(3)
-------------- ------------- ------------ -----------
<S> <C> <C> <C>
Common Stock............... George H. Conrades 222,202 1.3%
Stephen R. Levy 387,991 2.3%
W.B. Barker 81,383
Frank E. Heart 42,862
David C. Walden 95,545
Bruce H. Rampe 20,000
Ralph A. Goldwasser 29,024
Jonathan C. Crane 0
All current directors
and executive
officers as a group
(12 persons)(4) 807,511(5)(6)(7)(8) 4.7%(5)(6)(7)(8)
</TABLE>
17
<PAGE> 21
- - ---------------
(1) The inclusion herein of any shares deemed beneficially owned under the rules
of the Securities and Exchange Commission does not constitute an admission
of beneficial ownership of such shares.
(2) The shares shown as owned beneficially by the named individuals include
200,000 (of which 75,000 are conditional upon approval at the Annual Meeting
of Item 2 by shareholders), 154,500, 39,000, 3,000, 49,000, and 29,000
shares, respectively, as to which Messrs. Conrades, Levy, Barker, Heart,
Walden, and Goldwasser have the right to acquire ownership through the
exercise of those options, held by each under the stock option plans of the
Company, which are exercisable within 60 days of September 13, 1994. The
shares shown as owned beneficially by Messrs. Levy, Barker, and Walden also
include 32,995, 8,242, and 225 shares, respectively, held in his participant
account under the BBN Retirement Trust.
(3) If such percentage exceeds 1%.
(4) Messrs. Heart, Walden, and Rampe, are no longer executive officers of the
Company, and shares held by them are not included in the group tabulation.
Information concerning the holdings by Mr. Rampe, who is no longer in the
employ of the Company, has been provided to the Company by Mr. Rampe.
(5) The shares shown as owned beneficially include 324 shares owned by the
spouse of one included director, as to which shares beneficial ownership by
the applicable director is disclaimed, and 900 shares owned by a partnership
of which a director is a general partner and has a 50% beneficial interest.
The shares shown as owned beneficially also include an aggregate of 25,202
shares as to which one director and two executive officers (including one
individual named in the table) share voting and investment power with their
respective spouses.
(6) The shares shown as owned beneficially include 33,653 shares represented by
units allocated under the Company's deferred compensation plan for
non-employee directors entitling two directors as of July 1, 1994 to receive
in the aggregate that number of shares of Common Stock on or after their
respective deferral termination dates.
(7) The shares shown as owned beneficially include an aggregate of 458,000 (of
which 75,000 are conditional upon approval at the Annual Meeting of Item 2
by shareholders) shares as to which certain directors and current executive
officers (including current executive officers named in the table) have the
right to acquire ownership through the exercise of those options, held by
such directors and current executive officers under stock option plans of
the Company, which are exercisable within 60 days of September 13, 1994.
(8) The shares shown as owned beneficially include an aggregate of 41,237 shares
held in the participant accounts of Messrs. Levy and Barker under the BBN
Retirement Trust.
Information with respect to beneficial ownership of Common Stock by the
directors and nominees is contained in the table and footnotes under the caption
"1. Election of Directors -- Biographical Information" above. Information in the
table above and in the table with respect to directors and nominees under Item 1
does not include options to acquire Common Stock or common stock of
subsidiaries, but does include shares of Common Stock which have not been issued
but which are subject to options which either are currently exercisable or will
become exercisable within 60 days of September 13, 1994; no shares of
subsidiaries which are the subject of options are included, since none of the
subsidiary options are exercisable within 60 days of September 13, 1994.
18
<PAGE> 22
<TABLE>
COMPENSATION AND CERTAIN OTHER TRANSACTIONS INVOLVING EXECUTIVE OFFICERS
Compensation. There is set forth below, on an accrual basis, the aggregate
amount of base salary, bonus, and other cash compensation paid by the Company,
and the number of shares of Common Stock of the Company and of common stock of
specified subsidiaries of the Company issuable upon exercise of stock options
granted under the respective company's stock option plans, during the fiscal
years ended June 30, 1994, 1993, and 1992 for services rendered, to the two
individuals (Messrs. Conrades and Levy) who served at any time during the fiscal
year ended June 30, 1994 as chief executive officer of the Company, to the four
other most highly compensated individuals (Messrs. Barker, Heart, Goldwasser,
and Crane) who were serving as executive officers of the Company at the end of
the 1994 fiscal year, and to two other highly compensated individuals (Messrs.
Walden and Rampe) who although not currently serving as executive officers,
served as executive officers during a portion of the 1994 fiscal year. Mr. Rampe
is no longer in the employ of the Company and Mr. Heart has retired as an
officer and from the full-time employ of the Company.
SUMMARY COMPENSATION TABLE
<CAPTION>
LONG-TERM
COMPENSATION
------------
STOCK
ANNUAL COMPENSATION UNDERLYING
---------------------------------- OPTIONS (NUMBER ALL
FISCAL OTHER ANNUAL OF SHARES AND OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION COMPANY(1)) COMPENSATION(2)
- - --------------------------- ------ ------ ----- ------------ --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
George H. Conrades......... 1994 $206,154(3) 0 $ 88,800(4) 800,000(BBN)(5) 0
President and Chief 100,000(LSC)
Executive Officer 100,000(SPC)
Stephen R. Levy............ 1994 337,500 0 50,000(LSC) $ 17,127
Chairman of the Board; 50,000(SPC)
formerly President and 1993 359,375 0 0(BNN) 17,165
Chief Executive Officer 1992 375,000 0 120,000 16,667
W.B. Barker................ 1994 225,750 0 30,000(LSC) 13,063
Senior Vice President 30,000(SPC)
1993 158,708 0 55,000(BBN) 11,283
1992 168,375 0 15,000(BBN) 11,803
Frank E. Heart............. 1994 212,500 $50,000 10,000(LSC)(6) 17,127
formerly Senior Vice 1993 177,817 10,000 70,000(BBN) 14,085
President 1992 174,271 0 10,000(BBN) 13,070
David C. Walden............ 1994 210,000 0 0(BBN) 15,250
Senior Vice President and 1993 208,750 0 45,000 15,537
formerly an executive 1992 201,250 0 15,000(BBN) 15,094
officer
Bruce H. Rampe............. 1994 200,000 10,000 150,000(SPC)(7) 173,094(8)
formerly Vice President 1993 198,750 0 0(BBN)(9) 14,906
1992 191,250 0 20,000 14,344
Ralph A. Goldwasser........ 1994 172,500 0 25,000(BBN) 12,527
Senior Vice President and 7,000(LSC)
Chief Financial Officer 7,000(SPC)
1993 165,000 0 0(BBN) 12,375
1992 160,000 0 15,000 12,000
Jonathan C. Crane.......... 1994 94,711(10) 0 16,355(11) 50,000(BBN)(12) 0
Vice President 300,000(LSC)
- - ---------------
<FN>
(1) In addition to options granted to purchase Common Stock of the Company
(designated in the table as "BBN"), certain executive officers of the
Company have been granted options to purchase common stock of specified
subsidiaries of the Company, as compensation for their services related to
the subsidiary. Options were granted during the fiscal year ended June 30,
1994 to the specified executive officers in the following subsidiaries of
the Company: LightStream Corporation (designated in the table
</TABLE>
19
<PAGE> 23
as "LSC"), a majority-owned subsidiary of BBN, and BBN Software Products
Corporation (designated in the table as "SPC"), a wholly-owned subsidiary
of BBN.
(2) Except as otherwise noted, indicated amounts are the Company's contribution
to the BBN Retirement Trust, the tax-qualified defined contribution
retirement plan of the Company and its subsidiaries, for the benefit of the
indicated individual.
(3) Payments primarily constituting six months of salary, at an annualized rate
of $400,000 per year.
(4) Amount includes interim local living expenses prior to Mr. Conrades'
relocation to Massachusetts paid, and estimated tax reimbursement for
interim local living expenses accrued, in the fiscal year, aggregating
$51,300. Amount also includes $37,500, the amount of the difference between
the price paid by Mr. Conrades for 22,202 shares of common stock of the
Company purchased from the Company upon Mr. Conrades joining the employ of
the Company, and the fair market value of such shares on the date of
purchase. Additional interim local living expenses and relocation moving
and related expenses incurred after June 30, 1994, together with tax
reimbursement for such payments, will be paid to Mr. Conrades under a
relocation benefits budget, subject to the approval of the Compensation and
Stock Option Committee of the Board of Directors.
(5) Options for 500,000 shares were granted under the Company's 1986 Stock
Incentive Plan, and options for 300,000 shares were granted under a
proposed amendment to the 1986 Stock Incentive Plan, subject to shareholder
approval at the 1994 Annual Meeting (see information under the caption "2.
Proposal to Amend the 1986 Stock Incentive Plan Relative to Increase in
Shares, Extension of Period for Awards, and Changes to Conform to the Tax
Code" above).
(6) Option was unvested at, and terminated upon, Mr. Heart's retirement from
the full-time employ of the Company in July 1994.
(7) Option was unvested at, and terminated upon, Mr. Rampe leaving the employ
of the Company in July 1994.
(8) In addition to 1994 contribution to the BBN Retirement Trust, the amount
includes $131,844 in severance pay, and an entitlement of up to $26,000 in
employment counseling services reimbursement.
(9) Option for 8,000 of such shares was unvested at, and terminated upon, Mr.
Rampe leaving the employ of the Company in July 1994.
(10) Payments primarily constituting 19 weeks of salary, at an annualized rate
of $250,000 per year.
(11) Amount represents interim local living expenses prior to Mr. Crane's
relocation to Massachusetts paid, and estimated tax reimbursement for
interim local living expenses accrued, in the fiscal year. Additional
interim local living expenses and relocation moving and related expenses
incurred after June 30, 1994, together with tax reimbursement for such
payments, will be paid to Mr. Crane under a relocation benefits budget,
subject to the approval of the Compensation and Stock Option Committee of
the Board of Directors.
(12) Options were granted under a proposed amendment to the 1986 Stock Incentive
Plan, subject to shareholder approval at the 1994 Annual Meeting (see
information under the caption "2. Proposal to Amend the 1986 Stock
Incentive Plan Relative to Increase in Shares, Extension of Period for
Awards, and Changes to Conform to the Tax Code" above).
The aggregate incremental cost of personal benefits provided by the Company
in each of fiscal 1994, 1993, and 1992 to each of the individuals named in the
Summary Compensation Table (other than to Messrs. Conrades and Crane), did not
exceed the lesser of $50,000 or 10% of the indicated amount of total annual
salary and bonus reported for the named individual in the Summary Compensation
Table.
Employment Agreements, Loans, and Separation Pay Arrangements. The
agreement with Mr. Conrades provides that if his employment is terminated by the
Company without cause, the Company will pay him an amount equal to one year's
base salary, as full termination benefits. In addition, in the event that he
leaves BBN's employ voluntarily within the first twelve months of employment,
Mr. Conrades is required to reimburse the Company for any relocation expenses
and related tax expenses paid to him; if he leaves
20
<PAGE> 24
voluntarily during the second year of his employment, he is responsible for
reimbursing one-half of these amounts.
The agreement between LightStream Corporation and Mr. Crane provides for
similar reimbursement by Mr. Crane of relocation expenses and related tax
expenses paid to Mr. Crane, in the event he leaves the employ of LightStream
voluntarily.
Mr. Rampe left the employ of the Company on July 1, 1994, after 9 years of
service. At that time, Mr. Rampe received $131,844 in severance pay, and is
entitled to up to a maximum of $26,000 in employment counseling services
reimbursement. Mr. Rampe also is entitled to certain fringe benefit
continuances, and the vesting of certain stock options of the Company held by
Mr. Rampe at the time of severance was accelerated.
Mr. Heart retired from the full-time employment of the Company, and
resigned as an officer, effective July 31, 1994. In connection with his
retirement, the Company provided for the acceleration of the vesting of certain
stock options of the Company held by Mr. Heart at the time of his retirement.
In connection with his relocation to Massachusetts to join the employ of
the Company, John T. Kish, Jr., a Vice President of the Company and President of
BBN Software Products Corporation, a subsidiary of the Company, borrowed from
the Company in August 1994 an aggregate of $150,000 to bridge the purchase of a
house in Massachusetts, pending the sale of his previous home in California. The
borrowing is represented by a term note, due in two equal installments on August
1, 1995 and 1996, given by Mr. Kish, which note bears simple interest at 8% per
annum. The note also becomes due and payable upon termination of employment. The
principal amount currently outstanding is $150,000.
<TABLE>
Stock Option Grants. The table below sets forth information with respect
to stock options granted in fiscal year 1994 to the individuals named in the
Summary Compensation Table above; the options listed below are reflected in the
Summary Compensation Table. Information presented in the table below is with
respect to employee stock option plans; neither the Summary Compensation Table
above nor the tables on option grants and option exercises below includes
information related to the Company's employee stock purchase plan, which is
generally available to employees of the Company.
OPTION GRANTS IN LAST FISCAL YEAR
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------------------- POTENTIAL REALIZABLE
NUMBER OF SHARES VALUE AT ASSUMED ANNUAL
UNDERLYING OPTIONS RATES OF STOCK PRICE
GRANTED TO PURCHASE % OF TOTAL APPRECIATION FOR OPTIONS
COMMON STOCK OF OPTIONS GRANTED EXERCISE TERM(7)
BBN OR SPECIFIED TO EMPLOYEES IN PRICE EXPIRATION -------------------------
NAME SUBSIDIARIES(1)(2)(3)(4) FISCAL YEAR(5) ($/SH)(6) DATE(2)(3)(4) 5% 10%
- - ---- ------------------------ --------------- --------- ------------- -- ---
<S> <C> <C> <C> <C> <C> <C>
George H. Conrades.... 800,000(BBN)(2) 58.2% $12.375 12/28/03 $6,225,968 $15,778,053
100,000(LSC) 7.9 5.00 2/2/04 314,447 796,871
100,000(SPC) 10.6 3.50 12/30/03 220,113 557,810
Stephen R. Levy....... 50,000(LSC) 4.0 5.00 2/2/04 157,235 398,436
50,000(SPC) 5.4 3.50 12/30/03 110,057 278,905
W.B. Barker........... 30,000(LSC) 2.4 5.00 2/2/04 94,334 239,061
30,000(SPC) 3.2 3.50 12/30/03 66,034 167,343
Frank E. Heart........ 10,000(LSC) 0.8 5.00 (8) -- --
Bruce H. Rampe........ 150,000(SPC) 16.0 3.50 (9) -- --
Ralph A. Goldwasser... 15,000(BBN) 1.1 9.875 9/30/00 60,301 140,529
10,000(BBN) 0.7 12.625 12/13/00 51,396 119,276
7,000(LSC) 0.6 5.00 2/2/04 22,011 55,781
7,000(SPC) 0.7 3.50 12/30/03 15,408 39,047
Jonathan C. Crane..... 50,000(BBN)(10) 3.6 15.25 2/3/01 310,414 723,396
300,000(LSC) 23.8 5.00 1/18/04 943,341 2,390,613
- - ---------------
<FN>
(1) Bolt Beranek and Newman Inc. is designated in the table as "BBN";
LightStream Corporation, a majority-owned subsidiary of BBN, is designated
in the table as "LSC"; and BBN Software Products Corporation, a
wholly-owned subsidiary of BBN, is designated in the table as "SPC".
</TABLE>
21
<PAGE> 25
(2) Of the options for 800,000 BBN shares granted to Mr. Conrades, options for
500,000 shares were granted under the Company's 1986 Stock Incentive Plan,
and options for 300,000 shares were conditionally granted under a proposed
amendment to the 1986 Stock Incentive Plan, subject to stockholder approval
at the 1994 Annual Meeting. These BBN stock options were 25% vested at the
date of grant, and vest an additional 18.75% per year after each of years
1, 2, 3, and 4 following the date of grant, if the optionee is employed at
the respective date. The options were granted for a term of 10 years.
(3) All other BBN options granted in fiscal 1994 are exercisable as to 30%
after two years from grant, an additional 30% after three years, and the
remainder after four years from grant, if the optionee is employed at the
respective date. These options were each granted for terms of 7 years. In
general, all BBN options, including the options to Mr. Conrades, are
subject to termination 60 days following termination of the optionee's
employment (180 days, in the event of death). All BBN options were granted
at market value (closing price of the Company's Common Stock on the New
York Stock Exchange) at date of grant. The exercise price and tax
withholding obligations relating to exercise may be paid by delivery of
already-owned shares or by offset of the underlying shares, subject to
certain conditions.
(4) All LightStream Corporation and BBN Software Products Corporation options
granted in fiscal 1994 vest as to 25% after one year from grant, an
additional 25% after two years, an additional 25% after three years, and
the remainder after four years from grant, if the optionee is employed at
the respective date. None of the options are exercisable until 90 days
after the respective company's stock becomes publicly traded. The options
were each granted for terms of 10 years, subject to termination 60 days
following termination of the optionee's employment (180 days, in the event
of death), or if later, 90 days after the company's stock becomes publicly
traded. All options were granted at the estimated fair market value of the
company's stock at the date of grant. The exercise price and tax
withholding obligations relating to exercise may be paid by delivery of
already-owned shares or by offset of the underlying shares, subject to
certain conditions.
(5) Percentage figure is of the total options of shares of the respective
company granted in the fiscal year.
(6) Under the terms of the company's stock option plans, the Committee or the
respective board retains the discretion, subject to plan limits, to modify
the terms of outstanding options and to reprice the options.
(7) Gains are calculated net of the option exercise price, but before taxes
associated with exercise. These amounts represent certain assumed rates of
appreciation only. Actual gains, if any, in stock option exercises are
dependent upon the future performance of the respective common stock, as
well as the optionee's continued employment through the vesting period, and
for subsidiary options, on the respective company's stock becoming publicly
traded during the option period. The amounts reflected in these columns may
not necessarily be achieved.
(8) Option was unvested at, and terminated upon, Mr. Heart retiring from the
full-time employ of the Company in July 1994.
(9) Option was unvested at, and terminated upon, Mr. Rampe leaving the employ
of the Company in July 1994.
(10) Options were conditionally granted under a proposed amendment to the
Company's 1986 Stock Incentive Plan, subject to stockholder approval at the
1994 Annual Meeting.
22
<PAGE> 26
<TABLE>
Stock Option Exercises and Options Outstanding. The table below sets forth
information with respect to stock options exercised by the individuals named in
the Summary Compensation Table in fiscal year 1994, and the number and value of
unexercised options held by such persons on June 30, 1994.
OPTION EXERCISES IN FISCAL YEAR 1994 AND YEAR-END OPTION VALUES
<CAPTION>
COMPANY AND NUMBER OF
SHARES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
JUNE 30, 1994 AT JUNE 30, 1994
SHARES ---------------------- ----------------------
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED COMPANY(1) UNEXERCISABLE UNEXERCISABLE
---- ----------- -------- ---------- ------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
George H. Conrades........... -0- -- BBN 200,000(2) 600,000(2) 0(2) 0(2)
LSC 0 100,000 0 (3)
SPC 0 100,000 0 (3)
Stephen R. Levy.............. -0- -- BBN 100,500 102,000 $703,500(4) $714,000(4)
LSC 0 50,000 0 (3)
SPC 0 50,000 0 (3)
W.B. Barker.................. -0- -- BBN 27,000 73,000 189,000(4) 511,000(4)
LSC 0 30,000 0 (3)
SPC 0 30,000 0 (3)
Frank E. Heart............... 16,000 $174,000 BBN 0 84,000 0 588,000(4)
LSC 0 10,000 0 (3)(5)
David C. Walden.............. -0- -- BBN 34,000 66,000 238,000(4) 462,000(4)
Bruce H. Rampe............... 32,100 361,125 BBN 0 27,900 0 195,300(4)(6)
SPC 0 150,000 0 (3)(7)
Ralph A. Goldwasser.......... -0- -- BBN 18,704 41,296 130,928(4) 145,947(4)
LSC 0 7,000 0 (3)
SPC 0 7,000 0 (3)
Jonathan C. Crane............ -0- -- BBN 0(8) 50,000(8) 0(8) 0(8)
LSC 0 300,000 0 (3)
- - ---------------
<FN>
(1) Bolt Beranek and Newman Inc. is designated in the table as "BBN";
LightStream Corporation, a majority-owned subsidiary of BBN, is designated
in the table as "LSC"; and BBN Software Products Corporation, a wholly-owned
subsidiary of BBN, is designated in the table as "SPC".
(2) Of such options, 37.5% were conditionally granted subject to shareholder
approval at the 1994 Annual Meeting. If such approval is not obtained, such
portion of the options automatically terminates.
(3) All of these options are unexercisable until following public trading of the
related common stock, and no public market exists for the shares underlying
these options. Accordingly, no value in excess of the exercised price has
been attributed to these options.
(4) Represents the difference between the closing price of the Company's Common
Stock on June 30, 1994 and the exercise price of the options.
(5) Option was unvested at, and terminated upon, Mr. Heart retiring from the
full-time employ of the Company in July 1994.
(6) Mr. Rampe left the employ of the Company in July 1994. At such time, the
exercisability of the options on 19,900 of the 27,900 option shares was
accelerated and these options were exercised by Mr. Rampe, with a value
realized of $129,350. The option on the 8,000 remaining shares terminated.
(7) Option was unvested at, and terminated upon, Mr. Rampe leaving the employ of
the Company in July 1994.
(8) Options were conditionally granted subject to shareholder approval at the
1994 Annual Meeting. If such approval is not obtained, the options
automatically terminate.
</TABLE>
Change-of-Control Arrangements. The Company has termination agreements
with the individuals named in the Summary Compensation Table above (other than
Messrs. Heart and Crane, and other than Mr.
23
<PAGE> 27
Rampe, who has left the employ of the Company), which agreements obligate the
respective employee to remain in the employ of the Company during the pendency
of any change-of-control proposal. In consideration for such agreement, the
Company agrees to pay severance benefits to each such individual, consisting of
approximately three times his then most recent five-year average annual salary
and cash bonus, together with certain other benefits (including the acceleration
of the exercisability of outstanding stock options and continued participation
for 1 year in accident and health insurance) and an amount equal to a "gross-up"
payment with respect to any excise taxes payable by the individual as a result
of the severance benefits. The benefits are payable in the cases of Messrs.
Conrades and Levy only if his employment terminates (including a voluntary
termination on his part) for any reason other than death, disability, normal
retirement, or as the result of commission by him of a felony; the benefits are
payable in the case of each of the other named individuals only if his
employment is terminated by the Company for any reason other than for "cause" or
is terminated by such individual as the result of specified justification, in
all cases during a period of two years following a "change of control" of the
Company. A change of control is defined to include the acquisition of 30% or
more of the Company's then-outstanding stock, and other changes of control as
determined by regulatory authorities. Such severance payments would not be
reduced for compensation received by the individual from any new employment. The
agreements provide that after five years, the change-of-control payment rights
may be cancelled by the Company by notice given more than 30 days prior to the
change of control. The five-year period has run for each of Messrs. Levy,
Barker, Walden, and Goldwasser. Under the agreements, based upon the average
annual compensation paid by the Company to the individual with respect to the
last five calendar years or shorter period he has been with the Company (and
assuming no gross-up payment), change-of-control cash severance payments would,
if payable, be approximately $1,196,000 (based upon his annualized base salary
rate of $400,000 per year), $1,107,000, $565,000, $634,700, and $462,000,
respectively, for Messrs. Conrades, Levy, Barker, Walden, and Goldwasser.
REPORT OF COMPENSATION AND STOCK OPTION COMMITTEE
ON ANNUAL EXECUTIVE COMPENSATION
(The following Report of the Compensation and Stock Option Committee on
Annual Executive Compensation shall not be deemed incorporated by reference by
any general statement incorporating by reference this proxy statement into any
filing under the Securities Act of 1933 or under the Securities Exchange Act of
1934.)
Report. The Compensation and Stock Option Committee of the Board of
Directors (the "Committee") was composed in fiscal 1994 of three outside
directors, none of whom was an officer or employee of the Company.
The Committee is responsible for setting and administering policies which
relate to executive compensation and to the incentive compensation and stock
ownership programs of the Company, and in that regard, the Committee on an
annual basis reviews and evaluates the Company's executive compensation
programs. The Company's executive compensation is also subject to periodic
review, and approval as to reasonableness, by an audit agency of the Department
of Defense.
The objectives of the Company's executive compensation program are to
attract and retain the highest caliber of executive talent, to motivate the
individual to achieve the goals inherent in the Company's business strategies,
to link executive and stockholder interests through incentive and equity-based
plans, and to provide a compensation package that recognizes individual
contributions as well as the financial results of operations. The executive
bonus and BBN stock option portions of the Company's executive compensation
package are designed to correlate individual performance with operating income
and stockholder value, and represent in the aggregate a compensation strategy
under which up to a significant portion of executive compensation (depending on
the bonus and option awards) may be predicated upon achievement of specified
financial goals. The subsidiary option portion of the executive compensation
package is designed to encourage an entrepreneurial interest of the executive in
the developing subsidiaries of the Company, aligning management's interest in
the successful development of the subsidiaries to the overall, long-term
interests of the Company's stockholders.
24
<PAGE> 28
The key elements of the Company's executive compensation package are base
salary, incentive bonus, and stock options. The Committee during the fiscal year
established the base salary of Mr. Conrades and approved the salaries of the
other executive officers, including the executive officers named in the Summary
Compensation Table; the Committee during the fiscal year established the
performance-based bonus plan for Mr. Conrades; the Committee at the end of the
fiscal year reviewed incentive bonus awards proposed by Mr. Conrades under the
general bonus program for all of the executive officers other than Mr. Conrades
(the Committee and Mr. Conrades jointly reviewed the individual performances of
each executive officer other than Mr. Conrades, and the Committee gave
significant consideration to Mr. Conrades' views on the performance of each such
executive officer); and the Committee during the fiscal year, but not on a fixed
schedule, awarded all BBN stock options, and approved all stock options granted
by subsidiaries. The Committee's policies with respect to each of these
elements, including the basis for the compensation awards to Mr. Conrades, are
discussed below.
Base Salaries. The base salary for Mr. Conrades was determined by direct
negotiations with Mr. Conrades at the time of his hiring in December of 1993,
with reference to the then existing marketplace for executive ability and
experience comparable to Mr. Conrades'. In determining what the Committee was
willing to approve as a base salary for Mr. Conrades, the Committee focused on
the subjective factor of the importance to the Company of having a chief
executive officer with an outstanding business and marketing history who could
provide the leadership necessary to improve the Company's performance. (Mr.
Conrades also received relocation expenses reimbursement and other non-recurring
benefits in connection with his hiring.)
Base salaries for other executive officers of the Company are determined by
evaluating subjective factors, including the responsibilities of the position
and the experience of the individual, and by referring to the marketplace for
executive talent, including a comparison to base salaries for comparable
positions with other corporations. In this latter connection, the Committee
avails itself of internal reports, which are based upon major published surveys
on salaries (including the American Electronics Association Executive
Compensation Survey, the Sibson & Company, Inc. Management Compensation Survey,
certain William M. Mercer, Incorporated industry surveys, and the Towers, Perrin
Executive Compensation Survey), comparing the Company's executive salaries to
survey information on compensation for like positions in public (primarily high
technology) corporations of similar size. The Company believes that to be
competitive, the mid-point of the salary range for each of the Company's
executive categories should be at or near the 50th percentile of the surveyed
companies. (The companies in the surveys include some of, but are not the same
as, the companies in the peer group index in the Comparison of Five-Year
Cumulative Total Return graph included elsewhere in this Proxy Statement.)
Annual salary adjustments, if any, are determined by the subjective
evaluation of each executive officer's performance, with consideration given to
the performance of the Company for the preceding year, the responsibilities of
the individual, and in the case of officers with responsibility for operating
units, the perceived strategic importance of the unit to the future performance
of the Company.
Incentive Compensation Plans. Provisions have been made since 1970 to pay
bonuses pursuant to bonus plans of the Company. The general bonus program in
effect for fiscal 1994 provided for cash bonuses, in varying amounts, to be paid
out of separate bonus pools for the staffs of the two operating units of the
Company (Systems and Technologies and Software Products), for the staff of the
Corporate Services unit, and for the members of the executive management staff
of the Company (including the CEO) not covered by one of the other three plans.
The operating units plans provide for two bonus pools equal to specific
percentages of the respective operating unit's operating income (as defined)
over fixed targeted amounts; the corporate staff plan provides for a pool equal
to a fixed percentage (7.5%) of the aggregate total bonus pools of the operating
units of the Company; and the executive management staff plan provides for a
bonus pool equal to 10% of the amount by which operating income (as defined) of
the Company for the fiscal year exceeds 12.5% of the average shareholders'
equity (as defined) for the fiscal year. The determination of operating income
and average shareholders' equity may be adjusted by the Committee to exclude the
effect of transactions which, in the Committee's judgment, do not reflect the
operations of the Company. (Notwithstanding the formulas, the bonus program
provides for maximum limits on the bonus pools, and provides a
25
<PAGE> 29
mechanism for the Board of Directors to establish a discretionary pool, when a
formula would otherwise result in a more limited bonus pool or no bonuses.) The
amount awarded to any individual for a fiscal year may not exceed 100% of the
employee's base salary for the fiscal year.
Within the bonus pools under the Company's general bonus program,
individual bonuses to executive officers are determined by the subjective
evaluation of the individual's contribution to the specific unit's performance
for the year. No bonus was paid to Mr. Conrades, or to any other executive
officer of the Company other than Messrs. Heart and Rampe (who received bonuses
under their respective operating unit programs), for fiscal 1994 under the
general bonus program of the Company.
Upon his hiring, the Committee established an incentive bonus plan for Mr.
Conrades under which he is eligible to receive an annual bonus equal to $100,000
if the Company achieves a positive net income (after tax, and after taking into
account such bonus) on a quarterly basis; an additional $100,000 if the Company
achieves a positive net income of at least $0.25 per share on a quarterly basis;
and an additional $200,000 if the Company achieves a positive net income of at
least $0.50 per share on a quarterly basis, in each case for a number of
consecutive quarters that would indicate that it would be reasonable to expect
the respective earnings would continue. The bonus level achieved for each fiscal
year, as well as the number of quarters to be taken into account in each
determination under the plan, is to be made by the Committee. No bonus was paid
under this plan to Mr. Conrades for fiscal 1994.
Stock Option Plans. Under the BBN stock option plans, stock options are
granted from time to time but not on a fixed schedule to key persons, including
executive officers of the Company. The Committee selects the option recipients
and sets the size of stock option awards based upon subjective factors,
including primarily the perceived importance of the individual's contribution to
the success of the Company, similar to the subjective factors considered in
setting base salary, and upon the amount of and value of options currently held
by the individual. The Committee also takes into consideration in granting
options to executive officers the relationship of the number of options held by
each of the executive officer to a subjective rating of the degree of
responsibility of the position held by each officer compared to that of the
other executive officers. While not having a target ownership level of Common
Stock by executive officers, the Committee has endeavored to motivate executives
by granting options at levels that present executives with an opportunity for
significant gains, commensurate with gains in stockholder value.
Stock options are designed to align the interests of the recipients with
those of the stockholders of the Company. Stock options are typically granted
with an exercise price equal to the market price of the Company's Common Stock
on the date of grant. The options generally vest over four years. Accordingly,
the full benefit of the options is realized when stock price appreciation occurs
over an extended period.
In fiscal 1994, the Company, as majority shareholder of LightStream
Corporation and as sole shareholder of BBN Software Products Corporation,
approved stock option plans of those subsidiaries, under which options for
shares of the subsidiary's common stock are granted to employees of the
subsidiary or parent, including executive officers of the Company. Options
granted by the subsidiary's board of directors are approved by the Committee.
The Committee's approval of the option recipients and the size of subsidiary
stock options awarded to executive officers of the Company, is based upon
subjective factors, including primarily the anticipated support to be provided
to the subsidiary by the executive officer and the perceived importance of the
individual's contribution to the success of the subsidiary's development. While
the subsidiary options generally vest over four years, they are not exercisable
until after the subsidiary's stock becomes publicly traded. Accordingly, the
Committee believes that the benefit of the option is not realizable by the
executive officer until the subsidiary has become public and the Company and its
stockholders have realized the benefits of that event. Under the current
subsidiary option programs, stock of the Company's participating subsidiaries
reserved for issuance under option awards is approximately 10% to 15% of the
respective subsidiary's currently outstanding stock. It is anticipated by the
Committee that subsidiary stock option programs (which may be similar to, or
different from, the current programs) would be instituted in the future for new
subsidiaries of the Company, as appropriate and with terms in each case
depending on subjective factors such as the size of the subsidiary and its stage
of development.
26
<PAGE> 30
In connection with the hiring by the Company of Mr. Conrades in fiscal
1994, and based upon what the Committee deemed necessary and appropriate for the
hiring of a person of the capability and experience of Mr. Conrades, he received
options for 800,000 shares of BBN Common Stock (options for 300,000 shares of
which are conditional, subject to shareholder approval at this Annual Meeting),
100,000 shares of LightStream Corporation common stock, and 100,000 shares of
BBN Software Products Corporation common stock. The grant of subsidiary options
to Mr. Conrades was based upon the subjective view of the contributions to the
operations of the subsidiaries expected to be provided by Mr. Conrades. In the
case of LightStream Corporation, at the time of his hiring by the Company, Mr.
Conrades gave up all rights to a 30,000 share option which had previously been
granted to him by LightStream Corporation as an outside director of that
Company. At June 30, 1994, Mr. Conrades owned 22,202 shares of Common Stock of
the Company, exclusive of exercisable stock options, and had options granting
him the right to acquire an additional 500,000 shares of Common Stock of the
Company, which options are exercisable in full by December 1997, an additional
300,000 shares of Common Stock of the Company, which conditional options,
subject to shareholder approval, are exercisable in full by December 1997, and
100,000 shares of common stock of LightStream Corporation and 100,000 shares of
common stock of BBN Software Products Corporation, which subsidiary options vest
over a period ending in February 1998, but are not exercisable until after the
subsidiary's common stock becomes publicly traded. In addition, Mr. Conrades
owns $50,000 principal amount of the Company's 6% Convertible Subordinated
Debentures due 2012.
Section 162(m) of the Internal Revenue Code. Internal Revenue Code Section
162(m), enacted in 1993, precludes a public corporation from taking a deduction,
for the tax year beginning in 1994 or subsequent years, for compensation in
excess of $1 million for its chief executive officer or any of its four other
highest-paid executive officers in office on the last day of the tax year.
Certain performance-based compensation, however, is specifically exempted from
the deduction limit. In late 1993, the Internal Revenue Service issued proposed
regulations implementing this legislation.
The fiscal 1995 cash compensation to be paid to the specified individual
executive officers of the Company is not expected to exceed in any case the $1
million figure. However, certain of the amendments to the Company's 1986 Stock
Incentive Plan being presented to shareholders for approval at this Annual
Meeting have been designed to meet the proposed regulations, so that stock
options and stock appreciation rights granted under the 1986 Plan will qualify
as performance-based compensation, and option and SAR exercises under the 1986
Plan will not be affected by the deduction limit as it may apply in the future.
The Committee will continue to assess the implications of the new legislation on
executive compensation to determine what action, if any, may be appropriate in
the Company's case. In adopting and administering executive compensation plans
and arrangements, the Committee will consider whether the deductibility of such
compensation will be limited under Section 162(m) of the Internal Revenue Code
and, in appropriate cases, will strive to structure such compensation so that
any such limitation will not apply.
Conclusion. The programs described above are intended to link a
significant portion of the Company's executive compensation to individual
performance and to corporate performance and stock price appreciation. The
Committee intends to continue the policy of linking executive compensation to
corporate performance and improvement in stockholder value, recognizing that
economic factors beyond management's control may result in imbalances for
particular periods, but that consistent improvement in corporate performance
over the long term would inure to the mutual benefit of the Company's executives
and its stockholders.
The foregoing report has been furnished by the members of the Committee
during fiscal 1994, Messrs. Gilmartin (a member of the Committee until August
1994), Hatsopoulos, and Wellington.
27
<PAGE> 31
<TABLE>
COMPARATIVE STOCK PERFORMANCE
(The Stock Price Performance Graph below shall not be deemed incorporated
by reference by any general statement incorporating by reference this proxy
statement into any filing under the Securities Act of 1933 or under the
Securities Exchange Act of 1934.)
Set forth below is a line graph comparing the performance of the Company's
Common Stock against the S&P Composite -- 500 Stock Index, and the S&P High
Technology Composite Index for the five-year period commencing July 1, 1989 and
ending June 30, 1994.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*
BBN'S COMMON STOCK, S&P COMPOSITE 500, AND
S&P HIGH TECHNOLOGY COMPOSITE INDICES
<CAPTION>
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) BBN S&P 500 S&P HIGH TECH
<S> <C> <C> <C>
6/30/89 100.00 100.00 100.00
6/30/90 63.04 116.49 112.74
6/30/91 92.32 125.10 106.10
6/30/92 59.46 141.88 112.62
6/30/93 103.54 161.22 131.55
6/30/94 155.30 162.84 142.46
<FN>
* Assumes that the value of the investment in the Company's Common Stock and
each index was $100 on June 30, 1989; also assumes the reinvestment of any
dividends. Composite figures are weighted, based upon the average of month-end
market capitalization.
</TABLE>
28
<PAGE> 32
SHAREHOLDER PROPOSALS
In order for any proposal which a shareholder intends to present at the
1995 Annual Meeting of the Company to be eligible for inclusion in the Company's
proxy material for that meeting, it must be received by the Clerk of the Company
at the Company's office in Cambridge, Massachusetts no later than May 30, 1995.
GENERAL
The Board of Directors does not know of any business to be presented for
action by the shareholders at the Annual Meeting additional to that referred to
in the accompanying notice (other than procedural matters, including waiver of
the reading of the notice and of the minutes of the prior annual meeting).
However, if any additional matters properly come before the Annual Meeting,
including rules for the conduct of the meeting, it is the intention of the
persons named as proxies to vote the shares to which the proxy relates in
accordance with their judgment on such matters, unless instructed to the
contrary.
The expenses of soliciting proxies will be borne by the Company. Officers
and regular employees of the Company (who will receive no compensation therefor
in addition to their regular salaries) may communicate directly or by mail,
telephone, or other communication methods with shareholders to solicit proxies.
The Company will also reimburse brokers and other persons for their reasonable
charges and expenses in forwarding solicitation material to their principals.
The Company has retained D. F. King & Co., Inc. to assist in the solicitation of
proxies, and will pay that firm a fee of approximately $5,000 plus expenses.
29
<PAGE> 33
EXHIBIT A
BOLT BERANEK AND NEWMAN INC.
1986 STOCK INCENTIVE PLAN(1)
SECTION 1. GENERAL PURPOSE OF THE PLAN; DEFINITIONS.
The name of the plan is the Bolt Beranek and Newman Inc. 1986 Stock
Incentive Plan (the "Plan"). The purpose of the Plan is to secure for Bolt
Beranek and Newman Inc. (the "Company") and its stockholders the benefit of the
incentives of Common Stock ownership and the receipt of incentive awards by
directors of the Company and by selected key employees of the Company and its
subsidiaries, and by other key persons and entities, who contribute to and will
be responsible for continued long term growth of the Company. The Plan is
intended to stimulate the efforts of such persons by providing an opportunity
for capital appreciation and giving suitable recognition for services which
contribute materially to the success of the Company.
The following terms shall be defined as set forth below:
(a) "Act" means the Securities Exchange Act of 1934.
(b) "Award" or "Awards" except where referring to a particular
category of grant under the Plan shall include Incentive Stock Options,
Non-Qualified Stock Options, Stock Appreciation Rights, Restricted Stock
Awards, Unrestricted Stock Awards, Deferred Stock Awards, Performance Unit
Awards, and Other Stock-based Awards.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended, and
any successor Code, and related rules, regulations, and interpretations.
(e) "Committee" means the Committee referred to in Section 2. If at
any time no Committee shall be in office, the functions of the Committee
shall be exercised by the Board.
(f) "Deferred Stock Award" is defined in Section 9(a).
(g) "Disability" means disability as determined in accordance with
standards and procedures similar to those used under the Company's long
term disability program.
(h) "Disinterested Person" shall have the meaning set forth in Rule
16b-3(d)(3) promulgated under the Act, or any successor definition under
the Act.
(i) "Fair Market Value" on any given date means the last sale price
regular way at which Stock is traded on such date as reflected in the New
York Stock Exchange-Composite Transactions Index or, where applicable, the
value of a share of Stock as determined by the Committee in accordance with
the applicable provisions of the Code.
(j) "Incentive Stock Option" means any Stock Option intended to be and
designated as an "incentive stock option" as defined in the Code.
(k) "Non-employee Director" means an individual who is a director of
the Company but who is not a full-time employee of the Company or a
Subsidiary.
(l) "Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
(m) "Normal Retirement" means retirement from active employment with
the Company and its Subsidiaries on or after the normal retirement date
specified in the Bolt Beranek and Newman Inc. Retirement Trust Agreement.
- - ---------------
[FN]
(1) Language in brackets [ ] is proposed to be deleted; language underscored is
proposed to be added.
<PAGE> 34
(n) "Other Stock-based Award" is defined in Section 11(a).
(o) "Performance Unit Award" is defined in Section 10(a).
(p) "Restricted Stock Award" is defined in Section 8(a).
(q) "Stock" means the Common Stock, $1.00 par value, of the Company,
subject to adjustments pursuant to Section 3.
(r) "Stock Appreciation Right" means a right described in Section 7(a)
and granted, either independently of other Awards or in tandem with the
grant of a Stock Option.
(s) "Stock Option" means any option to purchase shares of Stock
granted pursuant to Section 6.
(t) "Subsidiary" means any corporation or other entity (other than the
Company) in an unbroken chain beginning with the Company if each of the
entities (other than the last entity in the unbroken chain) owns stock or
other interests possessing 50% or more of the total combined voting power
of all classes of stock or other interest in one of the other corporations
in the chain.
(u) "Unrestricted Stock Award" is defined in Section 8(f).
SECTION 2. COMMITTEE AUTHORITY TO SELECT PARTICIPANTS AND DETERMINE AWARDS,
ETC.
The Plan shall be administered by a Committee [of not less than three
Directors who are Disinterested persons, who] of Directors who are both
Disinterested Persons and "outside directors" within the meaning of Section
162(m)(4)(C)(i) of the Code (as construed and applied consistent with proposed
or final rules issued thereunder). The Committee shall be appointed by the Board
and [who] shall serve at the pleasure of the Board.
The Committee shall have the power and authority to grant Awards consistent
with the terms of the Plan, including the power and authority:
(i) to select from among the eligible persons and entities described
in Section 4 those to whom Awards may from time to time be granted;
(ii) to determine the time or times of grant, and the extent, if any,
of Incentive Stock Options, Non-Qualified Stock Options, Stock Appreciation
Rights, Restricted Stock, Unrestricted Stock, Deferred Stock, Performance
Units, and any Other Stock-based Awards, or any combination of the
foregoing, granted to any one or more participants;
(iii) to determine the number of shares to be covered by any Award;
(iv) to determine the terms and conditions, including restrictions,
not inconsistent with the terms of the Plan, of any Award, which terms and
conditions may differ among individual Awards and participants;
(v) to determine whether, to what extent, and under what circumstances
Stock and other amounts payable with respect to an Award shall be deferred
either automatically or at the election of the participant and whether and
to what extent the Company shall pay or credit amounts equal to interest
(at rates determined by the Committee) or dividends or deemed dividends on
such deferrals; and
(vi) to adopt, alter, and repeal such rules, guidelines and practices
for administration of the Plan and for its own acts and proceedings as it
shall deem advisable; to interpret the terms and provisions of the Plan and
any Award (including related Award Agreements); to make all determinations
it deems advisable for the administration of the Plan; to decide all
disputes arising in connection with the Plan; and to otherwise supervise
the administration of the Plan.
All decisions and interpretations of the Committee shall be binding on all
persons, including the Company and Plan participants.
A-2
<PAGE> 35
SECTION 3. SHARES ISSUABLE UNDER THE PLAN; MERGERS; SUBSTITUTION
(a) Shares Issuable. The maximum number of shares of Stock reserved and
available for issuance under the Plan shall be [1,800,000] 3,000,000, including
shares issued in lieu of or upon reinvestment of dividends arising from Awards.
Of this number, [100,000] 150,000 are reserved and available for issuance under
stock options granted to Non-employee Directors under Section 6(m). For purposes
of the foregoing limitations and to the maximum extent consistent with continued
qualification of the Plan under Section 422 of the Code and Rule 16b-3
promulgated under the Act, Awards and Stock which are forfeited, reacquired by
the Company, or satisfied without the issuance of Stock shall not be counted.
Subject to such overall limitation, shares may be issued up to such maximum
pursuant to any type or types of Award, including Incentive Stock Options.
Shares issued under the Plan may be authorized but unissued shares or shares
reacquired by the Company.
The maximum number of shares of Stock for which any individual (other than
a Non-employee Director) may be issued Stock Options under the Plan during the
limitation period shall be 750,000 shares. The maximum number of shares of Stock
as to which any individual may be issued Stock Appreciation Rights under the
Plan during the limitation period shall likewise be 750,000 shares. For purposes
of the two preceding sentences, (i) the limitation period shall be the period
beginning January 1, 1994 and ending December 1, 1999, and (ii) Stock Options
granted prior to January 1, 1994 but subject to shareholder approval occurring
after January 1, 1994 shall be treated as having been granted during the
limitation period. The limitations described in this paragraph shall be
construed and applied in accordance with Section 162(m) of the Code and the
regulations thereunder. Subject to the foregoing, a Stock Option or Stock
Appreciation Right that is canceled and reissued, or repriced, shall be treated
as a new Award, and both the old Award and the new Award shall count against the
applicable limit described in this paragraph.
(b) Stock Dividends, Mergers, etc. In the event of a stock dividend, stock
split, or similar change in capitalization affecting the Stock, the Committee
shall make appropriate adjustments in (i) the number and kind of shares of stock
or securities on which Awards may thereafter be granted, (ii) the number and
kind of shares remaining subject to outstanding Awards, and (iii) the option or
purchase price in respect of such shares. In the event of any merger,
consolidation, dissolution, or liquidation of the Company, the Committee in its
sole discretion may, as to any outstanding Awards, make such substitution or
adjustment in the aggregate number of shares reserved for issuance under the
Plan and in the number and purchase price (if any) of shares subject to such
Awards as it may determine, or accelerate, amend, or terminate such Awards upon
such terms and conditions as it shall provide (which, in the case of the
termination of the vested portion of any Award, shall require payment or other
consideration which the Committee deems equitable in the circumstances);
provided, however, that no adjustment pursuant to this sentence shall affect
options granted under subsection (m) of Section 6 of the Plan if the effect of
such adjustment shall cause the members of the Committee to fail to be
disinterested persons under Section 16(b) of the Act.
(c) Substitute Awards. The Company may grant Awards under the Plan in
substitution for stock and stock based awards held by employees of or other
persons providing services to another corporation who concurrently become
employees of or providers of service to the Company or a Subsidiary as the
result of a merger or consolidation of the employing corporation with the
Company or a Subsidiary or the acquisition by the Company or a Subsidiary of
property or stock of the employing corporation. The Committee may direct that
the substitute awards be granted on such terms and conditions as the Committee
considers appropriate in the circumstances. The shares which may be delivered
under such substitute Awards shall be in addition to the maximum number of
shares provided for in the first paragraph of Section 3(a) only to the extent
that the substitute Awards are both granted to persons whose relationship to the
Company does not make (and is not expected to make) them subject to Section
16(b) of the Act and are granted in substitution for awards issued under a plan
approved, to the extent then required under Rule 16b-3 (or any successor rule
under the Act) by the stockholders of the entity which issued such predecessor
awards.
SECTION 4. ELIGIBILITY.
Participants in the Plan will be such full or part time officers and other
key employees of the Company and its Subsidiaries ("Employees") and other
persons or entities who are responsible for or contribute to the
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management, growth, or profitability of the Company and its Subsidiaries and who
are selected from time to time by the Committee. Notwithstanding the foregoing,
persons who are directors of the Company, other than any such person who is a
full time employee, shall not be eligible for awards under the Plan except as
provided in Section 6(m).
SECTION 5. LIMITATIONS ON TERM AND DATES OF AWARDS.
(a) Duration of Awards. Subject to Sections 15(a), 15(c), and 15(d)
below, no restrictions or limitations on Awards shall extend beyond 10 years (or
10 years and one day in the case of Non-Qualified Stock Options) from the grant
date, except that deferrals, elected by participants, of the receipt of Stock or
other benefits under the Plan may extend beyond such date.
(b) Latest Grant Date. No Award shall be granted [more than 10 years
after the effective date of the Plan] after December 1, 1999, but
then-outstanding Awards may extend beyond such date.
SECTION 6. STOCK OPTIONS.
Any stock option granted under the Plan shall be in such form as the
Committee may from time to time approve.
Stock Options granted under the Plan may be either Incentive Stock Options
or Non-Qualified Stock Options. To the extent that any option does not qualify
as an Incentive Stock Option, it shall constitute a Non-Qualified Stock Option.
Incentive Stock Options may be granted only to Employees.
Anything in the Plan to the contrary notwithstanding, no term of this Plan
relating to Incentive Stock Options shall be interpreted, amended, or altered,
nor shall any discretion or authority granted to the Committee under the Plan be
so exercised, so as to disqualify the Plan or, without the consent of the
optionee, any Incentive Stock Option under Section 422 of the Code.
Stock Options granted under the Plan shall be subject to the following
terms and conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem desirable.
(a) Option Price. The option price per share of Stock purchasable
under a Stock Option shall be determined by the Committee at the time of
grant but shall be, in the case of Incentive Stock Options, not less than
100% of Fair Market Value on the date of grant and, in the case of
Non-Qualified Stock Options, not less than 50% of Fair Market Value on the
date of grant. If an employee owns or is deemed to own (by reason of the
attribution rules applicable under Section 424(d) of the Code) more than
10% of the combined voting power of all classes of stock of the Company or
any Subsidiary or parent corporation and an Incentive Stock Option is
granted to such employee, the option price shall be no less than 110% of
Fair Market Value on the date of grant.
(b) Option Term. The term of each Stock Option shall be fixed by the
Committee, but no Incentive Stock Option shall be exercisable more than 10
years after the date the option is granted and no Non-Qualified Stock
Option shall be exercisable more than 10 years and one day after the date
the option is granted. If an employee owns or is deemed to own (by reason
of the attribution rules of Section 424(d) of the Code) more than 10% of
the combined voting power of all classes of stock of the Company or any
Subsidiary or parent corporation and an Incentive Stock Option is granted
to such employee, the term of such option shall be no more than five years
from the date of grant.
(c) Exercisability. Stock Options shall be exercisable at such
future time or times, whether or not in installments, as shall be
determined by the Committee at or after the date of grant. The Committee
may at any time accelerate the exercisability of all or any portion of any
Stock Option.
(d) [Intentionally left blank.]
(e) Method of Exercise. Stock Options may be exercised in whole or
in part, by giving written notice of exercise to the Company specifying the
number of shares to be purchased. Such notice shall be accompanied by
payment in full of the purchase price, either by certified or bank check or
other
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instrument acceptable to the Committee. As determined by the Committee, in
its discretion, at (or, in the case of Non-Qualified Stock Options, at or
after) the time of grant, payment in full or in part may also be made in
the form of shares of Stock not then subject to restrictions under any
Company plan (but which may include shares the disposition of which
constitutes a disqualifying disposition for purposes of obtaining incentive
stock option treatment for federal tax purposes), unless the Board should
in any case determine otherwise. Such surrendered shares shall be valued at
Fair Market Value on the exercise date. An optionee shall have the rights
of a shareholder only as to shares acquired upon the exercise of a Stock
Option and not as to unexercised Stock Options.
(f) Non-transferability of Options. No Stock Option shall be
transferable by the optionee otherwise than by will or by the laws of
descent and distribution, and all Stock Options shall be exercisable,
during the optionee's lifetime, only by the optionee.
(g) Termination by Death. If an optionee's employment by or other
service relationship with the Company and its Subsidiaries terminates by
reason of death, the Stock Option may thereafter be exercised, both as to
that portion which was exercisable by the optionee immediately prior to
death and, except as otherwise determined by the Committee, as to any
remaining portion, by the legal representative or legatee of the optionee,
for a period of three years (or such other period, not to exceed three
years, as the Committee shall specify at or after the time of grant) from
the date of death or until the expiration of the stated term of the option,
if earlier.
(h) Termination by Reason of Disability. Any Stock Option held by an
optionee whose employment by or whose service relationship with the Company
and its Subsidiaries has terminated, or who has been designated an inactive
employee, by reason of Disability may thereafter be exercised to the extent
it was exercisable at the time of the earlier of such termination or such
designation (or on such accelerated basis as the Committee shall at any
time determine prior to such termination or designation) for a period of
three years (or such other period, not to exceed three years, as the
Committee shall specify at or after the time of grant) from the date of
such termination of employment or other service relationship or designation
or until the expiration of the stated term of the option, if earlier.
Except as otherwise provided by the Committee at the time of grant, the
death of an optionee during the final year of such exercise period shall
extend such period for one year following death, or until the expiration of
the stated term of the option, if earlier. The Committee shall have the
authority to determine whether a participant has been terminated or
designated an inactive employee by reason of Disability.
(i) Termination by Reason of Normal Retirement. If an optionee's
employment by the Company and its Subsidiaries terminates by reason of
Normal Retirement, any Stock Option held by such optionee may thereafter be
exercised to the extent that it was then exercisable (or on such
accelerated basis as the Committee shall at any time determine) for a
period of three years (or such other period, not to exceed three years, as
the Committee shall specify at or after the time of grant) from the date of
Normal Retirement or until the expiration of the stated term of the option,
if earlier. Except as otherwise provided by the Committee at the time of
grant, the death of an optionee during the final year of such exercise
period shall extend such period for one year following death, or until the
expiration of the stated term of the option, if earlier.
(j) Other Termination. Unless otherwise determined by the Committee,
if an optionee's employment by or other service relationship with the
Company or its Subsidiaries terminates for any reason other than death,
Disability or Normal Retirement, any Stock Option held by such optionee may
thereafter be exercised to the extent it was exercisable on the date of
termination of employment or other termination of the service relationship
(or on such accelerated basis as the Committee shall determine at or after
the time of grant) for a period of sixty (60) days (or such longer period
up to three years as the Committee shall specify at or after the time of
grant) from the date of termination of employment or other termination of
the service relationship or until the expiration of the stated term of the
option, if earlier, provided, that if the optionee's employment or other
service relationship is terminated for "cause" as a result of the
optionee's misconduct which, in the judgment of the Committee, casts
discredit on him
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or her, or is otherwise harmful to the business, interests or reputation of
the Company, its parent, or a Subsidiary, all Stock Options shall terminate
immediately.
For purposes of the preceding paragraph, if an optionee's employment
by the Company or its Subsidiaries is terminated under circumstances
entitling the optionee to cash severance pay under any written severance
plan, program, policy, or agreement of the Company or its Subsidiaries in
force at the time of such termination of employment (a "Severance
Program"), then except as otherwise determined by the Committee any Stock
Option held by the optionee at termination of employment shall be treated
as "exercisable on the date of termination of employment" as to those
shares for which it was in fact exercisable immediately prior to
termination of employment plus any additional shares for which it would
have become exercisable during the severance period (as hereinafter
defined) had the optionee remained employed by the Company or its
Subsidiaries. For purposes of the preceding sentence, the severance period
in the case of any terminated employee entitled to severance under a
Severance Program shall be the period of weeks over which his or her cash
severance, if paid as salary continuation, would have been paid (whether or
not such severance is in fact so paid in such form).
(k) Incentive Stock Options. Notwithstanding any designation of a
Stock Option as an Incentive Stock Option, such Stock Option shall be
treated for tax purposes as a Non-Qualified Stock Option to the extent
prescribed under Section 422(d) of the Code.
(l) Form of Settlement. Subject to Sections 15(a), 15(c), and 15(d)
below, shares of Stock issued upon exercise of a Stock Option shall be free
of all restrictions under the Plan, except as provided in the following
sentence. The Committee may provide at time of grant that the shares to be
issued upon the exercise of a Stock Option shall be in the form of
Restricted Stock or Deferred Stock, or may reserve the right to so provide
after time of grant.
(m) Options Granted to Non-employee Directors. Subject to the limits
and adjustment provisions set forth in Section 3, each Non-employee
Director serving in such position [as of the effective date of this Plan
who does not then own more than five percent of the outstanding shares of
Stock is hereby granted a Non-Qualified Stock Option covering 10,000 shares
of Stock. The option price under such Option shall be the fair market value
of the Stock on the effective date of this Plan.]
[Each person who is first elected as a Non-employee Director after the
effective date of this Plan and who at the time of such election does not own
more than five percent of the outstanding shares of Stock shall be granted
automatically upon such election a Non-Qualified Stock Option covering the
lesser of (a) 10,000 shares (appropriately adjusted pursuant to Section 3) of
Stock or (b) the number of shares then available under the applicable limits
imposed by Section 3 hereof. If, on account of the limit set forth in the second
sentence of Section 3, such Non-employee Director upon his election as such
receives no Option or an Option covering fewer than 10,000 shares (appropriately
adjusted pursuant to Section 3), and additional shares later become available
under said limit while he remains a Non-employee Director and during the term of
this Plan, such Non-employee Director shall be granted automatically upon such
availability a Non-Qualified Stock Option covering a number of shares equal to
the lesser of (a) 10,000 shares (appropriately adjusted pursuant to Section 3)
less the numbers of shares (so adjusted) for which one or more Options were
previously granted to him under this paragraph or (b) the number of shares then
available under Section 3. For purposes of the preceding sentence priority among
such Non-employee Directors for additional Options as shares become available
shall be determined on the basis of the order of their election as such. If the
limit set forth in the second sentence of Section 3 affects two or more such
Non-employee Directors elected as such on the same date, the total number of
shares which are then available or which later become available for Options
shall be allocated proportionately among such Non-employee Directors elected on
the same date and entitled to receive additional Options until each such
Non-employee Director has received Options for the number of shares
(appropriately adjusted pursuant to Section 3) he would have received initially
if said limit had not applied. The option price of any Option granted by this
paragraph shall be the fair market value of the Stock at the time the Option is
granted (such time being either the date of the Non-employee Director's election
as such or the date of the availability of shares), as determined by the
Committee.]
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[If on the day following the expiration of the term of an Option granted
initially hereunder to a Non-employee Director the optionee remains serving in
the position of a Director (and does not then own more than five percent of the
outstanding shares of Stock), the Non-employee Director shall be automatically
granted an Option covering the lesser of (a) 10,000 shares (appropriately
adjusted pursuant to Section 3) of Stock or (b) the number of shares then
available under the applicable limits imposed by Section 3 herein. If, on
account of the limits set forth in the second sentence of Section 3, such
Non-employee Director receives under this paragraph no Option or an Option
covering fewer than 10,000 shares (appropriately adjusted pursuant to Section
3), and shares later become available under said limit while he remains a
Non-employee Director and during the term of this Plan, such Non-employee
Director shall be granted automatically upon such availability of a
Non-Qualified Stock Option covering a number of shares equal to the lesser of
(a) 10,000 shares (appropriately adjusted pursuant to Section 3) less the number
of shares (so adjusted) for which one or more Options were previously granted to
him under this paragraph or (b) the number of shares then available under
Section 3. For purposes of the preceding sentence, priority among such
Non-employee Directors for additional Options as shares become available shall
be determined on the basis of the order of their becoming eligible as such. If
the limit set forth in the second sentence of Section 3 affects two or more such
Non-employee Directors eligible to receive shares under this paragraph on the
same date, the total number of shares which are then available or which later
become available from Options shall be allocated proportionately among such
Non-employee Directors entitled to receive additional Options until each such
Non-employee Director has received Options for the number of shares
(appropriately adjusted pursuant to Section 3) he would have initially received
if said limit had not applied. The option price of any Option granted by this
paragraph shall be the fair market value of the Stock at the time the Option is
granted.]
on the third business day following the date of each annual meeting of the
stockholders of the Company (such third day being hereinafter referred to
as the "determination date") shall be granted effective as of the
determination date a Non-Qualified Stock Option covering 3,000 shares of
Stock. The option price under such Stock Option shall be the fair market
value of the Stock on the determination date. If, on account of the limit
set forth in the second sentence of Section 3(a), there are insufficient
shares as of any determination date to permit the grant of a Stock Option
covering 3,000 shares (as adjusted) to each Non-employee Director then
eligible for a grant, the number of shares available for grant shall be
allocated evenly (disregarding any fractional shares) among the
Non-employee Directors then eligible for a grant (an "incomplete grant"),
and if additional shares later become available under said limit while any
such Non-employee Director who received an incomplete grant remains a
Non-employee Director and during the term of the Plan, such Non-employee
Director shall be granted automatically upon such availability a
supplemental Non-Qualified Stock Option covering a number of shares equal
to the lesser of (a) 3,000 shares (appropriately adjusted pursuant to
Section 3) less the number of shares (as so adjusted) covered by the
incomplete grant, or (b) the number of shares then available under Section
3, subject to allocation among Non-employee Directors in accordance with
the preceding provisions of this paragraph. The option price of any
supplemental Stock Option shall be the fair market value of the Stock on
the date of grant (i.e., the date of the availability of additional
shares).
Each Stock Option granted under this subsection (m) may be exercised as
follows:
(1) (A) 25% of the shares subject to such Stock Option may be
purchased commencing one year after the date of grant, and
(B) an additional 25% of such shares may be purchased commencing on
the second, third, and fourth anniversaries of the date of grant; and
(2) subject to (1) above, such Stock Option may only be exercised
during the five-year period beginning on the date the Stock Option is
granted.
To the extent that a[n] Stock Option granted hereunder to a
Non-employee Director is not exercised when it initially becomes
exercisable, it shall be carried forward and be exercisable until the
expiration of the term of such Stock Option as described in (2) above;
provided, that if the Non-employee Director ceases to be a Director for any
reason [(including death)] other than death, any Stock Option held by such
Non-employee Director may thereafter be exercised, [to the extent it] as to
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that portion of the Stock Option which was exercisable immediately prior to
the date the optionee ceased to be a Director, only within the three-month
period beginning from such date (but in no event beyond the five-year term
described in (2) above); and further provided, that if a Non-employee
Director ceases to be a Director by reason of death, any Stock Option held
by such Non-employee Director immediately prior to death, whether or not
then exercisable, shall be exercisable in whole or in part at any time
within the three-month period beginning from the date of death (but in no
event beyond the five-year term described in (2) above) and then shall
terminate.
All options granted under this subsection (m) may be exercised by
delivery of cash and/or Stock.
Non-employee Directors shall not be granted any Award or Grant under
this Plan (including any Stock Appreciation Right or Supplemental Grant)
other than [Non-Qualified] Stock Options as specifically provided
hereunder.
[Anything in Section 13 to the contrary notwithstanding, the
provisions of this subsection (m) shall not be amended more than once every
six months, other than to comport with changes in the Internal Revenue Code
or the rules and regulations thereunder.]
SECTION 7. STOCK APPRECIATION RIGHTS; DISCRETIONARY PAYMENTS
(a) Nature of Stock Appreciation Right. A Stock Appreciation Right is an
Award entitling the recipient to receive an amount in cash or shares of Stock
(or forms of payment permitted under paragraph (e) below) or a combination
thereof having a value equal to (or if the Committee shall so determine at time
of grant, less than) the excess of the Fair Market Value of a share of Stock on
the date of exercise over the Fair Market Value of a share of Stock on the date
of grant (or over the option exercise price, if the Stock Appreciation Right was
granted in tandem with a Stock Option) multiplied by the number of shares with
respect to which the Stock Appreciation Right shall have been exercised, with
the Committee having the right to determine the form of payment.
(b) Grant and Exercise of Stock Appreciation Rights. Stock Appreciation
Rights may be granted in tandem with, or independently of, any Stock Option
granted under the Plan. In the case of a Stock Appreciation Right granted in
tandem with a Non-Qualified Stock Option, such Right may be granted either at or
after the time of the grant of such option. In the case of a Stock Appreciation
Right granted in tandem with an Incentive Stock Option, such Right may be
granted only at the time of the grant of the option.
A Stock Appreciation Right or applicable portion thereof granted in tandem
with a given Stock Option shall terminate and no longer be exercisable upon the
termination or exercise of the related Stock Option, except that a Stock
Appreciation Right granted with respect to less than the full number of shares
covered by a related Stock Option shall not be reduced until the exercise or
termination of the related Stock Option exceeds the number of shares not covered
by the Stock Appreciation Right.
(c) Terms and Conditions of Stock Appreciation Rights. Stock Appreciation
Rights shall be subject to such terms and conditions as shall be determined from
time to time by the Committee, subject to the following:
(i) Stock Appreciation Rights granted in tandem with Stock Options
shall be exercisable only at such time or times and to the extent that the
related Stock Options shall be exercisable.
(ii) Upon the exercise of a Stock Appreciation Right, the applicable
portion of any related Stock Option shall be surrendered.
(iii) Stock Appreciation Rights granted in tandem with a Stock Option
shall be transferable only with such Stock Option. Stock Appreciation
Rights shall not be transferable otherwise than by will or the laws of
descent and distribution. All Stock Appreciation Rights shall be
exercisable during the participant's lifetime only by the participant or
the participant's legal representative.
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(iv) A Stock Appreciation Right granted in tandem with an Incentive
Stock Option may be exercised only when the market price of the Stock
subject to the Incentive Stock Option exceeds the exercise price of such
option.
(d) Discretionary Payments. Notwithstanding that a Stock Option at the
time of exercise shall not be accompanied by a related Stock Appreciation Right,
if the market price of the shares subject to such Stock Option exceeds the
exercise price of such Stock Option at the time of its exercise, the Committee
may, in its discretion, cancel such Stock Option, in which event the Company
shall pay to the person exercising such Stock Option an amount equal to the
difference between the Fair Market Value of the Stock to have been purchased
pursuant to such exercise of such Stock Option (determined on the date the Stock
Option is cancelled) and the aggregate consideration to have been paid by such
person upon such exercise. Such payment shall be by check or in Stock (or in a
form of payment permitted under paragraph (e) below) having a Fair Market Value
(determined on the date the payment is to be made) equal to the amount of such
payments or any combination thereof, as determined by the Committee. The
Committee may exercise its discretion under the first sentence of this paragraph
(d) only in the event of a written request of the person exercising the option,
which request shall not be binding on the Committee.
(e) Settlement in the Form of Restricted Shares or Rights to Receive
Deferred Stock. Subject to Sections 15(a), 15(c), and 15(d) below, shares of
Stock issued upon exercise of a Stock Appreciation Right or as a Discretionary
Payment shall be free of all restrictions under the Plan, except as provided in
the following sentence. The Committee may provide at time of grant in the case
of a Stock Appreciation Right (and at the time of payment in the case of a
Discretionary Payment) that such shares shall be in the form of shares of
Restricted Stock or rights to acquire Deferred Stock, or in the case of a Stock
Appreciation Right may reserve the right to so provide at any time after the
time of grant. Any such shares and any shares subject to rights to acquire
Deferred Stock shall be valued at Fair Market Value on the date of exercise of
the Stock Appreciation Right or the date the Stock Option is cancelled in the
case of Discretionary Payments.
(f) Rules Relating to Exercise. In the case of a participant subject to
the restrictions of Section 16(b) of the Act, no stock appreciation right (as
referred to in Rule 16b-3(e) or any successor Rule under the Act) shall be
exercised (and no request or payment under paragraph (d) above shall be honored
or made) except in compliance with any applicable requirements of Rule 16b-3(e)
or any successor rule. Notwithstanding paragraph (a) above, in the event of such
exercise (or request and payment) during an exercise period currently prescribed
by such rule, the Committee may prescribe, by rule of general application, such
other measure of value as it may determine but not in excess of the highest per
share closing sale price of the Common Stock reported on the New York Stock
Exchange Composite Transactions Index during such period and, where a Stock
Appreciation Right relates to an Incentive Stock Option, not in excess of an
amount consistent with the qualification of such Stock Option as an "incentive
stock option" under Section 422 of the Code.
SECTION 8. RESTRICTED STOCK; UNRESTRICTED STOCK.
(a) Nature of Restricted Stock Award. A Restricted Stock Award is an
Award entitling the recipient to acquire shares of Stock for a purchase price
(which may be zero), subject to such conditions, including a Company right
during a specified period or periods to repurchase such shares at their original
purchase price (or to require forfeiture of such shares, if the purchase price
was zero) upon the participant's termination of employment or other service
relationship, as the Committee may determine at the time of grant. The original
purchase price, if any, shall be determined by the Committee, but if any
purchase price is payable in an amount which exceeds the lesser of the par value
of the shares or 10% of the fair market value of the Common Stock on the award
date, it shall be equal to at least 50% of the fair market value of the Common
Stock on the award date.
(b) Award Agreement. A participant who is granted a Restricted Stock
Award shall have no rights with respect to such Award unless the participant
shall have accepted the Award within 60 days (or such shorter date as the
Committee may specify) following the award date by making payment to the Company
by certified or bank check or other instrument acceptable to the Committee in an
amount equal to the specified
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purchase price, if any, of the shares covered by the Award and by executing and
delivering to the Company a Restricted Stock Award Agreement in such form as the
Committee shall determine.
(c) Rights as a Shareholder. Upon complying with paragraph (b) above, a
participant shall have all the rights of a shareholder with respect to the
Restricted Stock including voting and dividend rights, subject to
nontransferability restrictions and Company repurchase or forfeiture rights
described in this Section and subject to any other conditions contained in the
Award Agreement. Unless the Committee shall otherwise determine, certificates
evidencing shares of Restricted Stock shall remain in the possession of the
Company until such shares are free of any restrictions under the Plan.
(d) Restrictions. Shares of Restricted Stock may not be sold, assigned,
transferred, pledged, or otherwise encumbered or disposed of except as
specifically provided herein. In the event of termination of employment or other
service relationship of the participant with the Company and its Subsidiaries
for any reason, such shares shall be resold to the Company at their purchase
price, or forfeited to the Company if the purchase price was zero, except as set
forth below.
(i) The Committee at the time of grant shall specify the date or
dates (which may depend upon or be related to the attainment of performance
goals and other conditions) on which the nontransferability of the
Restricted Stock and the obligation to resell such shares to the Company
shall lapse. The Committee at any time may accelerate such date or dates
and otherwise waive or, subject to Section 13, amend any conditions of the
Award.
(ii) Except as may otherwise be provided in the Award Agreement, in
the event of termination of employment or other service relationship of a
participant with the Company and its Subsidiaries for any reason (including
death), the participant or the participant's legal representative shall
offer to resell to the Company, at the price paid therefor, all Restricted
Stock, and the Company shall have the right to purchase the same at such
price, or if the price was zero to require forfeiture of the same, provided
that except as provided in the Award Agreement, the Company must exercise
such right of repurchase or forfeiture not later than the 60th day
following such termination of employment or other service relationship.
(e) Waiver, Deferral, and Investment of Dividends. The Restricted Stock
Award Agreement may require or permit the immediate payment, waiver, deferral,
or investment of dividends paid on the Restricted Stock.
(f) Unrestricted Stock. The Committee may, in its sole discretion, grant
(or sell at a purchase price not to exceed the lesser of the par value of the
shares or 10% of the fair market value of the Common Stock at the time of sale)
to any participant shares of Stock free of restrictions under the Plan
("Unrestricted Stock"). Shares of Unrestricted Stock may be granted or sold as
described in the preceding sentence in respect of past services or other valid
consideration. Any sale of Unrestricted Stock must take place within 60 days
after the time of grant of the right to purchase such shares.
SECTION 9. DEFERRED STOCK AWARDS.
(a) Nature of Deferred Stock Award. A Deferred Stock Award is an award
entitling the recipient to acquire shares of Stock without payment in one or
more installments at a future date or dates, all as determined by the Committee.
The Committee may also condition such acquisition on the attainment of specified
performance goals.
(b) Award Agreement. A participant who is granted a Deferred Stock Award
shall have no rights with respect to a such Award unless within 60 days of the
grant of such Award or such shorter period as the Committee may specify, the
participant shall have accepted the Award by executing and delivering to the
Company a Deferred Stock Award Agreement.
(c) Restrictions on Transfer. Deferred Stock Awards and all rights with
respect to such Awards may not be sold, assigned, transferred, pledged, or
otherwise encumbered. Rights with respect to such Awards shall be exercisable
during the participant's lifetime only by the participant or the participant's
legal representative.
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<PAGE> 43
(d) Rights as a Shareholder. A participant receiving a Deferred Stock
Award will have rights of a shareholder only as to shares actually received by
the participant under the Plan and not with respect to shares subject to the
Award but not actually received by the participant. A participant shall be
entitled to receive a stock certificate for shares of Deferred Stock only upon
satisfaction of all conditions therefor specified in the Deferred Stock Award
Agreement.
(e) Termination. Except as may otherwise be provided in the Award
Agreement, a participant's rights in all Deferred Stock Awards shall
automatically terminate upon the participant's termination of employment by or
other service relationship with the Company and its Subsidiaries for any reason
(including death).
(f) Acceleration, Waiver, etc. At any time prior to the participant's
termination of employment or other service relationship the Committee may in its
discretion accelerate, waive, or, subject to Section 13, amend any or all of the
restrictions or conditions imposed under any Deferred Stock Award.
(g) Payments in Respect of Deferred Stock. Without limiting the right of
the Committee to specify different terms, the Deferred Stock Award Agreement may
either make no provisions for, or may require or permit the immediate payment,
deferral, or investment of amounts equal to, or less than, any cash dividends
which would have been payable on the Deferred Stock had such stock been
outstanding, all as determined by the Committee in its sole discretion.
SECTION 10. PERFORMANCE UNIT AWARDS.
(a) Nature of Performance Units. A Performance Unit Award is an award
entitling the recipient to acquire cash or shares of Stock, or a combination of
cash and Stock, upon the attainment of specified performance goals. The
Committee in its sole discretion shall determine whether and to whom Performance
Unit Awards shall be made, the performance goals applicable under each such
Award, the periods during which performance is to be measured, and all other
limitations and conditions applicable to the awarded Performance Unit.
Performance Units may be awarded independent of or in connection with the
granting of any other Award under the Plan.
(b) Award Agreement. A participant shall have no rights with respect to a
Performance Unit Award unless within 60 days of the grant of such Award or such
shorter period as the Committee may specify, the participant shall have accepted
the Award by executing and delivering to the Company a Performance Unit Award
Agreement.
(c) Restrictions on Transfer. Performance Unit Awards and all rights with
respect to such Awards may not be sold, assigned, transferred, pledged, or
otherwise encumbered, and if exercisable over a specified period, shall be
exercisable during the participant's lifetime only by the participant or the
participant's legal representative.
(d) Rights as a Shareholder. A participant receiving a Performance Unit
Award will have rights of a shareholder only as to shares actually received by
the participant under the Plan and not with respect to shares subject to the
Award but not actually received by the participant. A participant shall be
entitled to receive a stock certificate evidencing the acquisition of shares of
Stock under a Performance Unit Award only upon satisfaction of all conditions
therefor specified in the Performance Unit Award Agreement.
(e) Termination. Except as may otherwise be provided by the Committee at
any time prior to termination of employment or other service relationship, a
participant's rights in all Performance Unit Awards shall automatically
terminate upon the participant's termination of employment by or other service
relationship with the Company and its Subsidiaries for any reason (including
death).
(f) Acceleration, Waiver, etc. At any time prior to the participant's
termination of employment by or other service relationship with the Company and
its Subsidiaries, the Committee may in its sole discretion accelerate, waive,
or, subject to Section 13, amend any or all of the goals, restrictions, or
conditions imposed under any Performance Unit Award.
(g) Exercise. The Committee in its sole discretion shall establish
procedures to be followed in exercising any Performance Unit, which procedures
shall be set forth in the Performance Unit Award
A-11
<PAGE> 44
Agreement. The Committee may at any time provide that payment under a
Performance Unit shall be made, upon satisfaction of the applicable performance
goals, without exercise by the participant. Except as otherwise specified by the
Committee, (i) a Performance Unit granted in tandem with a Stock Option may be
exercised only while the Stock Option is exercisable, and (ii) the exercise of a
Performance Unit granted in tandem with any Award shall reduce the number of
shares subject to the related Award on such basis as is specified in the
Performance Unit Award Agreement.
SECTION 11. OTHER STOCK-BASED AWARDS; SUPPLEMENTAL GRANTS.
(a) Nature of Awards. The Committee may grant other Awards under which
Stock is or may in the future be acquired ("Other Stock-based Awards"). Such
awards may include, without limitation, debt securities convertible into or
exchangeable for shares of Stock upon such conditions, including attainment of
performance goals, as the Committee shall determine. Subject to the purchase
price limitations in paragraph (b) below, such convertible or exchangeable
securities may have such terms and conditions as the Committee may determine at
the time of grant. However, no convertible or exchangeable debt shall be issued
unless the Committee shall have provided (by Company right of repurchase, right
to require conversion or exchange, or other means deemed appropriate by the
Committee) a means of avoiding any right of the holders of such debt to prevent
a Company transaction by reason of covenants in such debt.
(b) Purchase Price; Form of Payment. The Committee may determine the
consideration, if any, payable upon the issuance or exercise of an Other
Stock-based Award. However, no shares of Stock (whether acquired by purchase,
conversion, or exchange or otherwise) shall be issued unless (i) issued at no
cost to the recipient (or for a purchase price not in excess of the lesser of
the par value of the Shares or 10% of the Fair Market Value of the Stock as of
the time of sale), or (ii) sold, exchanged, or converted by the Company, and the
Company shall have received payment for such Stock or securities so sold,
exchanged, or converted equal to at least 50% of Fair Market Value of the Stock
on the grant or effective date, or the exchange or conversion date, under the
Award, as specified by the Committee. The Committee may permit payment by
certified check or bank check or other instrument acceptable to the Committee or
by surrender of other shares of Stock (excluding shares then subject to
restrictions under the Plan).
(c) Forfeiture of Awards; Repurchase of Stock; Acceleration or Waiver of
Restrictions. The Committee may determine the conditions under which an Other
Stock-based Award shall be forfeited or, in the case of an Award involving a
payment by the recipient, the conditions under which the Company may or must
repurchase such Award or related Stock. At any time the Committee may in its
sole discretion accelerate, waive, or, subject to Section 13, amend any or all
of the limitations or conditions imposed under any Other Stock-based Award.
(d) Award Agreements. A participant shall have no rights with respect to
any Other Stock-based Award unless within 60 days after the grant of such Award
(or such shorter period as the Committee may specify) the participant shall have
accepted the Award by executing and delivering to the Company an Other
Stock-based Award Agreement.
(e) Nontransferability. Other Stock-based Awards may not be sold,
assigned, transferred, pledged, or encumbered except as may be provided in the
Other Stock-based Award Agreement. However, in no event shall any Other
Stock-based Award be transferred other than by will or by the laws of descent
and distribution or be exercisable during the participant's lifetime by other
than the participant or the participant's legal representative.
(f) Rights as a Shareholder. A recipient of any Other Stock-based Award
will have rights of a shareholder only at the time and to the extent, if any,
specified by the Committee in the Other Stock-based Award Agreement.
(g) Deemed Dividend Payments; Deferrals. Without limiting the right of
the Committee to specify different terms, an Other Stock-based Award Agreement
may require or permit the immediate payment, waiver, deferral, or investment of
dividends or deemed dividends payable or deemed payable on Stock subject to the
Award.
A-12
<PAGE> 45
(h) Supplemental Grants. The Company may in its sole discretion make a
loan to the recipient of an Award hereunder, either on or after the date of
grant of such Award. Such loans may be made either in connection with the
exercise of a Stock Option, a Stock Appreciation Right, or an Other Stock-based
Award, in connection with the purchase of shares under any Award, or in
connection with the payment of any federal income tax in respect of income
recognized under an Award. The Committee shall have full authority to decide
whether to make a loan hereunder and to determine the amount, term, and
provisions of any such loan, including the interest rate (which may be zero)
charged in respect of any such loan, whether the loan is to be secured or
unsecured, the terms on which the loan is to be repaid and the conditions, if
any, under which it may be forgiven. However, no loan hereunder shall provide or
reimburse to the borrower the amount used by him for the payment of the par
value of any shares of Common Stock issued, have a term (including extensions)
exceeding ten years in duration, or be in an amount exceeding the total exercise
or purchase price paid by the borrower under an Award or for related Stock under
the Plan plus an amount equal to the cash payment permitted in the following
paragraph.
The Committee may at any time authorize a cash payment, in respect of the
grant or exercise of an Award under the Plan or the lapse or waiver of
restrictions under an Award which shall not exceed the amount which would be
required in order to pay in full the federal income tax due as a result of
income recognized by the recipient under both the Award and such cash payment,
in each case assuming that such income is taxed at the regular maximum marginal
rate applicable to individuals under the Code as in effect at the time such
income is includable in the recipient's income. Subject to the foregoing, the
Committee shall have complete authority to decide whether to make such cash
payments in any case, to make provision for such payments either simultaneously
with or after the grant of the associated Award, and to determine the amount of
each such payment.
SECTION 12. TRANSFER, LEAVE OF ABSENCE, ETC.
For purposes of the Plan, the following events shall not be deemed a
termination of employment:
(a) a transfer to the employment of the Company from a Subsidiary or
from the Company to a Subsidiary, or from one Subsidiary to another; or
(b) an approved leave of absence for military service or sickness, or
for any other purpose approved by the Company, if the employee's right to
reemployment is guaranteed either by a statute or by contract or under the
policy pursuant to which the leave of absence was granted or if the
Committee otherwise so provides in writing.
For purposes of Section 6(j), Section 8(a), Section 8(d), Section 9(e),
Section 9(f), Section 10(e) and Section 10(f), except as otherwise determined by
the Committee an optionee employed as an employee by the Company and its
Subsidiaries shall be treated as having incurred a termination of employment by
or other service relationship with the Company and its Subsidiaries on the date
he or she ceases to be an employee, whether or not he or she continues to
provide services to the Company or its Subsidiaries on some other basis.
SECTION 13. AMENDMENTS AND TERMINATION.
The Board may at any time amend or discontinue the Plan and the Committee
may at any time amend or cancel any outstanding Award (or provide substitute
Awards at the same or reduced exercise or purchase price or with no exercise or
purchase price, but such price, if any, must satisfy the requirements which
would apply to the substitute or amended Award if it were then initially granted
under this Plan) for the purpose of satisfying changes in law or for any other
lawful purpose, but no such action shall adversely affect rights under any
outstanding Award without the holder's consent. However, no such amendment,
unless approved by stockholders, shall be effective if it would cause the Plan
to fail to satisfy the incentive stock option requirements of the Code or the
requirements of Rule 16b-3 or any successor rule under the Act as in effect on
the date of such amendment.
A-13
<PAGE> 46
SECTION 14. STATUS OF PLAN.
With respect to the portion of any Award which has not been exercised and
any payments in cash, stock, or other consideration not received by a
participant, a participant shall have no rights greater than those of a general
creditor of the Company unless the Committee shall otherwise expressly determine
in connection with any Award or Awards. In its sole discretion, the Committee
may authorize the creation of trusts or other arrangements to meet the Company's
obligations to deliver Stock or make payments with respect to awards hereunder,
provided that the existence of such trusts or other arrangements is consistent
with the provision of the foregoing sentence.
SECTION 15. GENERAL PROVISIONS.
(a) No Distribution; Compliance with Legal Requirements, etc. The
Committee may require each person acquiring shares pursuant to an Award to
represent to and agree with the Company in writing that such person is acquiring
the shares without a view to distribution thereof.
No shares of Stock shall be issued pursuant to an Award until all
applicable securities laws and other legal and stock exchange requirements have
been satisfied. The Committee may require the placing of such stop-orders and
restrictive legends on certificates for Stock and Awards as it deems
appropriate.
(b) Other Compensation Arrangements; No Employment Rights. Nothing
contained in this Plan shall prevent the Board of Directors from adopting other
or additional compensation arrangements, subject to stockholder approval if such
approval is required; and such arrangements may be either generally applicable
or applicable only in specific cases. The adoption of the Plan does not confer
upon any employee or other person any right to continued employment or the
continuation of any service relationship with the Company or a Subsidiary, nor
does it interfere in any way with the right of the Company or a Subsidiary to
terminate the employment or other service relationship that may exist between it
and any person.
(c) Tax Withholding, etc. Each participant shall, no later than the date
as of which the value of an Award or of any Stock or other amounts received
thereunder first becomes includable in the gross income of the participant for
Federal income tax purposes, pay to the Company, or make arrangements
satisfactory to the Committee regarding payment of, any Federal, state, or local
taxes of any kind required by law to be withheld with respect to such income.
The Company and its Subsidiaries shall, to the extent permitted by law, have the
right to deduct any such taxes from any payment of any kind otherwise due to the
participant.
(d) Cancellation of Awards. The Committee may provide, with respect to
any Award, that the Award shall be cancelled or rescinded and any associated
shares forfeited, and that the participant be obligated to pay to the Company
any gain received upon exercise or vesting, in the event that the participant
competes with the Company or its Subsidiaries, discloses confidential
information of the Company or its Subsidiaries, or otherwise is not in
compliance with any provision of the Award, in each case on such terms and
conditions as the Committee considers appropriate in the circumstances.
SECTION 16. EFFECTIVE DATE OF PLAN.
The Plan shall not become effective unless approved by the vote of the
holders of a majority of the shares of capital stock of the Company represented
at a meeting of stockholders. Subject to such effectiveness, and to the
requirement that no Stock may be issued hereunder prior to such approval,
Options and other Awards may be granted hereunder on and after adoption of the
Plan by the Board.
A-14
<PAGE> 47
BOLT BERANEK AND NEWMAN INC.
ANNUAL MEETING - NOVEMBER 3, 1994
P
R The undersigned hereby appoints George H. Conrades and Nancy J.
O Nitikman as proxies and each or either of them as proxy with full power of
X substitution to each, to vote and act at the Annual Meeting of Shareholders
Y of Bolt Beranek and Newman Inc. (notice and proxy statement in respect of
which have been received by the undersigned) and at any and all adjournments
thereof, upon and in respect of all shares of Common Stock as to which the
undersigned may be entitled to vote or act, with all powers the undersigned
would possess if personally present. The proxies are hereby instructed upon
the matters specified in the notice of the meeting as indicated on the
reverse side. The proxies are hereby instructed to vote in their discretion
upon such other business as may properly come before the meeting.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. THE
SHARES REPRESENTED HEREBY WILL BE VOTED IN ACCORDANCE WITH INSTRUCTIONS
INDICATED, AND IF NO INSTRUCTION IS INDICATED, WILL BE VOTED FOR ELECTING
DIRECTORS AS SET FORTH IN ITEM (1), AND FOR PROPOSALS (2), (3), AND (4).
-----------
SEE REVERSE
SIDE
CONTINUED AND TO BE SIGNED ON REVERSE SIDE -----------
<PAGE> 48
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
/X/ Please mark
votes as in
this example
1. Electing all the nominees listed
below (or if any nominee is not
available for election, such FOR AGAINST ABSTAIN
substitute as the Directors may 2. Authorizing amendments to the
designate). Company's 1986 Stock Incentive Plan / / / / / /
relating to an increase in number of
NOMINEES: as Class II Directors: John M. shares available, an extension of
Albertine, Roger D. Wellington the period for awards, and changes
to conform to the tax code.
FOR WITHHOLD
BOTH FROM BOTH
NOMINEES NOMINEES
/ / / / 3. Authorizing amendments to the FOR AGAINST ABSTAIN
Company's 1986 Stock Incentive Plan
relating to options for / / / / / /
non-employee Directors.
/ /
-----------------------------------------
For both nominees except as noted above FOR AGAINST ABSTAIN
4. Ratifying the selection of Coopers &
Lybrand as auditors of the Company. / / / / / /
MARK HERE
FOR ADDRESS DISCONTINUE
CHANGE AND MULTIPLE
NOTE AT LEFT / / MAILINGS / /
Please sign exactly as your name appears. If acting as attorney,
executor, trustee or in other representative capacity, sign name and
title.
Signature: ______________________________________ Date ________________
Signature: ______________________________________ Date ________________
</TABLE>
<PAGE> 49
VOTING INSTRUCTIONS VOTING INSTRUCTIONS
BOLT BERANEK AND NEWMAN INC. RETIREMENT TRUST
BBN STOCK FUND
Please return this card in the enclosed postage paid envelope to The
First National Bank of Boston, P.O. Box 1628, Boston, Massachusetts 02105.
The undersigned directs the Trustees of the Bolt Beranek and Newman
Inc. Retirement Trust to vote the shares of BBN Common Stock, represented by
the undersigned's fractional interest in the Trust's BBN Stock Fund, at the
Annual Meeting of Shareholders of Bolt Beranek and Newman Inc. to be held in
the Enterprise Room, 5th Floor, State Street Bank Building, 225 Franklin
Street, Boston, Massachusetts, on Thursday, November 3, 1994, at 10:30 a.m.
The Trustees are further authorized to vote such shares upon the matters
specified in the notice of the meeting as indicated on the reverse side and, in
their discretion, upon such other business as may properly come before the
meeting or any adjournment thereof. The Trustees are authorized to vote such
shares in person or by proxy.
THESE VOTING INSTRUCTIONS ARE SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS OF THE COMPANY BY THE TRUSTEES. SHARES OF BBN COMMON STOCK HELD IN
THE BBN STOCK FUND FOR WHICH NO DIRECTIONS ARE TIMELY RECEIVED WILL BE VOTED BY
THE TRUSTEES IN PROPORTION TO THOSE SHARES FOR WHICH THEY DO RECEIVE TIMELY
VOTING INSTRUCTIONS.
-----------
SEE REVERSE
SIDE
CONTINUED AND TO BE SIGNED ON REVERSE SIDE -----------
<PAGE> 50
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
/ X/ Please mark
votes as in
this example
1. Electing all the nominees listed
below (or if any nominee is not
available for election, such FOR AGAINST ABSTAIN
substitute as the Directors may 2. Authorizing amendments to the
designate). Company's 1986 Stock Incentive Plan / / / / / /
relating to an increase in number of
NOMINEES: as Class II Directors: John M. shares available, an extension of
Albertine, Roger D. Wellington the period for awards, and changes
to conform to the tax code.
FOR WITHHOLD
BOTH FROM BOTH
NOMINEES NOMINEES
FOR AGAINST ABSTAIN
/ / / / 3. Authorizing amendments to the
Company's 1986 Stock Incentive Plan / / / / / /
relating to options for non-employee
Directors.
- - ----------------------------------------- FOR AGAINST ABSTAIN
For both nominees except as noted above 4. Ratifying the selection of Coopers &
Lybrand as auditors of the Company. / / / / / /
MARK HERE
FOR ADDRESS DISCONTINUE
CHANGE AND MULTIPLE
NOTE AT LEFT / / MAILINGS / /
Please sign exactly as your name appears. If acting as attorney,
executor, trustee or in other representative capacity, sign name and
title.
Signature: ____________________________________ Date _____________
Signature: ____________________________________ Date _____________
</TABLE>
