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FORM 10-K
COMMISSION FILE NO. 1-6435
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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BOLT BERANEK AND NEWMAN INC.
(Exact name of registrant as specified in its charter)
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<S> <C>
MASSACHUSETTS 04-2164398
(Sate of Incorporation) (IRS Employer Identification Number)
150 CAMBRIDGEPARK DRIVE, CAMBRIDGE, MASSACHUSETTS 02140
(Address of principal executive offices) (Zip Code)
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(617) 873-2000
(Registrant's telephone number, including area code)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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<S> <C>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common Stock, $1.00 par value New York Stock Exchange
6% Convertible Subordinated Debentures New York Stock Exchange
Common Stock Purchase Rights New York Stock Exchange
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES /X/ NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in the definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /X/
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State the aggregate market value of the voting stock held by non-affiliates of
the registrant.
Market value at 9/13/94 of Common Stock held by other than directors and
executive officers of registrant: $285,863,769
Indicate the number of shares outstanding of each of the registrant's classes of
common stock.
Common Stock, $1.00 par value, outstanding 9/13/94: 16,768,449 shares
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the fiscal year ended June 30,
1994 are incorporated by reference into Items 1, 5, 6, 7, 8, and 14.
Portions of the definitive Proxy Statement dated September 28, 1994 are
incorporated by reference into Items 10, 11, and 12.
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ITEM 1. BUSINESS.
GENERAL
Bolt Beranek and Newman Inc. ("BBN" or the "Company", each of which terms
includes, unless the context indicates otherwise, BBN and its consolidated
subsidiaries) was incorporated as a Massachusetts corporation in 1953 as the
successor to a partnership formed in 1948.
For fiscal 1994, the Company has revised the business segments in which it
reports financial information, and as a result has restated the financial
information for fiscal years 1993 and 1992 to reflect this change. The Company
now reports financial information in three business segments: Internetworking,
Data Analysis Software, and Collaborative Systems and Acoustic Technologies. The
Internetworking business segment includes that part of the activities of the
Company's BBN Systems and Technologies Division relating to network services and
defense communications and network systems (including the Company's X.25 network
systems and T/10(TM) Integrated Access Device (IAD) activities), and the
activities of the Company's LightStream Corporation and BBN Internet Services
Corporation subsidiaries. The Data Analysis Software business segment includes
the activities of the Company's BBN Software Products Corporation subsidiary.
The Collaborative Systems and Acoustic Technologies business segment includes
that part of the activities of the Company's BBN Systems and Technologies
Division relating to distributed computing, speech processing, education
technology, and sensor systems, and the activities of the Company's BBN HARK
Systems Corporation subsidiary.
The Company's overall strategy is to capitalize upon its technical
expertise and problem solving experience in the internetworking, data analysis,
and collaborative and acoustic systems areas. This strategy is being implemented
through five distinct and complementary business units, including one operating
division and four operating subsidiaries (three of which are early stage
companies), as described below:
- BBN Systems and Technologies, an operating division of the Company,
provides a range of advanced systems and technologies to government and
commercial organizations, and performs virtually all of the Company's
government contract activities. Its results are reported in part in the
Internetworking business segment (including the Company's network
services and defense communications and network systems activities), and
in part in the Collaborative Systems and Acoustic Technologies business
segment. (See "Network Services and Defense Communications", "Network
Systems", "Collaborative Systems", and "Acoustic Technologies" below.)
- BBN Software Products Corporation, a wholly-owned subsidiary of the
Company, develops and markets data analysis and visualization software
products, and its results are included in the Data Analysis Software
segment. (See "BBN Software Products Corporation" below.)
- LightStream Corporation, an 80%-owned subsidiary of the Company, was
organized in October 1993 to develop and market ATM products (continuing
the Company's prior development activities and investment in ATM
technology), and its results are included in the Internetworking segment.
(See "LightStream Corporation" below.)
- BBN Internet Services Corporation, a 98%-owned subsidiary of the Company,
was established in August 1994 (continuing and expanding the Company's
NEARNET[SM] business activities which resided in the BBN Systems and
Technologies Division during fiscal 1994) to provide Internet services on
a worldwide basis, and its results are included in the Internetworking
segment. (See "BBN Internet Services Corporation" below.)
- BBN HARK Systems Corporation, a wholly-owned subsidiary of the Company,
was established in July 1994 (continuing certain of the Company's prior
development activities in speech recognition which resided in the BBN
Systems and Technologies Division during fiscal 1994) to develop and
market commercial large vocabulary speech recognition software products,
and its results are included in the Collaborative Systems and Acoustic
Technologies business segment. (See "BBN HARK Systems Corporation"
below.)
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A significant portion of the Company's revenue continues to be derived from
its business with the U.S. government and its agencies, particularly the
Department of Defense. The Company's business with the Department of Defense has
been adversely affected by reduced defense spending. The Company expects overall
defense budgets to continue to decline over the next several years, and
anticipates attendant increased competition within the consolidating defense
industry. These factors have reduced the Company's U.S. government revenue and
operating margins in recent fiscal years, and this trend is expected to continue
at least through fiscal 1995, particularly in the defense communications systems
and acoustic and sensor systems areas. (See "United States Government Contracts"
below.)
The Company conducts its commercial businesses in environments
characterized by intense competition, shortened product life cycles, and rapid
technological change, which require significant research and development
expenditures to develop new products which address emerging market requirements
and to improve its existing products. The Company's traditional commercial
businesses, consisting principally of X.25 network systems and RS/Series(TM)
data analysis and visualization software products, continue to experience
substantially lower revenue. In recent years, the Company has been investing
heavily in the development of new products, primarily the LightStream(TM) ATM
switch and the T/10 IAD in the networking area and BBN/Cornerstone(TM) data
analysis software. To date, revenue from the Company's new commercial products
has not been significant.
During the three most recent fiscal years, the Company's operating results
have been adversely affected by a high level of investment in new product
development without corresponding new product revenue, declines in the Company's
defense communications business, and lower demand for the Company's X.25 network
systems and data analysis software products. In addition, the Company's
simulation systems business, which generated approximately $25,300,000 in
revenue in fiscal 1993, was sold in April 1993. (See "Simulation Systems"
below).
The Company's objective is to achieve revenue growth in fiscal 1995, and a
return to profitability during the second half of fiscal 1995. However, this
outlook is strongly dependent upon achieving a significant increase in new
product and services revenue. There can be no assurance that such an increase
will be realized. The outlook could also be affected by further expenditures on
commercial business opportunities available to the Company. The Company's
anticipated revenue growth is dependent upon the Company's ability to continue
to recruit entrepreneurial marketing and sales leadership, develop a support
infrastructure, and establish productive customer relationships, particularly in
the commercial marketplace. The implementation of the Company's overall business
strategy will require significant investment in sales and marketing.
The Company's business segments (as restated) represented approximately the
following percentages of BBN's total revenue in fiscal 1994, 1993, and 1992:
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YEAR ENDED JUNE 30,
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PERCENTAGE OF TOTAL BBN REVENUE 1994 1993 1992
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Internetworking....................................................... 39 % 39 % 43 %
Data Analysis Software................................................ 18 % 16 % 17 %
Collaborative Systems and Acoustic Technologies....................... 43 % 45 % 40 %
---- ---- ----
100 % 100 % 100 %
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The Company's contracts and subcontracts involving the U.S. government and
its agencies represented approximately 67%, 62%, and 62% of BBN's total revenue
in fiscal 1994, 1993, and 1992, respectively.
INTERNETWORKING
NETWORK SERVICES AND DEFENSE COMMUNICATIONS
Overview.
BBN designs, develops, markets, and operates wide area communications
network systems, and offers and performs contract research, development, and
consulting services, for government organizations, in the fields of advanced
networking, tactical networks, and network security. (For information on the
Company's
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commercial networking activities, see generally the discussions under "Network
Systems", "LightStream Corporation", and "BBN Internet Services Corporation"
below.)
Since 1969, BBN has provided network services and defense communications to
the Department of Defense. Since 1983, BBN has been providing hardware and
professional services for the Defense Data Network (DDN), a common-user data
network serving the Department of Defense. In fiscal 1991, the Defense
Information Systems Agency (DISA) awarded BBN a one-year contract in support of
the DDN, with up to four one-year optional extensions. The Company is currently
performing under the third option year of the DDN contract, valued at
approximately $20 million, which will continue the Company's existing activities
through October 1994. The Company has been notified that DISA has elected to
exercise its option for the final one-year extension of the DDN contract, which
will continue these activities through October 1995. The value of this extension
award is approximately $15 million. There can be no assurance that this activity
will continue beyond October 1995.
BBN provides a range of other network services, systems, and products, for
end use by U.S. government and allied government agencies, under various
contracts. BBN provides research, development, hardware, software, and
professional services for a wide area network supporting distributed simulation
and training, warfighting simulation, and command and control functionality. BBN
also supplies a customized version of its T/20V(TM) Videoconferencing Internet
Router, supporting integrated video, voice, and data requirements. BBN has
provided tactical communications network systems to the U.S. Army in connection
with the Mobile Subscriber Equipment ("MSE") program, under a subcontract with
GTE Government Systems. This latter subcontract was substantially completed
during fiscal 1993. BBN also supplies cryptographic systems and products for
sophisticated network security applications, including a Message Security
Protocol (MSP) testbed system for the U.S. Department of Defense providing
secure messaging capability.
Marketing.
The primary market for BBN's network services and defense communications is
the U.S. Department of Defense. The Company also markets and sells network
services to other U.S. government agencies and to allied armed services. The
general decline in the U.S. Department of Defense budget, coupled with increased
competition, are factors that may affect BBN's future success in this
marketplace. (See "United States Government Contracts" below.)
The Company is also pursuing opportunities for its network services in the
commercial marketplace. (See also "Network Systems", "LightStream Corporation",
and "BBN Internet Services Corporation" below.)
Competition.
Competition in the field of network services and defense communications is
intense. The market for developing and operating wide area networks for
government agencies is dominated by large companies with substantially greater
financial and marketing resources than BBN. The U.S. government is also seeking
to reduce its reliance on private contractors for the operation of its existing
networks, and the Company expects that this trend will result in a continuing
decline in revenue relating to the operation of government networks.
The Company believes that the primary factors of competition are the
technical expertise and experience of the supplier, and price. Government
contracts may be awarded either through a sole-source or competitive
procurement, although competitive procurements are increasingly more typical.
NETWORK SYSTEMS
Overview.
BBN's X.25 network systems and products, based on packet-switching
technology, support a range of communications traffic, including X.25,
IBM Systems Network Architecture (SNA), and frame relay protocols. The
Company's X.25 network systems and products include switching equipment,
access devices, and network management systems. BBN also supplies a range
of X.25 network services: it evaluates communications requirements, designs
the network, integrates the overall network system, and provides on-
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site technical assistance and custom engineering services. BBN generally
provides continuing maintenance for the networks it installs, and also offers
network operations services.
The Company's X.25 network systems business has experienced significantly
lower revenue for several years. Substantially all of the Company's X.25 network
systems revenue in fiscal 1994 was generated from sales into the Company's
existing customer base in connection with the expansion, maintenance, and
support of networks previously installed by BBN. The Company has discontinued
certain of its traditional X.25 products and has substantially reduced its
development and selling efforts related to this business.
The T/10 Integrated Access Device (IAD), which BBN has been developing for
several years, is designed to help customers consolidate traffic from their
traditional terminal-to-computer and computer-to-computer traffic with newer
desktop computing applications over a single enterprise network. In particular,
the T/10 IAD addresses the problem of communications across dispersed branch
offices. It operates simultaneously as an Internet Protocol (IP) router, X.25
packet switch, and async, bisync, and SNA packet assembler/disassembler (PAD).
Development delays and limited functionality have unfavorably affected the
Company's ability to generate sales of the T/10 IAD, and revenue to date from
the T/10 IAD has not been financially significant. During fiscal 1994, in order
to achieve development and marketing efficiencies, the T/10 IAD activities were
merged into the Company's BBN Systems and Technologies Division. Although
overall spending relating to the T/10 IAD business was reduced from prior year
levels, additional features have been added. Recently, the Company introduced a
version of the T/10 IAD, adding frame relay functionality.
Marketing.
The market for the Company's X.25 network systems and products is primarily
the Company's existing commercial customer base. Such customers typically
require ongoing maintenance, upgrade, operation, or expansion of a private X.25
network system previously installed by the Company. The Company is also
reviewing opportunities for international sales of X.25 network systems,
particularly into countries where the existing telecommunications infrastructure
is not capable of supporting advanced networking protocols. The Company markets
its X.25 network systems both directly and through third party resellers,
although the Company has substantially reduced its direct selling and marketing
capabilities for X.25 network systems in recent years.
The targeted market for the T/10 IAD is organizations with established
async, bisync, X.25, and SNA networks that are expanding to use local area
networks (LANs) and internetworking. In fiscal 1994, the Company entered into a
value-added reseller agreement with NEC under which NEC will sell the Company's
T/10 IAD in Japan under the NEC label. Recently, the Company hired a senior
sales executive to focus marketing efforts for the T/10 IAD on a few major
reseller opportunities similar to the agreement with NEC. Accordingly, the
future success of the T/10 IAD is dependent on these opportunities.
Competition.
The Company believes that the primary factors of competition for X.25
network systems are functionality, product performance, price, reliability, and
experience of the supplier. Several important trends have adversely affected the
Company's X.25 network systems business, including the growth of desktop
computing, the widespread installation of local area networks (LANs), and
increased transmission circuit speed and improved circuit quality. These trends
have led to market requirements for networking technologies such as routers.
The T/10 IAD competes directly with IAD communications products offered by
other vendors, and indirectly with alternative product solutions such as routers
and other access devices. Other vendors currently dominate the marketplace for
access devices and routers, and generally have established reputations and
financial, marketing, and distribution resources greater than those of BBN. The
Company believes the primary factors of competition for the T/10 IAD are product
performance, price, functionality, reliability, and experience of the supplier.
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LIGHTSTREAM CORPORATION
Overview.
BBN designs, develops, markets, and supports networking products based on
asynchronous transfer mode (ATM) technology. The Company's ATM networking
products provide switching capability for both campus and wide area backbone
network requirements. The Company believes that ATM is a significant emerging
technology for networking in the 1990s. ATM switches enable communication line
capacity in highspeed fiber optic networks to be allocated efficiently both for
bursty data traffic, and for real-time continuous transmissions such as voice
and video.
The Company's ATM development activities are conducted by LightStream
Corporation, currently 80% owned by the Company, with a 20% minority interest
owned by UB Networks, Inc. (formerly Ungermann-Bass, Inc.), a wholly owned
subsidiary of Tandem Computers, Inc. In connection with the formation of
LightStream Corporation in October 1993, the Company and UB Networks, Inc.
combined certain technology, staff, and other resources, and contributed $15
million and $5 million in cash, respectively to the enterprise.
For several years, the Company has been investing heavily in the
development of an enterprise ATM switch. In October 1993, LightStream
Corporation released the LightStream[TM] 2010 ATM switch as its initial product
offering. Sales of the LightStream 2010 ATM switch were not financially
significant in fiscal 1994.
In September 1994, LightStream Corporation announced the general release of
the LightStream 2020 ATM switch, which is an enhanced version of the LightStream
2010 ATM switch. The LightStream 2020 ATM switch is an advanced,
second-generation ATM backbone switch designed for LAN/WAN internetworking in a
campus-or global enterprise-wide environment, and is designed for high
performance, mission-critical enterprise networks that carry data, voice, image,
and video communications. Based on a high-speed busless architecture, the
LightStream 2020 ATM switch supports the functions of both a wide area bandwidth
manager and a multiprotocol bridge/router, is modular and optionally
fault-tolerant, and offers congestion avoidance features. The LightStream 2020
ATM switch has a peak throughput of two gigabits per second, and supports both
high-speed (T3/E3 and SONET/SDH OC3c) and lower-speed (56Kbps to T1/E1)
connections. Network services supported in the LightStream 2020 ATM switch
include ATM user-network interface (UNI), trunking/node to network interfaces
(NNI), FDDI and Ethernet internetworking, frame relay access, frame forwarding
for X.25, HDLC, SNA/SDLC, and interswitch trunking. Existing LightStream 2010
ATM switches can be upgraded to LightStream 2020 ATM switch capabilities.
Marketing.
Private wide area and campus networks are undergoing a period of
significant transition. Bandwidth managers based on time division multiplexing
(TDM) are becoming obsolete. Such multiplexers cannot efficiently meet
requirements of bursty traffic from applications such as high-speed LAN
internetworking, and TDM cannot efficiently support emerging applications such
as multimedia and imaging. In addition, many networks are moving beyond T1/E1
speeds and are being constrained by the lack of scalability inherent in most TDM
bandwidth managers. The Company believes that the LightStream 2020 ATM switch,
with ATM technology at its core, overcomes these limitations.
The LightStream 2020 ATM switch is designed to respond to important market
needs, including meeting the communications requirements of the next generation
of user applications running on high-performance personal computers and
workstations; achieving the economies of scale associated with the transmission
of voice, data, and video over a single communications network; supporting
existing network equipment and circuits; providing efficient use of expensive
circuits; and providing scalability to support rapidly growing networks.
The market for ATM communications switches currently consists of three
market segments, comprised of the carrier central office ATM switch segment, the
ATM enterprise switch segment, and the LAN workstation ATM switch segment. The
market for ATM communications products is expected to grow substantially over
the next several years. The growth of the ATM enterprise switch market segment,
which is
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the market segment addressed by the LightStream 2020 ATM switch, may depend upon
the growth of the other two market segments, and may develop at a different rate
than those market segments.
Potential customers for the LightStream 2020 ATM switch include large
commercial organizations, with substantial existing networks, for whom
enterprise-wide communications are of strategic importance; information service
providers; and government organizations.
The Company expects to market and sell its LightStream 2020 ATM switch and
other future ATM products through a combination of direct and indirect
distribution channels, both in the United States and internationally. Currently,
the Company has only modest direct sales capabilities in this business area, but
intends to expand these capabilities during fiscal 1995. The Company anticipates
that, in addition to utilizing a direct sales force, it will continue to
establish strategic alliances and partnerships in key market segments with
market leaders throughout the world. These arrangements are intended to augment
LightStream Corporation's technical strength and small direct sales force with
established distribution channels of other companies. Such arrangements could
include Original Equipment Manufacturer (OEM) distribution agreements,
technology licenses, and joint development arrangements. LightStream Corporation
has entered into a value-added reseller agreement with NEC under which NEC will
sell LightStream Corporation's ATM switches in Japan under the NEC label. In
August 1994, LightStream Corporation and Tellabs Operations, Inc. agreed to
jointly develop and distribute ATM switching systems for information service
providers. In addition, LightStream Corporation has signed non-exclusive OEM
distribution agreements with UB Networks, Inc. and the Company's BBN Systems and
Technologies Division.
Competition.
The emerging market for ATM products is very competitive, particularly from
communications companies with marketing, distribution, and resources
significantly greater than those available to LightStream Corporation. The ATM
enterprise switch market segment is characterized by long sales cycles.
Accordingly, the success of LightStream Corporation's products, including the
LightStream 2020 ATM switch, will depend upon the timely development of the ATM
market, and in particular the ATM enterprise switch market segment, the
technological superiority of LightStream Corporation's products, their cost
competitiveness, and the development of strategic alliances and distribution
channels. In the event these conditions are not achieved on a timely basis, the
Company's financial results will be adversely impacted.
The Company believes that the primary factors of competition for its ATM
products are the technological superiority of the product architecture
(including traffic management, congestion avoidance, and network management
functionalities), product performance, price, reliability (including fault
tolerance, mean time to repair, and automatic rerouting), and experience of the
supplier.
BBN INTERNET SERVICES CORPORATION
Overview.
The Company markets and sells services which provide companies and other
organizations with access to and assistance in using the Internet. The Internet,
which is a complex web of interconnected networks generally available to the
public, enables users to exchange electronic mail and access remote computing
resources and information on a global basis. The Company's Internet service
offerings currently include around-the-clock network operations, comprehensive
problem tracking and resolution, network security, electronic publishing,
training, on-site field support, and configuration management. The Company
intends to develop and offer additional value-added services to its Internet
customers.
BBN currently offers its Internet services through two operating units of
its subsidiary BBN Internet Services Corporation: NEARNET and BARRNET[SM]. BBN
acquired ownership of NEARNET in July 1993 and BARRNET in August 1994.
The Company believes it is currently a leading provider of Internet
connectivity services to organizational users in New England and in the San
Francisco Bay Area. The market for Internet services is rapidly expanding, and
there are considerable uncertainties as to how the market will develop. BBN may
accelerate its
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plans to invest in expanding its Internet services activities, including
additional acquisitions and increased spending. Such accelerated investment
could adversely affect the Company's financial results for fiscal 1995.
Marketing.
The primary market for BBN's Internet services are companies, educational
institutions, and other organizations that desire Internet connectivity and
value added services, and which are likely to generate high volume traffic. The
Company currently has a limited sales force, but intends to expand its marketing
and selling capabilities. At the present time, the Company does not directly
market Internet services to individual users.
The Company currently offers Internet services on a regional level, but
expects to take steps to expand its Internet service offerings to provide
national and international connectivity and value added services. These steps
include developing national and international sales, marketing, field service,
and training capabilities. The Company's ability to expand rapidly in the
Internet services field could be affected by its ability to attract and retain
experienced executive management and operating personnel.
Competition.
The Internet services business is highly competitive, and there are no
substantial barriers to entry. Currently, the leading providers of Internet
services include large communications companies, as well as a number of smaller
companies including regional suppliers of Internet services. In addition, a
number of large organizations, including large communications carriers, have
announced plans to offer Internet services. Many of these companies possess
resources significantly greater than the Company, and there can be no assurance
of the Company's success in this highly competitive market.
The Company believes that the primary factors of competition for the
provision of Internet services to organizations will be geographic coverage,
quality of services, variety of value-added services, reliability, experience of
the supplier, and price. BBN's success in this market will depend heavily upon
the Company's ability to provide high quality Internet connectivity and
value-added Internet services. Other factors that will affect the Company's
success in this market include the Company's ability to attract additional
experienced marketing, sales, and management talent, and the timely
establishment of worldwide support, training, and field service capabilities.
MANUFACTURING, FIELD SERVICE, AND CUSTOMER SUPPORT
The Company has outsourced most of its manufacturing capabilities for its
internetworking products. As a result, the Company has significantly downsized
its in-house manufacturing capabilities, and is now substantially reliant upon
the manufacturing capabilities of its outsourcing partners for products. The
Company continues to manufacture some X.25 communications equipment at its
facilities in Cambridge, Massachusetts, although such manufacturing operations
are not presently significant.
The Company does not currently maintain a qualified second manufacturing
source for the LightStream 2020 ATM switch, the T/10 IAD, and certain X.25
network products. In certain cases, the Company currently maintains only one
qualified source of supply for certain components of such products.
Field service, consisting of on-site hardware and software maintenance for
BBN's products, is provided both directly by BBN and through third party
maintenance organizations. The Company maintains dedicated field service
personnel at sites in the United States and in a limited number of foreign
countries, serving the field service requirements of its U.S. government
customers.
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DATA ANALYSIS SOFTWARE
BBN SOFTWARE PRODUCTS CORPORATION
Overview.
Through its wholly-owned subsidiary, BBN Software Products Corporation, the
Company develops, markets, and supports data analysis computer software
products, which are designed primarily for manufacturing, engineering, and
health industry applications. These software products provide integrated data
analysis, visualization, and decision support to help companies create and
produce higher quality products. BBN's data analysis software products operate
on computers from a variety of manufacturers, including Digital Equipment
Corporation (DEC), Sun Microsystems, Hewlett-Packard, and IBM.
BBN offers a range of software products for data analysis and
visualization, including RS/Series, BBN/Cornerstone, BBN/Clintrial[TM], and
BBN/ClinTRACE[TM] computer software. These software products are described more
fully below:
- RS/Series. The RS/Series of data analysis and visualization software
includes RS/1[R], RS/Explore[R], RS/Discover[R], RS/QCA II[TM], and
RS/Decision[TM] software. RS/1 software, which was first released in
1980, is a fully integrated data analysis system used by technical
professionals in a wide variety of disciplines and activities.
RS/Explore, RS/Discover, RS/QCA II, and RS/Decision software are sold as
product options to RS/1 software. Collectively, the RS/Series software is
used for technical data analysis and visualization, statistical process
control, and design of experiments.
- BBN/Cornerstone. BBN/Cornerstone software, introduced by the Company in
fiscal 1993, is the first of a new series of data analysis and
visualization software products specifically designed for use on desktop
computers in a client/server environment. The initial release of
BBN/Cornerstone software operates on UNIX-based workstations, utilizing a
number of established graphical user interfaces. Planned subsequent
releases in the second half of fiscal 1995 will operate on personal
computers.
- BBN/Clintrial and BBN/ClinTRACE. BBN develops, markets, and supports
health industry applications software used in the pharmaceutical,
biotechnology, and medical products industries. These health industry
applications software products currently include BBN/Clintrial (also
known as Clintrial[TM] software) (designed to support data management of
clinical trials) and BBN/ClinTRACE software (designed to unify a
company's adverse events processing).
The Company's data analysis software products business has been affected by
the growth of distributed processing and the associated use of personal
computers, workstations, and other desktop computers. Many of the Company's data
analysis software products, primarily the RS/Series software, currently operate
on minicomputer systems. As demand for minicomputer-based software declines, the
Company is experiencing substantially lower RS/Series software revenue and
downward pressure on prices. Sales of BBN/Cornerstone software, which was
introduced in response to the trend toward desktop computing, have not been
financially significant to date.
The Company has recently begun to more tightly integrate BBN/Cornerstone
software with its RS/Series of products. The Company anticipates that future
releases of RS/Series and BBN/Cornerstone products will provide additional
capabilities and flexibility in client/server computing environments.
BBN offers maintenance and training to its software customers. Maintenance
services consist principally of system updates, new releases, and telephone
hotline support. Training is offered both in product use and in the statistical
methods embodied in the data analysis software products.
Marketing.
The market for BBN's data analysis software products includes primarily
scientists and engineers working in the research, development, manufacturing,
and quality departments of major corporations in the health, semiconductor,
electronics, petrochemical, food and packaged goods, automotive, and aerospace
industries.
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This market is characterized by a need to acquire, analyze, visualize, graph,
and report scientific, engineering, and manufacturing data.
BBN markets its data analysis software products to end-user organizations
worldwide. Selling and marketing is done principally through a direct sales
force at offices in the United States, Western Europe, Japan, and Australia. The
Company is increasing its direct telesales activities, particularly for
BBN/Cornerstone software. The Company also has cooperative marketing agreements
with DEC, Sun, Hewlett-Packard, and other companies, as well as distribution and
value-added reseller agreements with Andersen Consulting and other systems
suppliers and resellers. The Company is continuing to seek additional
distribution channels for its software products, particularly its
BBN/Cornerstone software.
Sales of BBN/Cornerstone software have not been financially significant to
date. The Company believes that its ability to increase sales of BBN/Cornerstone
software will depend, in part, upon the timely integration of BBN/Cornerstone
and the RS/Series software into a client/server environment, and the development
and release of versions of BBN/Cornerstone software that permit operation on
platforms, including personal computers, which are not currently supported by
the product.
Competition.
The Company's data analysis software competes with other software packages
that address the data analysis and visualization needs of technical
professionals engaged in manufacturing, research and development, engineering,
pharmaceutical, and scientific activities. BBN believes that competition in the
applications software market is primarily based upon the quality, features,
price, ease-of-use, and support offered by a particular product. In addition to
providing the sophisticated statistical functionality required to analyze and
visualize complex technical data, the Company believes that its products provide
the market with a higher level of functional integration than is generally
available from most competitors. However, there are significant portions of the
overall market which are addressed by competitors, and which do not need the
level of functional integration which is embedded within the Company's
applications software products.
The Company's principal competition in this market is from software
packages offered by independent software vendors and, to a lesser degree, by
spreadsheet vendors whose products are widely used in business and technical
environments for data organization, simple statistics, and graphics. Many of
these packages are currently operable on workstations and personal computers.
Several of these packages are marketed by organizations with established
reputations and with financial and marketing resources greater than those of
BBN.
COLLABORATIVE SYSTEMS AND ACOUSTIC TECHNOLOGIES
COLLABORATIVE SYSTEMS
Overview.
BBN designs, develops, and markets collaborative systems, primarily in the
fields of distributed computing, speech processing, and education technology. In
each of these fields, BBN offers customized solutions to complex problems,
ranging from assisting organizations establish collaborative distributed
computing capabilities to developing a design for a new generation of American
schools.
In the field of distributed computing, the Company offers research,
development, and consulting services, primarily to government customers, to
develop and implement advanced systems in the area of human-computer
applications, integrating advanced computing, expert systems, and artificial
intelligence capabilities. The Company has designed and built intelligent
systems for a number of government customers, including the U.S. Army
(mission-critical intelligent system for logistics planning) and the U.S.
Internal Revenue Service (automated intelligent issues system for review of tax
returns).
In the field of speech processing, the Company offers research,
development, and consulting services, primarily to government customers,
relating to speech recognition, natural language processing, and spoken
9
<PAGE> 11
language systems. (The Company's commercial speech recognition activity is
carried on primarily through BBN HARK Systems Corporation. (See "BBN HARK
Systems Corporation" below.))
In the field of education technology, BBN offers a variety of research,
development, and consulting services, primarily to government organizations such
as the National Institutes of Health (NIH), the National Science Foundation
(NSF), and to public and private educational institutions. Under contract to the
New American Schools Development Corporation (NASDC), the Company has developed
and is assisting in the implementation of the "Cooperative Networked Educational
Community for Tomorrow" (Co-NECT[TM]) School Design program. The Co-NECT School
Design program provides an innovative approach to primary and secondary
education, utilizing computer and networked communications technology as part of
a project-based curriculum.
Marketing.
Large government and commercial organizations face increasingly complex
challenges, including around-the-clock operations, globally dispersed
operations, and rapid response requirements. Effective computer-based solutions
to these challenges require transition from centralized, isolated computing
focused on managing information to connected, collaborative computing focused on
using information (including real time data capture), communications across
heterogeneous platforms and networks, and rapid analysis and reporting. The
systems and products provided by the Company to address these challenges are
called "collaborative systems."
BBN markets collaborative systems and related services and products
principally to U.S. government agencies. Substantially all of BBN's
collaborative systems contracts are won on the basis of the technical merits of
BBN's proposals and BBN's professional reputation. BBN's reputation is enhanced
through the visibility of its employees in professional pursuits and,
accordingly, BBN encourages participation by its employees in various
professional associations and sponsors the presentation and publication of
technical papers by employees at professional meetings and in technical
journals.
The Company's strategy in the field of collaborative systems is to provide
customers with solutions to their global collaboration challenges by utilizing a
range of the Company's technical capabilities and problem-solving experience in
the area of networks and distributed applications. The Company is also seeking
opportunities in the commercial marketplace to utilize these capabilities.
Competition.
The primary factors of competition for collaborative systems are superior
technical expertise and price. BBN believes that its ability to maintain its
competitive position depends upon its ability to attract and retain talented
employees and to maintain a competitive cost structure.
BBN faces competition from a large number of organizations, many of which
have substantially greater financial resources and larger technical staffs than
BBN. These competing organizations include corporations and nonprofit
organizations (including non-profit federal contract research centers) that may
derive a substantial portion of their revenue from research and development
contracts with the U.S. government and its agencies. In addition, some
government agencies have internal research departments that may perform some of
the services offered by BBN, although the Company's services generally
supplement the capabilities and talents available within such agencies. As a
result of increased competition, the Company has reduced prices for its
collaborative systems and services, which has had an adverse impact on profit
margins. Information as to the Company's U.S. government contract activities may
be found in the section captioned "United States Government Contracts" below.
BBN HARK SYSTEMS CORPORATION
Overview.
In July 1994, the Company established a subsidiary, BBN HARK Systems
Corporation, to focus on the Company's efforts to expand its commercial speech
recognition software activities. Through BBN HARK
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<PAGE> 12
Systems Corporation, the Company develops, markets, and supports the HARK[TM]
Recognizer, a high performance, real-time, large vocabulary, speaker
independent, continuous speech recognition software product. The HARK Recognizer
is a software-only system that operates on a number of standard workstations and
personal computers equipped with a standard audio interface, without additional
specialized digital signal processing hardware. The HARK Recognizer currently
operates primarily on audio-equipped UNIX-based computer workstations offered by
vendors such as Sun Microsystems, Hewlett-Packard, Silicon Graphics, DEC, and
IBM, and on audio-equipped Intel 486-based personal computers.
Marketing.
The Company believes that computer speech recognition is an emerging
market, and the Company intends to increase its marketing and sales investment
in this area. The market currently targeted by the Company for the HARK
Recognizer includes systems integrators and computer and telephony equipment
manufacturers desiring to add cost-effective large vocabulary speech recognition
capabilities to their proprietary products and systems. The Company believes
that the market for computers with large vocabulary speech recognition
capabilities will include companies in the telephone, travel, transportation,
financial services, and health care industries.
The HARK Recognizer, which is currently available in an English-language
version, is currently marketed primarily to commercial organizations in the
United States.
The Company's success in this marketplace will depend heavily upon the
development of a market for large vocabulary speech recognition capabilities,
and upon the ability of the Company to attract additional experienced executive,
sales, and marketing talent for BBN HARK Systems Corporation, to sustain
technological superiority, ease-of-use, and cost-competitiveness for the HARK
Recognizer, and to establish distribution (including strategic alliances) on a
timely basis.
Competition.
The primary factors of competition for commercial speech recognition
products are the availability of appropriate end-use applications, technological
capabilities of the product (including speed, reliability, accuracy, features,
programmability, and ease-of-use), price, technical and support system
engineering services, and experience and reputation of the supplier.
The Company competes against other providers of commercial speech
recognition products and systems in the telephony and desktop markets. Many of
these companies have established reputations and financial, marketing, and
distribution resources substantially greater than that of BBN, and there can be
no assurance of success in this highly competitive market.
ACOUSTIC TECHNOLOGIES
Overview.
BBN designs, develops, and markets underwater acoustic sonar and prototype
sensor systems, both fixed and mobile. BBN combines experience in acoustics,
signal analysis, and information processing, to develop major sensor systems,
from initial concept through full-scale engineering development and deployment.
BBN also offers services in the fields of sonar, submarine, surface ship,
and ocean environmental acoustics; signal and information processing; shock and
vibration analysis; marine systems; fluid mechanics; and materials engineering.
The Company also designs, develops, builds, and markets active noise and
vibration control products and systems.
In connection with its sensor systems activities, BBN is currently teamed
with Loral Federal Systems to perform engineering and development services in
connection with the U.S. Navy's Fixed Distributed System Shore Signal and
Information Processing Segment (FDS SSIPS) program. BBN's role is to define the
overall operational concept for FDS SSIPS, and to provide software development
and operational training. FDS SSIPS is a component of the U.S. Navy's Integrated
Underwater Surveillance System. The scale of the FDS SSIPS program has been
reduced since its inception, and there exists some uncertainty over the U.S.
11
<PAGE> 13
government's long-term level of funding for the project. However, the Company
presently believes that it will continue to be involved in the FDS SSIPS program
for several more years. (See "United States Government Contracts" below.)
Marketing.
The primary customers for BBN's acoustic technologies consist of the U.S.
Navy, the U.S. Advanced Research Projects Agency (ARPA), anti-submarine warfare
(ASW) prime contractors, and the National Aeronautics and Space Agency (NASA).
BBN markets its acoustic technologies capabilities to customers both directly
and through teaming arrangements with large defense contractors. Periodically,
government agencies issue requests for proposals or broad-area announcements
seeking suppliers with specific technology skills and BBN often can respond to
these requests. Alternatively, the Company may propose systems-related work to
government agencies. The Company also may be invited to bid, or may seek to team
with one or more companies bidding, on a larger procurement of which a system or
subsystem within BBN's field of expertise is one component.
The market for acoustic technologies with defense applications (and for
sensor systems in particular) has changed dramatically in recent years. The end
of the Cold War has led to the cancellation or reduction in scope of a number of
large sensor systems procurements. In addition, the Department of Defense is
placing increased emphasis on research, development, training, and evaluation,
often stopping short of full-scale production of a system until necessary. BBN
believes its ability to sustain revenue in this business area will depend on
continued program funding for underwater sensor systems by the U.S. government.
The Company also markets certain of its acoustic technologies capabilities
to commercial customers, primarily in the area of active noise and vibration
control. The market for active noise and vibration control systems and products
includes manufacturers in the automotive, aerospace, industrial equipment, and
consumer products industries. This market is characterized by a need to control
noise and vibrations produced by systems such as automobiles, airplanes,
manufacturing equipment, and air conditioners. Revenue from such commercial
customers to date has not been significant.
Competition.
The primary factors of competition for acoustic technologies are superior
technical expertise, experience of the supplier, and price.
Competition in the field of acoustic technologies with defense applications
(and for sensor systems in particular) is dominated by large defense contractors
with substantially greater financial and marketing resources than BBN. In major
programs, where BBN's technical expertise supports the allocation to BBN of a
portion of the work, BBN typically teams with a large defense contractor. In
teaming arrangements where BBN acts in a subcontractor capacity, BBN relies
heavily on the effectiveness of its prime contractor to win a given award. In
defense-related areas, the Company anticipates that competition will continue to
be intense. (See also "United States Government Contracts" below.)
SIMULATION SYSTEMS
Until April 1993, BBN designed, marketed, built, and supported distributed
simulation systems, combining computer image generators with networking
capabilities, primarily for tactical team training. BBN's customers included the
U.S. Army (through the SIMNET program) and the German Army (through the AGPT
program under a subcontract with Wegmann & Co. GmbH). In April 1993, in view of
ongoing capital requirements and an uncertain sales outlook, the Company sold
the fixed assets, inventory, and technology of its simulation systems business,
and transferred more than one hundred employees of that business, to a
subsidiary of Loral Corporation. The results of the Company's former simulation
systems business is included in the Collaborative Systems and Acoustic
Technologies business segment.
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<PAGE> 14
PRODUCT DEVELOPMENT
The Company's commercial businesses are characterized by rapid
technological change, which requires continued research and development
expenditures by the Company to improve its existing products, and to develop new
hardware and software products to address emerging market requirements. The
Company has incurred substantial internally funded research and development
costs, including $22,451,000, $34,048,000, and $33,732,000 in fiscal 1994, 1993,
and 1992, respectively.
The majority of the Company's internally funded research and development
spending is currently directed principally toward the LightStream ATM products,
the T/10 IAD, and BBN/Cornerstone software. (See also "LightStream Corporation",
"Network Systems", and "BBN Software Products Corporation" above.) The Company's
continued significant investment in research and development is dependent upon
the timely market acceptance of its new products.
Additional information as to the research and development activities of the
Company may be found on pages 24 through 26 and page 35 of the Company's Annual
Report to Shareholders for the fiscal year ended June 30, 1994, and such
information is incorporated herein by reference.
UNITED STATES GOVERNMENT CONTRACTS
During fiscal 1994, 1993, and 1992, 67%, 62%, and 62%, respectively, of
BBN's total revenue was derived from contracts and subcontracts involving the
U.S. government and its agencies. In fiscal 1994, approximately $108,000,000
were sales pursuant to contracts funded through the Department of Defense. Of
these sales, contracts sponsored by three agencies of the Department of Defense
(under several programs in each case) contributed approximately $42,100,000,
$23,200,000, and $20,500,000, respectively.
The U.S. government accounted for approximately the following percentages
of revenue in each of the Company's business segments (as restated) in fiscal
1994, 1993, and 1992:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------
PERCENTAGE OF U.S. GOVERNMENT REVENUE 1994 1993 1992
- - ---------------------------------------------------------------------- ---- ---- ----
<S> <C> <C> <C>
Internetworking....................................................... 64% 72% 72%
Data Analysis Software................................................ 4% 4% 4%
Collaborative Systems and Acoustic Technologies....................... 96% 74% 76%
</TABLE>
The decreased percentage of U.S. Government revenue in the Internetworking
business segment for fiscal 1994 reflects decreased network services and defense
communications revenue due to the substantial completion of the Company's MSE
program under subcontract with GTE Government Systems, and lower revenue in
connection with the Company's DDN contract. The increased percentage of U.S.
Government revenue in the Collaborative Systems and Acoustic Technologies
business segment for fiscal 1994 reflects the sale of the Company's simulation
systems business. (See "Network Services and Defense Communications" and
"Simulation Systems" above.)
All of the Company's contracts and subcontracts involving the U.S.
government are subject to termination at the convenience of the government.
Should a contract be so terminated by the government, BBN would be reimbursed
for its allowable costs to the date of termination and would be paid a
proportionate amount of the stipulated profit attributable to the work actually
performed.
The U.S. government contracts for its procurement needs either through
formal advertising procedures or by negotiation. The government is authorized to
forego formal advertising under various circumstances, including the procurement
of experimental, developmental, or research services. Negotiated procurements
may or may not involve the solicitation of competitive proposals. If competitive
proposals are involved, the government selects the proposal most advantageous
to the government and normally conducts negotiations with the selected offeror.
Certain negotiated procurements are accomplished without a competitive
solicitation, such as when supplies or services can be obtained from only
one person or firm ("sole source") or when there is otherwise no substantial
question as to choice of source. In most noncompetitive procurements, after the
offeror submits a proposal, the government then negotiates the price and other
terms in accordance with
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<PAGE> 15
guidance received from technical personnel of the procuring agency and the
profit or fee guidelines set forth in the applicable regulations. Certain of the
Company's contracts with the government involve negotiated procurement
procedures accomplished without competitive solicitation; however, most of the
Company's government contracts are subject to competitive bidding procedures,
and the government has adopted certain policy initiatives generally placing more
emphasis on competitive procurement.
The majority of BBN's contracts with the U.S. government and its agencies
are priced on a cost-plus-fixed-fee basis, under which the government reimburses
the contractor for its allowable costs (within the contractual terms and
conditions) and pays the contractor a negotiated fee.
Many of the government programs in which the Company participates as a
contractor or subcontractor may extend for several years, but they are normally
funded on an annual basis. The Company's government contracts and subcontracts
are subject to reduction or modification in the event of changes in the
government's requirements or budgetary constraints. Government curtailment of
expenditures for systems or services of the type sold by the Company in the
internetworking or collaborative systems and acoustic technologies fields can
have an adverse impact on BBN's revenue and results from operations. The
Department of Defense intends to make increasing use of the commercial
off-the-shelf (COTS) policy in acquiring high technology systems for certain
non-combat related applications, and BBN's participation in such programs would
be dependent upon its ability to supply such COTS equipment on a cost-effective
basis.
The Company, like other companies doing business with the Department of
Defense, has been adversely affected by reduced defense spending and expects
this general decline and attendant increased competition within the defense
industry to continue over the next several years. Uncertainty continues to exist
on the size and scope of reductions in future defense budgets and their impact
on the Company's defense-related business. Further, there is the possibility
that funding limitations could result in a reduction, delay, or cancellation of
existing or emerging programs. These factors have reduced the Company's U.S.
government revenue and operating margins in recent fiscal years, and this trend
is expected to continue at least through fiscal 1995, particularly in the
defense communications systems and acoustic and sensor systems areas.
The Department of Defense's stated intention is to reduce its procurements
but to maintain a strong defense technology base and to fund research and
development in key areas of science and technology at near current levels. The
Company has strong capabilities in certain of these areas but anticipates that
competition in all defense-related areas will continue to be intense.
Accordingly, the Company expects significant competitive pressure to lower
prices, which may reduce profitability in this area of the Company's business.
In addition, the Company expects that the consolidation of large defense
contractors into a smaller number of very large, diverse organizations will
continue, and that this will place additional downward pressure on prices.
The books and records of the Company are subject to audit by the Defense
Contract Audit Agency; such audit can result in adjustments to contract
billings. Final contract billing rates have been established for years through
fiscal 1989, except for the Company's former BBN Communications activity, for
which final contract billing rates have been established through fiscal 1984.
BBN expects that any adjustments to billings which may be made as a result of
audits of fiscal years 1985 through 1994 will not have a material adverse effect
on the Company's results of operations.
The Company, like other companies doing business with the U.S. government,
is subject to routine audit, and in certain circumstances to inquiry, review, or
investigation, by U.S. government agencies, of its compliance with government
procurement policies and practices. In April 1991, the Company was informed that
it was the subject of an investigation by U.S. government agencies of its
compliance with certain government procurement policies and practices. No
allegations have been made by the government agencies. Based upon government
procurement regulations, under certain circumstances a contractor violating or
not complying with procurement regulations can be subject to legal or
administrative proceedings, including fines and penalties, as well as be
suspended or debarred from contracting with the government. The Company's policy
has been and continues to be to conduct its activities in compliance with all
applicable rules and regulations.
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<PAGE> 16
BACKLOG
BBN's backlog of orders at June 30, 1994 and June 30, 1993 was
approximately $158,000,000 and $133,000,000, respectively. The increased backlog
at June 30, 1994 compared to June 30, 1993 reflects an increase in research and
development contracts with the U.S. government, principally the U.S. Navy, in
the Collaborative Systems and Acoustic Technologies business segment.
The backlog at June 30, 1994 includes approximately $62,000,000 of funded
U.S. government orders (expenditures appropriated by Congress), approximately
$67,000,000 of unfunded government orders, and approximately $29,000,000 of
commercial orders. The amounts include estimates relating to customer-
requirements contracts, and to long-term contracts of a cost-reimbursement
nature. Assuming no terminations, cancellations, or changes, and completion of
orders in the normal course, BBN estimates that approximately 60% of the June
30, 1994 backlog relates to work expected to be performed during fiscal 1995.
All of BBN's contracts and subcontracts involving the U.S. government are
subject to termination at the convenience of the government. Many of the
government programs in which the Company participates may extend for several
years, but they are normally funded only on an annual basis; the major portion
of the Company's other contracts cover a period of twelve months or less. (See
"United States Government Contracts" above.) A few significant contract orders,
primarily with the U.S. government, make up a substantial portion of the backlog
for the Company, and significant contract awards and extensions occur randomly
during the year. For these and other reasons, backlog data, and comparisons of
backlog as of different dates, may not be a reliable indicator of either future
sales or the ratio of future U.S. government sales to other sales.
Backlog is not a significant factor at BBN Software Products Corporation
(where the majority of products are shipped almost immediately after receipt of
an order), or at BBN Internet Services Corporation (which provides principally
services on a fee basis, terminable by the customer). Backlog is not currently a
significant factor at LightStream Corporation. BBN HARK Services Corporation
maintains a small backlog in connection with certain multi-year custom research
and development contracts, although currently such backlog is not material.
PATENTS AND PROPRIETARY RIGHTS
The Company utilizes appropriate patent, trademark, copyright, and other
proprietary rights procedures to protect its commercial products, and has
applied for a limited number of patents in connection with certain recent
development activities at the Company's BBN Systems and Technologies Division
(principally in the collaborative systems and acoustic technologies segment),
and at the Company's LightStream Corporation, BBN Software Products Corporation,
and BBN HARK Systems Corporation subsidiaries. The Company believes that there
has recently been a general increase in patent activity by others in each of the
commercial business segments in which it conducts its business, and in response
the Company has increased its patent activity. However, although BBN owns a
limited number of patents, none are of significant value to the Company's
current business.
The Company believes that certain of its competitors, many of whom have
significantly greater financial, technical, and legal resources than the
Company, are actively seeking patent protection in connection with their new
products and technologies. The Company believes that the award of patent rights
to a competitor could have an adverse material impact on the ability of BBN to
conduct its business activities in areas covered by any such patent award.
However, the Company is not currently aware of any patents or patent
applications that impact or are likely to impact materially the ability of BBN
to conduct its current business activities.
It may be possible for competitors to replicate aspects of BBN's products
even though BBN regards such aspects as proprietary. However, BBN currently
believes that, in general, due to the rapid pace of technological change in its
businesses, patent or other formal protection is less significant than the
knowledge and experience of BBN personnel and the ability of BBN to develop,
enhance, and market its products.
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<PAGE> 17
Generally, patents on inventions developed by BBN under government contract
are owned by BBN, with the government retaining a royalty-free license to use
and to permit others to use such inventions for government purposes. Also, the
government has certain proprietary rights to technical data and software
programs resulting from the Company's services under government contracts and
the government may generally disclose such data and programs to third parties,
including competitors of the Company.
The Company believes that patent or proprietary rights protection are not
significant competitive factors in connection with its non-commercial contract
research and development activities, and that the success of the Company in
those activities depends primarily upon the technical expertise and creative
abilities of its employees.
EMPLOYEES
As of September 13, 1994, the Company employed approximately 1,700 persons,
a majority of whom are professional or technical persons having high levels of
education, training, and skill in the areas in which the Company operates. BBN's
domestic employees are not covered by any collective bargaining agreements, and
the Company believes its employee relations are excellent.
Recently, there have been a number of management changes at the Company. In
January 1994, George H. Conrades became president and chief executive officer of
the Company, succeeding Stephen R. Levy who remains as chairman of the board. In
January 1994, LightStream Corporation named Jonathan C. Crane its president and
chief executive officer. In June 1994, John T. Kish joined BBN Software Products
Corporation as its president and chief executive officer. In July 1994, Frank
Heart, president of the Company's BBN Systems and Technologies Division, retired
after 28 years with the Company. Searches are currently in process for a chief
executive of both the newly formed BBN HARK Systems Corporation and BBN Internet
Services Corporation. The Company is also actively recruiting for a number of
marketing and sales positions throughout the Company.
BBN, along with other high-technology companies, faces competition in
hiring and retaining skilled technical, professional, marketing, and sales
personnel. The Company believes that its future success depends in part upon its
ability to attract and retain such personnel.
EXPORT SALES
Export sales by the Company in fiscal 1994 were concentrated in the data
analysis software and network systems areas. Revenue in fiscal 1994, 1993, and
1992 included U.S. export sales of $27,300,000, $51,100,000, and $52,800,000,
respectively. These figures included U.S. export sales relating to the Company's
former simulation systems business of approximately $19,000,000 and $19,000,000
in fiscal 1993 and 1992, respectively. The Company experienced reduced U.S.
export sales in fiscal 1994 primarily as a result of the absence of revenue from
the Company's simulation systems business sold in fiscal 1993.
The Company's foreign operations, which are conducted in Western Europe,
Japan, and Australia, consist largely of sales and marketing activities for the
Company's commercial products. In the countries in which BBN focuses its export
sales activities, the Company knows of no unusual risks. Under certain
circumstances, however, the export of the Company's products and services
requires the express authorization of U.S. government agencies. Foreign sales of
the Company's applications software products, including its data analysis
software and HARK Recognizer software products, will be impacted by the
unavailability of foreign language versions.
INDUSTRY SEGMENTS
Financial information with respect to the Company's activities in its three
industry segments may be found in the section captioned "Segment Information"
appearing on page 38 of the Company's Annual Report to Shareholders for the
fiscal year ended June 30, 1994, and such information is incorporated herein by
reference.
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<PAGE> 18
ITEM 2. PROPERTIES.
The Company's executive offices, its primary research, development, and
consulting facilities, and the majority of its computer, laboratory, and
manufacturing facilities are currently located in its Cambridge, Massachusetts
complex, which contains approximately 655,800 square feet of building space, of
which approximately 106,800 square feet is currently subleased. Approximately
122,700 square feet of the Cambridge, Massachusetts complex is owned by the
Company; the remaining space is leased by the Company, primarily under long-term
leases granting the Company the option to extend the lease. The Company also has
first refusal rights and/or options to purchase most of the leased space. In
addition, in Billerica, Massachusetts, the Company leases a building containing
approximately 153,700 square feet of space. The Company's lease for
approximately 100,600 square feet of unoccupied space in the Billerica facility
will expire in January 1995. LightStream Corporation will continue to occupy
most of the remaining space at the Billerica facility for its principal offices
and computer, laboratory, research, and development facilities. The aggregate
rental to be paid by the Company for all its leased Massachusetts facilities,
net of sublease income and including taxes and certain operating expenses, will
be approximately $10,000,000 in fiscal 1995.
The Company also leases, on a short-term basis, office space at 18 other
domestic locations containing an aggregate of approximately 130,000 square feet
of space, net of subleases. The aggregate rental to be paid by the Company for
such locations, net of sublease income and including taxes and certain operating
expenses, will be approximately $2,200,000 in fiscal 1995.
The Company also occupies office space in 7 foreign countries containing an
aggregate of approximately 41,700 square feet of space, net of subleases. The
aggregate rental to be paid by the Company for such office space, net of
sublease income and including taxes and certain operating expenses, will be
approximately $2,070,000 in fiscal 1995. The Company is seeking to sublease
excess space, resulting from downsizing and consolidation at its Heathrow
facility, in the United Kingdom.
The Company believes that its facilities and equipment are well maintained
and are in good operating condition.
ITEM 3. LEGAL PROCEEDINGS.
There are no material pending legal proceedings involving the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to shareholders of the Company during the fourth
quarter of fiscal 1994.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.
The executive officers of the Company, the age of each, and the period
during which each has served in his current office are as follows:
<TABLE>
<CAPTION>
CONTINUOUSLY
IN SUCH
NAME AGE OFFICE OFFICE SINCE
---- --- ------ ------------
<S> <C> <C> <C>
George H. Conrades..................... 55 President and Chief Executive Officer 1994/1994
Stephen R. Levy........................ 54 Chairman of the Board of Directors 1983
W.B. Barker............................ 47 Senior Vice President 1983
Ralph A. Goldwasser.................... 47 Senior Vice President, 1991/1992/
Chief Financial Officer, and 1991
Treasurer
William S. Hurley...................... 50 Vice President and Controller 1992/1992
Jonathan C. Crane...................... 44 Vice President 1994
John T. Kish........................... 38 Vice President 1994
</TABLE>
All of the executive officers except Messrs. Conrades, Hurley, Crane, and
Kish have been employed by the Company in their present or other capacities for
no less than the past five years.
17
<PAGE> 19
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 1992, and since that
time and prior to his appointment as President of the Company, Mr. Conrades was
consulting in venture capital business 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.
Mr. Hurley joined BBN in March 1992 as Vice President and Controller of the
Company. Prior to joining BBN, Mr. Hurley had worked for approximately 19 years
at Wyman Gordon Co., a manufacturer of forgings, investment castings, and
advanced composite structures. At Wyman Gordon, Mr. Hurley served in various
management positions in the accounting and finance areas, including most
recently as Vice President and Controller from 1988 to 1992.
Mr. Crane was elected Vice President of the Company in June 1994, and has
served as President and Chief Executive Officer of LightStream Corporation, a
subsidiary of the Company, since February 1994. Prior to joining LightStream,
Mr. Crane had been employed for over eight years at MCI Telecommunications in a
number of sales and marketing-management and general-management positions,
including most recently as executive vice president of multinational accounts,
with responsibility for approximately 3,000 employees and $2.4 billion in
revenue. Mr. Crane served from 1983 to 1985 as a director of Sonecor Systems, a
division of SNET, from 1982 to 1983 as a director of national accounts at Rolm
Corporation, and from 1973 to 1975 and from 1979 to 1980 in a variety of sales
and marketing positions at AT&T Corporation.
Mr. Kish was elected Vice President of the Company in August 1994, and has
served as President and Chief Executive Officer of BBN Software Products
Corporation, a subsidiary of the Company, since June 1994. Prior to joining BBN
Software Products, Mr. Kish had been employed for approximately five years at
Oracle Corporation in a number of senior management positions, including vice
president, desktop division, and most recently as senior vice president,
business development. After leaving Oracle in 1993 and prior to joining BBN
Software Products, Mr. Kish provided management consulting and development
services for the telecommunications, entertainment, financial, and information
services industries.
Each of the chairman, president, and treasurer has been elected to hold
office until the first meeting of the directors following the next annual
meeting of shareholders and until his successor is chosen and qualified, and
each other executive officer has been elected to his described office to hold
office until the first meeting of the directors following the next annual
meeting of shareholders.
None of the directors or executive officers of the Company has any
relationship to any other director or executive officer of the Company or its
subsidiaries, by blood, marriage, or adoption, not more remote than first
cousin.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Information in response to this item may be found under the caption
"Information for Shareholders" appearing on page 42; under the caption
"Quarterly Financial Data (Unaudited)" appearing on page 40; and under the
caption "Five-Year Financial Summary" appearing on page 21, each in the
Company's Annual Report to Shareholders for the fiscal year ended June 30, 1994,
and such information is incorporated herein by reference.
18
<PAGE> 20
ITEM 6. SELECTED FINANCIAL DATA.
Information in response to this item may be found under the caption
"Five-Year Financial Summary" appearing on page 21 of the Company's Annual
Report to Shareholders for the fiscal year ended June 30, 1994, and such
information is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Information in response to this item may be found under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing on pages 22 through 26 of the Company's Annual Report to
Shareholders for the fiscal year ended June 30, 1994, and such information is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Information in response to this item may be found in the following sections
of the Company's Annual Report to Shareholders for the fiscal year ended June
30, 1994:
Consolidated Statements of Operations (Annual Report page 27)
Consolidated Balance Sheets (Annual Report page 28)
Consolidated Statements of Shareholders' Equity (Annual Report page 29)
Consolidated Statements of Cash Flows (Annual Report page 30)
Notes to Consolidated Financial Statements (Annual Report pages 31 through
38)
Report of Independent Accountants (Annual Report page 39)
Quarterly Financial Data (unaudited) (Annual Report page 40)
and such information is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information in response to this item may be found in the section entitled
"1. Election of Directors" on pages 2 through 5 of the Company's definitive
Proxy Statement dated September 28, 1994, and such information is incorporated
herein by reference.
Information in response to executive officers of the registrant appears in
Item 4A entitled "Executive Officers of the Registrant" on pages and of this
report, and such information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
Information in response to this item may be found in the section entitled
"1. Election of Directors" under the caption "Board of Directors and Committee
Organization" on pages 5 and 6; and in the sections entitled "Compensation and
Certain Other Transactions Involving Executive Officers", "Summary Compensation
Table", "Option Grants in Last Fiscal Year", and "Option Exercises in Fiscal
Year 1994 and Year-End Option Values", on pages 19 through 24, and in the
section entitled "Report of Compensation and Stock Option Committee on Annual
Executive Compensation" on pages 24 through 27, and in the section entitled
"Comparative Stock Performance" on page 28, each in the Company's definitive
Proxy Statement dated September 28, 1994, and such information is incorporated
herein by reference.
19
<PAGE> 21
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information in response to this item may be found in the section entitled
"1. Election of Directors" under the caption "Biographical Information" on pages
2 through 5; and in the section entitled "Principal Holders of Company Common
Stock" on pages 17 and 18, each in the Company's definitive Proxy Statement
dated September 28, 1994, and such information is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information in response to this item may be found in the section entitled
"Compensation and Certain Other Transactions Involving Executive Officers --
Employment Agreements, Loans, and Separation Pay Arrangements" on pages 20 and
21, in the Company's definitive Proxy Statement dated September 28, 1994, and
such information is incorporated by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) List of Financial Statements, Financial Statement Schedules, and
Exhibits.
1. FINANCIAL STATEMENTS
The following financial statements appearing in the Company's Annual Report
to Shareholders for the year ended June 30, 1994, are incorporated herein by
reference:
Consolidated Statements of Operations (Annual Report page 27)
Consolidated Balance Sheets (Annual Report page 28)
Consolidated Statements of Shareholders' Equity (Annual Report page 29)
Consolidated Statements of Cash Flows (Annual Report page 30)
Notes to Consolidated Financial Statements (Annual Report pages 31 through
38)
Report of Independent Accountants (Annual Report page 39)
2. FINANCIAL STATEMENT SCHEDULES
Schedules other than those listed below have been omitted because they are
inapplicable or are not required.
<TABLE>
<CAPTION>
FORM 10-K
PAGE
-----------
<C> <S> <C>
I Marketable Securities -- Other Investments, June 30, 1994................
V Property, Plant and Equipment, Years Ended June 30, 1994, 1993, and
1992.....................................................................
VI Accumulated Depreciation and Amortization of Property, Plant and
Equipment, Years Ended June 30, 1994, 1993, and 1992.....................
VIII Valuation and Qualifying Accounts, Years Ended June 30, 1994, 1993, and
1992.....................................................................
X Supplementary Income Statement Information, Years Ended June 30, 1994,
1993, and 1992...........................................................
</TABLE>
20
<PAGE> 22
3. LIST OF EXHIBITS
<TABLE>
<S> <C> <C>
3.1 Restated Articles of Organization of Registrant (filed with the
Securities and Exchange Commission as Exhibit 3.1 of Registrant's
Quarterly Report on Form 10-Q for the Quarter ended March 31, 1989, and
incorporated herein by reference).
3.2 By-laws of Registrant, as amended (filed with the Securities and
Exchange Commission as Exhibit 3.2 of Registrant's Annual Report on
Form 10-K for the fiscal year ended June 30, 1988, and incorporated
herein by reference).
4.1 Form of Indenture of Trust dated as of April 1, 1987 between the
Registrant and The First National Bank of Boston relating to the
Registrant's 6% Convertible Subordinated Debentures due 2012 (filed
with the Securities and Exchange Commission as Exhibit 4.1 of
Registration Statement No. 33-12975 on Form S-3, and incorporated
herein by reference).
4.2 Form of Right Certificate to purchase shares of Common Stock of the
Registrant (filed with the Securities and Exchange Commission as
Exhibit 2 of Registrant's Current Report on Form 8-K dated June 23,
1988, and incorporated herein by reference).
4.3 Common Stock Rights Agreement dated as of June 23, 1988 between the
Registrant and The First National Bank of Boston relating to the
Registrant's Common Stock Purchase Rights (filed with the Securities
and Exchange Commission as Exhibit 1 of Registrant's Current Report on
Form 8-K dated June 23, 1988, and incorporated herein by reference).
4.4 Registration Rights Agreement dated August 24, 1994 between the
Registrant and The Board of Trustees of the Leland Stanford Junior
University.
4.5 (Note: Registrant agrees to furnish to the Securities and Exchange
Commission upon request a copy of any other instrument with respect to
long-term debt of the Registrant and its subsidiaries. Such other
instruments are not filed herewith since no such instrument relates to
outstanding debt in an amount greater than 10% of the total assets of
the Registrant and its subsidiaries on a consolidated basis.)
10.1 Registrant's 1983 Stock Option Plan, as amended.
10.2 Registrant's 1986 Stock Incentive Plan, as amended to date (not
including proposed amendments submitted for approval by shareholders at
the Registrant's 1994 Annual Meeting).
10.3 Registrant's 1983 Employee Stock Purchase Plan, as amended.
10.4 LightStream Corporation 1993 Stock Option Plan (filed with the
Securities and Exchange Commission as Exhibit 10.14 of Registrant's
Quarterly Report on Form 10-Q for the period ended March 31, 1994, and
incorporated herein by reference).
10.5 LightStream Corporation 1994 Stock Option Plan (filed with the
Securities and Exchange Commission as Exhibit 10.15 of Registrant's
Quarterly Report on Form 10-Q for the period ended March 31, 1994, and
incorporated herein by reference).
</TABLE>
21
<PAGE> 23
<TABLE>
<S> <C>
10.6 BBN Software Products Corporation 1993 Stock Option Plan (filed with
the Securities and Exchange Commission as Exhibit 10.16 of Registrant's
Quarterly Report on Form 10-Q for the period ended March 31, 1994, and
incorporated herein by reference).
10.7 Incentive Plan for the Development of Technology for Registrant's
division, BBN Systems and Technologies (filed with the Securities and
Exchange Commission as Exhibit 10.9 of Registrant's Annual Report on
Form 10-K for the year ended June 30, 1985, and incorporated herein by
reference).
10.8 BBN Systems and Technologies Division Performance Cash Bonus Plan for
Fiscal Year 1994 (filed with the Securities and Exchange Commission as
Exhibit 10.13 of Registrant's Quarterly Report on Form 10-Q for the
period ended September 30, 1993, and incorporated herein by reference).
10.9 BBN Software Products Division Performance Cash Bonus Plan for Fiscal
Year 1994 (filed with the Securities and Exchange Commission as Exhibit
10.14 of Registrant's Quarterly Report on Form 10-Q for the period
ended September 30, 1993, and incorporated herein by reference).
10.10 BBN Corporate Services Division Performance Cash Bonus Plan for Fiscal
Year 1994 (filed with the Securities and Exchange Commission as Exhibit
10.15 of Registrant's Quarterly Report on Form 10-Q for the period
ended September 30, 1993, and incorporated herein by reference).
10.11 Registrant's Incentive Compensation Plan for Corporate Officers for
Fiscal Year 1994 (filed with the Securities and Exchange Commission as
Exhibit 10.16 of Registrant's Quarterly Report on Form 10-Q for the
period ended September 30, 1993, and incorporated herein by reference).
10.12 Incentive Compensation Plan for George H. Conrades (filed with the
Securities and Exchange Commission as Exhibit 10.13 of Registrant's
Quarterly Report on Form 10-Q for the period ended December 31, 1993,
and incorporated herein by reference).
10.13 Registrant's amended Deferred Compensation Plan for Directors (filed
with the Securities and Exchange Commission as Exhibit 4 to
Registration Statement No. 33-52656 on Form S-8, and incorporated
herein by reference).
10.14 Registrant's Executive Protection Policy (Executive and Outside
Directorship Liability), Executive Protection Policy (Fiduciary
Liability), Directors and Officers Liability and Reimbursement Excess
Policy, Excess Directors and Officers Liability and Corporate
Indemnification Policy, and Excess Insurance Policy, each for the
policy period ending December 1, 1994.
10.15 Forms of Severance Agreement between Registrant and certain of its
executive officers (filed with the Securities and Exchange Commission
as Exhibit 10.17 of Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 1988, and incorporated herein by reference).
10.16 Registrant's Lease, Collateral Pledge Agreement, and Financing,
Construction, and Agency Agreement, with Fawcett Street Associates,
each dated January 20, 1981 (filed with the Securities and Exchange
Commission as Exhibit 20(a) of Registrant's Quarterly Report on Form
10-Q for the quarter ended December 31, 1980, and incorporated herein
by reference).
</TABLE>
22
<PAGE> 24
<TABLE>
<S> <C> <C>
10.17 Registrant's Lease with Robert A. Jones and K. George Najarian dated as
of June 20, 1977 amending an Agreement dated October 18, 1973 and a
Letter Agreement dated July 8, 1975 (filed with the Securities and
Exchange Commission as Exhibit 1 of Registrant's Current Report on Form
8-K dated June 20, 1977, as Exhibit 1 of Registrant's Current Report on
Form 8-K for the month of March 1974, and Exhibit 1 of Registrant's
Current Report on Form 8-K for the month of July 1975, respectively,
and incorporated herein by reference).
10.18 Registrant's Lease with Technology Park VII Limited Partnership
(executed by The Gutierrez Company, General Partner) dated as of June
1, 1984 (filed with the Securities and Exchange Commission as Exhibit 1
of Registrant's Current Report on Form 8-K dated June 15, 1984, and
incorporated herein by reference), as amended May 1, 1986 and July 23,
1986 (exclusive of exhibits) (filed with the Securities and Exchange
Commission as Exhibit 10.15 of Registrant's Annual Report on Form 10-K
for the Fiscal Year ended June 30, 1986, and incorporated herein by
reference).
10.19 Registrant's Lease with CambridgePark Two Limited Partnership dated
June 30, 1987 (filed with the Securities and Exchange Commission as
Exhibit 1 of Registrant's Current Report on Form 8-K dated July 14,
1987, and incorporated herein by reference).
11.1 Exhibit showing calculations of net income (loss) per share.
13.1 Registrant's Annual Report to Shareholders for the fiscal year ended
June 30, 1994. With the exception of the information incorporated by
reference in Items 1, 5, 6, 7, 8, and 14 of this Form 10-K, the Annual
Report to Shareholders for the fiscal year ended June 30, 1994 is not
deemed filed as part of this report.
21.1 Subsidiaries of Registrant.
23.1 Consent of Coopers & Lybrand.
27.1 Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K for the quarter ended June 30, 1994 filed by the
Registrant were as follows:
None
23
<PAGE> 25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on this 26th day of
September, 1994.
BOLT BERANEK AND NEWMAN INC.
/S/ GEORGE H. CONRADES
By: .............................
GEORGE H. CONRADES
(PRESIDENT, CHIEF EXECUTIVE
OFFICER, AND DIRECTOR)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated, each on the 26th day of September,
1994.
<TABLE>
<S> <C>
/S/ STEPHEN R. LEVY Chairman of the Board of Directors
...........................................
STEPHEN R. LEVY
/S/ GEORGE H. CONRADES President, Chief Executive Officer,
........................................... and Director (Principal Executive
GEORGE H. CONRADES Officer)
/S/ JOHN M. ALBERTINE Director
...........................................
JOHN M. ALBERTINE
Director
...........................................
LUCIE J. FJELDSTAD
/S/ GEORGE N. HATSOPOULOS Director
...........................................
GEORGE N. HATSOPOULOS
/S/ ANDREW L. NICHOLS Director
...........................................
ANDREW L. NICHOLS
/S/ ROGER D. WELLINGTON Director
...........................................
ROGER D. WELLINGTON
/S/ RALPH A. GOLDWASSER Senior Vice President, Chief
........................................... Financial Officer, and Treasurer
RALPH A. GOLDWASSER (Principal Financial Officer)
/S/ WILLIAM S. HURLEY Vice President and Controller
........................................... (Principal Accounting Officer)
WILLIAM S. HURLEY
</TABLE>
24
<PAGE> 26
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULES
Our report on the consolidated financial statements of Bolt Beranek and
Newman Inc. has been incorporated by reference in this Form 10-K from page 39 of
the 1994 Annual Report to Shareholders of Bolt Beranek and Newman Inc. In
connection with our audits of such financial statements, we have also audited
the related financial statement schedules listed in Item 14(a)2 of this Form
10-K.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
August 11, 1994
<PAGE> 27
<TABLE>
BOLT BERANEK AND NEWMAN INC.
SCHEDULE I
MARKETABLE SECURITIES-OTHER INVESTMENTS
June 30, 1994
(Dollars in thousands)
<CAPTION>
- - --------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- - --------------------------------------------------------------------------------------------
Amount at Which
Number Market Value Each Issue
of Shares or of Each Issue Carried in the
Name of Issuer and Title Principal Cost of Each at Balance Balance
of Each Issue Amount Issue Sheet Date Sheet
- - --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government Securities $25,000 $25,000 $25,208(a) $25,208(a)
Money Market Funds:
U.S. Government Portfolio 11,840 11,840 11,840 11,840
Money Market Portfolio 23,552 23,552 23,552 23,552
------- ------- -------
35,392 35,392 35,392
------- ------- -------
Temporary Investments $60,392 $60,600 60,600
======= =======
Cash 6,515
-------
Cash and Temporary Investments $67,115
=======
<FN>
___________________
(a) Amounts represent cost plus accrued interest, which approximates market value.
</TABLE>
<PAGE> 28
<TABLE>
BOLT BERANEK AND NEWMAN INC.
SCHEDULE V
PROPERTY, PLANT AND EQUIPMENT
Years Ended June 30, 1994, 1993 and 1992
(Dollars in thousands)
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E Column F
- - -----------------------------------------------------------------------------------------------------------------
Balance at Other Balance
Beginning Additions Retirements Changes at End
Classification of Year at Cost or Sales Add (Deduct) of Year
- - -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended June 30, 1994:
Land $ 3,983 $ $ $ $ 3,983
Buildings 2,051 104 1,947
Computer equipment and machinery 114,029 5,882 43,779 (b) 2,902 (c)(d) 79,034
Furniture and fixtures 10,335 48 5,246 47 (d) 5,184
Leasehold improvements 20,066 1,008 7,051 33 (d) 14,056
Construction in Progress 214 (214)(d)
-------- ------- ------- ------ --------
$150,678 $ 6,938 $56,180 $2,768 $104,204
======== ======= ======= ====== ========
Year ended June 30, 1993:
Land $ 3,983 $ $ $ $ 3,983
Buildings 2,051 2,051
Computer equipment and machinery 117,227 7,277 10,341 (a) (134)(d) 114,029
Furniture and fixtures 10,930 52 513 (134)(d) 10,335
Leasehold improvements 19,653 613 113 (87)(d) 20,066
Construction in Progress 730 (516)(d) 214
-------- ------- ------- ------ --------
$154,574 $ 7,942 $10,967 $ (871) $150,678
======== ======= ======= ====== ========
Year ended June 30, 1992:
Land $ 3,983 $ $ $ $ 3,983
Buildings 2,051 2,051
Computer equipment and machinery 110,895 9,818 3,768 282 (d) 117,227
Furniture and fixtures 10,882 208 301 141 (d) 10,930
Leasehold improvements 18,490 1,231 154 86 (d) 19,653
Construction in Progress 319 411 730
-------- -------- ------- ------ --------
$146,620 $ 11,668 $ 4,223 $ 509 $154,574
======== ======== ======= ====== ========
<FN>
_________________
(a) Includes assets of the company's former Advanced Simulation business sold to a subsidiary of Loral Corporation.
(b) In fiscal year 1994, the company eliminated from its accounts a significant portion of the cost and accumulated
depreciation of property, plant and equipment which was fully depreciated and no longer in use.
(c) Includes assets transferred to the company in connection with the transition of NEARnet to the company and assets
contributed by UB Networks, Inc. (formerly Ungermann-Bass, Inc.) in connection with the formation of LightStream
Corporation.
(d) Reclassification.
</TABLE>
Depreciation methods and useful lives are described in "Summary of
Significant Accounting Policies" in "Notes to Consolidated Financial Statements"
appearing on page 31 of the company's 1994 Annual Report to Shareholders.
<PAGE> 29
<TABLE>
BOLT BERANEK AND NEWMAN INC.
SCHEDULE VI
ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
Years Ended June 30, 1994, 1993 and 1992
(Dollars in thousands)
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E Column F
- - -------------------------------------------------------------------------------------------------------------
Additions Retirements,
Balance at Charged to Renewals Other Balance
Beginning Costs and and Changes at End
Classification of Year Expenses Replacements Add (Deduct) of Year
- - -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended June 30, 1994:
Buildings $ 893 $ 45 $ 104 $ $ 834
Computer equipment and machinery 102,903 7,757 43,708 (b) 1,404 (c) 68,356
Furniture and fixtures 9,564 241 5,231 40 (e) 4,614
Leasehold improvements 16,457 1,093 6,826 18 (e) 10,742
-------- ------- ------- ------ --------
$129,817 $ 9,136 $55,869 $1,462 $ 84,546
======== ======= ======= ====== ========
Year ended June 30, 1993:
Buildings $ 848 $ 45 $ $ $ 893
Computer equipment and machinery 99,645 9,906 8,000 (a) (223)(e) 102,903
1,575 (d)
Furniture and fixtures 9,407 651 443 (51)(e) 9,564
Leasehold improvements 14,522 1,098 43 880 (d) 16,457
-------- ------- ------- ------ --------
$124,422 $11,700 $ 8,486 $2,181 $129,817
======== ======= ======= ====== ========
Year ended June 30, 1992:
Buildings $ 803 $ 45 $ $ $ 848
Computer equipment and machinery 90,625 11,683 2,810 147 (e) 99,645
Furniture and fixtures 8,694 958 228 (17)(e) 9,407
Leasehold improvements 12,844 1,763 85 14,522
-------- ------- ------- ------ --------
$112,966 $14,449 $ 3,123 $ 130 $124,422
======== ======= ======= ====== ========
<FN>
_______________
(a) Includes assets of the company's former Advanced Simulation business sold to a subsidiary of Loral Corporation.
(b) In fiscal year 1994, the company eliminated from its accounts a significant portion of the cost and accumulated
depreciation of property, plant and equipment which was fully depreciated and no longer in use.
(c) Includes assets transferred to the company in connection with the transition of NEARnet to the company and assets
contributed by UB Networks, Inc. (formerly Ungermann-Bass, Inc.) in connection with the formation of LightStream
Corporation.
(d) Represents reserve established as a part of restructuring charge.
(e) Reclassification.
</TABLE>
Depreciation methods and useful lives are described in "Summary of Significant
Accounting Policies" in "Notes to Consolidated Financial Statements"
appearing on page 31 of the company's 1994 Annual Report to Shareholders.
<PAGE> 30
<TABLE>
BOLT BERANEK AND NEWMAN INC.
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS
Years Ended June 30, 1994, 1993 and 1992
(Dollars in thousands)
<CAPTION>
- - --------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- - --------------------------------------------------------------------------------------------------
Balance at Charged to Other Balance
Beginning Costs and Changes at End
Description of Year Expenses Add (Deduct) of Year(f)
- - --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Allowances for Accounts Receivable:
1994 $ 8,912 $ 405 $ (943)(a)(e) $ 8,374
1993 10,147 703 (1,938)(a) 8,912
1992 9,475 1,796 (1,124)(a) 10,147
Inventory Reserves:
1994 $ 2,795 $ $ 501 (e) $ 3,296
1993 3,108 2,993 (b) (c) (3,306)(d) 2,795
1992 6,939 83 (b) (3,914)(d) 3,108
<FN>
__________________
(a) Represents writeoffs and recoveries.
(b) Represents provisions to reflect current expectations of realizable value.
(c) Includes $700 reserve established as a part of restructuring charge.
(d) Represents writeoffs and disposals.
(e) Includes amounts transferred from allowances for accounts receivable to
inventory reserves.
(f) Represents amounts deducted in the consolidated balance sheets from the
accounts to which they apply.
</TABLE>
<PAGE> 31
<TABLE>
BOLT BERANEK AND NEWMAN INC.
SCHEDULE X
SUPPLEMENTARY INCOME STATEMENT INFORMATION
Years Ended June 30, 1994, 1993 and 1992
(Dollars in thousands)
<CAPTION>
- - -----------------------------------------------------------------------------------
Column A Column B
- - -----------------------------------------------------------------------------------
Charged to Costs and Expenses
--------------------------------
Item 1994 1993 1992
- - -----------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Maintenance and repairs $4,916 $6,177 $7,271
2. Taxes, other than payroll and income taxes 2,574 2,724 2,792
</TABLE>
<PAGE> 32
<TABLE>
<CAPTION>
LIST OF EXHIBITS PAGE
---------------- ----
<C> <S> <C>
3.1 Restated Articles of Organization of Registrant (filed with the Securities N/A
and Exchange Commission as Exhibit 3.1 of Registrant's Quarterly Report on
Form 10-Q for the Quarter ended March 31, 1989, and incorporated herein by
reference).
3.2 By-laws of Registrant, as amended (filed with the Securities and Exchange N/A
Commission as Exhibit 3.2 of Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 1988, and incorporated herein by reference).
4.1 Form of Indenture of Trust dated as of April 1, 1987 between the Registrant N/A
and The First National Bank of Boston relating to the Registrant's 6%
Convertible Subordinated Debentures due 2012 (filed with the Securities and
Exchange Commission as Exhibit 4.1 of Registration Statement No. 33-12975 on
Form S-3, and incorporated herein by reference).
4.2 Form of Right Certificate to purchase shares of Common Stock of the N/A
Registrant (filed with the Securities and Exchange Commission as Exhibit 2 of
Registrant's Current Report on Form 8-K dated June 23, 1988, and incorporated
herein by reference).
4.3 Common Stock Rights Agreement dated as of June 23, 1988 between the N/A
Registrant and The First National Bank of Boston relating to the Registrant's
Common Stock Purchase Rights (filed with the Securities and Exchange
Commission as Exhibit 1 of Registrant's Current Report on Form 8-K dated June
23, 1988, and incorporated herein by reference).
4.4 Registration Rights Agreement dated August 24, 1994 between the Registrant
and The Board of Trustees of the Leland Stanford Junior University.
4.5 (Note: Registrant agrees to furnish to the Securities and Exchange Commission N/A
upon request a copy of any other instrument with respect to long-term debt of
the Registrant and its subsidiaries. Such other instruments are not filed
herewith since no such instrument relates to outstanding debt in an amount
greater than 10% of the total assets of the Registrant and its subsidiaries
on a consolidated basis.)
10.1 Registrant's 1983 Stock Option Plan, as amended.
10.2 Registrant's 1986 Stock Incentive Plan, as amended to date (not including
proposed amendments submitted for approval by shareholders at the
Registrant's 1994 Annual Meeting).
10.3 Registrant's 1983 Employee Stock Purchase Plan, as amended.
10.4 LightStream Corporation 1993 Stock Option Plan (filed with the Securities and N/A
Exchange Commission as Exhibit 10.14 of Registrant's Quarterly Report on Form
10-Q for the period ended March 31, 1994, and incorporated herein by
reference).
10.5 LightStream Corporation 1994 Stock Option Plan (filed with the Securities and N/A
Exchange Commission as Exhibit 10.15 of Registrant's Quarterly Report on Form
10-Q for the period ended March 31, 1994, and incorporated herein by
reference).
10.6 BBN Software Products Corporation 1993 Stock Option Plan (filed with the N/A
Securities and Exchange Commission as Exhibit 10.16 of Registrant's Quarterly
Report on Form 10-Q for the period ended March 31, 1994, and incorporated
herein by reference).
10.7 Incentive Plan for the Development of Technology for Registrant's division, N/A
BBN Systems and Technologies (filed with the Securities and Exchange
Commission as Exhibit 10.9 of Registrant's Annual Report on Form 10-K for the
year ended June 30, 1985, and incorporated herein by reference).
10.8 BBN Systems and Technologies Division Performance Cash Bonus Plan for Fiscal N/A
Year 1994 (filed with the Securities and Exchange Commission as Exhibit 10.13
of Registrant's Quarterly Report on Form 10-Q for the period ended September
30, 1993, and incorporated herein by reference).
10.9 BBN Software Products Division Performance Cash Bonus Plan for Fiscal Year N/A
1994 (filed with the Securities and Exchange Commission as Exhibit 10.14 of
Registrant's Quarterly Report on Form 10-Q for the period ended September 30,
1993, and incorporated herein by reference).
</TABLE>
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10.10 BBN Corporate Services Division Performance Cash Bonus Plan for Fiscal Year N/A
1994 (filed with the Securities and Exchange Commission as Exhibit 10.15 of
Registrant's Quarterly Report on Form 10-Q for the period ended September 30,
1993, and incorporated herein by reference).
10.11 Registrant's Incentive Compensation Plan for Corporate Officers for Fiscal N/A
Year 1994 (filed with the Securities and Exchange Commission as Exhibit 10.16
of Registrant's Quarterly Report on Form 10-Q for the period ended September
30, 1993, and incorporated herein by reference).
10.12 Incentive Compensation Plan for George H. Conrades (filed with the Securities N/A
and Exchange Commission as Exhibit 10.13 of Registrant's Quarterly Report on
Form 10-Q for the period ended December 31, 1993, and incorporated herein by
reference).
10.13 Registrant's amended Deferred Compensation Plan for Directors (filed with the N/A
Securities and Exchange Commission as Exhibit 4 to Registration Statement No.
33-52656 on Form S-8, and incorporated herein by reference).
10.14 Registrant's Executive Protection Policy (Executive and Outside Directorship
Liability), Executive Protection Policy (Fiduciary Liability), Directors and
Officers Liability and Reimbursement Excess Policy, Excess Directors and
Officers Liability and Corporate Indemnification Policy, and Excess Insurance
Policy, each for the policy period ending December 1, 1994.
10.15 Forms of Severance Agreement between Registrant and certain of its executive N/A
officers (filed with the Securities and Exchange Commission as Exhibit 10.17
of Registrant's Annual Report on Form 10-K for the fiscal year ended June 30,
1988, and incorporated herein by reference).
10.16 Registrant's Lease, Collateral Pledge Agreement, and Financing, Construction, N/A
and Agency Agreement, with Fawcett Street Associates, each dated January 20,
1981 (filed with the Securities and Exchange Commission as Exhibit 20(a) of
Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31,
1980, and incorporated herein by reference).
10.17 Registrant's Lease with Robert A. Jones and K. George Najarian dated as of N/A
June 20, 1977 amending an Agreement dated October 18, 1973 and a Letter
Agreement dated July 8, 1975 (filed with the Securities and Exchange
Commission as Exhibit 1 of Registrant's Current Report on Form 8-K dated June
20, 1977, as Exhibit 1 of Registrant's Current Report on Form 8-K for the
month of March 1974, and Exhibit 1 of Registrant's Current Report on Form 8-K
for the month of July 1975, respectively, and incorporated herein by
reference).
10.18 Registrant's Lease with Technology Park VII Limited Partnership (executed by N/A
The Gutierrez Company, General Partner) dated as of June 1, 1984 (filed with
the Securities and Exchange Commission as Exhibit 1 of Registrant's Current
Report on Form 8-K dated June 15, 1984, and incorporated herein by
reference), as amended May 1, 1986 and July 23, 1986 (exclusive of exhibits)
(filed with the Securities and Exchange Commission as Exhibit 10.15 of
Registrant's Annual Report on Form 10-K for the Fiscal Year ended June 30,
1986, and incorporated herein by reference).
</TABLE>
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10.19 Registrant's Lease with CambridgePark Two Limited Partnership dated June 30, N/A
1987 (filed with the Securities and Exchange Commission as Exhibit 1 of
Registrant's Current Report on Form 8-K dated July 14, 1987, and incorporated
herein by reference).
11.1 Exhibit showing calculations of net income (loss) per share.
13.1 Registrant's Annual Report to Shareholders for the fiscal year ended June 30,
1994. With the exception of the information incorporated by reference in
Items 1, 5, 6, 7, 8, and 14 of this Form 10-K, the Annual Report to
Shareholders for the fiscal year ended June 30, 1994 is not deemed filed as
part of this report.
21.1 Subsidiaries of Registrant.
23.1 Consent of Coopers & Lybrand.
27.1 Financial Data Schedule.
</TABLE>
<PAGE> 1
Exhibit 4.4
BOLT BERANEK AND NEWMAN INC.
REGISTRATION RIGHTS AGREEMENT
This AGREEMENT (the "Agreement") is made as of August 19, 1994 by and
between BOLT BERANEK AND NEWMAN INC., a Massachusetts corporation (the
"Company") and THE BOARD OF TRUSTEES OF THE LELAND STANFORD JUNIOR UNIVERSITY,
a body having corporate powers under the laws of the state of California (the
"Holder").
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the Company and the Holder have entered into an Asset Acquisition
Agreement dated the date hereof (the "Purchase Agreement") in connection with
the purchase of certain assets by the Company from the Holder and the sale of
certain shares of Common Stock of the Company to the Holder (the "Shares");
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants and agreements herein contained, the parties hereto agree as
follows:
1. Registration Rights.
-------------------
1.1. Definitions.
-----------
(a) The terms "register", "registered", and "registration"
refer to a registration effected by preparing and filing a
registration statement or similar document in compliance with the
Securities Act of 1933, as amended (the "1933 Act"), and the automatic
effectiveness or the declaration or ordering of effectiveness of such
registration statement or document;
(b) The term "Registrable Securities" means (1) the Shares,
and (2) any Common Stock of the Company issued as (or issuable upon
the conversion or exercise of any warrant, option, right, or other
security which is issued as) a dividend or other distribution with
respect to, or in exchange for or in replacement of, the Shares;
PROVIDED, HOWEVER, that any Shares sold to the public pursuant to a
registered public offering or pursuant to an exemption from the
registration requirements of the 1933 Act by the Holder shall cease to
be Registrable Securities;
(c) The number of shares of Registrable Securities
outstanding at any time shall be determined by adding the
<PAGE> 2
number of shares of Common Stock outstanding which are, and the number
of shares of Common Stock issuable pursuant to then exercisable or
convertible securities which upon issuance would be, Registrable
Securities;
(d) The terms "Form S-4" and "Form S-8" mean such respective
forms under the 1933 Act as in effect on the date hereof or any
successor registration forms to Form S-4 and Form S-8, respectively,
under the 1933 Act subsequently adopted by the Securities and Exchange
Commission ("SEC").
1.2. Request for Registration.
------------------------
(a) If the Company shall receive at any time after October 1,
1994 a written request from the Holder that the Company effect the
registration under the 1933 Act of not less than the lesser of (i) 75%
of the Registrable Securities originally outstanding, or (ii) the
number of Registrable Securities whose aggregate offering price is
expected to be at least $10,000,000, then the Company shall, subject
to the limitations of this Section 1.2, use its best efforts to effect
such a registration as soon as practicable and in any event will file
within 75 days of the receipt of such request a registration statement
under the 1933 Act covering all the Registrable Securities which the
Holder shall in writing request to be included in such registration,
and use its best efforts to have such registration statement become
effective.
(b) If the Holder intends to distribute the Registrable
Securities covered by its request by means of an underwriting, it
shall so advise the Company as part of its request made pursuant to
this Section 1.2. In such event, the Holder shall (together with the
Company as provided in subsection 1.4(d)) enter into an underwriting
agreement in customary form with the underwriter or underwriters,
which underwriter or underwriters shall be reasonably acceptable to
the Company and Holder. If the Company shall request inclusion in any
registration pursuant to this Section 1.2 of securities being sold for
its own account, or if other persons shall request inclusion in any
registration pursuant to this Section 1.2, the Holder shall offer to
include such securities in the underwriting and may condition such
inclusion on their acceptance of the further applicable provisions of
this Article 1. Notwithstanding any other provision of this Section
1.2, if, in the case of a registration requested pursuant to Section
1.2(a), the underwriter advises the Holder and the Company in writing
that marketing factors require a limitation of the number of shares to
be underwritten, then the number of Registrable Securities included in
the underwriting shall be so limited. No Registrable Securities
requested by the Holder to be
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<PAGE> 3
included in a registration pursuant to Section 1.2(a) shall be
excluded from the underwriting unless all securities other than
Registrable Securities are first excluded.
(c) The Company is obligated to effect only one registration
pursuant to Section 1.2(a); PROVIDED, HOWEVER, that no registration of
Registrable Securities which shall not have become and remained
effective in accordance with Section 1.4 hereof shall be deemed to be
a registration for any purpose of this sentence.
(d) Notwithstanding the foregoing, (i) the Company shall not
be obligated to effect the filing of a registration statement pursuant
to this Section 1.2 during the 180 days following the effective date
of a registration statement pertaining to the underwritten public
offering of securities for the account of the Company, and (ii) if the
Company shall furnish to the Holder upon the request of a registration
statement pursuant to this Section 1.2 a certificate signed by the
President of the Company stating that in the good faith judgment of
the Board of Directors of the Company, it would not be in the best
interests of the Company and its stockholders generally for such
registration statement to be filed, the Company shall have the right
to defer such filing for a period or periods of not more than 180 days
each after receipt of the request of the Holder; PROVIDED, HOWEVER,
that the Company may not utilize the right set forth in this
subsection (d)(ii) more than for two such 180 day periods.
1.3. COMPANY REGISTRATION. If (but without any obligation to do so)
the Company proposes to register (including for this purpose a registration
effected by the Company for stockholders other than the Holder) any of its
Common Stock under the 1933 Act in connection with the public offering of such
securities either for its own account for cash or for the account of a
stockholder or stockholders (other than the Holder) exercising their respective
demand registration rights (other than pursuant to this Agreement, and other
than a registration on Form S-8 or any successor form relating solely to the
sale of securities to participants in a Company stock plan, or a registration
on Form S-4 or any successor form), the Company shall, at such time, promptly
give the Holder written notice of such registration. Upon the written request
of the Holder, given within 20 days after mailing of such notice by the
Company, the Company shall, subject to the provisions of Section 1.8, include
in such registration statement all of the Registrable Securities that such
Holder has requested to be registered, and use its best efforts to cause such
registration statement to become effective under the 1933 Act. Subject to the
foregoing, the Company shall be under no obligation to complete any such
offering and shall incur no liability to the Holder for its failure to do so.
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<PAGE> 4
1.4. OBLIGATIONS OF THE COMPANY. Whenever required under this Section
1 to use its best efforts to effect the registration of any Registrable
Securities, the Company shall, as expeditiously as reasonably possible:
prepare and file with the SEC a registration statement with respect to such
Registrable Securities and use its best efforts to cause such registration
statement to become effective, and, if effective and upon the request of the
Holder, keep such registration statement effective for up to 120 days or, if
earlier, until the Holder has informed the Company in writing that the
distribution of its securities has been completed; and shall:
(a) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement, and use its best efforts
to cause each such amendment to become effective, as may be necessary
to comply with the provisions of the 1933 Act with respect to the
disposition of all securities covered by such registration statement.
(b) Furnish to the Holder such reasonable number of copies of
a prospectus, including any prospectus supplement and a preliminary
prospectus, in conformity with the requirements of the 1933 Act, and
such other documents as the Holder may reasonably request in order to
facilitate the disposition of Registrable Securities owned by it.
(c) Use its best efforts to register or qualify the
securities covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions as shall be
reasonably requested by the Holder provided that the Company shall not
be required in connection therewith or as a condition thereto to
qualify to do business or to file a general consent to service of
process in any such states or jurisdiction.
(d) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in
usual and customary form, with the managing underwriter of such
offering. The Holder shall also enter into and perform its
obligations under such an agreement, including furnishing any opinion
of counsel or entering into a lock-up agreement reasonably requested
by the managing underwriter.
(e) Notify the Holder covered by such registration statement,
at any time when a prospectus relating thereto covered by such
registration statement is required to be delivered under the 1933 Act,
of the happening of any event as a result of which the prospectus
included in such
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<PAGE> 5
registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing
and promptly file such amendments and supplements which may be
required pursuant to subparagraph (a) of this Section 1.4 on account
of such event and use its best efforts to cause each such amendment
and supplement to become effective.
(f) Furnish, at the request of the Holder requesting
registration of Registrable Securities pursuant to this Section 1, on
the date that such Registrable Securities are delivered to the
underwriters for sale in connection with a registration pursuant to
this Section 1, if such securities are being sold through
underwriters, or, if such securities are not being sold through
underwriters on the date that the registration statement with respect
to such securities becomes effective, (i) an opinion or opinions,
dated such date, of the counsel representing the Company for the
purposes of such registration, in form and substance as is customarily
given by company counsel to the underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the Holder,
and (ii) a letter dated such date, from the independent certified
public accountant of the Company, in form and substance as is
customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the
underwriters, if any, and to the Holder.
1.5. FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section 1 in
respect of the Registrable Securities of the Holder that such Holder shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of such
securities as shall be reasonably required to effect the registration of its
Registrable Securities.
1.6. EXPENSES OF DEMAND REGISTRATION. All expenses other than
underwriting discounts and commissions relating to Registrable Securities
incurred in connection with each registration, filing, or qualification
pursuant to Section 1.2(a), including (without limitation) all registration,
filing and qualification fees, printing and accounting fees, fees and
disbursements of counsel for the Company, and the reasonable fees and
disbursements of one counsel for the Holder shall be borne by the Company;
PROVIDED, HOWEVER, that the Company shall not be required to pay for any
expenses of any registration proceeding begun pursuant to Section 1.2(a) if the
registration request is subsequently withdrawn at any time at the request of
the Holder
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<PAGE> 6
(in which case, the Holder shall bear such expenses), unless the Holder agrees
to forfeit its right to the demand registration pursuant to Section 1.2(a).
Notwithstanding the foregoing, if the Holder has withdrawn its registration
request as a result of material adverse information relating to the Company
that is different from the information known to the Holder at the time of its
request for registration under Section 1.2, then the Holder shall have no
obligation to bear expenses under the proviso of the previous sentence, and the
Holder shall not forfeit its right to the demand registration pursuant to
Section 1.2(a). Underwriting discounts and commissions relating to Registrable
Securities will be borne and paid by the Holder.
1.7. EXPENSES OF COMPANY REGISTRATION. The Company shall bear and pay
all expenses incurred in connection with any registration, filing, or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 1.3 for the Holder, including, without limitation, all
registration, filing, and qualification fees, printing and accounting fees,
fees and disbursements of counsel for the Company, and the reasonable fees and
disbursements of one counsel for the Holder. Underwriting discounts and
commissions relating to Registrable Securities will be borne and paid by the
Holder.
1.8. UNDERWRITING REQUIREMENTS. In connection with any offering
involving an underwriting of securities, the Company shall not be required
under Section 1.3 to include any of the Holder's securities in such
underwriting unless the Holder accepts the reasonable and good faith terms of
the underwriting as agreed upon between the Company and the underwriters
selected by it, and then only in such quantity, if any, as will not, in the
reasonable and good faith opinion of the underwriters, jeopardize the success
of the offering by the Company. If the managing underwriter for the offering
shall advise the Company in writing that the total amount of securities,
including Registrable Securities, requested by shareholders to be included in
such offering exceeds the amount of securities to be sold other than by the
Company that can be successfully offered, then the Company shall be required to
include in the offering only that number of such securities, including
Registrable Securities, which the managing underwriter reasonably and in good
faith believes will not jeopardize the success of the offering (the securities
so included shall be reduced as follows: all securities other than those to be
included by the Company for its own account and other than those which the
Holder and other holders having registration rights similar to the rights of
the Holder seek to include in the offering shall be excluded from the offering
to the extent limitation on the number of shares included in the underwriting
is required, and, if further limitation on the number of shares to be included
in the underwriting is required, then the number of shares held by Holder, and
of such other person(s) seeking by right to include
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<PAGE> 7
shares in such offering, that may be included in the underwriting shall be
reduced PRO RATA, among the selling shareholders in accordance with the number
of shares carrying such registration rights owned by the Holder and by each
other such person(s) (or in such other apportions as shall be mutually agreed
to by the Holder and such other person(s)), but in no event shall the amount of
securities of the selling holders (including the Holder) included in the
offering be reduced below 15% of the total value of securities included in such
offering).
In the event that shares are voluntarily withdrawn from participation
in the registration other than as a result of an allocation pursuant to the
last sentence of the preceding paragraph, and if the number of shares of
Registrable Securities to be included in such registration was previously
reduced as a result of marketing factors, the Company shall then offer to all
persons who have retained the right to include securities in the registration
the right to include additional securities in the registration in an aggregate
amount equal to the number of shares so withdrawn, with such shares to be
allocated among the persons requesting additional inclusion consistent with the
allocation described in the last sentence of the preceding paragraph.
1.9. INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under this Section 1:
(a) The Company will indemnify and hold harmless the Holder,
the trustees, officers, directors, partners, agents (including legal
counsel and accountants), and employees of the Holder, any underwriter
(as defined in the 1933 Act) for such Holder, and each person, if any,
who controls the Holder or underwriter within the meaning of the 1933
Act or the Securities Exchange Act of 1934, as amended (the "1934
Act"), against any losses, claims, damages, or liabilities (or
actions, proceedings, or settlements in respect thereof) (joint or
several) to which they may become subject under the 1933 Act, the 1934
Act, or other federal or state law, insofar as such losses, claims,
damages, or liabilities (or actions, proceedings, or settlements in
respect thereof) arise out of or are based upon any of the following
statements, omissions, or violations (a "Violation"): (i) any untrue
statement or alleged untrue statement of a material fact contained in
such registration statement, including any preliminary prospectus or
final prospectus contained therein or any amendments or supplements
thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were
made, not misleading, or (iii) any violation or alleged violation by
the Company of the 1933 Act, the 1934 Act, any state securities law,
or any rule or
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<PAGE> 8
regulation promulgated under the 1933 Act, the 1934 Act, or any state
securities law in connection with any matter relating to such
registration statement. The Company will reimburse the Holder, its
trustees, officers, directors, partners, agents, employees,
underwriters, or controlling persons for any legal or other expenses
reasonably incurred by them in connection with investigating,
defending, and settling any such loss, claim, damage, liability, or
action. The indemnity agreement contained in this subsection 1.9(a)
shall not apply to amounts paid in settlement of any loss, claim,
damage, liability, or action if such settlement is effected without
the consent of the Company (which consent shall not be unreasonably
withheld), nor shall the Company be liable to the Holder in any such
case for any such loss, claim, damage, liability, or action (i) to the
extent that it arises out of or is based upon a Violation which occurs
in reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by or on behalf
of the Holder, underwriter, or controlling person, or (ii) in the case
of a sale directly by the Holder (including a sale of such Registrable
Securities through any underwriter retained by the Holder to engage in
a distribution solely on behalf of the Holder), such untrue statement
or alleged untrue statement or omission or alleged omission was
contained in a preliminary prospectus and corrected in a final or
amended prospectus, and the Holder failed to deliver a copy of the
final or amended prospectus at or prior to the confirmation of the
sale of the Registrable Securities to the person asserting any such
loss, claim, damage, or liability in any case where such delivery is
required by the Securities Act.
(b) The Holder will indemnify and hold harmless the Company,
each of its directors, each of its officers who have signed the
registration statement, each person, if any, who controls the Company
within the meaning of the 1933 Act, each agent, and any underwriter
for the Company, and any other person or entity selling securities in
such registration statement or any of its directors, officers,
partners, agents, or employees or any person who controls such person
or entity or underwriter, against any losses, claims, damages, or
liabilities (joint or several) to which the Company or any such
director, officer, controlling person, agent, or underwriter or
controlling person, or other such person or entity or director,
officer, or controlling person may become subject, under the 1933 Act,
the 1934 Act, or other federal or state law, insofar as such losses,
claims, damages, or liabilities (or actions in respect thereto) arise
out of or are based upon any Violation, in each case to the extent
(and only to the extent) that such Violation occurs in reliance upon
and in conformity with written information furnished by or on
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<PAGE> 9
behalf of the Holder expressly for use in connection with such
registration; and the Holder will reimburse any legal or other
expenses reasonably incurred by the Company or any such director,
officer, controlling person, agent, or underwriter or controlling
person, other person or entity, officer, director, partner, agent,
employee, or controlling person in connection with investigating or
defending any such loss, claim, damage, liability, or action;
provided, however, that the liability of the Holder hereunder shall be
limited to the amount of net proceeds (after deduction of all
underwriters' discounts and commissions and all other expenses paid by
the Holder in connection with the registration in question) received
by the Holder, in the offering giving rise to the Violation; and
provided further that the indemnity agreement contained in this
subsection 1.9(b) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability, or action if such settlement is
effected without the consent of the Holder, which consent shall not be
unreasonably withheld nor, in the case of a sale directly by the
Company of its securities (including a sale of such securities through
any underwriter retained by the Company to engage in a distribution
solely on behalf of the Company), shall the Holder be liable to the
Company in any case in which such untrue statement or alleged untrue
statement or omission or alleged omission was contained in a
preliminary prospectus and corrected in a final or amended prospectus,
and the Company failed to deliver a copy of the final or amended
prospectus at or prior to the confirmation of the sale of the
securities to the person asserting any such loss, claim, damage, or
liability in any case where such delivery is required by the 1933 Act.
(c) Promptly after receipt by an indemnified party under this
Section 1.9 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in
respect thereof is to be made against any indemnifying party under
this Section 1.9, deliver to the indemnifying party a written notice
of the commencement thereof and the indemnifying party shall have the
right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed,
to assume and control the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified
party shall have the right to retain its own counsel, with the fees
and expenses to be paid by the indemnifying party, if representation
of such indemnified party by the counsel retained by the indemnifying
party would be inappropriate due to actual or potential differing
interests, as reasonably determined by either party, between such
indemnified party and any other party represented by such
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<PAGE> 10
counsel in such proceeding. The failure to deliver written notice to
the indemnifying party within a reasonable time of the commencement of
any such action, if prejudicial to its ability to defend such action,
shall relieve such indemnifying party of any liability to the
indemnified party under this Section 1.9 to the extent of such
prejudice, but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may
have to any indemnified party otherwise than under this Section 1.9.
(d) The obligations of the Company and the Holder under this
Section 1.9 shall survive the completion of any offering of
Registrable Securities in a registration statement whether under this
Section 1 or otherwise.
(e) If the indemnification provided for in this Section 1.9
is unavailable to a party that would have been an indemnified party
under such Section in respect of any losses, claims, damages, or
liabilities (or actions or proceedings in respect thereof) referred to
therein, then each party that would have been an indemnifying party
thereunder shall, in lieu of indemnifying such indemnified party,
contribute to the amount paid or payable by such indemnified party as
a result of such losses, claims, damages, or liabilities (or actions
or proceedings in respect thereof) in such proportion as is
appropriate to reflect the relative fault of such indemnifying party
on the one hand and such indemnified party on the other in connection
with the statements or omissions which resulted in such losses,
claims, damages, or liabilities (or actions or proceedings in respect
thereof). The relative fault shall be determined by reference to,
among other things, whether the Violation relates to information
supplied by such indemnifying party or such indemnified party and the
parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such Violation. The parties agree
that it would not be just and equitable if contribution pursuant to
this Section 1.9(e) were determined by pro rata allocation or by any
other method of allocation which does not take account of the
equitable considerations referred to in the preceding sentence. The
amount paid or payable by a contributing party as a result of the
losses, claims, damages, or liabilities (or actions or proceedings in
respect thereof) referred to above in this Section 1.9(e) shall
include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any
such action or claim. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation. The liability of
the
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Holder in respect of any contribution obligation (after deduction of
all underwriters' discounts and commissions and all other expenses
paid by the Holder in connection with the registration in question)
arising under this Section 1.9(e) shall not in any event exceed an
amount equal to the net proceeds to the Holder from the disposition of
the Registrable Securities disposed of by the Holder pursuant to such
registration.
1.10. REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view to
making available to the Holder the benefits of Rule 144 promulgated under the
1933 Act and any other rule or regulation of the SEC that may at any time
permit the Holder to sell securities of the Company to the public without
registration, the Company agrees to:
(i) use its best efforts to make and keep public
information available, as those terms are understood and
defined in Rule 144, at all times;
(ii) use its best efforts to file with the SEC in a
timely manner all reports and other documents required of the
Company under the 1933 Act and the 1934 Act; and
(iii) furnish to the Holder, so long as the Holder owns
any Registrable Securities, forthwith upon request (i) a
written statement by the Company as to its compliance with the
reporting requirements of Rule 144, the 1933 Act, and the 1934
Act, (ii) a copy of the most recent annual or quarterly report
of the Company and such other reports and documents so filed
by the Company, and (iii) such other information as may be
reasonably requested in availing the Holder of any rule or
regulation of the SEC which permits the selling of any such
securities without registration or pursuant to such form.
1.11. LIMITATIONS ON REGISTRATION OF ISSUES OF SECURITIES. From and
after the date of this Agreement, the Company shall not, without the prior
written consent of the Holder, enter into any agreement with any holder or
prospective holder of any securities of the Company giving such holder or
prospective holder any registration rights the terms of which are more
favorable than the registration rights granted to the Holder hereunder.
1.12. ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the
Company to register Registrable Securities pursuant to this Section 1 may not
be assigned by the Holder to any other person or entity.
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<PAGE> 12
2. Miscellaneous.
-------------
2.1. LEGEND. Each certificate representing Registrable Securities
shall state therein:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
PROVISIONS OF A REGISTRATION RIGHTS AGREEMENT DATED AS OF
AUGUST 19, 1994 BY AND BETWEEN THE COMPANY AND THE HOLDER
NAMED THEREIN, A COPY OF WHICH IS ON FILE AT THE OFFICES OF
THE COMPANY.
Such legend shall be removed upon termination of, or satisfaction of the rights
and obligations under, this Agreement.
2.2. NOTICES. All notices, requests, consents, and demands shall be
in writing and shall be personally delivered, mailed, postage prepaid,
telecopied or telegraphed, to the Company at:
Bolt Beranek and Newman Inc.
150 CambridgePark Drive
Cambridge, Massachusetts 02140
Attn: President
to the Holder at:
Green Library
#245D
The Leland Stanford Junior University
Stanford, California 94305-6004
Attn: Robert L. Street
with copies to:
Stanford Management Company
2770 Sand Hill Road
Menlo Park, California 94025
Jasper Williams, Esq.
Senior University Counsel
Stanford University
Office of the General Counsel
Post Office Box N
Stanford, CA 94309-3355
or such other address as may be furnished in writing to the other parties
hereto.
All such notices, requests, demands, and other communication shall,
when mailed (registered or certified mail, return receipt requested, postage
prepaid), personally delivered, or telecopied, be effective four days after
deposit in the mails, or when
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<PAGE> 13
personally delivered or when telecopied, shall be effective upon actual
receipt.
2.3. ENTIRE AGREEMENT. This Agreement and the Asset Acquisition
Agreement constitute the entire agreement of the parties with respect to the
matters contemplated herein. They supersede any and all prior understandings
or agreements as to the subject matter of this Agreement.
2.4. AMENDMENTS, WAIVERS AND CONSENTS. Any provision in this
Agreement to the contrary notwithstanding, changes in or additions to this
Agreement may be made, and compliance with any covenant or provision herein set
forth may be omitted or waived, if the Company (i) shall obtain consent thereto
in writing from persons holding or having the right to acquire in the aggregate
a majority of the aggregate of the Registrable Securities then outstanding, and
(ii) shall, in each such case, deliver copies of such consent in writing to any
holders who did not execute the same. Notwithstanding the foregoing, any
amendment to this Agreement which materially adversely affects the rights or
substantially increases the obligations of any holder of Registrable Securities
and which does not also affect all other holders either to the same degree or
in proportion to the amount of Registrable Securities held by each of them
shall require the consent of such adversely affected holder.
2.5. BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding upon
and inure to the benefit of the personal representatives, successors, and
permitted assigns, if any, of the respective parties hereto. The Holder shall
not have the right to assign its rights or obligations hereunder or any
interest therein. The Company shall not have the right to assign its
obligations hereunder or any interest therein without obtaining the prior
written consent of the Holder.
2.6. GENERAL. The headings contained in this Agreement are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement. In this Agreement the singular includes the
plural, the plural, the singular, the masculine gender includes the neuter,
masculine and feminine genders.
2.7. SEVERABILITY. If any provisions of this Agreement shall be found
by any court of competent jurisdiction to be invalid or unenforceable, the
parties hereby waive such provision to the extent that it is found to be
invalid or unenforceable. Such provision shall, to the maximum extent
allowable by law, be modified by such court so that it becomes enforceable,
and, as modified, shall be enforced as any other provision hereof, all the
other provisions hereof continuing in full force and effect.
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<PAGE> 14
2.8. COUNTERPARTS. This Agreement may be executed in counterparts,
all of which together shall constitute one and the same instrument.
2.9. SPECIFIC PERFORMANCE. The Company recognizes that the rights of
the Holder under this Agreement are unique, and, accordingly, the Holder shall,
in addition to such other remedies as may be available to it at law or in
equity, have the right to enforce its rights hereunder by actions for
injunctive relief and specific performance to the extent permitted by law.
This Agreement is not intended to limit or abridge any rights of the Holder
which may exist apart from this Agreement.
[The rest of this page has been intentionally left blank.]
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<PAGE> 15
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of the date first above written.
BOLT BERANEK AND NEWMAN INC.
By /s/ RALPH A. GOLDWASSER
---------------------------
Ralph A. Goldwasser
Senior Vice President
Approved as to Content THE BOARD OF TRUSTEES OF LELAND
STANFORD JUNIOR UNIVERSITY
/s/ CATHERINE A. GARDNER
- - ------------------------------- By /s/ ROBERT L. STREET
Catherine A. Gardner ---------------------------
Director of Planning & Robert L. Street
Finance - Stanford Vice President and Dean for
Libraries & Information Libraries and Information
Resources Resources
Approved as to Form:
/s/ JASPER WILLIAMS
- - -------------------------------
Jasper Williams, Esq.
Senior University Counsel
<PAGE> 1
Exhibit 10.1
1983 STOCK OPTION PLAN
FOR EMPLOYEES OF
BOLT BERANEK AND NEWMAN INC. AND SUBSIDIARIES
1. Purpose
This 1983 Stock Option Plan, hereinafter called the "Plan", is
intended to provide a special incentive to selected key employees of Bolt
Beranek and Newman Inc. (the "Company") and/or of its subsidiaries to further
the business of the Company and its subsidiaries. For purposes of the Plan, a
subsidiary is any corporation in which the Company owns, directly or
indirectly, stock possessing 50% or more of the total combined voting power of
all classes of stock.
2. Administration
The Plan shall be administered by the Board of Directors of the
Company and their interpretation of any provisions of the Plan or any option or
right granted under it, and the application of such provisions to any set of
facts, shall be final and binding on all concerned. That portion of the Plan
relating to stock depreciation rights shall be administered by the Committee
(as hereinafter defined). No member of the Board of Directors shall be liable
for any action or determination made in good faith. Any action or decision by
such Board or by a committee of such Board, as contemplated by the Plan, may be
by a majority of those directors present and acting, provided that a quorum is
present.
3. Eligibility
The employees who shall be eligible to participate in the Plan shall
be such key employees of the Company and its subsidiaries as a committee of the
Board of Directors consisting of not less than three Directors of the Company
(the "Committee") shall from time to time determine. Part-time as well as
full-time employees of the Company and its subsidiaries shall be eligible to
participate in the Plan. An eligible employee participating in the Plan is
hereinafter called a "Participant".
The members of the Committee shall be appointed by the Board of
Directors and may be removed by the Board at any time in its discretion.
No member of the Committee shall be eligible to receive an option or
right under the Plan or under any other plan of the Company or of any affiliate
of the Company entitling the participants therein to acquire stock, stock
options, or stock appreciation rights of the Company or any such affiliate (as
provided for in Rule 16b-3 promulgated by the Securities Exchange Commission
under the Securities Exchange Act of 1934, as amended) or shall have been so
eligible within one year prior to exercising discretion to select persons to
receive options or rights or to determine the number of shares to be covered by
options granted to any person.
No option granted under the Plan which is intended to be an "incentive
stock option" as defined in Section 422A of the Internal Revenue Code of 1986
(as it may from time to time be amended) (the "Code") shall be granted to a
Participant who at the time of grant owns stock possessing more than 10% of the
total combined voting power of all classes of stock of the Company or of its
subsidiaries unless the option so granted meets the requirements of Section
422A(c)(8) of the Code.
The number of shares subject to each option, the option price per
share of the share subject to each option, and whether each option is intended
to be an "incentive stock option" or a non-qualified stock options, shall be
determined by the Committee in its discretion, not inconsistently with the
other provisions hereof.
<PAGE> 2
4. Stock
The stock to be delivered on exercise of the options granted under the
Plan may be either shares of the Company's authorized but unissued Common Stock
or shares of reacquired Common Stock as the Board of Directors shall determine.
Subject to adjustment as hereinafter provided, the total number of shares of
Common Stock of the Company which may be issued on the exercise of options
granted under the Plan shall not exceed in the aggregate one million eight
hundred thousand (1,800,000) shares. Options may be granted in respect of
shares as to which prior options have expired or have terminated, in whole or
in part, or in respect of shares allocable to outstanding options, provided
that at no time shall options be granted which could cause the aggregate number
of shares issued or to be issued on the exercise of options granted under the
Plan to exceed the foregoing limitations of this paragraph 4.
5. Terms and Conditions of Options and Rights
Options granted under the Plan which are intended to be incentive
stock options shall contain such provisions as the Board of Directors or the
Committee considers necessary or advisable in order that the options may
qualify under Section 422A of the Code. In addition, options and rights
granted under the Plan shall be subject to the following terms and conditions,
and to such other terms and conditions not inconsistent therewith as the Board
of Directors or the Committee shall determine:
(a) Medium and Time of Payment
At the time of exercise of an option, payment in full of the option
price shall be made for all shares purchased on such exercise. Such price may
be paid in cash (including certified check or bank draft) or (unless the Board
of Directors in any case should determine otherwise) in shares of Common Stock
of the Company or partly in cash and partly in such shares, at the election of
the person exercising the option. If the price is paid in whole or in part in
shares, such shares shall be valued at their fair market value at the time of
exercise, as determined by the Board of Directors, in determining the extent to
which the option price has been paid in such shares. Notwithstanding the
foregoing, if the Board of Directors or the Committee so determines in
connection with the granting of an option or otherwise, the Company may make a
loan, on terms and at interest rates, if any, as may be specified, or otherwise
provide such assistance as the Board of Directors or the Committee deems
appropriate to enable or assist the optionee to exercise an option, provided
that no such loan or other assistance shall be made without approval of the
Board of Directors to the extent required by law or except in compliance with
other applicable laws and regulations.
(b) Number of Shares; Maximum Annual Limit
The option shall state the total number of shares to which is
pertains. Notwithstanding any other provision of the Plan, the aggregate fair
market value, determined at the time the option is granted, of the stock with
respect to which incentive stock options granted after December 31, 1986 are
exercisable for the first time by a Participant during any calendar year (under
all plans of his employer corporation and its parent and subsidiary
corporations) shall not exceed $100,000. The provisions of this subsection (b)
shall be construed and applied in accordance with Section 422(b)(7) of the Code
and the regulations, if any, promulgated thereunder.
(c) Option Price
The option price per share with respect to each option shall not be
less than the lesser of (a) 50% of the fair market value per share on the date
the option is granted, or (b) the net book value per share as of the end of the
fiscal quarter next preceding the date on which the option is granted. Net
book value per share as of a specified date shall be determined by dividing
consolidated Shareholders' equity as of that date, by the number of shares of
Common Stock issued and outstanding as of that date. The option price per
share with respect to each option which is intended to be an incentive stock
option shall not be less than the fair market value per share on the date the
option is granted.
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<PAGE> 3
(d) Period of Option or Right
The period of each option and right shall be fixed by the Board of
Directors or the Committee, but no option or right shall be exercisable after
the expiration of ten years from the date it is granted.
(e) Exercise of Option or Right
Each option shall be made exercisable at such time or times, whether
or not in installments (which shall be cumulative), as the Board of Directors
or the Committee shall determine. In the case of an option not immediately
exercisable in full, the Board of Directors may at any time accelerate the time
at which all or any part of the option may be exercised. Any exercise of an
option must be in writing signed by the proper person and received by the
Company at its principal office in Cambridge, Massachusetts, accompanied by the
form of option and full payment for the number of shares in respect of which
the option is exercised. If the purchase price is paid in whole or in part in
shares of Common Stock of the Company, the certificates for such shares shall
be accompanied by appropriate instruments of transfer in form acceptable to the
Company. In the event an option is exercised by the executor or administrator
of a deceased Participant, or by the person or persons to whom the option has
been transferred by the Participant's will or the applicable laws of descent
and distribution, the Company shall be under no obligation to deliver stock
thereunder unless and until the Company is satisfied that the person or persons
exercising the option is or are the duly appointed executor or administrator of
the deceased Participant or the person or persons to whom the option has been
transferred by the Participant's will or by the applicable laws of descent and
distribution.
The Company shall not be obligated to deliver any shares or other
consideration unless and until, in the opinion of the Company's counsel, all
federal and state laws and regulations which the Company may deem applicable
have been complied with, nor, in the event the Common Stock is at the time
listed upon any national securities exchange, unless and until any shares to be
delivered have been listed or authorized to be added to the list upon official
notice of issuance upon such exchange, nor unless and until all other legal
matters in connection with issuance and deliver of the shares and exercise of
the option or right have been approved by the Company's counsel. Without
limiting the generality of the foregoing, the Company may require from the
Participant such investment representation or agreement, if any, as counsel for
the Company may consider necessary in order to comply with the Securities Act
of 1933 as amended, and may require that the Participant agree that any sale of
the shares will be made only on a national securities exchange or in such other
manner as is permitted by the Board of Directors and that the Participant will
notify the Company when he makes any disposition of the shares, whether by
sale, gift, or otherwise. The Company shall use its best efforts to achieve
any such compliance and the Participant shall take any action reasonably
requested by the Company in such connection.
(f) Non-Transferability of Options and Rights
No option or right may be transferred by the Participant otherwise
than by will or by the laws of descent and distribution, and during the
lifetime of the Participant, the option or right shall be exercisable only by
the Participant. An option or right held by the Participant at the time of his
death shall be exercisable only in accordance with the provisions and subject
to the limitations of subparagraph (h) and paragraph 6 below.
(g) Termination of Employment
Except as provided in paragraph 6 below, in the event that a
Participant shall cease to be employed by the Company other than by reason of
death, then at any time or times within 60 days thereafter any option under the
Plan may be exercised by the Participant as to all or any of the shares which
the Participant was entitled to purchase immediately prior to the termination
of his employment and except as so exercised, such option shall expire at the
end of such 60-day period, subject to the provisions of subparagraph (h) below.
Notwithstanding the foregoing, no option may be exercised after the expiration
of the option period.
For purposes of the preceding paragraph, if a Participant's employment
by the Company or its subsidiaries is terminated under circumstances entitling
the Participant to cash severance pay under any
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<PAGE> 4
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
option held by the Participant at termination of employment shall be treated as
having been exercisable immediately prior to termination of employment as to
(i) those shares for which it was in fact exercisable immediately prior to
termination of employment without regard to this paragraph, plus (ii) any
additional shares for which it would have become exercisable during the
severance period (as hereinafter defined) had the Participant 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).
For purposes of this subsection (g), the following events shall not be
deemed a termination of employment:
(i) 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
(ii) 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.
(h) Death
Except as provided in paragraph 6 below, if a Participant dies at a
time when he is entitled to exercise an option, then at any time or times
within 180 days after his death, or in the event of the death of a Participant
within the 60-day period following termination of employment, then at any time
or times within 120 days after the date of death, such option may be exercised,
both as to that portion which was exercisable by the optionee immediately prior
to death and as to any remaining portion, by his executor or administrator or
the person or persons to whom the option is transferred by will or the
applicable laws of descent and distribution, and except as so exercised such
option shall expire at the end of the period specified above. Notwithstanding
the foregoing, no option may be exercised after expiration of the option
period.
(i) Other Provisions
An option granted under the Plan prior to January 1, 1987 which is
intended to be an incentive stock option shall provide that it is not
exercisable while there is outstanding (as that term is defined in Section
422A(c)(7) of the Code as in effect prior to the Tax Reform Act of 1986) any
incentive stock option (as that term is defined in the Code) which was granted,
before the granting of the new option, to such Participant to purchase stock in
his employer corporation or in a corporation which (at the time of the granting
of the new option) is a parent or subsidiary corporation of his employer
corporation, or in a predecessor corporation of any such corporations. The
foregoing provisions of this subsection (i) shall not apply to any incentive
stock option granted after December 31, 1986.
(j) Withholding
The Company shall have the right to require a Participant to remit to
the Company an amount sufficient to satisfy any federal, state or local
withholding tax requirements prior to the delivery of any shares or other
consideration upon exercise of an option or right under the Plan.
6. Award and Exercise of Replacement Options and Related Rights; Terms
The Committee may grant options under the Plan as replacement options
for outstanding units under the Company's Key Executive Performance Unit Plan
(the "Unit Plan"). Such replacement options shall include the following terms,
notwithstanding anything inconsistent therewith in other provisions of the
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Plan. In addition, replacement options may contain such other terms, not
inconsistent herewith and with the other provisions of the Plan, as the Board
of Directors or the Committee shall determine.
(a) Replacement options shall only be granted upon the voluntary
surrender by the Participant of all rights under the Unit Plan. Each
replacement option shall be for the number of shares equal to the number of
units in the Unit Plan surrendered by the Participant.
(b) In the event that a Participant shall cease to be employed
full-time by the Company, or shall die, at a time when he is entitled to
exercise a replacement option, then at any time or times after his termination
of full-time employment or his death, such replacement option may be exercised,
as to all or any of the shares which the Participant was entitled to purchase
under the replacement option immediately prior to his termination of full-time
employment or death, by him or his executor or administrator or the person or
persons to whom the option is transferred by will or the applicable laws of
descent and distribution, and except as so exercised such replacement option
shall expire at the end of the option period.
(c) For purposes of the Plan, a stock depreciation right is a
right granted to the holder thereof to receive, pursuant to the terms of the
right, an amount payable in cash generally equal to not more than the decrease
in the value of the shares purchased under the replacement option to which the
stock depreciation right is related, as more particularly set forth below in
this paragraph 6(c).
Each replacement option granted under the Plan shall be accompanied by
stock depreciation rights exercisable with respect to each share of stock
actually purchased upon exercise of the related replacement option. To the
extent a replacement option expires unexercised, the related stock depreciation
rights may not be exercised. In addition, no stock depreciation rights and no
replacement option accompanied by stock depreciation rights shall be exercised
earlier than six months after the date of grant.
Exercisable stock depreciation rights shall entitle the holder to
exercise such rights (to the ratable extent that the related replacement option
has been exercised) and to receive in satisfaction of the exercise of such
rights, subject to the limitations below, an amount, payable as provided below,
having an aggregate value equal tot he positive difference, if any, of (i) the
lesser of (A) the fair market value (if the Common Stock is at the time listed
upon any national securities exchange, on the basis of the closing price of the
Common Stock on that exchange on the date as of which such value is determined,
or if the Common Stock is not so listed, as determined by the Board of
Directors) of the shares of Common Stock purchased upon exercise of the
replacement option as of the date of such exercise, but in no event less than
an amount equal to seven times the per-share earnings of the Company publicly
reported by it for its four consecutive fiscal quarters which shall have been
reported next preceding the date of such exercise (exclusive of all
non-operating gains and losses, whether or not so considered under generally
accepted accounting principles, and disregarding the cost attributable to
amounts payable pursuant hereto and the related tax effect), times the number
of shares of Common Stock purchased upon such exercise, or (B) an amount equal
to twenty times the per-share earnings of the Company publicly reported by it
for its four consecutive fiscal quarters which shall have been reported next
preceding the date of such exercise (as limited above), times the number of
shares of Common Stock purchased upon such exercise, less (ii) the greater of
(A) $14, times the number of shares of Common Stock purchased upon such
exercise, or (B) the fair market value (if the Common Stock is at the time
listed upon any national securities exchange, on the basis of the closing price
of the Common Stock on that exchange on the date as of which such value is
determined, or if the Common Stock is not so listed, as determined by the Board
of Directors) as of the date of exercise of the stock depreciation right of the
shares of Common Stock purchased upon exercise of the replacement option (or,
to the extent such shares have been sold prior to such date of exercise of the
stock depreciation right, the amount received for such shares upon such sale).
Unless otherwise permitted or required by the Committee at any time,
any full or partial exercise of stock depreciation rights shall be made only
during the period beginning on the third business day following the date of
release for publication of quarterly or annual (as the case may be) summary
statements of sales and earnings of the Company and its subsidiaries, and
ending on the twelfth business day following such date, in each case next
succeeding the later of (i) 6 months from the date of exercise of the
replacement option as to which the stock depreciation rights relate, or (ii) in
the event that counsel for the Company should,
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during such 6 month period, render to the Company an opinion that the holder of
the stock depreciation rights is prohibited under the Federal securities laws
from selling publicly shares of Common Stock, then the date of an opinion of
counsel for the Company that the holder is not longer so prohibited. Any stock
depreciation rights exercisable but not exercised during such period shall
expire at the end of the said twelfth day.
Anything to the contrary herein notwithstanding and unless otherwise
permitted or required by the Committee at any time, stock depreciation rights
of any Participant shall not be exercisable and shall be void and of no force
or effect to the extent that the related option is exercised at a time when the
holder is not one of the persons specified in Section 16 of the Securities
Exchange Act of 1934, as amended, and at a time when the holder is not, in the
opinion of counsel for the Company, prohibited under the Federal securities
laws from selling publicly shares of Common Stock.
The Committee may elect to defer payments by the Company in respect of
exercises of stock depreciation rights, or to make such payments in
installments, if it shall determine in good faith that full payment would
unreasonably impair the operations or cash flow of the Company or would result
in any violation of any provision of any agreement to which the Company is then
a party or by which it is then bound, except in no event may any payments be
deferred beyond three years after the date of exercise of the stock
depreciation rights with respect to which such payments are owed, nor may any
payments be deferred beyond the occurrence of an event referred to in the
second sentence of Section 8 hereof, provided that in such event the obligation
of the Company to make immediate payments shall not exceed the net cash
received by the Company in such event. In the event of any deferral, all
Participants having stock depreciation rights with a common exercise date shall
be treated alike with respect to such payment, and all amounts not paid within
30 days after the exercise date shall bear interest at the lowest rate from
time to time available to the Company from its regular commercial banks under
its regular borrowing lines, such interest to be paid monthly.
(d) Upon the exercise of a replacement option by a holder thereof
who is at the time thereof a person specified in Section 16 of the Securities
Exchange Act of 1934, as amended, or who is, in the opinion of counsel for the
Company, prohibited at the time under the Federal securities laws from selling
shares of the Common Stock publicly, the Company shall make a loan to such
holder in an amount equal to the sum of the difference between the option price
per share and the par value per share, times the number of shares acquired upon
such exercise, plus any withholding taxes due as a result of the exercise.
Such loan shall accrue no interest and shall be payable in full not later than
30 days after the latest of (i) 6 months following the date of exercise if the
holder is at the time of exercise a person specified in Section 16 of the
Securities Exchange Act of 1934, as amended, (ii) the date of exercise (or
expiration, if unexercised) of the related stock depreciation rights,or (iii)
the date of an opinion of counsel for the Company that the holder is no longer
prohibited under the Federal securities laws from selling publicly shares of
Common Stock if the holder had been the subject of an opinion of such counsel
to the effect that he was so prohibited, but in no event later than 15 days
after the date of sale of any of the shares acquired upon such exercise.
7. Continuance of Employment
Neither the Plan nor any option or right imposes any obligation on the
Company or any subsidiary to continue the Participant's employment or any other
relationship between the Participant and the Company or any subsidiary, or
interferes in any way with the right of the Company or any subsidiary to
terminate the employment of any of its employees or such other relationship at
any time.
8. Adjustment upon Changes in Stock
In the event of a stock dividend, split-up, combination of shares,
recapitalization, merger in which the Company is the surviving corporation
(other than as provided below), or other similar capital change, or in the
event of a spin-off or other significant distribution of stock or property by
the Company to its shareholders, the Board of Directors shall make such
changes, if any, in the number and kind of shares of stock or securities of the
Company to be subject to the Plan and to options and rights then outstanding or
to be granted thereunder, the maximum number of shares of stock or securities
which may be issued on
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the exercise of options granted under the Plan, the option price, and other
relevant provisions as it considers equitable and appropriate, and the Board's
determination shall be binding on all persons. In the event of a consolidation
or merger in which the Company is not the surviving corporation, or in the
event another corporation acquires in a merger stock of the Company possessing
100% of the combined voting power of all classes of stock of the Company, or in
the event of complete liquidation of the Company, all outstanding options shall
thereupon terminate, provided that the Board of Directors shall, at least
twenty days prior to the effective date of any such consolidation, merger, or
liquidation, either (a) make all outstanding options immediately exercisable,
or (b) except for replacement options, arrange to have the surviving
corporation grant to the Participants substitute options on terms which the
Board determines to be fair and reasonable.
The Company may grant options under the Plan in substitution for stock
options held by employees of another corporation who concurrently become
employees of 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; provided that no such substitute option shall be granted
to a person who will be an executive officer or director of the Company. The
Committee may direct that the substitute options be granted on such terms and
conditions as the Committee considers appropriate in the circumstances.
9. Amendments
The Board of Directors may at any time discontinue granting options
under the Plan. The Board of Directors may at any time or times amend the Plan
or any outstanding option for the purpose of satisfying the requirements of any
applicable laws or regulations or for any other purpose which may at the time
be permitted by law, provided that, except as provided in paragraph 8, no such
amendment shall, without the approval of the shareholders of the Company, (a)
increase the maximum number of shares available under the Plan, (b) reduce the
minimum option price of options thereafter to be granted below the price
provided for in paragraph 5(c), (c) reduce the option price of outstanding
options below the price at which a new option could be granted under paragraph
5(c) at the time of such amendment, (d) extend the time within which options
may be granted, or (e) extend the period of an outstanding option beyond ten
years from the date of the amendment. No such amendment shall adversely affect
the rights of any Participant (without his consent) under any option
theretofore granted, provided, however, that the Committee may, in its sole
discretion, at any time amend or terminate that portion of any or all
replacement options as to which the Participant or Participants are, at the
time of amendment or termination, not entitled to exercise.
10. Termination of Plan
No option shall be granted under the Plan after April 27, 1993;
options theretofore granted may extend beyond that date (but not beyond April
26, 2003).
11. Approval of Shareholders
The Plan shall be subject to the approval of the shareholders of the
Company, which approval shall be secured within twelve months after the date
the Plan is adopted by the Board of Directors.
Rev. August 1994
A-7
<PAGE> 1
Exhibit 10.2
BOLT BERANEK AND NEWMAN INC.
1986 STOCK INCENTIVE PLAN
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.
<PAGE> 2
(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.
(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 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
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<PAGE> 3
(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.
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,
including shares issued in lieu of or upon reinvestment of dividends arising
from Awards. Of this number, 100,000 are reserved and available for issuance
under stock options granted to Non-employee Directors under Section 6(m). For
purposes of the foregoing limitations, 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.
(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 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 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
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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, 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.]
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(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 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
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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 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 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
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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.
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.
Each Option granted under this subsection (m) may be exercised as
follows:
(1) (A) 25% of the shares subject to such 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 Option may only be exercised
during the five-year period beginning on the date the Option is
granted.
To the extent that an 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 Option as described in (2) above;
provided, that if the Non-employee Director ceases to be a Director
for any reason (including death), any Option held by such Non-employee
Director may thereafter be exercised, to the extent it 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).
All options granted under this subsection (m) may be exercised
by delivery of cash and/or Stock.
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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 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.
(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
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<PAGE> 9
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 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
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<PAGE> 10
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.
(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
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<PAGE> 11
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.
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(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 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.
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(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.
(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
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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.
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.
Revised: August, 1994
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<PAGE> 1
Exhibit 10.3
THE BOLT BERANEK AND NEWMAN INC.
1983 EMPLOYEE STOCK PURCHASE PLAN
SECTION 1. Purpose of Plan.
The Bolt Beranek and Newman Inc. 1983 Employee Stock Purchase Plan (the
"Plan") is intended to provide a method by which eligible employees of Bolt
Beranek and Newman Inc. and its participating subsidiaries (the "Company") may
use voluntary, systematic payroll deductions to purchase shares of Common Stock
of Bolt Beranek and Newman Inc. ("Stock") and thereby acquire an interest in
the future of the Company. For purposes of the Plan, a subsidiary is any
corporation in which Bolt Beranek and Newman Inc. owns, directly or indirectly,
stock possessing 50% or more of the total combined voting power of all classes
of stock, and a participating subsidiary is a subsidiary designated as
participating by the Bolt Beranek and Newman Inc. Board of Directors (the
"Board of Directors").
SECTION 2. Options to Purchase Stock.
Under the Plan, there is available an aggregate of not more than
3,600,000 shares of Stock (subject to adjustment as provided in Section 15) for
sale pursuant to the exercise of options ("options") granted under the Plan to
employees (within the meaning of Section 3401(c) of the Internal Revenue Code
of 1986, as amended (the "Code")) of the Company ("employees") who meet the
eligibility requirements set forth in Section 3 hereof ("eligible employees").
The Stock to be delivered upon exercise of options under the Plan may be either
shares of authorized but unissued Stock, or shares of reacquired Stock, as the
Board of Directors shall determine.
SECTION 3. Eligible Employees.
Except as otherwise provided below, each employee of the Company who
has completed six months or more of continuous service in the employ of the
Company shall be eligible to participate in the Plan.
(a) Any employee who immediately after the grant of an option to him
would (in accordance with the provisions of Sections 423 and 425(d) of the
Code) own Stock possessing 5% or more of the total combined voting power or
value of all classes of Stock of the employer corporation or of its parent or
subsidiary corporation, as defined in Section 425 of the Code, shall not be
eligible to receive an option to purchase stock pursuant to the Plan.
(b) No employee shall be granted an option under the Plan which would
permit his rights to purchase shares of Stock under all employee stock purchase
plans of the Company and any parent and subsidiary corporations to accrue at a
rate which exceeds $25,000 in fair market value of such Stock (determined at
the time the option is granted) for each calendar year during which any such
option granted to such employee is outstanding at any time, as provided in
Sections 423 and 425 of the Code.
(c) The Board of Directors may exclude from participation an eligible
employee located in a foreign country if his participation would be impractical
or illegal under the laws of that country.
<PAGE> 2
SECTION 4. Method of Participation.
The periods January 1 to June 30 and July 1 to December 31 of each year
shall be option periods. Each person who will be an eligible employee on the
first day of any option period may elect to participate in the Plan by
executing and delivering, at least 15 days prior to such day, a payroll
deduction authorization in accordance with Section 5. Such employee shall
thereby become a participant ("participant") on the first day of such option
period and shall remain a participant until his participation is terminated as
provided in the Plan.
SECTION 5. Payroll Deductions.
The payroll deduction authorization shall request withholding, at a
rate of not less than 2% nor more than 10%, from the participant's
Compensation, by means of substantially equal payroll deductions over the
option period. (1) For purposes of the Plan, "Compensation" shall include all
amounts included in "401(k) Credited Compensation" under The Bolt Beranek and
Newman Inc. Retirement Trust Agreement (1994 Revision) and shall exclude any
compensation that is not so included. A participant may change the withholding
rate of his payroll deduction authorization by written notice delivered to the
Company at least 15 days prior to the first day of the option period as to
which the change is to be effective. All amounts withheld in accordance with a
participant's payroll deduction authorization shall be credited to a
withholding account for such participant.
SECTION 6. Grant of Options.
Each person who is a participant on the first day of an option period
shall as of such day be granted an option for such period. Such option shall
be for the least of: (a) 1,000 shares of Stock (400 shares in the case of an
"officer" of the Company (as defined in Rule 16a-1(f) under Section 16 of the
Securities Exchange Act of 1934) in office at any time during the respective
option period); or (b) the number of whole shares of Stock to be determined by
dividing: (i) the balance in the participant's withholding account on the last
day of the option period, by (ii) the purchase price of the Stock determined
under Section 7; or (c) the number of whole shares of Stock to be determined by
dividing: (I) $12,500, by (II) the fair market value of one share of Stock on
the first day of the option period. The Company shall reduce on a
substantially proportionate basis the number of shares of Stock receivable by
each participant upon exercise of his option for an option period in the event
that the number of shares then available under the Plan is otherwise
insufficient.
SECTION 7. Purchase Price.
The purchase price of Stock issued pursuant to the exercise of an
option shall be 85% of the fair market value of the Stock at (a) the time of
grant of the option or (b) the time at which the option is deemed exercised,
whichever is less, provided, however, that in no event shall the price be less
than the net book value per share of the Stock as of the end of the fiscal
quarter next preceding the date on which the option is deemed exercised. Net
book value per share as of a specified date shall be determined by dividing
consolidated shareholders' equity as of that date, by the number of shares of
Stock issued and outstanding as of that date. Fair market value shall mean the
closing price of the Stock on the New York Stock Exchange (or such other
national securities exchange as shall then be listing such
____________
(1) as amended effective January 1, 1995
<PAGE> 3
Stock for trading) on the subject date, or, if there shall have been no
reported trades on such date, on the last prior date when such a trade was
reported.
SECTION 8. Exercise of Options.
If an employee is a participant in the Plan on the last business day of
an option period, he shall be deemed to have exercised the option granted to
him for that period. Upon such exercise, the Company shall apply the balance
of the participant's withholding account (but in no event more than $3,000) to
the purchase of the number of whole shares of Stock determined under Section 6,
and as soon as practicable thereafter shall issue and deliver certificates for
said shares to the participant and shall return to him the balance, if any, of
his withholding account in excess of the total purchase price of the shares so
issued. No fractional shares shall be issued hereunder.
Notwithstanding anything herein to the contrary, the Company's
obligation to issue and deliver shares of Stock under the Plan shall be subject
to the approval required of any governmental authority in connection with the
authorization, issuance, sale, or transfer of said shares, and to any
requirements of any national securities exchange applicable thereto.
SECTION 9. Interest.
Except as provided in this Section 9, no interest will be payable on
withholding accounts. In the event money withheld in respect of an option
period is returned to a participant or his beneficiary pursuant to the
provisions of Section 10, 11, or 12, the amount returned shall include simple
interest (if any) during the period from the date of withholding to the date of
return determined at such rate as shall be specified by the Chief Executive
Officer of Bolt Beranek and Newman Inc. or by such other person as the Board of
Directors may designate. The rate so specified shall not exceed the rate then
paid on ordinary passbook savings accounts by BayBank/Harvard Trust. The
interest rate, if any, applicable to any option period shall be specified and
communicated to participants prior to the beginning of the option period. If
no interest rate is specified for an option period, the interest rate in effect
for such option period shall be the rate, if any, in effect for the
immediately preceding option period.
SECTION 10. Cancellation and Withdrawal.
A participant who holds an option under the Plan may at any time prior
to exercise thereof under Section 8 cancel all (but not less than all) of his
option by written notice delivered to the Company. Upon such cancellation, the
balance in his withholding account shall be returned to him.
A participant may terminate his payroll deduction authorization as of
any date by written notice delivered to the Company and shall thereby cease to
be a participant as of such date. Any participant who voluntarily terminates
his payroll deduction authorization prior to the last business day of an option
period shall be deemed to have cancelled his option.
<PAGE> 4
SECTION 11. Termination of Employment.
Upon the termination of a participant's service with the Company for
any reason, he shall cease to be a participant, and any option held by him
under the Plan shall be deemed cancelled, the balance of his withholding
account shall be returned to him, and he shall have no further rights under the
Plan.
SECTION 12. Death of Participant.
A participant may file a written designation of beneficiary specifying
who is to receive any stock and/or cash credited to the participant under the
Plan in the event of the participant's death, which designation shall also
provide for the election by the participant of either: (i) cancellation of the
participant's option upon his death, as provided in Section 10; or (ii)
application as of the last day of the option period of the balance of the
deceased participant's withholding account at the time of death to the exercise
of his option, pursuant to Section 8 of the Plan. In the absence of a valid
election otherwise, the death of a participant shall be deemed to effect a
cancellation of his option. A designation of beneficiary and election may be
changed by the participant at any time, by written notice. In the event of the
death of a participant and receipt by the Company of proof of the identity and
existence at the participant's death of a beneficiary validly designated by him
under the Plan, the Company shall deliver such Stock and/or cash to which the
beneficiary is entitled under the Plan to such beneficiary. In the event of
the death of a participant and in the absence of a beneficiary validly
designated under the Plan who is living at the time of such participant's
death, the Company shall deliver such Stock and/or cash to the executor or
administrator of the estate of the participant, or if no such executor or
administrator has been appointed (to the knowledge of the Company), the
Company, in its discretion, may deliver such Stock and/or cash to the spouse or
to any one or more dependents of a participant as the Company may determine. No
beneficiary shall, prior to the death of the participant by whom he has been
designated, acquire any interest in the Stock or cash credited to the
participant under the Plan.
SECTION 13. Participant's Rights Not Transferable.
All participants granted options under the Plan shall have the same
rights and privileges, and each participant's rights and privileges under any
option granted under the Plan shall be exercisable during his lifetime only by
him, and shall not be sold, pledged, assigned, or transferred in any manner.
In the event any participant violates the terms of this Section, any options
held by him may be terminated by the Company and upon return to the participant
of the balance of his withholding account, all his rights under the Plan shall
terminate.
SECTION 14. Employment Rights.
Nothing contained in the provisions of the Plan shall be construed to
give to any employee the right to be retained in the employ of the Company or
to interfere with the right of the Company to discharge any employee at any
time; nor shall it be construed to give the Company the right to require any
employee to remain in its employ or to interfere with an employee's right to
terminate his employment at any time.
<PAGE> 5
SECTION 15. Change in Capitalization.
In the event of any change in the outstanding Stock by reason of stock
dividend, split-up, recapitalization, merger, consolidation, reorganization, or
other capital change, the aggregate number and class of shares available under
the Plan and the number and class of shares under option but not exercised, the
option price, and the share limit provided for in Section 6(a) shall be
appropriately adjusted.
SECTION 16. Administration of Plan.
The Plan shall be administered by the Board of Directors, which shall
have the right to determine any questions which may arise regarding the
interpretation and application of the provisions of the Plan and to make,
administer, and interpret such rules and regulations as it shall deem necessary
or advisable.
SECTION 17. Amendment and Termination of Plan.
The Company reserves the right at any time or times to amend the Plan
to any extent and in any manner it may deem advisable by vote of the Board of
Directors; provided, however, that any amendment relating to the aggregate
number of shares which may be issued under the Plan (other than an adjustment
provided for in Section 15) or to the employees (or class of employees) to
receive options under the Plan shall have no force or effect unless it shall
have been approved by the shareholders within twelve months before or after its
adoption.
The Plan may be terminated at any time by the Board of Directors, but
no such termination shall adversely affect the rights and privileges of holders
of then outstanding options. The Plan will terminate in any case when all or
substantially all of the Stock reserved for the purposes of the Plan has been
purchased.
SECTION 18. Approval of Shareholders.
The Plan shall be subject to the approval of the shareholders of Bolt
Beranek and Newman Inc., which approval shall be secured within twelve months
after the date the Plan is adopted by the Board of Directors.
<PAGE> 1
Exhibit 10.14
Executive Protection Policy for:
BOLT BERANEK AND NEWMAN INC.
<PAGE> 2
DECLARATIONS
EXECUTIVE PROTECTION POLICY
Policy Number 8137-71-31
Federal Insurance Company, a stock insurance
company, incorporated under the laws of
Indiana, herein called the Company.
Item 1. Parent Organization:
BOLT BERANEK AND NEWMAN INC.
150 CAMBRIDGE PARK DRIVE
CAMBRIDGE, MASSACHUSETTS
02140
Item 2: Policy Period: From 12:01 A.M. on DECEMBER 01, 1993
To 12:01 A.M. on DECEMBER 01, 1994
Local time at the address shown in Item 1.
Item 3: Coverage Summary
Description
GENERAL TERMS AND CONDITIONS
EXECUTIVE LIABILITY AND INDEMNIFICATION
OUTSIDE DIRECTORSHIP LIABILITY
Item 4: Termination of
Prior Policies: NONE
THE EXECUTIVE LIABILITY AND INDEMNIFICATION, FIDUCIARY LIABILITY, OUTSIDE
DIRECTORSHIP LIABILITY AND EMPLOYMENT PRACTICES LIABILITY COVERAGE SECTIONS
(WHICHEVER ARE APPLICABLE) ARE ALL WRITTEN ON A CLAIMS MADE BASIS. EXCEPT
AS OTHERWISE PROVIDED, THESE COVERAGE SECTIONS COVER ONLY CLAIMS FIRST MADE
AGAINST THE INSURED DURING THE POLICY PERIOD. PLEASE READ CAREFULLY.
In witness whereof, the Company issuing this policy has cause this policy
to be signed by its authorized officers, but it shall not be valid unless
also signed by a duly authorized representative of the Company.
FEDERAL INSURANCE COMPANY
Secretary President
- - ----------------------- ----------------------------------
Date Authorized Representative
<PAGE> 3
GENERAL TERMS
AND CONDITIONS
Territory 1. Coverage shall extend anywhere in the world.
- - --------------------------------------------------------------------------------
Terms and Conditions 2. Except for the General terms and Conditions or
unless stated to the contrary in any coverage
section, the terms and conditions of each coverage
section of this policy apply only to that section
and shall not be construed to apply to any other
coverage section of this policy.
- - --------------------------------------------------------------------------------
Limits of Liability and 3. Unless stated to the contrary in any coverage
Deductible Amounts section, the limits of liability and deductible
amounts shown for each coverage section of this
policy are separate limits of liability and
separate deductible amounts pertaining to the
coverage section for which they are shown; the
application of a deductible amount to a loss
under one coverage section of this policy
shall not reduce the deductible amount under any
other coverage section of this policy.
- - --------------------------------------------------------------------------------
Notice 4. Notice to the Company under this policy shall be
given in writing addressed to:
Notice of Claim:
National Claims Department
Chubb Group of
Insurance Companies
15 Mountain View Road
Warren, New Jersey 07059
All Other Notices:
Executive Protection Department
Chubb Group of Insurance Companies
15 Mountain View Road
Warren, New Jersey 07059
Such notice shall be effective on the date of
receipt by the Company at such address.
- - --------------------------------------------------------------------------------
Investigation 5. The Company may make any investigation it deems
and Settlement necessary and may, with the written consent of
the Insured, make any settlement of a claim it
deems expedient. If the Insured withholds
consent to such settlement, the Company's
liability for all loss on account of such claim
shall not exceed the amount for which the Company
could have settled such claim plus costs, charges
and expenses accrued as of the date such
settlement was proposed in writing by the Company
to the Insured.
<PAGE> 4
GENERAL TERMS
AND CONDITIONS
Valuation and 6. All premiums, limits, retentions, loss and other
Foreign Currency amounts under this policy are expressed and payable in
the currency of the United States of America.
Except as otherwise provided in any coverage
section, if judgment is rendered, settlement is
denominated or another element of loss under this
policy is stated in a currency other than United
States of America dollars, payment under this policy
shall be made in United States dollars at the rate
of exchange published in the Wall Street Journal on
the date the final judgment is reached, the amount
of the settlement is agreed upon or the other
element of loss is due, respectively.
- - --------------------------------------------------------------------------------
Subrogation 7. In the event of any payment under this policy, the
Company shall be subrogated to the extent of such
payment to all the Insured's rights of recovery, and the
Insured shall execute all papers required and shall do
everything necessary to secure and preserve such
rights, including the execution of such documents
necessary to enable the Company effectively to bring
suit in the name of the Insured.
- - --------------------------------------------------------------------------------
Action Against 8. No action shall lie against the Company unless, as a
the Company condition precedent thereto, there shall have been full
compliance with all the terms of this policy. No person
or organization shall have any right under this policy
to join the Company as a party to any action against
the Insured to determine the Insured's liability nor
shall the Company be impleaded by the Insured or his
legal representatives. Bankruptcy or insolvency of an
Insured or of the estate of an Insured shall not
relieve the Company of its obligations nor deprive
the Company of its rights under this policy.
- - --------------------------------------------------------------------------------
Authorization 9. By acceptance of this policy, the Parent Organization
Clause agrees to act on behalf of all Insureds with respect to
the giving and receiving of notice of claim or
termination, the payment of premiums and the receiving
of any return premiums that may become due under this
policy, the negotiation, agreement to and acceptance of
endorsements, and the giving or receiving of any
notice provided for in this policy (except the
giving of notice to apply for the Extended Reporting
Period), and the Insureds agree that the Parent
Organization shall act on their behalf.
- - --------------------------------------------------------------------------------
Alteration 10. No change in, modification of, or assignment of interest
and Assignment under this policy shall be effective except when made by
a written endorsement to this policy which is signed by
an authorized employee of Chubb & Son Inc.
- - --------------------------------------------------------------------------------
Termination of 11. This policy or any coverage section shall terminate at
Policy or the earliest of the following times:
Coverage Section
(A) sixty days after the receipt by the Parent
Organization of a written notice of termination
from the Company,
(B) upon the receipt by the Company of written notice
of termination from the Parent Organization.
<PAGE> 5
General Terms
and Conditions
Termination of (C) upon expiration of the Policy Period as set forth
Policy or in Item 2 of the Declarations of this policy, or
Coverage Section
(continued) (D) at such other time as may be agreed upon by the
Company and the Parent Organization.
The Company shall refund the unearned premium
computed at customary short rates if the policy or
any coverage section is terminated by the Parent
Organization. Under any other circumstances the
refund shall be computed pro rata.
- - --------------------------------------------------------------------------------
Termination of 12. Any bonds or policies issued by the Company or its
Prior Bonds affiliates and specified in Item 4 of the Declarations
or Policies of this policy shall terminate, if not already
terminated, as of the inception date of this policy.
Such prior bonds or policies shall not cover any
loss under the Crime or Kidnap/Ransom & Extortion
coverage sections not discovered and notified to the
Company prior to the inception date of this policy.
- - --------------------------------------------------------------------------------
Definitions 13. When used in this policy:
Parent Organization means the organization
designated in Item 1 of the Declarations of this
policy.
Policy Period means the period of time specified in
Item 2 of the Declarations of this policy, subject
to prior termination in accordance with Subsection 11
above. If this period is less than or greater than
one year, then the Limits of Liability specified in
the Declarations for each coverage section shall be
the Company's maximum limit of liability under such
coverage section for the entire period.
<PAGE> 6
Effective date of
this endorsement: DECEMBER 01, 1993
To be attached to and form part of Company: FEDERAL INSURANCE COMPANY
Policy No. 8137-71-31
Issued to: BOLT BERANEK & NEWMAN INC.
- - --------------------------------------------------------------------------------
The following is a schedule of endorsements issued with the policy at
inception:
EXECUTIVE LIABILITY AND INDEMNIFICATION
ENDORSEMENT NUMBER FORM NUMBER
1 14-02-0961
2 14-02-0961
3 14-02-0961
4 14-02-0961
OUTSIDE DIRECTORSHIP LIABILITY
ENDORSEMENT NUMBER FORM NUMBER
1 14-02-0961
2 14-02-1291
<PAGE> 7
DECLARATIONS
EXECUTIVE LIABILITY AND
INDEMNIFICATION COVERAGE SECTION
Item 1. Parent Organization:
BOLT BERANEK & NEWMAN INC.
Item 2. Limits of Liability:
(A) Each Loss $3,000,000.
(B) Each Policy Period $3,000,000.
Note that the limits of liability and any deductible or retention
are reduced or exhausted by Defense Costs.
Item 3. Coinsurance Percent: NONE
Item 4. Deductible Amount:
Insuring Clause 2 $1,000,000
Item 5. Insured Organization:
BOLT BERANEK AND NEWMAN INC.
AND ITS SUBSIDIARIES
Item 6. Insured Persons:
Any person who has been, now is, or shall become a duly
elected director or a duly elected or appointed officer
of the Insured Organization.
Item 7. Extended Reporting Period:
(A) Additional Premium: 75% OF THE ANNUAL PREMIUM
(B) Additional Period: ONE YEAR
Item 8. Pending or Prior Date: DECEMBER 1, 1990
Item 9. Continuity Date: DECEMBER 1, 1990
<PAGE> 8
Executive Liability In consideration of payment of the premium and subject
and Indemnification to the Declarations, General Terms and Conditions, and
Coverage Section the limitations, conditions, provisions and
other terms of this coverage section, the Company
agrees as follows:
- - --------------------------------------------------------------------------------
INSURING CLAUSES
Executive 1. The Company shall pay on behalf of each of the Insured
Liability Coverage Persons all Loss for which the Insured Person is not
Insuring Clause 1 indemnified by the Insured Organization and which the
Insured Person becomes legally obligated to pay on
account of any Claim first made against him,
individually or otherwise, during the Policy Period or,
if exercised, during the Extended Reporting Period, for
a Wrongful Act committed, attempted, or allegedly
committed or attempted by such Insured Person before or
during the Policy Period.
- - --------------------------------------------------------------------------------
Executive 2. The Company shall pay on behalf of the Insured
Indemnification Organization all Loss for which the Insured
Coverage Insuring Organization grants indemnification to each Insured
Clause 2 Person, as permitted or required by law, which the
Insured Person has become legally obligated to pay on
account of any Claim first made against him,
individually or otherwise, during the Policy Period or,
if exercised, during the Extended Reporting Period,
for a Wrongful Act committed, attempted, or allegedly
committed or attempted by such Insured Person before
or during the Policy Period.
- - --------------------------------------------------------------------------------
Estates and Legal 3. Subject otherwise to the General Terms and
Representatives Conditions and the limitations, conditions, provisions
and other terms of this coverage section, coverage
shall extend to Claims for the Wrongful Acts of
Insured Persons made against the estates, heirs, legal
representatives or assigns of Insured Persons who are
deceased or against the legal representatives or
assigns of Insured Persons who are incompetent,
insolvent or bankrupt.
- - --------------------------------------------------------------------------------
Extended 4. If the Company terminates or refuses to renew this
Reporting Period coverage section other than for nonpayment of premium,
the Parent Organization and the Insured Persons shall
have the right, upon payment of the additional premium
set forth in Item 7(A) of the Declarations for this
coverage section, to an extension of the coverage
granted by this coverage section for the period set
forth in Item 7(B) of the Declarations for this
coverage section (Extended Reporting Period)
following the effective date of termination or
nonrenewal, but only for any Wrongful Act committed,
attempted, or allegedly committed or attempted, prior
to the effective date of termination or nonrenewal.
This right of extension shall lapse unless written
notice of such election, together with payment of the
additional premium due, is received by the Company
within 30 days following the effective date of
termination or nonrenewal. Any Claim made during the
Extended Reporting Period shall be deemed to have been
made during the immediately preceding Policy Period.
If the Parent Organization terminates or declines to
accept renewal, the Company may, if requested, at its
sole option, grant an Extended Reporting Period. The
offer of renewal terms and conditions or premiums
different from those in effect prior to renewal shall
not constitute refusal to renew.
<PAGE> 9
EXCLUSIONS
Exclusions 5. The Company shall not be liable for Loss on
Applicable account of any Claim made against any Insured
to Insuring Person:
Clauses 1 and 2
(a) based upon, arising from, or in consequence
of any circumstance if written notice of such
circumstance has been given under any policy
or coverage section of which this coverage
section is a renewal or replacement and if
such prior policy or coverage section
affords coverage (or would afford such
coverage except for the exhaustion of its
limits of liability) for such Loss, in
whole or in part, as a result of such
notice;
(b) based upon, arising from, or in consequence
of any demand, suit or other proceeding
pending, or order, decree or judgement entered
against any Insured on or prior to the Pending
or Prior Date set forth in Item 8 of the
Declarations for this coverage section, or the
same or any substantially similar fact,
circumstance or situation underlying or
alleged therein;
(c) brought or maintained by or on behalf of any
Insured except:
(i) a Claim that is a derivative action brought
or maintained on behalf of an Insured
Organization by one or more persons who
are not Insured Persons and who bring and
maintain the Claim without the
solicitation, assistance or participation
of any Insured,
(ii) a Claim brought or maintained by an Insured
Person for the actual or alleged wrongful
termination of the Insured Person, or
(iii) a Claim brought or maintained by an Insured
Person for contribution or indemnity, if
the Claim directly results from another
Claim covered under this coverage section;
(d) for an actual or alleged violation of the
responsibilities, obligations or duties imposed
by the Employee Retirement Income Security Act
of 1974 and amendments thereto or similar
provisions of any federal, state or local
statutory law or common law upon fiduciaries of
any pension, profit sharing, health and welfare
or other employee benefit plan or trust
established or maintained for the purpose of
providing benefits to employees of an Insured
Organization:
(e) for bodily injury, mental or emotional distress,
sickness, disease or death of any person or
damage to or destruction of any tangible
property including loss of use thereof; or
(f) based upon, arising from, or in consequence of
(i) the actual, alleged or threatened discharge,
release, escape or disposal of Pollutants into
or on real or personal property, water or the
atmosphere; or (ii) any direction or request
that the Insured test for, monitor, clean up,
remove, contain, treat, detoxify or neutralize
Pollutants, or any voluntary decision to do so;
including but not limited to any Claim for
financial loss to the Insured Organization, its
security holders or its creditors based upon,
arising from, or in consequence of the matters
described in (i) or (ii) of this exclusion.
<PAGE> 10
Exclusions
(continued)
Exclusions 6. The Company shall not be liable under Insuring
Applicable Clause 1 for Loss on account of any Claim
to Insuring made against any Insured Person:
Clause 1 Only
(a) for an accounting of profits made from the
purchase or sale by such Insured Person of
securities of the Insured Organization within
the meaning of Section 16(b) of the Securities
Exchange Act of 1934 and amendments thereto or
similar provisions of any federal, state or
local statutory law or common law;
(b) based upon, arising from, or in consequence of
any deliberately fraudulent act or omission or
any willful violation of any statute or
regulation by such Insured Person, if a
judgement or other final adjudication adverse to
the Insured Person establishes such a
deliberately fraudulent act or omission or
willful violation; or
(c) based upon, arising from, or in consequence of
such Insured Person having gained in fact any
personal profit, remuneration or advantage to
which such Insured Person was not legally
entitled.
- - --------------------------------------------------------------------------------
Severability 7. With respect to the Exclusions in Subsections 5 and 6
of Exclusions of this coverage section, no fact pertaining to or
knowledge possessed by any Insured Person shall be
imputed to any other Insured Person to determine if
coverage is available.
- - --------------------------------------------------------------------------------
Limit of 8. For the purposes of this coverage section, all
Liability, Loss arising out of the same Wrongful Act and
Deductible and all Interrelated Wrongful Acts of any Insured Person
Coinsurance shall be deemed one Loss, and such Loss shall be
deemed to have originated in the earliest Policy Period
in which a Claim is first made against any Insured
Person alleging any such Wrongful Act or Interrelated
Wrongful Acts.
The Company's maximum liability for each Loss,
whether covered under Insuring Clause 1 or Insuring
Clause 2 or both, shall be the Limit of Liability for
each Loss set forth in Item 2(A) of the Declarations
for this coverage section. The Company's maximum
aggregate liability for all Loss on account of all
Claims first made during the same Policy Period,
whether covered under Insuring Clause 1 or Insuring
Clause 2 or both, shall be the Limit of Liability for
each Policy Period set forth in Item 2(B) of the
Declarations for this coverage section.
The Company's liability under Insuring Clause 2 shall
apply only to that part of each Loss which is excess
of the Deductible Amount set forth in Item 4 of the
Declarations for this coverage section and such
Deductible Amount shall be borne by the Insureds
uninsured and at their own risk.
If a single Loss is covered in part under Insuring
Clause 1 and in part under Insuring Clause 2, the
Deductible Amount applicable to the Loss shall be the
Insuring Clause 2 deductible set forth in Item 4 of
the Declarations for this coverage section.
<PAGE> 11
Limit of Liability, With respect to all Loss (excess of the applicable
Deductible and Deductible Amount) originating in any one Policy Period,
Coinsurance the Insureds shall bear uninsured and at their own risk
(continued) that percent of all such Loss specified as the
Coinsurance Percent in Item 3 of the Declarations for
this coverage section, and the Company's liability
hereunder shall apply only to the remaining percent of
all such Loss.
Any Loss covered in whole or in part by this coverage
section and the Employment Practices Liability
coverage section of this policy (if purchased) shall
be subject to the limits of liability, deductible and
coinsurance percent applicable to such other coverage
section; provided, however, if any limit of liability
applicable to such other coverage section is
exhausted with respect to such Loss, any remaining
portion of such Loss otherwise covered by this
coverage section shall be subject to the Limits of
Liability and Coinsurance Percent applicable to this
coverage section, as reduced by the amount of such
Loss otherwise covered by this coverage section which
is paid by the Company pursuant to such other
coverage section.
For purposes of this Subsection 8 only, the Extended
Reporting Period, if exercised, shall be part of and
not in addition to the immediately preceding Policy
Period.
- - --------------------------------------------------------------------------------
Presumptive 9. If the Insured Organization:
Indemnification
(a) fails or refuses, other than for reason of
Financial Impairment, to indemnify the Insured
Person for Loss; and
(b) is permitted or required to indemnify the
Insured Person for such Loss pursuant to:
(i) the by-laws or certificate of incorporation
of the Insured Organization in effect at
the inception of this coverage section, or
(ii) any subsequently amended or superseding by-
laws or certificate of incorporation of the
Insured Organization provided, however,
that such amended or superseding by-laws or
certificate of incorporation expand or
broaden, and do not restrict or in any way
limit, the Insured Organization's ability
to indemnify the Insured Person:
then, notwithstanding any other conditions, provisions
or terms of this coverage section to the contrary,
any payment by the Company of such Loss shall be
subject to (i) the Insuring Clause 2 Deductible
Amount set forth in Item 4 of the Declarations for
this coverage section, and (ii) all of the Exclusions
set forth in Subsections 5 and 6 of this coverage
section.
For purposes of this Subsection 9, the shareholder and
board of director resolutions of the Insured
Organization shall be deemed to provide
indemnification for such Loss to the fullest extent
permitted by such by-laws or certificate of
incorporation.
<PAGE> 12
Reporting 10. The Insureds shall, as a condition precedent to
and Notice exercising their rights under this coverage section,
give to the Company written notice as soon as
practicable of any Claim made against any of them for a
Wrongful Act.
If during the Policy Period or Extended Reporting
Period (if exercised) an Insured becomes aware of
circumstances which could give rise to a Claim and
gives written notice of such circumstance(s) to the
Company, then any Claims subsequently arising from
such circumstances shall be considered to have been
made during the Policy Period or the Extended
Reporting Period in which the circumstances were
first reported to the Company.
The Insureds shall, as a condition precedent to
exercising their rights under this coverage section,
give to the Company such information and cooperation
as it may reasonably require, including but not
limited to a description of the Claim or
circumstances, the nature of the alleged Wrongful
Act, the nature of the alleged or potential damage,
the names of actual or potential claimants, and the
manner in which the Insured first became aware of the
Claim or circumstances.
- - --------------------------------------------------------------------------------
Defense and 11. Subject to this Subsection, it shall be the duty of
Settlement the Insured Persons and not the duty of the Company to
defend Claims made against the Insured Persons.
The Insureds agree not to settle any Claim, incur any
Defense Costs or otherwise assume any contractual
obligation or admit any liability with respect to any
Claim without the Company's written consent, which
shall not be unreasonably withheld. The Company
shall not be liable for any settlement, Defense
Costs, assumed obligation or admission to which it
has not consented.
The Company shall have the right and shall be given
the opportunity to effectively associate with the
Insureds in the investigation, defense and
settlement, including but not limited to the
negotiation of a settlement, of any Claim that
appears reasonably likely to be covered in whole or
in part by this coverage section.
The Insureds agree to provide the Company with all
information, assistance and cooperation which the
Company reasonably requests and agree that in the
event of a Claim the Insureds will do nothing that
may prejudice the Company's position or its potential
or actual rights of recovery.
Defense Costs are part of and not in addition to the
Limits of Liability set forth in Item 2 of the
Declarations for this coverage section, and the
payment by the Company of Defense Costs reduces such
Limits of Liability.
- - --------------------------------------------------------------------------------
Allocation 12. If both Loss covered by this coverage section and
loss not covered by this coverage section are
incurred, either because a Claim against the Insured
Persons includes both covered and uncovered matters
or because a Claim is made against both an Insured
Person and others, including the Insured
Organization, the Insureds and the Company shall use
their best efforts to agree upon a fair and proper
allocation of such amount between covered Loss and
uncovered loss.
<PAGE> 13
Allocation If the Insureds and the Company agree on an
(continued) allocation of Defense Costs, the Company shall advance
on a current basis Defense Costs allocated to the
covered Loss. If the Insureds and the Company cannot
agree on an allocation:
(a) no presumption as to allocation shall exist in
any arbitration, suit or other proceeding;
(b) the Company shall advance on a current basis
Defense Costs which the Company believes to be
covered under this coverage section until a
different allocation is negotiated, arbitrated
or judicially determined; and
(c) The Company, if requested by the Insureds, shall
submit the dispute to binding arbitration. The
rules of the American Arbitration Association
shall apply except with respect to the selection
of the arbitration panel, which shall consist of
one arbitrator selected by the Insureds, one
arbitrator selected by the Company, and a third
independent arbitrator selected by the first two
arbitrators.
Any negotiated, arbitrated or judicially determined
allocation of Defense Costs on account of a Claim
shall be applied retroactively to all Defense Costs
on account of such Claim, notwithstanding any prior
advancement to the contrary. Any allocation or
advancement of Defense Costs on account of a Claim
shall not apply to or create any presumption with
respect to the allocation of other Loss on account of
such Claim.
- - --------------------------------------------------------------------------------
Other 13. If any Loss arising from any Claim made against any
Insurance Insured Persons is insured under any other valid
policy (ies), prior or current, then this coverage
section shall cover such Loss, subject to its
limitations, conditions, provision and other terms, only
to the extent that the amount of such Loss is in excess
of the amount of payment from such other insurance
whether such other insurance is stated to be primary,
contributory, excess, contingent or otherwise, unless
such other insurance is written only as specific excess
insurance over the Limits of Liability provided in
this coverage section.
<PAGE> 14
Changes in
Exposure
Acquisition or 14. If the Insured Organization (i) acquires securities
Creation of or voting rights in another organization or
Another Organization creates another organization, which as a result of
such acquisition or creation becomes a Subsidiary,
or (ii) acquires any organization by merger into or
consolidation with an Insured Organization, such
organization and its Insured Persons shall be
Insureds under this coverage section but only with
respect to Wrongful Acts committed, attempted, or
allegedly committed or attempted, after such
acquisition or creation unless the Company agrees,
after presentation of a complete application and all
appropriate information, to provide coverage by
endorsement for Wrongful Acts committed, attempted,
or allegedly committed or attempted, by such Insured
Persons prior to such acquisition or creation.
If the fair value of all cash, securities, assumed
indebtedness and other consideration paid by the
Insured Organization for any such acquisition or
creation exceeds 10% of the total assets of the
Parent Organization as reflected in the Parent
Organization's most recent audited consolidated
financial statements, the Parent Organization
shall give written notice of such acquisition or
creation to the Company as soon as practicable
together with such information as the Company may
require and shall pay any reasonable additional
premium required by the Company.
- - --------------------------------------------------------------------------------
Acquisition of Parent 15. If (i) the Parent Organization merges into or
Organization by consolidates with another organization, or (ii)
Another Organization another organization or person or group of
organizations and/or persons acting in concert
acquires securities or voting rights which result
in ownership or voting control by the other
organization(s) or person(s) of more than 50% of
the outstanding securities representing the
present right to vote for the election of directors
of the Parent Organization, coverage under this
coverage section shall continue until termination
of this coverage section, but only with respect to
Claims for Wrongful Acts committed, attempted, or
allegedly committed or attempted, by Insured
Persons prior to such merger, consolidation or
acquisition. The Parent Organization shall give
written notice of such merger, consolidation or
acquisition to the Company as soon as practicable
together with such information as the Company may
require.
- - --------------------------------------------------------------------------------
Cessation of 16. In the event an organization ceases to be a
/Subsidiaries Subsidiary before or after the Inception Date of
this coverage section, coverage with respect to
such Subsidiary and its Insured Persons shall
continue until termination of this coverage section
but only with respect to Claims for Wrongful Acts
committed, attempted or allegedly committed or
attempted prior to the date such organization
ceased to be a Subsidiary.
- - --------------------------------------------------------------------------------
Representations 17. In granting coverage to any one of the Insureds, the
and Severability Company has relied upon the declarations and
statements in the written application for this
coverage section and upon any declarations and
statements in the original written application
submitted to another insurer in respect of the
prior coverage incepting as of the Continuity
Date set forth in Item 9 of the Declarations for
this coverage section. All such declarations and
statements are the basis of such coverage and shall
be considered as incorporated in and constituting
part of this coverage section.
Such written application(s) for coverage shall be
construed as a separate application for coverage by
each of the Insured Persons. With respect to the
declarations and statements contained in such
written applications(s) for coverage, no statement
in the application or knowledge possessed by any
Insured Person shall be imputed to any other
Insured Persons for the purpose of determining if
coverage is available.
<PAGE> 15
Definitions 18. When used in this coverage section:
Claim means:
(i) a written demand for monetary damages,
(ii) a civil proceeding commenced by the service of a
complaint or similar pleading,
(iii) a criminal proceeding commenced by a return of an
indictment, or
(iv) a formal administrative or regulatory proceeding
commenced by the filing of a notice of charges,
formal investigative order or similar document,
against any Insured Person for a Wrongful Act,
including any appeal therefrom.
Defense Costs means that part of Loss consisting of
reasonable costs, charges, fees (including but not
limited to attorneys' fees and experts' fees) and
expenses (other than regular or overtime wages,
salaries or fees of the directors, officers or
employees of the Insured Organization) incurred in
defending or investigating Claims and the premium
for appeal, attachment or similar bonds.
Financial Impairment means the status of the Insured
Organization resulting from (i) the appointment by
any state or federal official, agency or court of any
receiver, conservator, liquidator, trustee,
rehabilitator or similar official to take control of,
supervise, manage or liquidate the Insured
Organization, or (ii) the Insured Organization
becoming a debtor in possession.
Insured, either in the singular or plural, means the
Insured Organization and any Insured Person.
Insured Capacity means the position or capacity
designated in Item 6 of the Declarations for this
coverage section held by any Insured Person but shall
not include any position or capacity in any
organization other than the Insured Organization,
even if the Insured Organization directed or
requested the Insured Person to serve in such other
position or capacity.
Insured Organization means, collectively, those
organizations designated in Item 5 of the
Declarations for this coverage section.
Insured Person, either in the singular or plural,
means any one or more of those persons designated in
Item 6 of the Declarations for this coverage section.
Interrelated Wrongful Acts means all causally
connected Wrongful Acts.
Loss means the total amount which any Insured Person
becomes legally obligated to pay on account of each
Claim and for all Claims in each Policy Period and
the Extended Reporting Period, if exercised, made
against them for Wrongful Acts for which coverage
applies, including, but not limited to, damages,
judgements, settlements, costs and Defense Costs.
Loss does not include (i) any amount not indemnified
by the Insured Organization for which the Insured
Person is absolved from payment by reason of any
covenant, agreement or court order,
<PAGE> 16
Definitions (ii) any amount incurred by the Insured Organization
(continued) (including its board of directors or any committee of the
board of directors) in connection with the investigation
or evaluation of any Claim or potential Claim by or on
behalf of the Insured Organization, (iii) fines or
penalties imposed by law or the multiple portion of any
multiplied damage award, or (iv) matters uninsurable
under the law pursuant to which this coverage section
is construed.
Pollutants means any substance located anywhere in the
world exhibiting any hazardous characteristics as
defined by, or identified on a list of hazardous
substances issued by, the United States Environmental
Protection Agency or a state, county, municipality or
locality counterpart thereof. Such substances shall
include, without limitation, solids, liquids, gaseous
or thermal irritants, contaminants or smoke, vapor,
soot, fumes, acids, alkalis, chemicals or waste
materials. Pollutants shall also mean any other air
emission, odor, waste water, oil or oil products,
infectious or medical waste, asbestos or asbestos
products and any noise.
Subsidiary, either in the singular or plural, means
any organization in which more than 50% of the
outstanding securities or voting rights representing
the present right to vote for election of directors
is owned or controlled, directly or indirectly, in
any combination, by one or ore Insured Organizations.
Wrongful Act means any error, misstatement, misleading
statement, act, omission, neglect, or breach of duty
committed, attempted, or allegedly committed or
attempted, by an Insured Person, individually or
otherwise, in his Insured Capacity, or any matter
claimed against him solely by reason of his serving
in such Insured Capacity.
<PAGE> 17
ENDORSEMENT
Coverage Section: EXECUTIVE LIABILITY Company: FEDERAL INSURANCE COMPANY
Effective date of Endorsement No.: 1
This endorsement: DECEMBER 01, 1993
To be attached to and form part of
Policy No. 8137-71-31
Issued to: BOLT BERANEK & NEWMAN INC.
- - --------------------------------------------------------------------------------
It is agreed that subsection 5, "Exclusions: Exclusions
Applicable to Insuring Clause 1 and 2", is amended by deleting
paragraph (b) in its entirety and replacing it with the following:
(b) based upon, arising from, or in consequence of any
demand, suit or other proceeding pending, or order,
decree or judgement entered against any Insured on or
prior to the Pending or Prior Date set forth in Item 8
of the Declarations for this coverage section, or the
same or substantially the same facts underlying or
alleged therein;
ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED.
---------------------------------------
Authorized Representative
---------------------------------------
Date
<PAGE> 18
ENDORSEMENT
Coverage Section: EXECUTIVE LIABILITY Company: FEDERAL INSURANCE COMPANY
Effective date of Endorsement No.: 2
This endorsement: DECEMBER 01, 1993
To be attached to and form part of
Policy No. 8137-71-31
Issued to: BOLT BERANEK & NEWMAN INC.
- - --------------------------------------------------------------------------------
It is agreed that subsection 6, "Exclusions: Exclusions
Applicable to Insuring Clause 1 Only", is amended by adding the
following:
(d) of any Subsidiary for any alleged Wrongful Act occurring at
any time when the Insured Organization did not own more
than 50% of the issued and outstanding voting stock of
such subsidiary either directly or indirectly through
one or more of its subsidiaries.
ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED.
-------------------------------------
Authorized Representative
-------------------------------------
Date
<PAGE> 19
ENDORSEMEMT
Coverage Section: EXECUTIVE LIABILITY Company: FEDERAL INSURANCE COMPANY
Effective date of Endorsement No.: 3
This endorsement: DECEMBER 01, 1993
To be attached to and form part of
Policy No. 8137-71-31
Issued to: BOLT BERANEK & NEWMAN INC.
- - --------------------------------------------------------------------------------
It is understood and agreed that under Exclusion 6, found on Page
4 of 10, paragraph (d) is amended by deleting it in its entirety
and replacing it with the following:
(d) under Insuring Clause 1 of BBN Delta Graphics and Network
Switching Systems, for any alleged Wrongful Act occurring at
any time when the Insured Organization did not own more than
50% of the issued and outstanding voting stock of such Subsidiary
either directly or indirectly through one or more of its
Subsidiaries; however, this exclusion shall not apply to Claims
alleging Wrongful Acts occurring prior to when the Corporation
became a Subsidiary if the Insured was a Director or Officer of
the Subsidiary for at least a ninety day period during the time
when the corporation was a Subsidiary.
ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED.
--------------------------------------
Authorized Representative
--------------------------------------
Date
<PAGE> 20
ENDORSEMENT
Coverage Section: EXECUTIVE LIABILITY Company: FEDERAL INSURANCE COMPANY
Effective date of Endorsement No.: 4
This endorsement: DECEMBER 01, 1993
To be attached to and form part of
Policy No. 8137-71-31
Issued to: BOLT BERANEK & NEWMAN INC.
- - --------------------------------------------------------------------------------
It is agreed that Item 6 of the Declarations, Insured Persons,
is amended to include the following:
Any person who was, is, or shall become a duly elected
director or a duly elected or appointed officer, including
divisional directors and officers performing their duties
in the following divisions:
Communications Division
Software Products Division
Systems & Technologies Division
International Division
Corporate Services Division
ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED.
----------------------------------
Authorized Representative
----------------------------------
Date
<PAGE> 21
ENDORSEMENT
Coverage Section: EXECUTIVE LIABILITY Company: FEDERAL INSURANCE COMPANY
Effective date of Endorsement No.: 5
This endorsement: DECEMBER 01, 1993
To be attached to and form part of
Policy No.: 8137-71-31
Issued to: BOLT BERANEK & NEWMAN INC.
- - --------------------------------------------------------------------------------
It is understood and agreed that both Insuring Clause 1.,
Executive Liability Coverage and Insuring Clause II., Executive
Indemnification Coverage, are amended by adding the following:
In the event of a Claim, should a Loss be payable under
policy number 440-43-26 issued by the National Union Fire
Insurance Company of Pittsburgh, PA, the Company's obligation
to pay will be for amounts immediately in excess of Loss
Payable under such other policy and this policy will not
contribute with such other insurance.
It is also understood and agreed that if the National Union Fire
Insurance Company of Pittsburgh, PA, wrongfully refuses to pay
under its policy, the Company will respond as if this policy was
primary insurance; provided that the Company is subrogated to all
rights of recovery under such policy. The Insured shall execute
all papers reasonably required and take all reasonable actions
that may be necessary to secure the rights of the Company.
ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED.
----------------------------------
Authorized Representative
----------------------------------
Date
<PAGE> 22
DECLARATIONS
OUTSIDE DIRECTORSHIP LIABILITY
COVERAGE SECTION
Item 1. Parent Organization:
BOLT BERANEK & NEWMAN INC.
Item 2. Limits of Liability:
(A) Each Loss $3,000,000.
(B) Each Policy Period $3,000,000.
Note that the limits of liability and any deductible or
retention are reduced or exhausted by Defense Costs.
Item 3. Coinsurance Percent: NONE
Item 4. Deductible Amount:
Insurance Clause 2 $1,000,000.
Item 5. Insured Organization:
BOLT BERANEK & NEWMAN INC.
AND ITS SUBSIDIARIES
Item 6. Insured Persons:
With regard to a Non-Profit Outside Entity, any
person who has been, now is or shall become a
duly elected director, a duly elected or
appointed officer, or an employee of the Insured
Organization. With regard to any Scheduled
Outside Entity, any individual listed on a
Scheduled Outside Entity Endorsement.
Item 7. Extended Reporting Period:
(A) Additional Premium: 75% OF THE ANNUAL PREMIUM
(B) Additional Period: ONE YEAR
Item 8. Pending or Prior Date: DECEMBER 1, 1990
Item 9. Continuity Date: DECEMBER 1, 1990
<PAGE> 23
Outside Directorship In consideration of payment of the premium and
Liability Coverage subject to the Declarations, General Terms and
Section Conditions, and the limitations, conditions,
Insuring Clauses provisions and other terms of this coverage section,
the Company agrees as follows:
- - --------------------------------------------------------------------------------
Outside Directorship 1. The Company shall pay on behalf of each of
Liability Coverage the Insured Persons who serve in an
Insuring Clause 1 Outside Directorship all Loss for which the
Insured Person is not indemnified by the
Insured Organization or the Outside Entity and
which the Insured Person becomes legally
obligated to pay on account of any Claim first
made against him individually or otherwise, during
the Policy Period or, if exercised, during the
Extended Reporting Period, for a Wrongful Act
committed, attempted, or allegedly committed or
attempted by such Insured Person before or during
the Policy Period.
- - --------------------------------------------------------------------------------
Outside Directorship 2. The Company shall pay on behalf of the
Indemnification Insured Organization all Loss (i) for which
Coverage the Insured Organization grants indemnification,
Insuring Clause 2 as permitted or required by law, to each Insured
Person who serves in an Outside Directorship, (ii)
for which the Insured Person is not indemnified by
the Outside Entity, and (iii) which the Insured
Person has become legally obligated to pay on
account of any Claim first made against him
individually or otherwise, during the Policy
Period or, if exercised, during the Extended
Reporting Period for a Wrongful Act committed,
attempted, or allegedly committed or attempted by
such Insured Person before or during the Policy
Period.
- - --------------------------------------------------------------------------------
Estates and Legal 3. Subject otherwise to the General Terms and
Representatives Conditions and the limitations conditions,
provisions and other terms of this coverage
section, coverage shall extend to Claims for
the Wrongful Acts of Insured Persons made against
the estates, heirs, legal representatives or
assigns of Insured Persons who are deceased or
against the legal representatives or assigns of
Insured Persons who are incompetent, insolvent or
bankrupt.
- - --------------------------------------------------------------------------------
Extended 4. If the Company terminates or refuses to renew this
Reporting Period coverage section other than for nonpayment of
premium, the Parent Organization and the Insured
Persons shall have the right, upon payment
of the additional premium set forth in Item 7(A)
of the Declarations for this coverage section, to
an extension of the coverage granted by this
coverage section for the period set forth in
Item 7(B) of the Declarations for this coverage
section (Extended Reporting Periods following the
effective date of termination or nonrenewal, but
only for any Wrongful Act committed, attempted,
or allegedly committed or attempted, prior
to the effective date of termination or
nonrenewal. This right of extension shall lapse
unless written notice of such election, together
with payment of the additional premium due, is
received by the Company within 30 days following
the effective date of termination or nonrenewal.
Any Claim made during the Extended Reporting
Period shall be deemed to have been made during
the immediately preceding Policy Period.
If the Parent Organization terminates or declines
to accept renewal, the Company may, if requested,
at its sole option, grant an Extended Reporting
Period. The offer of renewal terms and conditions
or premiums different from those in effect prior
to renewal shall not constitute refusal to renew.
<PAGE> 24
EXCLUSIONS
Exclusions 5. The Company shall not be liable for Loss on account of
Applicable to any Claim made against any Insured Person:
Insuring Clauses
1 and 2 (a) based upon, arising from, or in consequence of any
circumstance if written notice of such
circumstance has been given under any policy or
coverage section of which this coverage section is
a renewal or replacement and if such prior policy
or coverage section affords coverage (or would
afford such coverage except for the exhaustion of
its limits of liability) for such Loss, in whole
or part, as a result of such notice.
(b) based upon, arising from, or in consequence of any
demand, suit or other proceeding pending, or
order, decree or judgment entered against any
Insured Person on or prior to:
(i) the Pending or Prior Date set forth in Item 8
of the Declarations for this coverage section
with respect to Outside Directorships in a
Non-Profit Outside Entity;
(ii) the Pending or Prior Date set forth in the
Scheduled Outside Entity Endorsement hereto
with respect to Outside Directorships in a
Scheduled Outside Entity.
or the same or any substantially similar fact,
circumstance or situation underlying or alleged
therein:
(c) brought or maintained by or on behalf of any
Insured, the Outside Entity, or one or more of the
Outside Entity's directors, officers, trustees,
governors or equivalent executives, except:
(i) a Claim that is a derivative action brought
and maintained on behalf of an Insured
Organization by one or more persons who are
not Insured Persons and who bring and
maintain the Claim without the solicitation,
assistance or participation of any Insured;
or
(ii) a Claim that is a derivative action brought
and maintained on behalf of the Outside
Entity by one or more persons who are not
directors, officers, trustees, governors or
equivalent executives of the Outside Entity
and who bring and maintain the Claim without
the solicitation, assistance or participation
of the Outside Entity or any director,
officer, trustee, governor or equivalent
executive thereof;
(d) for an actual or alleged violation of the
responsibilities, obligations or duties imposed by
the Employee Retirement Income Security Act of
1974 and amendments thereto or similar provisions
of any federal, state or local statutory law or
common law upon fiduciaries of any pension, profit
sharing, health and welfare or other employee
benefit plan or trust established or maintained
for the purpose of providing benefits to employees
of any Outside Entity;
(e) for bodily injury, mental or emotional distress,
sickness, disease or death of any person or damage
to or destruction of any tangible property
including loss of use thereof;
<PAGE> 25
Exclusions
Exclusions (f) based upon, arising from, or in consequence of (i)
Applicable to the actual, alleged or threatened discharge,
Insuring Clauses release, escape or disposal of Pollutants into or on
1 and 2 real or personal property, water or the atmosphere;
(continued) or (ii) any direction or request that the Insured
or Outside Entity test for, monitor, clean up,
remove, contain, treat, detoxify or neutralize
Pollutants, or an voluntary decision to do so;
including but not limited to any Claim for
financial loss to the Insured Organization, the
Outside Entity, or any security holders or
creditors thereof based upon, arising from, or in
consequence of the matters described in (i) or (ii)
of the Exclusion; or
(g) for Wrongful Acts committed, attempted or
allegedly committed or attempted after the date
such Insured Person ceases to serve in the Outside
Directorship.
- - --------------------------------------------------------------------------------
Exclusions 6. The Company shall not be liable under Insuring Clause 1
Applicable to for Loss on account of any Claim made against any Insured
Insuring Clause Person:
1 Only
(a) for an account of profits made from the purchase
or sale by such Insured Person of securities of
the Insured Organization or the Outside Entity
within the meaning of Section 16(b) of the
Securities Exchange Act of 1934 and amendments
thereto or similar provisions of any federal,
state or local statutory law or common law;
(b) based upon, arising from, or in consequence of any
deliberately fraudulent act or omission or any
willful violation of any statute or regulation by
such Insured Person, if a judgment or other final
adjudication adverse to the Insured Person
establishes such a deliberately fraudulent act or
omission or willful violation; or
(c) based upon, arising from, or in consequence of
such Insured Person having gained in fact any
personal profit, remuneration or advantage to
which such Insured Person was not legally
entitled.
- - --------------------------------------------------------------------------------
Severability 7. With respect to the Exclusions in Subsections 5 and 6
of Exclusions of this coverage section, no fact pertaining to or
knowledge possessed by any Insured Person shall be
imputed to any other Insured Person to determine if
coverage is available.
- - --------------------------------------------------------------------------------
Limit of 8. For the purposes of this coverage section, all
Liability, Loss arising out of the same Wrongful
Deductible and Act and all Interrelated Wrongful Acts of any Insured
Coinsurance Person shall be deemed one Loss, and such Loss shall be
deemed to have originated in the earliest Policy Period
in which a Claim is first made against any Insured Person
alleging any such Wrongful Acts or Interrelated Wrongful
Acts.
The Company's maximum liability for each Loss, whether
covered under Insuring Clause 1 or Insuring Clause 2 or
both, shall be the Limit of Liability for Each Loss set
forth in Item 2(A) of the Declarations for this
coverage section. The Company's maximum aggregate
liability for all Loss on account of all Claims first
made during the same Policy Period, whether covered
under Insuring Clause 1 or Insuring Clause 2 or both,
shall be the Limit of Liability for each Policy Period
set forth in Item 2(B) of the Declarations for this
coverage section.
<PAGE> 26
Limit of Liability, The Company's liability under Insuring Clause 2
Deductible and shall apply only to that part of each
Coinsurance Loss which is excess of the Deductible Amount set forth
(continued) in Item 4 of the Declarations for this coverage
section and such Deductible Amount shall be borne by
the Insureds uninsured and at their own risk.
If a single Loss is covered in part under Insuring
Clause 1 and in part under Insuring Clause 2, the
Deductible Amount applicable to such Loss shall be the
Insuring Clause 2 deductible set forth in Item 4 of the
Declarations for this coverage section.
With respect to all Loss (excess of the applicable
Deductible Amount) originating in any one Policy
Period, the Insureds shall bear uninsured and at their
own risk that percent of all such Loss specified as the
Coinsurance Percent in Item 3 of the Declarations for
this coverage section and the Company's liability
hereunder shall apply only to the remaining percent of
all such Loss.
For purposes of this Subsection 8 only, the Extended
Reporting Period, if exercised, shall be part of and
not in addition to the immediately preceding Policy
Period.
If the Company or any of its subsidiaries or affiliated
companies makes payment under another policy or another
coverage section of this policy on account of any Claim
also covered under this coverage section, the Limit of
Liability for this coverage section with respect to
such Claim shall be reduced by the amount of such
payment.
- - --------------------------------------------------------------------------------
Presumptive 9. If the Insured Organization:
Indemnification
(a) fails or refuses, other than for reason of
Financial Impairment, to indemnify the Insured
Person for Loss; and
(b) is permitted or required to indemnify the
Insured Person for such Loss to the fullest
extent permitted or required by law,
then, notwithstanding any other conditions, provisions
or terms of this coverage section to the contrary, any
payment by the Company of such Loss shall be subject to
(i) the Insuring Clause 2 Deductible Amount set forth
in Item 4 of the Declarations for this coverage section
and (ii) all of the Exclusions set forth in Subsections
5 and 6 of this coverage section.
For purposes of this Subsection 9, the shareholder and
board of director resolutions of the Insured
Organization shall be deemed to provide indemnification
for such Loss to the fullest extent permitted or
required by law.
- - --------------------------------------------------------------------------------
Reporting 10. The Insureds shall, as a condition precedent to
and Notice exercising their rights under this coverage section,
give to the Company written notice as soon as
practicable of any Claim made against any of them for
a Wrongful Act.
If during the Policy Period or Extended Reporting
Period (if exercised) an Insured becomes aware of
circumstances which could give rise to a Claim and
gives written notice of such circumstance(s) to the
Company, then any Claims subsequently arising from such
circumstances shall be considered to have been reported
during the Policy Period or the Extended Reporting
Period in which the circumstances were first reported
to the Company.
<PAGE> 27
Reporting The Insureds shall, as a condition precedent to
and Notice exercising their rights under this coverage section,
(continued) give to the Company such information and cooperation as
it may reasonably require, including but not limited to a
description of the Claim or circumstances, the nature of
the alleged potential damage, the names of actual or
potential claimants, and the manner in which the Insured
first became aware of the Claims or circumstances.
- - --------------------------------------------------------------------------------
Defense and 11. Subject to this Subsection, it shall be the duty of the
Settlement Insured Persons and not the duty of the Company to
defend Claims made against the Insured Persons.
The Insureds agree not to settle any Claim, incur any
Defense Costs or otherwise assume any contractual
obligation or admit any liability with respect to any
Claim without the Company's consent, which shall not be
unreasonably withheld. The Company shall not be liable
for any settlement, Defense Costs, assumed obligation or
admission to which it has not consented.
The Company shall have the right and shall be given the
opportunity to effectively associate with the Insureds
in the investigation, defense and settlement, including
but not limited to the negotiation of a settlement, of
any Claim that appears reasonably likely to be covered
in whole or in part by this coverage section.
The Insureds agree to provide the Company with all
information, assistance and cooperation which the
Company reasonably requests and agree that in the event
of a Claim the Insureds will do nothing that may
prejudice the Company's position or its potential or
actual rights of recovery.
Defense Costs shall be part of and not in addition to
Limits of Liability set forth in Item 2 of the
Declarations for this coverage section, and the payment
by the Company of Defense Costs reduces such Limits of
Liability.
- - --------------------------------------------------------------------------------
Allocation 12. If both Loss covered by this coverage section and loss
not covered by this coverage section are incurred,
either because a Claim against the Insured Persons
includes both covered and uncovered matters or because a
claim is made against both an Insured Person and others,
including the Insured Organization, and/or the Outside
Entity, the Insureds and the Company shall use their
best efforts to agree upon a fair and proper allocation
of such amount between covered Loss and uncovered loss.
If the Insureds and the Company agree on an allocation
of Defense Costs, the Company shall advance on a current
basis Defense Costs allocated to covered Loss. If the
Insureds and the Company cannot agree on an allocation:
(a) no presumption as to allocation shall exist in any
arbitration, suit or other proceeding;
(b) the Company shall advance on a current basis
Defense Costs which the Company believes to be
covered under this coverage section until a
different allocation is negotiated, arbitrated
or judicially determined; and
(c) the Company, if requested by the Insureds, shall
submit the dispute to binding arbitration. The
rules of the American Arbitration Association
shall apply except with respect to the selection
of the arbitration panel, which shall consist of
one arbitrator selected by the Insureds, one
arbitrator selected by the Company, and a
third independent arbitrator selected by the
first two arbitrators.
<PAGE> 28
Allocation Any negotiated, arbitrated or judicially determined
(continued) allocation of Defense Costs on account of a Claim shall
be applied retroactively to all Defense Costs on
account of such Claim, notwithstanding any prior
advancement to the contrary. Any allocation or
advancement of Defense Costs on account of a Claim
shall not apply to or create any presumption with
respect to the allocation of other Loss on account of
such Claim.
- - --------------------------------------------------------------------------------
Other Insurance 13. If the Outside Entity maintains one or more insurance
and Indemnity policies during the period a Claim otherwise covered by
this coverage section is first made against an Insured
Person, then with respect to such Claim this coverage
section shall be specifically excess of the amount of
payment from such other insurance.
If any Loss arising from any Claim made against any
Insured Persons is insured under any other valid
policy(ies), prior or current, or is indemnified by the
Outside Entity or any other organization other than the
Insured Organization, then this coverage section shall
cover such Loss, subject to its limitations,
conditions, provisions and other terms, only to the
extent that the amount of such Loss is in excess of the
amount of payment from such indemnity or other
insurance whether such other insurance is stated to be
primary, contributory, excess, contingent or otherwise,
unless such other insurance is written only as specific
excess insurance over the limits provided in this
coverage section.
The Insureds agree that they will use their best
efforts to promptly enforce any rights of the Insured
Persons to indemnification by the Outside Entity or any
other organization.
- - --------------------------------------------------------------------------------
Changes in 14. If the Insured Organization (i) acquires securities or
Exposure voting rights in another organization or creates
Acquisition or another organization, which as result of such
Creation of acquisition or creation becomes a Subsidiary, or (ii)
Another acquires any organization by merger into or
Organization consolidation with an Insured Organization, such
organization and its Insured Persons shall be Insureds
under this coverage section but only with respect to
Wrongful Acts committed, attempted, after such
acquisition or creation unless the Company agrees,
after presentation of a complete application and all
appropriate information, to provide coverage by
endorsement for Wrongful Acts committed or attempted,
or allegedly committed or attempted, by such Insured
Persons prior to such acquisition or creation.
If the fair value of all cash, securities, assumed
indebtedness and other consideration paid by the
Insured Organization for any such acquisition or
creation exceeds 10% of the total assets of the Parent
Organization as reflected in the Parent Organization's
most recent audited consolidated financial statements,
the Parent Organization shall give written notice of
such acquisition to the Company as soon as practicable
together with such information as the Company may
require and shall pay any reasonable additional premium
required by the Company.
<PAGE> 29
Changes in
Exposure
(continued)
Acquisition of 15. If (i) the Parent Organization merges into or
Parent Organization consolidates with another organization, or (ii)
by Another another organization or person or group of
Organization organizations and/or persons acting in concert
acquires securities or voting rights which result
in ownership or voting control by the other
organization(s) or person(s) of more than 50% of
the outstanding securities representing the present
right to vote for election of directors of the
Parent Organization, coverage under this coverage
section shall continue until termination of this
coverage section, but only with respect to Claims
for Wrongful Acts committed, attempted, or allegedly
committed or attempted by Insured Persons prior to
such merger, consolidation or acquisition. The
Parent Organization shall give written notice of
such merger, consolidation or acquisition as soon
as practicable, together with such information as
the Company may require.
- - --------------------------------------------------------------------------------
Cessation of 16. In the event an organization ceases to be a
Subsidiaries Subsidiary before or after the Inception
Date of this coverage section, coverage with
respect to such Subsidiary and its Insured Persons
shall continue until termination of this coverage
section, but only with respect to Claims for Wrongful
Acts committed, attempted or allegedly committed or
attempted prior to the date such organization ceased
to be a Subsidiary.
- - --------------------------------------------------------------------------------
Scope of 17. The coverage under this coverage section shall not be
Coverage construed under any circumstance to extend to any
Outside Entity or to any director, officer, trustee,
governor or other executive or employee of any
Outside Entity, other than the Insured Person in his
Outside Directorship.
Representations 18. In granting coverage to any one of the Insureds,
and Severability the Company has relied upon the declarations and
statements in the written application for this
coverage section and upon any declarations and
statements in the original written application
submitted to another insurer in respect of the prior
coverage incepting as of the Continuity Date
set forth in Item 9 of the Declarations for this
coverage section. All such declarations and statements
are the basis of such coverage and shall be considered
as incorporated in and constituting part of this
coverage section.
Such written application(s) for coverage shall be
construed as a separate application for coverage by
each of the Insured Persons. With respect to the
declarations and statements contained in such written
application(s) for coverage, no statement in the
application or knowledge possessed by any Insured
Person shall be imputed to any other Insured Person for
the purpose of determining if coverage is available.
<PAGE> 30
Definitions 19. When used in this coverage section:
Claim means:
(i) a written demand for monetary damages.
(ii) a civil proceeding commenced by the service of a
complaint or similar pleading,
(iii) a criminal proceeding commenced by a return
of an indictment, or
(iv) a formal administrative or regulatory proceeding
commenced by the filing of a notice of charges,
formal investigative order or similar document,
against any Insured Person for a Wrongful Act,
including any appeal therefrom.
Defense Costs means that part of Loss consisting of
reasonable costs, charges, fees (including but not
limited to attorneys' fees and experts' fees) and
expenses (other than regular or overtime wages,
salaries or fees of the directors, officers or
employees of the Insured Organization) incurred in
defending or investigating Claims, and the premium for
appeal, attachment or similar bonds.
Financial Impairment means the status of the Insured
Organization resulting from (i) the appointment by any
state or federal official, agency or court of any
receiver, conservator, liquidator, trustee,
rehabilitator or similar official to take control of,
supervise, manage or liquidate the Insured
Organization, or (ii) the Insured Organization becoming
a debtor in possession.
Insureds, either in the singular or plural, means the
Insured Organization and any Insured Persons.
Insured Organization means, collectively, those
organizations designated in Item 5 of the Declarations
for this coverage section.
Insured Persons, either in the singular or plural,
means any one or more of those persons designated in
Item 6 of the Declarations for this coverage section.
Interrelated Wrongful Acts means all causally connected
Wrongful Acts.
Loss means the total amount which any Insured Person
becomes legally obligated to pay on account of each
Claim and for all Claims in each Policy Period and the
Extended Reporting Period, if exercised, made against
them for Wrongful Acts for which coverage applies,
including, but not limited to, damages, judgments,
settlements, costs and Defense Costs.
Loss does not include (i) any amount not indemnified by
the Insured Organization for which the Insured Person
is absolved from payment by reason of any covenant,
agreement or court order, (ii) fines or penalties
imposed by law or the multiple portion of any
multiplied damage award, or (iii) matters uninsurable
under the law pursuant to which this coverage section
is construed.
Non-Profit Outside Entity means any non-profit
corporation, community chest, fund or foundation that
is not included in the definition of Insured
Organization and that is exempt from federal income tax
as an organization described in Section 501(c)(3) of
the Internal Revenue Code of 1986, as amended.
<PAGE> 31
Definitions Outside Directorship means the position of director,
(continued) officer, trustee, governor or equivalent executive
position held by any Insured Person in an Outside Entity
if service in such position was with the knowledge and
consent or at the request of the Insured Organization.
Outside Entity means a Non-Profit Outside Entity or a
Scheduled Outside Entity.
Pollutants means any substance located anywhere in the
world exhibiting any hazardous characteristics as
defined by, or identified on a list of hazardous
substances issued by, the United States Environmental
Protection Agency or a state, county, municipality or
locality counterpart thereof. Such substances shall
include, without limitation, solids, liquids, gaseous
or thermal irritants, contaminants or smoke, vapor,
soot, fumes, acids, alkalis, chemicals or waste
materials. Pollutants shall also mean any other air
emission, odor, waste water, oil or oil products,
infectious or medical waste, asbestos or asbestos
products and any noise.
Scheduled Outside Entity means any organization listed
in a Scheduled Outside Entity Endorsement to this
policy.
Subsidiary, either in the singular or plural, means any
organization in which more than 50% of the outstanding
securities or voting rights representing the present
right to vote for election of directors is owned or
controlled, directly or indirectly, in any combination,
by one or more Insured Organizations.
Wrongful Act means any error, misstatement, misleading
statement, act, omission, neglect, or breach of duty
committed, attempted, or allegedly committed or
attempted, by an Insured Person, individually or
otherwise, in an Outside Directorship, or any matter
claimed against him solely by reason of his serving in
an Outside Directorship.
<PAGE> 32
ENDORSEMENT
Coverage Section: OUTSIDE DIRECTORSHIP Company: FEDERAL INSURANCE COMPANY
Effective date of Endorsement No.: 1
this endorsement: DECEMBER 01, 1993
To be attached to and form part of
Policy No. 8137-71-31
Issued to: BOLT BERANEK & NEWMAN INC.
- - --------------------------------------------------------------------------------
It is agreed that Item 4 of the Declarations for this coverage section is
amended as set forth below:
OUTSIDE ENTITY Insuring Clause 2
Deductible
Non-Profit Outside Entities . . . . . . . . . . $25,000.
If two or more deductibles of different amounts apply to a single Loss, the
highest of such deductible amounts shall apply to such Loss.
ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED.
----------------------------------------
Authorized Representative
----------------------------------------
Date
<PAGE> 33
ENDORSEMENT
Coverage Section: OUTSIDE DIRECTORSHIP Company: FEDERAL INSURANCE COMPANY
Effective date of Endorsement No.: 2
this endorsement: DECEMBER 01, 1993
To be attached to and form part of
Policy No. 8137-71-31
Issued to: BOLT BERANEK & NEWMAN INC.
- - --------------------------------------------------------------------------------
It is agreed that the following Insured Persons serving in the position of
director, officer, trustee, governor, or equivalent executive position in
the following respective organizations shall be serving a Scheduled Outside
Entity:
Insured Outside Pending or Continuity
Person Entity Prior Date Date
------- ------- ---------- ----------
Gerald Davidson Dantel 12/01/90 12/01/90
Corporation
ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED.
----------------------------------------
Authorized Representative
----------------------------------------
Date
<PAGE> 34
Executive Protection Policy for:
BOLT BERANEK & NEWMAN INC.
<PAGE> 35
DECLARATIONS
EXECUTIVE PROTECTION POLICY
Policy Number 8134-46-02-A
Federal Insurance Company, a stock
insurance company, incorporated under
the laws of Indiana, herein called the
Company.
Item 1. Parent Organization:
BOLT BERANEK & NEWMAN INC.
150 CAMBRIDGE PARK DRIVE
CAMBRIDGE, MASSACHUSETTS 02140
Item 2. Policy Period: From 12:01 A.M. on DECEMBER 01, 1993
To 12:01 A.M. DECEMBER 01, 1994
Local time at the address shown in Item 1.
Item 3. Coverage Summary
Description
GENERAL TERMS AND CONDITIONS
FIDUCIARY LIABILITY
CRIME INSURANCE
Item 4. Termination of
Prior Policies: 8134-46-02
THE EXECUTIVE LIABILITY AND INDEMNIFICATION, FIDUCIARY LIABILITY, OUTSIDE
DIRECTORSHIP LIABILITY AND EMPLOYMENT PRACTICES LIABILITY COVERAGE SECTIONS
(WHICHEVER ARE APPLICABLE) ARE ALL WRITTEN ON A CLAIMS MADE BASIS. EXCEPT
AS OTHERWISE PROVIDED, THESE COVERAGE SECTIONS COVER ONLY CLAIMS FIRST MADE
AGAINST THE INSURED DURING THE POLICY PERIOD. PLEASE READ CAREFULLY.
In witness whereof, the Company issuing this policy has caused this policy
to be signed by its authorized officers, but it shall not be valid unless
also signed by a duly authorized representative of the Company.
FEDERAL INSURANCE COMPANY
- - ----------------------------- ----------------------------------
Secretary President
- - ----------------------------- ----------------------------------
Date Authorized Representative
<PAGE> 36
General Terms
and Conditions
Territory 1. Coverage shall extend anywhere in the world.
- - ------------------------------------------------------------------------------
Terms and Conditions 2. Except for the General Terms and Conditions
or unless stated to the contrary in any coverage
section, the terms and conditions of each
coverage section of this policy apply only to
that section and shall not be construed to
apply to any other coverage section of this
policy.
- - ------------------------------------------------------------------------------
Limits of Liability and 3. Unless stated to the contrary in any coverage
Deductible Amounts section, the limits of liability and deductible
amounts shown for each coverage section of this
policy are separate limits of liability and
separate deductible amounts pertaining to the
coverage section for which they are shown; the
application of a deductible amount to a loss
under one coverage section of this policy shall
not reduce the deductible amount under any other
coverage section of this policy.
- - ------------------------------------------------------------------------------
Notice 4. Notice to the Company under this policy shall be
given in writing addressed to:
Notice of Claim:
National Claims Department
CHUBB GROUP OF INSURANCE COMPANIES
15 Mountain View Road
Warren, New Jersey 07059
All Other Notices:
Executive Protection Department
CHUBB GROUP OF INSURANCE COMPANIES
15 Mountain View Road
Warren, New Jersey 07059
Such notice shall be effective on the date of
receipt by the Company at such address.
- - ------------------------------------------------------------------------------
Investigation and 5. The Company may make any investigation it deems
Settlement necessary and may, with the written consent of
the Insured, make any settlement of any claim it
deems expedient. If the Insured withholds
consent to such settlement, the Company's
liability for all loss on account of such claim
shall not exceed the amount for which the Company
could have settled such claim plus costs, charges
and expenses accrued as of the date such
settlement was proposed in writing by the Company
to the Insured.
<PAGE> 37
General Terms
and Conditions
Valuation and 6. All premiums, limits, retentions, loss and other
Foreign Currency amounts under this policy are expressed and
payable in the currency of the United States of
America. Except as otherwise provided in any
coverage section, if judgment is rendered,
settlement is denominated or another element of
loss under this policy is stated in a currency
other than United States of America dollars,
payment under this policy shall be made in United
States dollars at the rate of exchange published
in the Wall Street Journal on the date the final
judgment is reached, the amount of the settlement
is agreed upon or the other element of loss is
due respectively.
- - --------------------------------------------------------------------------------
Subrogation 7. In the event of any payment under this policy, the
Company shall be subrogated to the extend of such
payment to all the Insured's rights of recovery,
and the Insured shall execute all papers required
and shall do everything necessary to secure and
preserve such rights, including the execution of
such documents necessary to enable the Company
effectively to bring suit in the name of the
Insured.
- - --------------------------------------------------------------------------------
Action Against 8. No action shall lie against the Company unless, as
the Company a condition precedent thereto, there shall have
been full compliance with all the terms of this
policy. No person or organization shall have any
right under this policy to join the Company as a
party to any action against the Insured to
determine the Insured's liability nor shall the
Company be impleaded by the Insured or his legal
representatives. Bankruptcy or insolvency of an
Insured or of the estate of an Insured shall not
relieve the Company of its obligations nor
deprive the Company of its rights under this
policy
- - --------------------------------------------------------------------------------
Authorization Clause 9. By acceptance of this policy, the Parent
Organization agrees to act on behalf of all
Insureds with respect to the giving and receiving
of notice of claim or termination, the payment
of premiums and the receiving of any return
premiums that may become due under this policy,
the negotiation, agreement to and acceptance of
endorsements, and the giving or receiving of any
notice provided for in this policy (except the
giving of notice to apply for the Extended
Reporting Period), and the Insureds agree that
the Parent Organization shall act on their
behalf.
- - --------------------------------------------------------------------------------
Alteration 10. No change in, modification of, or assignment of
and Assignment interest under this policy shall be effective
except when made by a written endorsement to this
policy which is signed by an authorized employee
of Chubb & Son Inc.
- - --------------------------------------------------------------------------------
Termination of 11. This policy or any coverage section shall
Policy or terminate at the earliest of the following times:
Coverage Section
(A) sixty days after the receipt by the Parent
Organization of a written notice of
termination from the Company,
(B) upon the receipt by the Company of written
notice of termination from the Parent
Organization.
<PAGE> 38
General Terms
and Conditions
Termination of (C) upon expiration of the Policy Period as set
Policy or forth in Item 2 of the Declarations of this
Coverage Section policy, or
(continued)
(D) at such other time as may be agreed upon by
the Company and the Parent Organization.
The Company shall refund the unearned premium
computed at customary short rates if the policy or
any coverage section is terminated by the Parent
Organization. Under any other circumstances the
refund shall be computed pro rata.
- - --------------------------------------------------------------------------------
Termination of 12. Any bonds or policies issued by the Company or its
Prior Bonds affiliates and specified in Item 4 of the
or Policies Declarations of this policy shall terminate, if
not already terminated, as of the inception date
of this policy. Such prior bonds or policies
shall not cover any loss under the Crime or
Kidnap/Ransom & Extortion coverage sections not
discovered and notified to the Company prior to
the inception date of this policy.
- - --------------------------------------------------------------------------------
Definitions 13. When used in this Policy:
Parent Organization means the organization
designated in Item 1 of the Declarations of this
policy.
Policy Period means the period of time specified
in Item 2 of the Declarations of this policy,
subject to prior termination in accordance with
Subsection 11 above. If this period is less than
or greater than one year, then the Limits of
Liability specified in the Declarations for each
coverage section shall be the Company's maximum
limit of liability under such coverage section
for the entire period.
<PAGE> 39
Effective date of
this endorsement: DECEMBER 01, 1993
To be attached to and form part of Company: FEDERAL INSURANCE COMPANY
Policy No. 8134-46-02-A
Issued to: BOLT BERANEK & NEWMAN INC.
- - --------------------------------------------------------------------------------
This following is a schedule of endorsements issued with the policy at
inception:
FIDUCIARY LIABILITY
ENDORSEMENT NUMBER FORM NUMBER
1 14-02-0961
2 14-02-0961
CRIME INSURANCE
ENDORSEMENT NUMBER FORM NUMBER
1 14-02-0961
2 14-02-0961
3 14-02-0961
4 14-02-0961
5 14-02-0976
6 14-02-0983
7 14-02-0998
<PAGE> 40
DECLARATIONS
FIDUCIARY LIABILITY
COVERAGE SECTION
Item 1. Parent Organization:
BOLT BERANEK & NEWMAN INC.
Item 2. Limits of Liability:
(A) Each Loss $20,000.00
(B) Each Policy Period $20,000.00
Note that the limits of liability and any deductible or
retention are reduced or exhausted by Defense Costs.
Item 3. Deductible Amounts:
(A) Non-Indemnifiable Loss $NONE
(B) Indemnifiable Loss $NONE
Item 4. Sponsor Organization:
BOLT BERANEK & NEWMAN INC.
AND ITS SUBSIDIARIES
Item 5. Benefit Programs included as Insureds and any other
additional Insureds:
Bolt Beranek and Newman Inc. Retirement Trust and any
Benefit Program, Employee Benefit Plan, Benefit Program or
Insured Plan sponsored, operated, maintained or administered
by the Sponsor Organization located anywhere in the world.
Item 6. Extended Reporting Period:
(A) Additional Premium: $20,504
(B) Additional Period: ONE YEAR
Item 7. Pending or Prior Date: DECEMBER 1, 1986
Item 8. Continuity Date: DECEMBER 1, 1986
<PAGE> 41
EXECUTIVE PROTECTION POLICY
CHUBB
- - ----------------------------------------------------------------------------
Fiduciary Liability In consideration of payment of the premium and
Coverage Section subject to the Declarations, General Terms and
Conditions, and the limitations, conditions,
provisions and other terms of this coverage
section, the Company agrees as follows:
- - ----------------------------------------------------------------------------
Insuring Clause 1. The Company shall pay on behalf of each of the
Insureds all Loss for which the Insured becomes
legally obligated to pay on account of any
Claim first made against the Insured during the
Policy Period or, if exercised, the Extended
Reporting Period, for a Wrongful Act committed,
attempted or allegedly committed or attempted,
before or during the Policy Period by an Insured
or by any person for whose Wrongful Acts the
Insured is legally responsible.
- - ----------------------------------------------------------------------------
Estates and Legal 2. Subject otherwise to the General Terms and
Representatives Conditions and the limitations, conditions,
provisions and other terms of this coverage
section, coverage shall extend to Claims for
the Wrongful Acts of Insured Persons made against
the estates, heirs, legal representatives or
assigns of Insured Persons who are deceased or
against the legal representatives or assigns of
Insured Persons who are incompetent, insolvent or
bankrupt.
- - ----------------------------------------------------------------------------
Defense Provisions 3. The Company shall have the right and duty to
defend any Claim covered by this coverage
section. Coverage shall apply even if any of
the allegations are groundless, false or
fraudulent. The Company's duty to defend shall
cease upon exhaustion of the Company's applicable
Limit of Liability set forth in Item 2 of the
Declarations for this coverage section.
Defense Costs incurred by the Company, or by the
Insured with the written consent of the Company,
are part of and not in addition to the Company's
applicable Limit of Liability set forth in Item 2
of the Declarations for this coverage section,
and the payment by the Company of Defense Costs
reduces such applicable Limit of Liability.
The Insureds agree to provide the company with
all information, assistance and cooperation which
the Company reasonably requests and agree that in
the event of a Claim the Insureds will do nothing
that may prejudice the Company's position or its
potential or actual rights of recovery.
The Insureds agree not to settle any Claim, incur
any Defense Costs or otherwise assume any
contractual obligation or admit any liability
with respect to any Claim without the
Company's written consent, which shall not be
unreasonably withheld. The Company shall not be
liable for any settlement, Defense Costs, assumed
obligation or admission to which it has not
consented.
- - ----------------------------------------------------------------------------
<PAGE> 42
Extended 4. If the Company terminated or refuses to renew this
Reporting Period coverage section other than for nonpayment of
premium, the Insureds shall have the right, upon
payment of the additional premium in Item 6(A) of
the Declarations for this coverage section, to an
extension of the coverage granted by this
coverage section for the period in Item 6(B) of
the Declarations for this coverage section
(Extended Reporting Period) following the
effective date of termination or nonrenewal, but
only for any Wrongful Act committed, attempted,
or allegedly committed or attempted, prior to the
effective date of termination or nonrenewal.
This right of extension shall lapse unless
written notice of such election, together with
payment of the additional premium due, is
received by the Company within 30 days following
the effective date of termination or nonrenewal.
Any Claim made during the Extended Reporting
Period shall be deemed to have been made during
the immediately preceding Policy Period.
If the Insured terminates or declines to accept
renewal, the Company may, if requested, at its
sole option, grant an Extended Reporting Period.
The offer of renewal terms and conditions or
premiums different from those in effect prior to
renewal shall not constitute refusal to renew.
- - -------------------------------------------------------------------------------
Exclusions 5. The company shall not be liable for Loss on
account of any Claim made against any Insured:
(a) based upon, arising from, or in consequence
of any circumstance if written notice of
such circumstance has been given under any
policy or coverage section of which this
coverage section is a renewal or replacement
and if such prior policy or coverage section
affords coverage (or would afford such
coverage except for the exhaustion of its
limit of liability) for such Loss, in whole
or in part, as a result of such notice:
(b) based upon, arising from, or in consequence
of any deliberately fraudulent act or
omission or any willful violation of any
statute or regulation by such Insured, if a
judgment or other final adjudication adverse
to the Insured establishes such a
deliberately fraudulent act or omission or
willful violation;
(c) for libel or slander;
(d) for bodily injury, mental or emotional
distress, sickness, disease or death of any
person or damage to or destruction of any
tangible property including loss of use
thereof;
(e) based upon, arising from, or in consequence
of liability of others assumed by the
Insured under any contract or agreement,
either oral or written, except to the extent
that the Insured would have been liable in
the absence of the contract or agreement or
unless the liability was assumed in
accordance with or under the agreement or
declaration of trust pursuant to which the
Benefit Program was established;
(f) based upon, arising from, or in consequence
of the failure of the Insured to comply with
any law governing workers' compensation,
unemployment, social security or disability
benefits or any similar law, except the
Consolidated Omnibus Budge Reconciliation
Act of 1985 and amendments thereto;
<PAGE> 43
EXECUTIVE PROTECTION POLICY
CHUBB
- - -----------------------------------------------------------------------------
Exclusions (g) based upon, arising from, or in consequence of any
(continued) demand, suit or other proceeding pending, or order,
decree or judgment entered against any Insured, on
or prior to the Pending or Prior Date set forth in
Item 7 of the Declarations for this coverage
section, or the same or any substantially similar
fact, circumstance or situation underlying or
alleged therein;
(h) based upon, arising from, or in consequence of such
Insured having gained in fact any personal profit,
remuneration or advantage to which such Insured was
not legally entitled; or
(i) based upon, arising from, or in consequence of (i)
the actual, alleged or threatened discharge, release,
escape or disposal of Pollutants into or on real or
personal property, water or the atmosphere; or (ii)
any direction or request that the Insured test for,
monitor, clean up, remove, contain, treat, detoxify
or neutralize Pollutants, or any voluntary decision
to do so; including but not limited to any Claim for
financial loss to the Sponsor Organization, its
security holders or creditors or any Benefit Program
based upon, arising from, or in consequence of the
matters described in (i) or (ii) of this exclusion.
6. The Company shall not be liable for that part of Loss,
other than Defense Costs:
(a) which constitutes fines or penalties or the multiple
portion of any multiplied damage award, other than
the five percent or less, or the twenty percent
or less, civil penalties imposed upon an Insured as a
fiduciary under Section 502(i) or (I), respectively,
of the Employee Retirement Income Security Act of
1974, as amended;
(b) which is based upon, arising from, or in consequence
of the failure to collect from employers
contributions owed to a Benefit Program, unless the
failure is because of the negligence of an Insured;
(c) which constitutes the return or reversion to any
employer of any contribution or asset of a Benefit
Program; or
(d) which constitutes benefits due or to become due under
the terms of a Benefit Program unless, and to the
extent that, (i) the Insured is a natural person
and the benefits are payable by such Insured as a
personal obligation, and (ii) recovery for the
benefits is based upon a covered Wrongful Act.
- - ------------------------------------------------------------------------------
Severability 7. With respect to the Exclusions in Subsections 5 and 6 of
of Exclusions this coverage section, no fact pertaining to or knowledge
possessed by any Insured shall be imputed to any other
Insured to determine if coverage is available.
<PAGE> 44
EXECUTIVE PROTECTION POLICY
CHUBB
- - -----------------------------------------------------------------------------
Limit of Liability 8. For purposes of this coverage section, all Loss
and Deductible arising out of the same Wrongful Act and all
Interrelated Wrongful Acts of any Insured shall
be deemed one Loss, and such Loss shall be deemed
to have originated in the earliest Policy Period
in which a Claim is first made against any
Insured alleging any such Wrongful Act or
Interrelated Wrongful Acts.
The Company's maximum liability for each Loss
shall be the Limit of Liability for each Loss set
forth in Item 2(A) of the Declarations for this
coverage section. The Company's maximum
aggregate liability for all Loss on account of
all Claims first made during the same Policy
Period shall be the Limit of Liability for each
Policy Period set forth in Item 2(B) of the
Declarations for this coverage section.
The Company's liability hereunder shall apply
only to that part of each Loss which is excess
of Deductible Amounts set forth in Item 3 of the
Declarations for this coverage section and such
Deductible Amounts shall be borne by the Insureds
uninsured and at their own risk. The Deductible
Amount for Non-Indemnifiable Loss set forth in
Item 3(A) of the Declarations for this coverage
section shall apply to Loss incurred by any
Insured other than the Sponsor Organization or
any Benefit Program for which the Sponsor
Organization is not permitted or required to
indemnify or is permitted or required to
indemnify but does not do so by reason of
Financial Impairment. The Deductible Amount for
Indemnifiable Loss set forth in Item 3(B) of the
Declarations for this coverage section shall
apply to all other Loss.
If a part of a single Loss is subject to the
Deductible Amount for Non-Indemnifiable Loss and
part of the same Loss is subject to the
Deductible Amount for Indemnifiable Loss, the
maximum Deductible Amount applicable to such Loss
shall be the Deductible Amount for Indemnifiable
Loss.
The Sponsor Organization shall be deemed
permitted or required to indemnify an Insured,
and the shareholder and board or director
resolutions of the Sponsor Organization shall be
deemed to provide indemnification to an Insured,
to the fullest extent authorized by the Sponsor
Organization's by-laws or certificate of
incorporation in effect at the inception of this
coverage section, or any subsequently amended or
superseding by-laws or certificate of
incorporation of the Sponsor Organization to the
extent such subsequent document expands or
broadens and does not limit or restrict such
indemnification authorization.
Any Loss covered in whole or in part by this
coverage section and the Employment Practices
Liability coverage section of this policy (if
purchased) shall be subject to the limits of
liability, deductible and coinsurance percent
applicable to such other coverage section;
provided, however, if any limit of liability
applicable to such other coverage section is
exhausted with respect to such Loss, any
remaining portion of such Loss otherwise covered
by this coverage section shall be subject to the
limit of liability applicable to this coverage
section, as reduced by the amount of such Loss
otherwise covered by this coverage section which
is paid by the Company pursuant to such other
coverage section.
For purposes of this Subsection 8 only, the
Extended Reporting Period, if exercised, shall be
part of and not in addition to the immediately
preceding Policy Period.
- - -----------------------------------------------------------------------------
<PAGE> 45
EXECUTIVE PROTECTION POLICY
CHUBB
- - -----------------------------------------------------------------------------
Other Insurance 9. If any Loss arising from any Claim made against
any Insured is insured under any other valid
policy(ies), prior or current, then this coverage
section shall cover such Loss, subject to its
limitations, conditions, provisions and other
terms, only to the extent that the amount of such
Loss is in excess of the amount of payment from
such other insurance whether such other insurance
is stated to be primary, contributory, excess,
contingent or otherwise, unless such other
insurance is written only as specific excess
insurance over the Limit of Liability provided in
this coverage section.
- - -----------------------------------------------------------------------------
Changes in
Exposure
Acquisition or 10. If during the Policy Period the Sponsor
Creation of Organization creates or acquires a Subsidiary or
Another Entity or Benefit Program or otherwise becomes a fiduciary
Benefit Program of or responsible for the Administration of any
Benefit Program ("Inception Event"), and if the
Sponsor Organization shall give written notice
to the Company of the Inception Event as soon as
practicable together with such information as the
Company may require and shall pay any reasonable
additional premium required by the Company,
coverage shall be afforded, subject to the terms
and conditions of this coverage section, from the
date of the Inception Event for such Subsidiary,
Benefit Program, and any Insured Persons of such
Benefit Program, but only for Wrongful Acts
committed, attempted, or allegedly committed or
attempted, after the date of the Inception Event,
unless the Company agrees by endorsement to
provide coverage for Wrongful Acts committed,
attempted, or allegedly committed or attempted,
prior to such date. Any such coverage shall be
specifically excess of the amount of payment from
any other insurance available to such Benefit
Program, Insured Persons or Sponsor Organization.
Notwithstanding the foregoing, no coverage shall
be afforded pursuant to this Subsection 10 with
respect to any employee stock ownership plan or
any Insured Persons or Sponsor Organization
thereof unless the Company, by specific
endorsement hereto, agrees to afford such
coverage. Any such coverage shall be at the terms
and conditions and for the premium set forth in
such endorsement.
- - -----------------------------------------------------------------------------
Acquisition by 11. If (i) the Sponsor Organization merges into or
Another Entity consolidates with another organization, (ii)
another organization or person or group of
organizations and/or persons acting in concert
acquires securities or voting rights which result
in ownership or voting control by the other
organization(s) or person(s) of more than 50% of
the outstanding securities representing the
present right to vote for election of directors
of the Sponsor Organization, or (iii) the
responsibilities of the Sponsor Organization for
the Administration of, or as a fiduciary of, any
Benefit Program is fully assumed by any other
person and/or entity, coverage under this
coverage section for such Sponsor Organization,
Benefit Program and the Insured Persons thereof
who were Insureds prior to such acquisition,
merger, consolidation or assumption of
responsibilities shall continue until termination
of this coverage section subject to the
following:
<PAGE> 46
EXECUTIVE PROTECTION POLICY
CHUBB
- - -----------------------------------------------------------------------------
Changes in Exposure
Acquisition by (a) for the merged, consolidated or acquired
Another Entity Sponsor Organization and any Benefit
(continued) Program thereof, and for any Benefit
Program described in subparagraph (iii)
above, coverage shall continue only with
respect to Claims for Wrongful Acts
committed, attempted, or allegedly committed
or attempted prior to such merger,
consolidation, acquisition, or assumption of
responsibilities;
(b) for Insured Persons of the merged,
consolidated, or acquired Sponsor
Organization or any Benefit Program thereof,
and for Insured Persons of any Benefit Plan
described in subparagraph (iii) above,
coverage shall continue with respect to
Claims for Wrongful Acts committed,
attempted or allegedly committed or
attempted prior to the date the Insured
Person ceases to be a trustee, director,
officer and/or employee of any Sponsor
Organization not so merged, consolidated or
acquired.
The Sponsor Organization shall give written
notice to the Company of such merger,
consolidation, acquisition or assumption of
responsibilities as soon as practicable together
with such information as the Company may require.
Any such continuing coverage shall be
specifically excess of the amount of payment from
any other insurance available to such Sponsor
Organization, Benefit Program or Insured Persons.
- - -----------------------------------------------------------------------------
Termination of 12. If the Sponsor Organization terminates any
Benefit Program Benefit Program before or after the Inception
Date of this coverage section, coverage under
this coverage section with respect to such
terminated Benefit Program shall continue until
termination of this coverage section for those
who were Insureds at the time of such Benefit
Program termination, or who would have been
Insureds at the time of such termination if this
coverage section had been in effect, with respect
to Wrongful Acts committed, attempted or
allegedly committed or attempted by such Insureds
prior to or after the date of such Benefit
Program termination. The Insureds shall give
written notice to the Company of such Benefit
Program termination as soon as is practicable
together with such information as the Company may
require.
- - -----------------------------------------------------------------------------
Reporting 13. The Insureds shall, as a condition precedent to
and Notice exercising their rights under this coverage
section, give the Company written notice as soon
as practicable of any Claim made against any of
them for a Wrongful Act.
If during the Policy Period or extended Reporting
Period (if exercised) an Insured becomes aware of
circumstances which could give rise to a Claim
and gives written notice of such circumstance(s)
to the Company, then any Claims subsequently
arising from such circumstances shall be
considered to have been made during the Policy
Period or the Extended Reporting Period in which
the circumstances were first reported to the
Company.
The Insureds shall, as a condition precedent to
exercising their rights under this coverage
section, give to the Company such information and
cooperation as it may reasonably require,
including but not limited to a description of the
Claim or circumstances, the nature of the alleged
Wrongful Act, the nature of the alleged or
potential damage, the names of actual or
potential claimants, and the manner in which the
Insured first became aware of the Claim or
circumstances.
- - -----------------------------------------------------------------------------
<PAGE> 47
EXECUTIVE PROTECTION POLICY
CHUBB
- - -----------------------------------------------------------------------------
Representations 14. In granting coverage to any one of the Insureds,
and Severability the Company has relied upon the declarations and
statements in the written application for this
coverage section and upon any declarations and
statements in the original written application
submitted to another insurer in respect of the
prior coverage incepting as of the Continuity
Date set forth in Item 8 of the Declarations for
this coverage section. All such declarations and
statements are the basis of such coverage and
shall be considered as incorporated in and
constituting part of this coverage section.
Such written application(s) for coverage shall be
construed as a separate application for coverage
by each Insured. With respect to the
declarations and statements contained in such
written application(s) for coverage, no statement
in the application or knowledge possessed by any
Insured shall be imputed to any other Insured for
the purpose of determining if coverage is
available.
- - -----------------------------------------------------------------------------
Definitions 15. When used in this coverage section:
Administration means giving advise to employees
or effecting enrollment, termination or
cancellation of employees under a Benefit
Program.
Benefit Program means:
(a) any Sponsored Plan, or
(b) any Insured Plan.
Claim means:
(a) a civil proceeding commenced by the
service of a complaint or similar pleading
(b) a criminal proceeding commenced by a
return of an indictment, or
(c) a formal administrative or
regulatory proceeding commenced by the
filing of a notice of charges, formal
investigative order or similar document,
against any Insured for a Wrongful Act,
including any appeal therefrom.
Defense Costs means that part of Loss consisting
of reasonable costs, charges, fees (including but
not limited to attorneys' fees and experts' fees)
and expenses (other than regular or overtime
wages, salaries or fees of the directors,
officers or employees of the Insured) incurred in
defending or investigating Claims and the premium
for appeal, attachment or similar bonds.
Employee Benefit Plan means any plan so defined
in the Employee Retirement Income Security Act of
1974, as amended.
Financial Impairment means the status of the
Sponsor Organization resulting from (i) the
appointment by any state or federal official,
agency or court of any receiver, conservator,
liquidator, trustee, rehabilitator or similar
official to take control of, supervise, manage or
liquidate the Sponsor Organization, or (ii) the
Sponsor Organization becoming a debtor in
possession.
<PAGE> 48
EXECUTIVE PROTECTION POLICY
CHUBB
- - -----------------------------------------------------------------------------
Definitions Insureds, either in the singular or plural, means any one
(continued) or more;
(a) Sponsor Organization;
(b) Benefit Program;
(c) Insured Person, or
(d) any other person or organization designated as an
additional Insured by endorsement to this coverage
section.
Insured Persons, either in the singular or plural,
means any one or more:
(a) natural persons serving as a past, present or
future trustee, director, officer or employee
of the Sponsor Organization or of any Sponsored
Plan, and
(b) any other natural person acting as a past, present
or future fiduciary of a Sponsored Plan and named in
Item 5 of the Declarations for this coverage section.
Insured Plan means any government-mandated insurance
program for workers' compensation, unemployment, social
security or disability benefits for employees of the
Sponsor Organization.
Interrelated Wrongful Acts means all causally connected
Wrongful Acts.
Loss means the total amount which any Insured(s) becomes
legally obligated to pay on account of each Claim and for
all Claims in each Policy Period and the Extended Reporting
Period, if exercised, made against them for Wrongful Acts
for which coverage applies, including, but not limited to,
damages, judgments, settlements, costs and Defense Costs.
Loss does not include matters uninsurable under the law
pursuant to which this coverage section is construed.
Pension Benefit Plan means any plan so defined in the
Employee Retirement Income Security Act of 1974, as
amended.
Pollutants means any substance located anywhere in the
world exhibiting any hazardous characteristics as defined
by, or identified on a list of hazardous substances issued
by, the United States Environmental Protection Agency or a
state, county, municipality or locality counterpart
thereof. Such substances shall include, without
limitation, solids, liquids, gaseous or thermal irritants,
contaminants or smoke, vapor, soot, fumes, acids, alkalis,
chemicals or waste materials. Pollutants shall also mean
any other air emissions, odor, waste water, oil and oil
products, infectious or medical waste, asbestos and
asbestos products and any noise.
Sponsor Organization means any organization designated
in Item 4 of the Declarations for this coverage section.
<PAGE> 49
EXECUTIVE PROTECTION POLICY
CHUBB
- - -----------------------------------------------------------------------------
Definitions Sponsored Plan means:
(continued)
(a) an Employee Benefit Plan which is operated solely by
the Sponsor Organization or jointly by the Sponsor
Organization and a labor organization for the benefit
of the employees of the Sponsor Organization located
anywhere in the world and which existed at the
Inception Date of this coverage section or of any
policy or coverage section of which this coverage
section is a renewal or which is created or acquired
after the inception of this coverage section, subject
to the provisions outlined in this coverage section;
(b) any other plan, fund, or program specifically included
as a Sponsored Plan and named in Item 5 of the
Declarations for this coverage section; provided
however, Sponsored Plan shall not include any
multiemployer plan, as defined in the Employee
Retirement Income Security Act of 1974, as amended; or
(c) any other employee benefit plan or program not subject
to Title 1 of the Employee Retirement Income Security
Act of 1974, as amended, sponsored solely by the
Sponsor Organization for the benefit of the
employees of the Sponsor Organization.
Subsidiary, either in the singular or plural, means any
organization in which more than 50% of the outstanding
securities or voting rights representing the present
right to vote for election of directors is owned or
controlled, directly or indirectly, in any combination, by
one or more Sponsor Organization.
Welfare Benefit Plan means any plan so defined in the
Employee Retirement Income Security Act of 1974, as
amended.
Wrongful Act means:
(a) with respect to a Sponsored Plan,
(i) any breach of the responsibilities,
obligations or duties imposed upon fiduciaries
of the Sponsored Plan by the Employee
Retirement Income Security Act of 1974, as
amended, or by the common or statutory law of
the United States, or any state or other
jurisdiction anywhere in the world;
(ii) any other matter claimed against the Sponsor
Organization or an Insured Person solely
because of the Sponsor Organization's or the
Insured Person's service as a fiduciary of any
Sponsored Plan; or
(iii) any negligent act, error or omission in the
Administration of any Sponsored Plan; and
(b) with respect to an Insured Plan,
(i) any negligent act, error or omission in the
Administration of any Insured Plan.
- - -----------------------------------------------------------------------------
<PAGE> 50
ENDORSEMENT
Coverage Section: FIDUCIARY LIABILITY Company: FEDERAL INSURANCE COMPANY
Effective date of Endorsement No: 2
this endorsement: DECEMBER 01, 1993
To be attached to and form part of
Policy No. 8134-46-02-A
Issued to: BOLT BERANEK & NEWMAN INC.
- - --------------------------------------------------------------------------------
It is agreed that subsection 5, Exclusions, is amended by adding the
following:
(j) based upon, arising from, or in consequence of Wrongful
Act(s) or Interrelated Wrongful Acts where all or any
part of such acts were committed, attempted, or
allegedly committed or attempted, prior to April 22,
1987 for Delta Graphics.
ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED.
------------------------------------
Authorized Representative
------------------------------------
Date
<PAGE> 51
ENDORSEMENT
Coverage Section: FIDUCIARY LIABILITY Company: FEDERAL INSURANCE COMPANY
Effective date of Endorsement No: 1
this endorsement: DECEMBER 01, 1993
To be attached to and form part of
Policy No. 8134-46-02-A
Issued to: BOLT BERANEK & NEWMAN INC.
- - --------------------------------------------------------------------------------
It is agreed that subsection 12, Termination of Benefit Program,
is amended by deleting the following sentence:
"The Insureds shall give written notice to the Company
of such Benefit Program termination as soon as is
practicable together with such information as the
Company may require."
ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED.
-------------------------------------
Authorized Representative
-------------------------------------
Date
<PAGE> 52
PREMIUM BILL
Insured: BOLT BERANEK & NEWMAN INC. Date: DECEMBER 9, 1993
Producer: JOHNSON & HIGGINS OF MASS INC
THREE CENTER PLAZA
BOSTON, MA 02108
Company: FEDERAL INSURANCE COMPANY
THIS BILLING IS TO BE ATTACHED TO AND FORM A PART OF THE POLICY REFERENCED
BELOW.
Policy Number: 8134-46-02-A
Policy Period: DECEMBER 01, 1993 to DECEMBER 01, 1994
NOTE: PLEASE RETURN THIS BILL WITH REMITTANCE AND NOTE HEREON ANY CHANGES.
BILL WILL BE RECEIPTED AND RETURNED TO YOU PROMPTLY UPON REQUEST.
PLEASE REMIT TO PRODUCER INDICATED ABOVE.
COVERAGE PREMIUM
Fiduciary Liability Coverage $ 27,338.
Crime Insurance Coverage $ 29,980.
TOTAL $ 57,318.
WHEN REMITTING PLEASE INDICATE POLICY OR CERTIFICATE NUMBER
<PAGE> 53
<TABLE>
<S> <C>
CHUBB GROUP OF INSURANCE COMPANIES DECLARATIONS
DIRECTORS AND OFFICERS LIABILITY
15 Mountain View Road, Warren, New Jersey 07060 AND REIMBURSEMENT EXCESS POLICY
- - -----------------------------------------------------------------------------------------
Item 1. Parent Corporation: Policy Number 81377132
BOLT BERANEK AND NEWMAN INC.
AND ITS SUBSIDIARIES
Item 2. Principal Address: FEDERAL INSURANCE COMPANY
150 CAMBRIDGEPARK DRIVE Incorporated under the laws of New
CAMBRIDGE, MA 02140 Jersey a stock insurance company, herein
called the Company
- - -----------------------------------------------------------------------------------------
Item 3. Limit of Liability
Each Policy Year $2,000,000.
Item 4. Underlying Policy(ies):
(A) Primary Policy Federal Insurance Company
Policy #8137-71-31
December 1, 1993 to December 1, 1994
(B) Other Policy(ies): St. Paul Mercury Insurance Company
Policy #900DX0049
December 1, 1993 to December 1, 1994
Item 5. Policy Period: From December 1, 1993
To December 1, 1994
Item 6. Endorsement(s) Effective At Inception: Nos. 1 and 2
Item 7. Termination of Prior Policy(ies): 81194834-F
IN WITNESS WHEREOF, the Company issuing this policy has caused this policy to
be signed by its Authorized Officers, but it shall not be valid unless also
signed by a duly authorized representative of the Company.
</TABLE>
FEDERAL INSURANCE COMPANY
Secretary President
--------------------------------------
Authorized Representative
--------------------------------------
Date
<PAGE> 54
DIRECTORS AND OFFICERS LIABILITY AND REIMBURSEMENT EXCESS POLICY
In consideration of payment of required premium and subject to the
Declarations made a part hereof and the limitations, conditions, provisions
and other terms of this policy, the Company agrees with the Insureds as
follows:
INSURING CLAUSE
The Company shall provide the Insureds with insurance during the Policy
Period excess of the Underlying Insurance. Coverage hereunder shall attach
only after all such Underlying Insurance has been exhausted and shall then
apply in conformance with the terms, conditions and endorsements of the
Primary Policy except as specifically set forth in the terms, and conditions
and endorsements of this policy.
MAINTENANCE OF UNDERLYING INSURANCE
All of the Underlying Policy(ies) scheduled in Item 4 of the
Declarations shall be maintained during the Policy Period in full effect and
affording coverage at least as broad as the Primary Policy, except for any
reduction of the aggregate limit(s) of liability available under the
Underlying Insurance solely by reason of payment of losses thereunder.
Failure to comply with the foregoing shall not invalidate this policy but the
Company shall not be liable to a greater extent than if this condition has
been complied with.
In the event of any actual or alleged (a) failure by the Insureds to
give notice or to exercise any extensions under any Underlying Insurance or
(b) misrepresentation or breach of warranties by any of the Insureds with
respect to any Underlying Insurance, the Company shall not be liable
hereunder to a greater extent than it would have been in the absence of such
actual or alleged failure, misrepresentation or breach.
DEPLETION OF UNDERLYING LIMIT(S)
In the event of depletion of the limit(s) of liability of the Underlying
Insurance solely as the result of payment of losses thereunder, this policy
shall, subject to the Company's limit of liability and to the other terms of
the policy, continue to apply for subsequent losses as excess insurance over
the amount of insurance remaining under such Underlying Insurance. In the
event of the exhaustion of all of the limit(s) of liability of such
Underlying Insurance solely as a result of payment of losses thereunder, the
remaining limits available under this policy shall, subject to the Company's
limit of liability and to the other terms of this policy, continue for
subsequent losses as primary insurance and any retention specified in the
Primary Policy shall be imposed under this policy; otherwise no retention
shall be imposed under this policy.
LIMIT OF LIABILITY
The amount set forth in Item 3 of the Declarations is the limit of
liability of the Company and shall be the maximum liability of the Company in
each Policy Year.
CLAIM PARTICIPATION
The company may, at its sole discretion, elect to participate in the
investigation, settlement or defense of any claim against any of the Insureds
for matters covered by this policy even if the Underlying Insurance has not
been exhausted.
SUBROGATION - RECOVERIES
In the event of any payment under this policy, the Company shall be
subrogated to all the Insureds' rights of recovery against any person or
organization, as stated in the Primary Policy, and the Insureds shall execute
and deliver instruments and papers and do whatever else is necessary to
secure such rights.
Any amounts recovered after payment of loss hereunder shall be
apportioned in the inverse order of payment to the extent of actual payment.
The expenses of all such recovery proceedings shall be apportioned in the
ratio of respective recoveries.
<PAGE> 55
NOTICE
The Company shall be given notice in writing as soon as is practicable
(a) in the event of the cancellation of any Underlying Insurance and (b) of
any notice given or additional or return premiums charged or paid in
connection with any Underlying Insurance.
Notice of any claim shall be given in writing to the Company at 15
Mountain View Road, Warren, New Jersey 07060.
COMPANY AUTHORIZATION CLAUSE
By acceptance of this policy, the Parent Corporation named in Item 1 of
the Declarations agrees to act on behalf of all Insureds with respect to the
giving and receiving of notice of claim or cancellations, the payment of
premiums and the receiving of any return premiums that may become due under
this policy; and the Insureds agree that the Parent Corporation shall act on
this behalf.
ALTERATION
No change in or modification of this policy shall be effective except
when made by written endorsement signed by an authorized employee of Chubb &
Son, Inc.
POLICY TERMINATION
This policy may be cancelled by the Parent Corporation at any time by
written notice or by surrender of this policy to the Company. This policy
may also be cancelled by or on behalf of the Company by delivery to the
Parent Corporation or by mailing to the Parent Corporation, by registered,
certified or other first class mail, at the address shown in Item 2 of the
Declarations, written notice stating when, not less than thirty days
thereafter, the cancellation shall become effective. The mailing of such
notice as aforesaid shall be sufficient proof of notice and this policy shall
terminate at the date and hour specified in such notice.
If the period of limitation relating to the giving of notice is
prohibited or made void by any law controlling the construction thereof, such
period shall be deemed to be amended so as to be equal to the minimum period
of limitation permitted by such law.
The Company shall refund the unearned premium computed at customary
short rates if the policy is terminated in its entirety by the Parent
Corporation. Under any other circumstances the refund shall be computed pro
rata.
TERMINATION OF PRIMARY POLICY
This policy shall terminate immediately upon the termination of the
Primary Policy, whether by the Insureds or the primary insurer. Notice of
cancellation or non-renewal of the Primary Policy duly given by the primary
insurer shall serve as notice of cancellation or non-renewal of this policy
by the Company.
TERMINATION OF PRIOR POLICY(IES)
The taking effect of this policy shall terminate, if not already
terminated, the policy(ies) specified in Item 7 of the Declarations.
POLICY DEFINITIONS
Insureds means those persons or organizations Insured under the Primary
Policy.
Primary Policy means the policy scheduled in Item 4 (A) of the Declarations
or any policy of the same insurer replacing or renewing such policy.
<PAGE> 56
Policy Year means the one year period between the anniversaries of the
Primary Policy, provided that: (1) the first Policy Year of this policy
shall be the period between the inception of this policy and the next
subsequent anniversary of the Primary Policy, and (2) the last Policy Year of
this policy shall be the period between the termination of this policy and
the anniversary of the Primary Policy immediately preceding such termination.
If any discovery period extensions is exercised such extension shall be
treated as set forth in the Primary Policy.
Underlying Insurance means all those policies scheduled in Item 4 of the
Declarations and any policies replacing them.
<PAGE> 57
CHUBB GROUP OF INSURANCE COMPANIES
ENDORSEMENT
15 Mountain View Road, Warren, NJ 07059
- - -------------------------------------------------------------------------------
Company: Federal Insurance Company
Effective date of
this endorsement: December 1, 1993 Endorsement No. 1
To be attached to and form part of
Policy No. 81377132
Issued to: Bolt Beranek and Newman Inc.
It is hereby understood and agreed that the following is deleted in its
entirety:
Policy Termination
This policy may be cancelled by the Parent Corporation at any time by
written notice or by surrender of this policy to the Company. This policy
may also be cancelled by or on behalf of the Company by delivery to the
Parent Corporation or by mailing to the Parent Corporation, by registered,
certified or other first class mail, at the address shown in Item 2 of the
Declarations, written notice stating when, not less than thirty days
thereafter, the cancellation shall become effective. The mailing of such
notice as aforesaid shall be sufficient proof of notice and this policy shall
terminate at the date and hour specified in such notice.
If the period of limitation relating to the giving of notice is
prohibited or made void by any law controlling the construction thereof, such
period shall be deemed to be amended so as to be equal to the minimum period
of limitation permitted by such law. The Company shall refund the unearned
premium computed at customary short rates if the policy is terminated in its
entirety by the Parent Corporation. Under any other circumstances the refund
shall be computed pro rata.
mv-06/02/94.03
<PAGE> 58
CHUBB GROUP OF INSURANCE COMPANIES
ENDORSEMENT
15 Mountain View Road, Warren, NJ 07059
- - --------------------------------------------------------------------------------
Company: Federal Insurance Company
Effective date of
this endorsement: December 1, 1993 Endorsement No. 1 - Continued
To be attached to and form part of
Policy No. 81377132
Issued to: Bolt Beranek and Newman Inc.
and substituted in lieu thereof:
Policy Termination
This policy may be cancelled by the Parent Corporation at any time by
written notice or by surrender of this policy to the Company. This policy
may also be cancelled by or on behalf of the Company by delivery to the
Parent Corporation or by mailing to the Parent Corporation, by registered,
certified or other first class mail, at the address shown in Item 2 of the
Declarations, written notice stating when, not less than 60 days thereafter,
the cancellation shall become effective. The mailing of such notice as
aforesaid shall be sufficient proof of notice and this policy shall terminate
at the date and hour specified in such notice.
If the period of limitation relating to the giving of notice is
prohibited or made void by any law controlling the construction thereof, such
period shall be deemed to be amended so as to be equal to the minimum period
of limitation permitted by such law. The Company shall refund the unearned
premium computed at customary short rates if the policy is terminated in its
entirety by the Parent Corporation. Under any other circumstances the refund
shall be computed pro rata.
ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED.
---------------------------------------
AUTHORIZED REPRESENTATIVE
mv-06/02/94.04
---------------------------------------
DATE
<PAGE> 59
CHUBB GROUP OF INSURANCE COMPANIES
ENDORSEMENT
15 Mountain View Road, Warren, NJ 07059
- - --------------------------------------------------------------------------------
Company: Federal Insurance Company
Effective date of
this endorsement: December 1, 1993 Endorsement No. 2
To be attached to and form part of
Policy No. 81377132
Issued to: Bolt Beranek and Newman Inc.
It is agreed that:
In addition to the exclusions included and made a part of the "Primary
Policy", the following exclusion shall apply to this policy:
(-) 1. Arising from any litigation, claims, demands, causes of action,
legal or quasi-legal proceedings, decrees or judgments against
any "Insured(s)", occurring prior to, or pending as of
December 1, 1990, of which any "Insured(s)" had received
notice or otherwise had knowledge as of such date;
2. Arising from any subsequent litigation, claims, demands, causes
of action, legal or quasi-legal proceedings, decrees or
judgments against any "Insured(s)" arising from, or based on
substantially the same matters as alleged in the pleadings of
such prior or pending litigation, claims, demands, causes of
action, legal or quasi-legal proceedings, decrees or judgments
against any "Insured(s)"; or
3. Arising from any act of any "Insured(s)" which gave rise to such
prior or pending litigation, claims, demands, causes of action,
legal or quasi-legal proceedings, decrees or judgments against
any "Insured(s)."
ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED.
------------------------------------
AUTHORIZED REPRESENTATIVE
mv-06/02/94.05
------------------------------------
DATE
<PAGE> 60
IMPORTANT NOTE: THIS IS CLAIM MADE COVERAGE. PLEASE READ THIS POLICY
CAREFULLY.
THIS POLICY, SUBJECT TO THE DECLARATIONS, INSURING AGREEMENTS, TERMS,
CONDITIONS, LIMITATIONS AND AMENDMENTS, APPLIES ONLY TO CLAIM OR CLAIMS
THAT ARE FIRST MADE AGAINST THE INSURED(S) AND REPORTED TO THE INSURER
DURING THE POLICY PERIOD OR DISCOVERY PERIOD (IF APPLICABLE).
THE LIMIT OF LIABILITY AVAILABLE TO PAY JUDGMENTS OR SETTLEMENTS SHALL BE
REDUCED AND MAY BE EXHAUSTED BY AMOUNTS INCURRED FOR DEFENSE COSTS, CHARGES
AND EXPENSES. THE RETENTION(S) APPLY(IES) TO DEFENSE COSTS, CHARGES AND
EXPENSES.
- - --------------------------------------------------------------------------------
ST. PAUL MERCURY
INSURANCE COMPANY
Excess
Directors
and
Officers Liability
and
Corporate
Indemnification
Policy
TheStPaul
- - --------------------------------------------------------------------------------
<PAGE> 61
This Policy is not complete unless a Declaration Page is attached.
<PAGE> 62
IMPORTANT NOTE: THIS IS CLAIM MADE COVERAGE. PLEASE READ THIS POLICY
CAREFULLY.
THIS POLICY, SUBJECT TO THE DECLARATIONS, INSURING AGREEMENTS, TERMS,
CONDITIONS, LIMITATIONS AND AMENDMENTS, APPLIES ONLY TO CLAIM OR CLAIMS THAT
ARE FIRST MADE AGAINST THE INSURED(S) AND REPORTED TO THE INSURER DURING THE
POLICY PERIOD OR DISCOVERY PERIOD (IF APPLICABLE).
THE LIMIT OF LIABILITY AVAILABLE TO PAY JUDGMENTS OR SETTLEMENTS SHALL BE
REDUCED AND MAY BE EXHAUSTED BY AMOUNTS INCURRED FOR DEFENSE COSTS, CHARGES
AND EXPENSES. THE RETENTION(S) APPLY(IES) TO DEFENSE COSTS, CHARGES AND
EXPENSES.
ST. PAUL MERCURY
- - --------------------------------------------------------------------------------
INSURANCE COMPANY
EXCESS DIRECTORS AND OFFICERS LIABILITY AND CORPORATE INDEMNIFICATION POLICY
DECLARATIONS
St. Paul, Minnesota 55102
A Capital Stock Company
Herein Called the Insurer
- - --------------------------------------------------------------------------------
Item 1. Named Insured: The Directors and Officers of Bolt Beranek and
Newman, Inc. and its Subsidiaries
Item 2. Address (No. Street, City, State and Zip Code) 150 CambridgePark Drive
Cambridge, MA 02140
Item 3. Policy Period
From To
12-01-93 12-01-94 (12:01 A.M. Standard Time at the address
stated on Item 2)
Item 4. Limit of Liability $ 5,000,000 each Policy Period in excess
of Item 7(E). The limit of liability available to pay judgments or
settlements should be reduced and may be exhausted by amounts incurred
for legal defense costs, charges and expense.
Item 5. Retentions (Applicable to Section 2(B)(2))
$ 1,000,000. Corporate Indemnification Each Loss
$ -0- Each Insured Each Loss
$ -0- Aggregate All Insureds Each Loss
Item 6. Premium $ 120,000
Item 7. Schedule of Underlying Insurer(s)
(A) 1. Underlying Insurer: Federal Insurance Company
2. Policy Number: 81377131
3. Policy Period: From: 12-01-93 To: 12-01-94
4. Limit of Liability: $ 3,000,000.
5. Retentions:
$ 1,000,000. Corporate Indemnification Each Loss
$ -0- Each Insured Each Loss
$ -0- Aggregate All Insureds Each Loss
(B) 1. Underlying Insurer: Not Applicable
2. Policy Number:
3. Policy Period: From: To:
4. Limit of Liability
(C) 1. Underlying Insurer: Not Applicable
2. Policy Number:
3. Policy Period: From: To:
4. Limit of Liability
(D) 1. Underlying Insurer: Not Applicable
2. Policy Number:
3. Policy Period: From: To:
4. Limit of Liability
(E) Total amount of Underlying Limit of Liability $3,000,000.
and any retentions or deductibles as applicable under the
policy(ies) as stated in this Item 7.
<PAGE> 63
Item 8. Subject to the Terms, Conditions and Limitations of this policy as
hereinafter provided, this policy follows the form of:
Insurer's Name: Federal Insurance Company
Policy Number: 81377131
Item 9: Forms Attached
1) St. Paul Mercury Insurance Company Policy (Form #50408).
2) Endorsement one.
3) St. Paul Mercury Insurance Company Renewal Application,
Form #50264, and its attachments.
- - -------------------------- ----------------------- --------------------
Authorized Representative Countersignature Date Countersigned At
<PAGE> 64
ENDORSEMENT #1
The following spaces preceded by an asterisk (*) need not be completed if
this endorsement and the policy have the same inception date.
- - --------------------------------------------------------------------------------
ATTACHED TO AND *EFFECTIVE DATE OF *ISSUED TO
FORMING PART OF POLICY ENDORSEMENT
NO.
900DX0049
- - --------------------------------------------------------------------------------
PRIOR AND PENDING LITIGATION EXCLUSION
M1150 Ed. 3-90
In consideration of the premium charged, it is hereby understood
and agreed that the Insurer shall not be liable to make any
payment for loss in connection with any claim or claims made
against the Insured(s) arising from any prior or pending
litigation as of 12-31-92, as well as all future claims or
litigation based upon the pending or prior litigation or derived
from the same or essentially the same facts (actual or alleged)
that gave rise to the prior or pending litigation.
Nothing herein contained shall be held to vary, alter, waive or extend any
of the terms, conditions, provisions, agreements or limitations of the
above mentioned policy, other than as above stated.
*Agency Name and Address
In Witness Whereof, the Company has
caused this endorsement to be
signed by a duly authorized
representative of the Company.
------------------------------------
Authorized Representative
<PAGE> 65
INSURING CLAUSE
In consideration of the payment of the premium, in reliance upon the
statements made to the Insurer by application including its attachments, a
copy of which is attached to and forms a part of this policy, and any material
submitted therewith (which shall be retained on file by the Insurer and be
deemed attached hereto), and except as hereinafter otherwise provided or
amended, this policy is subject to the same Insuring Agreement(s), Terms,
Conditions and Limitations as provided by the policy stated in Item 8 of the
Declarations and any amendments thereto, provided:
A. 1. the Insurer has received prior written notice from the Insured(s) of
any amendments to the policy stated in Item 8 of the Declarations, and
2. the Insurer has given to the Insured(s) its written consent to any
amendments to the policy stated in Item 8 of the Declarations, and
3. the Insured has paid any required additional premium.
B. This policy is not subject to the same premium or the amount and Limit of
Liability of the Policy stated in Item 8 of the Declarations.
TERMS, CONDITIONS AND LIMITATIONS
Section 1. UNDERLYING INSURANCE
A. It is a condition precedent to the Insured(s) rights under this policy that
the Insured(s) notify the Insurer, as soon as practicable in writing, of a
failure to maintain in full force and effect, except as provided for under
Section 2(B), and without alteration of any Terms, Conditions, Limit of
Liability or Retentions, any of the underlying insurance policies as stated
in Item 7 of the Declarations.
B. Failure to maintain, as set forth above, any of the underlying insurance
policies as stated in Item 7 of the Declarations, except as provided for
under Section 2(B), shall not invalidate this policy, but the liability of
the Insurer for loss under this policy shall apply only to the same extent
it would have been liable had the underlying insurance policies been
maintained as set forth above. In no event shall the Insurer be liable to
pay loss under this policy until the total amount of the Underlying Limit
of Liability, as stated in Item 7(E) of the Declarations, has been paid
solely by reason of the payment of loss.
Section 2. LIMIT OF LIABILITY
A. The Insurer shall only be liable to make payment under this policy after
the total amount of the Underlying Limit of Liability as stated in Item
7(E) of the Declarations has been paid solely by reason of the payment of
loss.
B. In the event of the reduction or exhaustion of the total amount of the
Underlying Limit of Liability as stated in Item 7(E) of the Declarations
solely by reason of the payment of loss, this policy shall:
1. in the event of such reduction pay excess of the reduced amount of the
Underlying Limit of Liability but not to exceed the amount stated in
Item 4 of the Declarations, or
2. in the event of exhaustion continue in force provided always that this
policy shall only pay the excess over the Retention amount stated in
Item 5 of the Declarations as respects each and every loss hereunder,
but not to exceed the amount stated in Item 4 of the Declarations.
C. The Insurer's liability for loss subject to paragraphs (A) and (B) above
shall be the amount stated in Item 4 of the Declarations which shall be the
maximum liability of the Insurer in the Policy Period stated in Item 3 of
the Declarations. The Limit of Liability of the Insurer for the Discovery
Period, if elected, shall be part of, and not in addition to, the Limit of
Liability as stated in Item 4 of the Declarations.
<PAGE> 66
Section 3. LOSS PROVISIONS
The Insured(s) shall as a condition precedent to the right to be indemnified
under this policy give to the Insurer notice in writing, as soon as
practicable and during the Policy Period or during the Discovery Period, if
effective of any claim made against the Insured(s).
Section 4. NOTICE
Notice hereunder shall be given to St. Paul Mercury Insurance Company, 385
Washington Street, St. Paul, MN 55102.
Section 5. CANCELLATION
This policy may be canceled by the Corporation at any time by mailing written
notice to the Insurer at the address shown in Section 4 stating when
thereafter such cancellation shall be effective or by surrender of this policy
to the Insurer or its authorized agent. This policy may also be canceled by
or on behalf of the Insurer by delivering to the Corporation or by mailing to
the Corporation by registered, certified, or other first class mail, at the
Corporation's address as shown in Item 2 of the Declarations, written notice
stating when, not less than sixty (60) days thereafter the cancellation shall
be effective. The mailing of such notice as aforesaid shall be sufficient
proof of notice. The Policy Period terminates at the date and hour specified
in such notice, or at the date and time of surrender.
If the period of limitation relating to the giving and notice is prohibited or
made void by any law controlling the construction thereof, such period shall
be deemed to be amended so as to be equal to the minimum period of limitation
permitted by such law.
Section 6. DISCOVERY PERIOD
If the Insurer shall cancel or refuse to renew (refusal is hereafter referred
to as non-renewal) this policy, the Corporation or the Insureds shall have the
right, upon payment of the additional premium of 75% of the premium hereunder,
to an extension of the cover granted by this policy to report any claim or
claims in accordance with Section 3, which claim or claims are made against
the Insureds during the period of twelve (12) months after the effective date
of cancellation or non-renewal, herein called the Discovery Period, but only
for any Wrongful Act committed before the effective date of such cancellation
or non-renewal and otherwise covered by this policy.
This right shall terminate, however, unless the Corporation or the Insureds
provide written notice of such election together with the payment of the
additional premium due and this is received by the Insurer at the address
shown in Section 4 within ten (10) days after the effective date of
cancellation or non-renewal.
Discovery Period wherever used in this policy shall also mean optional
extension period or extended reporting period as defined by the policy stated
in Item 8 of the Declarations.
The offer by the Insurer of renewal terms, conditions, limits of liability
and/or premiums different from those of the expiring policy shall not
constitute non-renewal.
The provisions of this Section 6 and the rights granted herein to the
Corporation or the Insured shall not apply to any cancellation resulting from
non-payment of premium.
Section 7. NUCLEAR ENERGY LIABILITY EXCLUSION
It is agreed that:
A. This policy does not apply:
1. Under any Liability Coverage, to bodily injury or property damage
<PAGE> 67
a. with respect to which an Insured under this policy is also an Insured
under a nuclear energy liability policy issued by Nuclear Energy
Liability Insurance Association, Mutual Atomic Energy Liability
Underwriters or Nuclear Insurance Association of Canada, or would be
an Insured under any such policy but for its termination upon
exhaustion of its limit of liability; or
b. resulting from the hazardous properties of nuclear material and with
respect to which (1) any person or organization is required to
maintain financial protection pursuant to the Atomic Energy Act of
1954, or any law amendatory thereof, or (2) the Insured is, or had
this policy not been issued would be, entitled to indemnity from the
United State of America, or an agency thereof, under any agreement
entered into by the United States of America, or any agency thereof
with any person or organization.
2. Under any Medical Payments coverage, or under any Supplementary Payments
provision relating to first aid, to expenses incurred with respects to
bodily injury resulting from the hazardous properties of nuclear material
and arising out of the operation of a nuclear facility by any person or
organization.
3. Under any Liability Coverage, to bodily injury or property damage
resulting from the hazardous properties of nuclear material, if
a. the nuclear material (1) is at any nuclear facility owned by, or
operated by or on behalf of an Insured or (2) has been discharged or
dispersed therefrom;
b. the nuclear material is contained in spent fuel or waste at any time
possessed, handled, used, processed, stored, transported or disposed
of by or on behalf of the Insured, or
c. the bodily injury or property damage arises out of furnishing by an
Insured of services, materials, parts or equipment in connection with
the planning, construction, maintenance, operation or use of any
nuclear facility, but if such a facility is located within the United
States of America, its territories or possessions or Canada, this
exclusion (c) applies only to property damage to such nuclear facility
and any property thereat.
B. As used in this exclusion:
"hazardous properties" include radioactive, toxic or explosive properties;
"nuclear material" means source material, special nuclear material or by-
product material;
"source material," "special nuclear material," and by-product material have
the meanings given them in the Atomic Energy Act of 1954 or in any law
amendatory thereof;
"spent fuel" means any fuel element or fuel component, solid or liquid,
which has been used or exposed to radiation in a nuclear reactor;
"waste: means any waste material (1) containing by-product material and (2)
resulting from the operation by any person or organization of any nuclear
facility included within the definition of nuclear facility under paragraph
(1) or (2) thereof;
"nuclear facility" means
(1) any nuclear reactor,
(2) any equipment or devise designed or used for (1) separating the
isotopes of uranium or plutonium, (2) processing or utilizing spent fuel,
or (3) handling, processing or packaging waste,
<PAGE> 68
(3) any equipment or device used for the processing, fabricating or
alloying of special nuclear material if at any time the total amount of
such material in the custody of the Insured and the premises where such
equipment or devise is located consists of or contains more than 25 grams
of plutonium or uranium 233 or any combination thereof, or more than 250
grams of uranium 235,
(4) any structure, basin, excavation, premises or place prepared or used
for the stage or disposal of waste, and includes the site on which any of
the foregoing is located, and operations conducted on such and all
premises used for such operations;
"nuclear reactor" means any apparatus designed or used to sustain nuclear
fission in a self-supporting chain reaction or to contain critical mass of
fissionable material, "property damage" includes all forms of radioactive
contamination of property.
Section 8. ACTION AGAINST THE INSURER
No action shall lie against the Insurer unless, as a condition precedent
thereto, there shall have been full compliance with all of the terms of this
policy, not until the amount of the Corporation's obligation to pay and/or the
Insureds' obligation to pay have been finally determined either by judgment
against the Insureds after actual trial or by written agreement of the
Corporation and/or the Insureds, the claimant and the Insurer.
Any person or organization or the legal representative thereof who has secured
such judgment or written agreement shall thereafter be entitled to recover
under this policy to the extent of the insurance afforded by this policy. No
person or organization shall have any right under this policy to join the
Insurer as a party to any action against the Corporation and/or Insured to
determine the Insureds' liability, nor shall the Insurer be impleaded by the
Corporation and/or Insureds or their legal representatives. Bankruptcy or
solvency of the Corporation or the Corporation's estate, or bankruptcy or
insolvency of the Insureds or the Insureds' estate shall not relieve the
Insurer of any of its obligations hereunder.
IN WITNESS WHEREOF, the Insurer designated on the Declarations page has caused
this policy to be signed by its President and Secretary and countersigned on
the Declarations page by a duly authorized representative of the Insurer.
- - --------------------------- ------------------------------
Secretary President
<PAGE> 69
EXCESS INSURANCE POLICY
IMPORTANT NOTICE
THIS POLICY PROVIDES EXCESS INSURANCE ON A CLAIMS MADE BASIS.
ALL CLAIMS MUST BE REPORTED TO THE COMPANY EVEN IF THEY DO NOT
EXCEED THE AMOUNT OF UNDERLYING INSURANCE. PLEASE READ THE
POLICY AND ALL ENDORSEMENTS CAREFULLY TO DETERMINE YOUR
RIGHTS, DUTIES AND WHAT IS AND IS NOT COVERED.
OLD REPUBLIC
Insurance Company
GREENSBURG, PENNSYLVANIA
ORUG-5(10/88)
<PAGE> 70
OLD REPUBLIC
Insurance Company
GREENSBURG, PENNSYLVANIA
(hereinafter called the company)
EXCESS INSURANCE POLICY
In consideration of the payment of premium and in reliance upon the
statements in the Declarations and subject to all the terms of this policy,
agrees with the insured named in the Declarations, to provide coverage as
follows:
INSURING AGREEMENT
To indemnify the insured for that amount of loss which exceeds the amount of
loss payable by underlying policies described in Declaration 4, but the
company's obligation hereunder shall not exceed the limit of liability stated
in Declaration 5.
CONDITIONS
A. Application of Underlying Insurance Except as otherwise state
herein, and except with respect to (1) any obligation to investigate or defend
any claim or suit, or (2) any obligation to renew, the insurance afforded by
this policy shall apply in like manner as the underlying insurance described in
Declaration 4.
B. Maintenance of Underlying Insurance It is warranted by the
insured that no less than the amount of underlying insurance stated in
Declaration 4 is available to the insured, and that such underlying insurance
shall be maintained in force during the currency of this policy, except for any
reduction of the aggregate limits contained therein solely by payment of claims
in respect to occurrences during the period of this policy and covered by such
underlying insurance. Notice of exhaustion of underlying insurance shall be
given the company as soon as practicable after such exhaustion.
C. Loss Payable Liability of the company with respect to any one
occurrence shall not attach unless and until the insured, or the insured's
underlying insurer, has paid the amount of underlying insurance stated in
declaration 4 and after the insured's liability shall have been made certain by
final judgment after actual trial, or by written agreement of the insured, the
claimant and the company.
D. Premium The premium for this policy shall be stated in
Declaration 3.
E. Assistance and Co-operation The company shall not be called upon to
assume charge of the settlement or defense of any claim made or proceeding
instituted against the insured; but the company shall have the right and
opportunity to associate with the insured in the defense and control of any
claim or proceeding reasonably likely to involve the company. In such event
the insured and the company shall cooperate fully.
F. Expenses Loss and legal expenses incurred by the insured with the
consent of the company in the investigation or defense of claims, including
court costs and interest, shall be borne by both the company and the insured in
the proportion that each party's share of loss bears to the total amount of
such loss. For purposes of this allocation, the insured's share of such loss
shall include the amount, if any, of the loss borne by its underlying insurer.
Salaries and expenses of the insured's employees shall not be considered as
part of the above expenses. Expenses thus paid by the company shall be paid in
addition to the limit of liability stated in Declaration 5. If, however,
expenses are included in the limit of liability of the underlying insurance,
then expenses paid by the company shall be included in the limit of liability
of this policy and not in addition thereto.
G. Notice of Occurrence Upon the happening of an occurrence reasonably
likely to involve the company hereunder, written notice shall be given as soon
as practicable to the company or any of its authorized agents as designated in
Declaration 6. Such notice shall contain particulars sufficient to identify the
insured and the fullest information obtainable at the time.
<PAGE> 71
The insured shall give like notice of any claim made on account of such
occurrence. If legal proceedings are begun, the insured, when requested by
the company, shall forward to it each paper thereon, or a copy thereof,
received by the insured or the insured's representatives, together with
copies of reports of investigations made by the insured with respect to such
claim proceedings.
H. Appeals In the event the insured or the insured's underlying
insurer elects not to appeal a judgment which exceeds the underlying insurance,
the company may elect to do so at its own expense, and shall be liable for the
taxable costs, disbursements and interest incidental thereto, but in no event
shall the liability of the company for excess loss exceed the amount set forth
in Declaration 5.
I. Subrogation In the event of payment under this policy, the company
will participate with the insured and any underlying insurer in the exercise of
all the insured's rights of recovery against any person or organization liable
therefor. Recoveries shall be applied first to reimburse any interest
(including the insured) that may have paid any amount, with respect to
liability in excess of the limit of the company's liability hereunder, then to
reimburse the company up to the amount paid hereunder, and lastly to reimburse
such interests (including the insured), to whom this insurance is excess as are
entitled to claim the residue, if any. Such expenses incurred in the exercise
of rights of recovery shall be apportioned among all interests in the ratio of
their respective losses for which recovery is sought.
J. Cancellation This policy may be cancelled by the named insured by
surrender thereof to the company or any of its authorized agents, or by mailing
to the company written notice stating when thereafter such cancellation shall
be effective. If cancelled by the named insured, the company shall retain the
customary short rate proportion of the premium. This policy may be cancelled
by the company by mailing to the named insured at the address shown in this
policy written notice stating when, not less than thirty (30) days thereafter,
such cancellation shall be effective, except this policy may be cancelled as
aforesaid by not less than ten (10) days notice when the cancellation is being
effected by reason of the named insured's nonpayment of premium.
The mailing of notice as aforesaid shall be sufficient notices and the
effective date of cancellation stated in the notice shall become the end of the
policy period. If the company cancels, earned premium shall be computed pro
rata. Delivery of such written notice either by the named insured or by the
company shall be equivalent to mailing.
Premium adjustment shall be made by the company either at the time
cancellation is effected or as soon as practicable thereafter. The check of
the company or its representative, mailed or delivered, shall be sufficient
tender of any refund due the named insured.
If this policy insures more than one named insured, cancellation may be
effected by the first of such named insureds for the account of all insureds;
and notice of cancellation by the company to such first named insured shall be
notice to all insureds. Payment of any unearned premium to such first named
insured shall be for the account of all interests therein.
K. Other Insurance If other valid and collectible insurance is
available to the insured which covers a loss also covered by this policy, other
than insurance that is specifically purchased as being in excess of this
policy, this policy shall operate in excess of, and not contribute with, such
other insurance.
L. Changes in Underlying Insurance Any changes in coverage or the
insurer in the underlying insurance shall be promptly reported to the company
and the insured shall, upon request, furnish the company with copies of such
changes. Any change in premium in the underlying insurance shall be promptly
reported to the company and the premium for this policy may be adjusted in
accordance with the manuals of the company then in effect.
IN WITNESS WHEREOF, the company has caused this policy to be signed by its
president and secretary but this policy shall not be valid unless completed
by the attachment hereto of a Declarations page countersigned by a duly
authorized representative of the company.
- - ---------------------------------- --------------------------------
Secretary President
<PAGE> 72
NUCLEAR ENERGY LIABILITY
EXCLUSION ENDORSEMENT
It is agreed that:
I. This policy does not apply: II. As used in this endorsement:
(a) under any liability
coverage, to injury, sickness, "hazardous properties" include
disease, death, destruction or radioactive, toxic or explosive
loss properties;
1. with respect to which an
insured under the policy is "nuclear material" means source
also an insured under a material, special nuclear material or
nuclear energy liability byproduct material;
policy issued by Nuclear
Energy Liability Insurance "source material", "special nuclear
Association, Mutual Atomic material", and "byproduct material"
Energy Liability have the meanings given them in the
Underwriters or Nuclear Atomic Energy Act of 1954 or in any
Insurance Association of law amendatory thereof;
Canada, or would be an
insured under any such "spent fuel" means any fuel element
policy but for its or fuel component, solid or liquid,
termination upon exhaustion which has been used or exposed to
of its limit of liability; radiation in a nuclear reactor;
or
2. resulting from the hazardous "waste" means any waste material (1)
properties or nuclear containing byproduct material and (2)
material and with respect to resulting from the operation by any
which (a) any person or person or organization of any nuclear
organization is required to facility included within the
maintain financial definition of nuclear facility under
protection pursuant to the paragraph (1) or (2) thereof;
Atomic Energy Act of 1954,
or any law amendatory "nuclear facility" means
thereof, or (b) the insured 1. any nuclear reactor;
is, or had its policy not 2. any equipment or device
been issued would be, designed or used for (a)
entitled to indemnity from separating the isotopes of
the United States of uranium or plutonium, (b)
America, or any agency processing or utilizing
thereof, with any person or spent fuel, or (c) handling,
organization; processing or packaging
(b) under any liability waste;
coverage, to injury, sickness, 3. any equipment or devise used
disease, death, destruction or for processing, fabricating
loss resulting from the or alloying of special
hazardous properties of nuclear nuclear material if at any
material, if time the total amount of
1. the nuclear material (a) is such material in the custody
at any nuclear facility of the insured at the
owned by, or operated by or premises where such
on behalf of, an insured or equipment or devise is
(b) has been discharged or located consists of or
dispersed therefrom; contains more than 25 grams
2. the nuclear material is of plutonium or uranium 233
contained in spent fuel or or any combination thereof,
waste at any time possessed, or more than 250 grams of
handled, used, processed, uranium 235;
stored, transported or 4. any structure, basin,
disposed of by or on behalf excavation, premises or
of an insured; or place prepared or used for
3. the injury, sickness, the storage or disposal of
disease, death, destruction waste;
or loss arises out of the and includes the site on which any of
furnishing by an insured of the foregoing is located, all
services, materials, parts operations conducted on such site and
or equipment in connection all premises used for such
with the planning, operations;
construction, maintenance,
operation or use of any "nuclear reactor" means any apparatus
nuclear facility, but if designed or used to sustain nuclear
such facility is located fission in self-supporting chain
within the United States of reaction or to contain a critical
America, its territories or mass of fissionable material;
possessions or Canada, this
exclusion (3) applies only With respect to injury to or
to injury to or destruction destruction of or loss of property,
of or loss of property at the word "injury" or "destruction" or
such nuclear facility; "loss" includes all forms of
radioactive contamination of
property;
All other terms and conditions of
this policy remain unchanged.
<PAGE> 73
Old Republic Insurance Company
GREENSBURG, PENNSYLVANIA
- - --------------------------------------------------------------------------------
DECLARATIONS--EXCESS INSURANCE POLICY Policy Number: CUG 23731
Previous Number: New
- - --------------------------------------------------------------------------------
1. NAMED INSURED AND ADDRESS:
Bolt Beranek and Newman Inc.
150 CambridgePark Drive
Cambridge, MA 02140
- - --------------------------------------------------------------------------------
2. POLICY PERIOD: FROM December 1, 1993 TO December 1, 1994
12:01 A.M. STANDARD TIME AT THE NAMED INSURED'S ADDRESS ABOVE
PREMIUM:
- - --------------------------------------------------------------------------------
3. $80,000. Flat
- - --------------------------------------------------------------------------------
4. UNDERLYING INSURANCE:
$10,000,000. annual aggregate as detailed
in Endorsement No. 1
- - --------------------------------------------------------------------------------
5. LIMIT OF LIABILITY:
$5,000,000. annual aggregate in excess of the underlying
insurance stated in Item 4. All expenses resulting from the
investigation and defense of claims to which this policy
applies, including court costs and interest, shall be
included in the limit of liability of this policy and not in
addition thereto.
- - --------------------------------------------------------------------------------
6. NOTICE OF OCCURRENCE OR CLAIM (CONDITION G) TO:
CHICAGO UNDERWRITING GROUP, INC.
211 WEST WACKER DRIVE, THIRD FLOOR
CHICAGO, ILLINOIS 60606
- - --------------------------------------------------------------------------------
7. ATTACHMENTS: ORUG-5 Endorsements #1, #2, #3, #4, #5, #6 and
Application dated November 23, 1993.
DATE: July 5, 1994
------------------------------------------
Authorized Representative
<PAGE> 74
OLD REPUBLIC
Companies
It is understood and agreed Item 4. of the Declarations reads as follows:
4. UNDERLYING INSURANCE:
Primary Insurer: Federal Insurance Company
Coverage: Executive Liability and Indemnification
Policy Number: 8137-71-31
Policy Term: December 1, 1993 to December 1, 1994
Limit of Liability: $3,000,000. annual aggregate
Retention: $0 each Director and Officer each Loss, but in
no event exceeding $0 in the aggregate each
Loss as respects Directors and Officers
Liability. $1,000,000. in the aggregate each
loss as respects Company Reimbursement
Liability.
First Excess Insurer: St. Paul Mercury Insurance Company
Policy Number: 900DX0049
Policy Term: December 1, 1993 to December 1, 1994
Limit of Liability: $5,000,000. annual aggregate in excess of the
limit shown above.
Second Excess Insurer: Federal Insurance Company
Policy Number: 8137-71-32
Policy Term: December 1, 1993 to December 1, 1994
Limit of Liability: $2,000,000. annual aggregate in excess of the
limits shown above.
All other terms and conditions of this policy remain unchanged.
This endorsement is a part of the policy and takes effect on the effective
date of the policy, unless another effective date is shown below.
- - -------------------------- ------------------------------------
Must Be Completed Complete Only When This Endorsement
Is Not Prepared with the Policy Or
Is Not to be Effective with the
Policy
- - -------------------------- ------------------------------------
ENDT. NO. POLICY NO. ISSUED TO EFFECTIVE DATE OF THIS
1 CUG 23731 ENDORSEMENT
- - -------------------------- ------------------------------------
7/05/94 - AA
Countersigned by___________________________________
Authorized Representative
ORUG-21 (3/94)
<PAGE> 75
OLD REPUBLIC
Companies
Amendatory Endorsement
It is agreed that conditions A, B, C, F and G of this policy are deleted and
replaced by the following:
A. Application of Underlying Insurance. Except as otherwise stated herein,
and except with respect to (1) any obligation to investigate or defend
any claim or suit, or (2) any obligation to renew, this policy shall
adopt and incorporate by reference the terms, conditions, exclusions and
limitations of the underlying insurance described in Declaration 4.
B. Maintenance of Underlying Insurance - It is warranted by the insured that
no less than the amount of underlying insurance stated in Declaration 4
is available to the insured and that such underlying insurance shall be
maintained in force during the period of this policy, except for the
reduction or exhaustion of the aggregate limits contained therein solely
by payment of loss and/or defense expenses which, except for the amount
thereof, would be indemnifiable under this policy and which results from
claims first made against the Insure during the period of this policy.
C. Loss Payable - Liability of the company with respect to any claim shall
not attach unless and until the insured, or the insured's underlying
insurer, has paid an amount equal to the underlying insurance stated in
Declaration 4 and after the insured's liability shall have been made
certain by final judgment after actual trial or by written agreement of
the insured, the claimant and the company.
The insolvency, bankruptcy, receivership or refusal or inability to pay
of the insured or any underlying insurer shall not operate to lower the
amount of underlying insurance stated in Declaration 4 or increase the
company's liability under this policy. In no event shall the company
assume the liabilities and/or responsibilities and/or obligations of the
insured or any underlying insurer.
F. Expenses - Notwithstanding anything contained in the underlying insurance
to the contrary, all expenses resulting from the investigation and
defense of claims to which this policy applies, including court costs and
interest, shall be included in the limit of liability of this policy and
not in addition thereto.
G. Notice of Claims - The insured must give the company, through its
authorized agent designated in Declaration 6, written notice of any claim
first made against the insured during the period of this policy whether
or not the claim exceeds the amount of underlying insurance. Such notice
shall be given within the period of time required by the underlying
insurance, but in no event shall the notice be given later than sixty (60)
days after the termination of this policy. Any notice of claim must
contain particulars sufficient to identify the insured, the claimant and
the alleged acts, errors or omissions that caused the claim.
The insured shall cooperate with the company in providing any information
that the company may reasonably require, including copies of all
demands, notices, summonses or legal papers that relate to any claim.
This endorsement is a part of your policy and takes effect on the effective
date of your policy, unless another effective date is shown below.
- - ------------------------- -----------------------------------------
Must Be Completed Complete Only When This Endorsement
Is Not Prepared with the Policy Or
Is Not to be Effective with the
Policy
- - ------------------------- -----------------------------------------
ENDT. NO. POLICY NO. ISSUED TO EFFECTIVE DATE OF
2 CUG 23731 THIS ENDORSEMENT
- - ------------------------- -----------------------------------------
CHUG-67 (8/87)
Countersigned by______________________________
Authorized Representative
ORUG-21 (4/84)
<PAGE> 76
OLD REPUBLIC
Companies
Excess Insurance Application
It is agreed that this policy is issued in reliance upon the statements made
in the application, a copy of which is attached hereto and made a part
hereof.
It is further agreed that the policy shall not apply to liability of any kind
based upon, involving or arising out of:
(1) any claims or suits described or referenced by the insured in answer
to questions #10, #11 and #12 of the application, or
(2) any facts, situations or circumstances described or referenced by the
insured in answer to question #13 of the application.
All other terms and conditions of this policy remain unchanged.
This endorsement is a part of the policy and takes effect on the effective
date of the policy, unless another effective date is shown below.
- - -------------------------- ------------------------------------------
Must Be Completed Complete Only When This Endorsement
Is Not Prepared with the Policy Or
Is Not to be Effective with the
Policy
- - -------------------------- ------------------------------------------
ENDT. NO. POLICY NO. ISSUED TO EFFECTIVE DATE OF THIS
3 CUG 23731 ENDORSEMENT
- - -------------------------- ------------------------------------------
CHUG-71 (4/94)
(D&O)
ORUG-21 (3/94) Countersigned by_______________________________
Authorized Representative
<PAGE> 77
OLD REPUBLIC
Companies
It is understood and agreed that the insurer shall not be liable to make any
payment for loss in connection with any claim made against the Directors or
Officers based upon, arising out of, in consequence of or in any way
attributable to litigation, arbitration or administrative proceeding prior to
or pending as of December 1, 1993 involving the Company and/or any Director
or Officer of the Company and/or any Subsidiary of the Company or arising out
of any facts or circumstances underlying or alleged in any such prior or
pending litigation, arbitration or administrative proceeding.
All other terms and conditions of this policy remain unchanged.
This endorsement is a part of the policy and takes effect on the effective
date of the policy, unless another effective date is shown below.
- - --------------------------- -------------------------------------------
Must Be Completed Complete Only When This Endorsement
Is Not Prepared with the Policy Or
Is Not to be Effective with the
Policy
- - --------------------------- -------------------------------------------
ENDT. NO. POLICY NO. ISSUED TO EFFECTIVE DATE OF THIS
4 CUG 23731 ENDORSEMENT
- - --------------------------- -------------------------------------------
CHUG-41 (01/88)
ORUG-21 (3/94) Countersigned by_________________________________
Authorized Representative
<PAGE> 78
OLD REPUBLIC
Companies
If the Insurer shall cancel this policy for any reason, except for the
nonpayment of premium, or refuse to renew this policy, the Company shall
have the right, upon payment within ten (10) days after the effective date of
such cancellation or non-renewal of an additional premium of 75% of the
annual premium hereunder to an extension of the insurance granted by this
policy in respect of any claim or claims made against the Directors or
Officers during the period of twelve (12) months after the date of such
cancellation or non-renewal, but only in respect of any Wrongful Act
committed before the date of such cancellation or non-renewal. Such twelve
(12) month period is herein after referred to as "extended discovery period".
All other terms and conditions of this policy remain unchanged.
This endorsement is a part of the policy and takes effect on the effective
date of the policy, unless another effective date is shown below.
- - ------------------------- ------------------------------------------
Must Be Completed Complete Only When This Endorsement
Is Not Prepared with the Policy Or
Is Not to be Effective with the
Policy
- - ------------------------- ------------------------------------------
ENDT. NO. POLICY NO. ISSUED TO EFFECTIVE DATE OF THIS
5 CUG 23731 ENDORSEMENT
- - ------------------------- ------------------------------------------
CHUG-87 (11/86)
ORUG-21 (3/94) Countersigned by_________________________________
Authorized Representative
<PAGE> 79
OLD REPUBLIC
Companies
In consideration of the premium charged it is understood and agreed that
coverage provided hereunder does not apply to any claim or claims for which
coverage would be afforded by the Primary Insurer's Endorsement no. 2.
All other terms and conditions of this policy remain unchanged.
This endorsement is a part of the policy and takes effect on the effective
date of the policy, unless another effective date is shown below.
- - --------------------------- ------------------------------------------
Must Be Completed Complete Only When This Endorsement
Is Not Prepared with the Policy Or
Is Not to be Effective with the
Policy
- - --------------------------- ------------------------------------------
ENDT. NO. POLICY NO. ISSUED TO EFFECTIVE DATE OF THIS
6 CUG 23731 ENDORSEMENT
- - --------------------------- ------------------------------------------
7/05/94 - AA
ORUG-21 (3/94) Countersigned by_______________________________
Authorized Representative
<PAGE> 1
<TABLE>
EXHIBIT 11.1
BOLT BERANEK AND NEWMAN INC.
CALCULATION OF NET INCOME (LOSS) PER SHARE
Years Ended June 30, 1994, 1993 and 1992
(Dollars in thousands, except per-share data)
<CAPTION>
Year Ended June 30
- - ------------------------------------------------------------------------------------------------------------------------------------
1994 1993 1992
----------------------- ---------------------------- ----------------------------
Fully Fully Fully
Primary Diluted Primary Diluted Primary Diluted
---------- ---------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Calculation of shares:
Weighted average of shares
outstanding 16,179,000 16,179,000 15,705,000 15,705,000 16,227,000 16,227,000
Incremental shares from use
of treasury stock method
for stock options (a) (a) (a) (a) 277,000 268,000
---------- ---------- ---------- ----------- ---------- ----------
Shares used in per-share
calculations 16,179,000 16,179,000 15,705,000 15,705,000 16,504,000 16,495,000
========== ========== ========== =========== ========== ==========
Income (loss) before
extraordinary item $(7,824) $(32,264) $4,153
Extraordinary item 3,648
-------- -------- ------
Net income (loss) $(7,824) $(32,264) $7,801
======= ======== ======
Per-share amounts:
Income (loss) before
extraordinary item $ (.48) $ (.48) $ (2.05) $ (2.05) $ .24 $ .24
Extraordinary item .22 .22
---------- ---------- ---------- ----------- ---------- ----------
Net income (loss) per share $ (.48) $ (.48) $ (2.05) $ (2.05) $ .46 $ .46
========== ========== ========== =========== ========== ==========
<FN>
(a) 1994 and 1993 incremental shares were antidilutive and, as a result, were not included in the calculations of net loss per
share.
</TABLE>
<PAGE> 1
Exhibit 13.1
21 Five-Year Financial Summary
22 Managment's Discussion and Analysis
27 Consolidated Statements of Operations
28 Consolidated Balance Sheets
29 Consolidated Statements of Shareholders' Equity
30 Consolidated Statements of Cash Flows
31 Notes of Consolidated Financial Statements
39 Report of Independent Accountants
40 Quarterly Financial Data
41 Board of Directors and Corporate Officers
42 Corporate Headquarters and Information for Shareholders
<PAGE> 2
<TABLE>
FIVE-YEAR FINANCIAL SUMMARY
<CAPTION>
Dollars in thousands, except per-share data 1994 1993 1992 1991 1990
- - -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Results of Operations
Revenue $ 196,104 $ 233,453 $ 257,996 $ 270,628 $ 261,927
----------------------------------------------------------------
Income (loss) from operations (1) $ (8,444) $ (32,323) $ 6,878 $ 5,137 $ (38,357)
Interest and other income (expense), net 620 59 (2,725) 4,065 729
----------------------------------------------------------------
Income (loss) before income taxes
and extraordinary item (7,824) (32,264) 4,153 9,202 (37,628)
Provision (benefit) for income taxes 151 (2,824)
----------------------------------------------------------------
Income (loss) before extraordinary item (7,824) (32,264) 4,153 9,051 (34,804)
Extraordinary item (2) 3,648 467
----------------------------------------------------------------
Net income (loss) $ (7,824) $ (32,264) $ 7,801 $ 9,518 $ (34,804)
----------------------------------------------------------------
Per-share amounts:
Income (loss) before extraordinary item $ (.48) $ (2.05) $ .24 $ .49 $ (1.91)
Extraordinary item (2) .22 .03
----------------------------------------------------------------
Net income (loss) $ (.48) $ (2.05) $ .46 $ .52 $ (1.91)
----------------------------------------------------------------
Cash dividends declared per share $ 0.06 $ 0.06 $ 0.06
----------------------------------------------------------------
Shares used in per-share calculations 16,179,000 15,705,000 16,504,000 18,314,000 18,246,000
Financial Position
Cash and temporary investments $ 67,115 $ 56,835 $ 45,769 $ 66,933 $ 61,828
Working capital 60,337 57,990 78,662 88,665 80,916
Property, plant and equipment, net 19,658 20,861 30,152 33,654 40,601
Total assets 135,940 140,645 162,619 182,616 186,171
Convertible debentures 73,510 73,510 73,510 83,355 84,700
Shareholders' equity, net of treasury shares 7,271 10,042 41,887 44,473 43,164
General Information and Ratios
Additions to property, plant and equipment $ 6,938 $ 7,942 $ 11,668 $ 10,825 $ 11,241
Revenue per average number of employees 117 125 118 116 101
Employees at year-end 1,694 1,663 2,086 2,284 2,367
Shareholders of record at year-end 2,225 2,709 3,108 3,340 3,302
Current ratio 2.1 2.0 2.7 2.7 2.4
Debt to equity ratio 10.1 7.3 1.8 1.9 2.0
- - -----------------------------------------------------------------------------------------------------------------------
</TABLE>
1 Results for fiscal year 1993 included a restructuring charge of $20.5 million,
or $1.30 per share, associated with employee severance and related facilities
costs. Results for fiscal year 1990 included a restructuring charge of $20.4
million, or $1.12 per share, for costs in connection with the downsizing of
BBN Advanced Computers, consolidation of certain of the company's leased
facilities, and severance and other costs.
2 Results for fiscal years 1992 and 1991 included an extraordinary gain of $3.6
million, or $.22 per share, and $.5 million, or $.03 per share,
respectively, from the purchase and early retirement of $9.8 million and $1.3
million, respectively, of the company's 6% convertible subordinated
debentures.
<PAGE> 3
BOLT BERANEK AND NEWMAN INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FY1994 COMPARED TO FY1993
- - -------------------------
INTRODUCTION
In FY1994, the company consisted of three operating units, the Systems
and Technologies Division, BBN Software Products Corporation and LightStream
Corporation. The Systems and Technologies Division ("Systems and
Technologies") includes internetworking services and products, collaborative
systems and acoustic technologies. BBN Software Products Corporation
("Software Products"), a wholly-owned subsidiary of the company, develops,
markets and supports data analysis software products designed primarily for
manufacturing, engineering and health industry applications. LightStream
Corporation ("LightStream"), an 80%-owned subsidiary of the company, develops,
markets and supports networking products based on Asynchronous Transfer Mode
("ATM") technology.
SUMMARY
For the year ended June 30, 1994, the company had a loss of $7.8
million, or $.48 per share, on revenue of $196.1 million, compared to a loss of
$32.3 million, or $2.05 per share, on revenue of $233.4 million for FY1993.
Results for the prior year included a restructuring charge of $20.5 million, or
$1.30 per share, and a gain of $3.2 million, or $.20 per share, resulting from
the sale of the company's Advanced Simulation business in April 1993. The
reduction in revenue from the prior year reflects the sale of the Advanced
Simulation business and reduced defense communications systems revenue. The
company's losses continue to reflect significant expenditures on its LightStream
ATM switch, T/10[TM] Integrated Access Device and BBN/Cornerstone[TM] software
while revenue from these new products remains financially insignificant. These
losses were partially offset by operating income at Systems and Technologies.
The company's objective is to achieve revenue growth in FY1995 and a
return to profitability during the second half of the fiscal year. However,
this outlook is strongly dependent upon achieving a significant increase in new
product and services revenue. There can be no assurance that such an increase
will be realized. The outlook could also be affected by further expenditures on
commercial business opportunities available to the company.
The company's overall strategy is to capitalize upon its technical
expertise and problem solving experience in the internetworking, data analysis,
collaborative and acoustic systems areas. This strategy is being implemented
through five distinct and complementary business units. In addition to the
established Systems and Technologies and Software Products operating units, the
company in the past year has organized three early stage companies. LightStream
Corporation was organized in October 1993 to develop and market ATM products,
and in July 1994 the company formed BBN HARK Systems Corporation to develop and
market speech recognition products. Computer speech recognition is an emerging
market, and the company intends to increase its sales and marketing investment
in this area. The company is also investing in the expansion of its Internet
services business by organizing a new subsidiary, BBN Internet Services
Corporation, which is being established to provide Internet services on a
worldwide basis. The company's anticipated revenue growth is dependent upon its
ability to continue to recruit entrepreneurial marketing and sales leadership,
develop a support infrastructure and establish productive customer
relationships, particularly in the commercial marketplace. The implementation
of this strategy will require significant investment in sales and marketing.
On August 19, 1994, BBN Internet Services Corporation acquired, from
Stanford University, the Bay Area Regional Research Network ("BARRNET"), a
leading provider of Internet services in the San Francisco Bay area, for
approximately $6.5 million consisting principally of $2.0 million of cash,
270,270 shares of BBN's common stock and 200,000 shares of BBN Internet Services
Corporation's common stock. The company may accelerate its plans to invest in
expanding its Internet services activities. Such investments may include
additional acquisitions and increased spending which could adversely affect the
company's financial results for FY1995.
REVENUE
Revenue decreased $37.3 million, or 16%, in FY1994 compared to FY1993.
The reduction reflects approximately $25.3 million in FY1993 revenue provided
by the company's former simulation unit as well as
22
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
declines in the company's defense communications systems business and lower
revenue in FY1994 from its mature X.25 network products and RS/Series[TM]
software.
The company, like other companies doing business with the Department of
Defense, has been adversely affected by reduced defense spending and expects
this general decline and attendant increased competition within the defense
industry to continue over the next several years. Uncertainty continues to exist
on the size and scope of reductions in future defense budgets and their impact
on the company's defense-related business. Further, there is the possibility
that funding limitations could result in a reduction, delay, or cancellation of
existing or emerging programs. These factors have reduced the company's U.S.
government revenue and operating margins in recent fiscal years, and this trend
is expected to continue at least through FY1995, particularly in the defense
communications systems and acoustic and sensor systems areas.
In FY1991, the Defense Information Systems Agency awarded the company a
one-year contract in support of the Defense Data Network, with up to four
one-year optional extensions. The company is currently performing under the
third option year of the contract, valued at approximately $20 million, which
will continue the company's existing activities through October 1994. The
company now expects to be awarded the fourth option year of the contract, valued
at approximately $15 million, which will continue these activities through
October 1995. There can be no assurance that this activity will continue beyond
October 1995. Approximately $21 million and $27 million of revenue has been
recorded under the contract in FY1994 and FY1993, respectively.
The company conducts its commercial businesses in environments
characterized by intense competition, shortened product cycles and rapid
technological change, which require significant research and development
expenditures to develop new products which address emerging market requirements
and to improve its existing products. The company's traditional commercial
businesses, consisting principally of X.25 network products and RS/Series data
analysis software products, continue to experience substantially lower revenue.
In recent years, the company has been investing heavily in the development of
new products, primarily the LightStream ATM switch and the T/10 Integrated
Access Device in the networking area and BBN/Cornerstone data analysis software.
Several important trends have adversely affected the company's X.25
network systems business, including the growth of desktop computing, the
widespread installation of local area networks, increased transmission circuit
speed and improved circuit quality. These trends have led to market
requirements for networking technologies such as routers. The company's X.25
network systems business has experienced significantly lower revenue for several
years. The company has discontinued certain of its traditional X.25 products
and has substantially reduced its development and selling efforts relating to
this business.
Sales of the LightStream 2010 ATM switch, released in October 1993, have
not been financially significant. Further, the emerging market for ATM products
is very competitive, particularly from communications companies with marketing,
distribution and resources more extensive than those available to LightStream.
Accordingly, the success of LightStream's 2020 ATM switch, due to be released in
the fall of 1994, will depend upon the timely development of the ATM market, and
in particular the ATM enterprise switch market which is the market segment
targeted by LightStream, the technological superiority of LightStream's
products, their cost competitiveness and the development of strategic alliances
and distribution channels. In the event these conditions are not achieved on a
timely basis, the company's financial results will be adversely impacted.
For several years, the company has been developing the T/10 Integrated
Access Device designed to help customers consolidate traffic over a single
enterprise network. Development delays and limited functionality have
unfavorably affected the company's ability to generate sales, and revenue to
date from the T/10 has not been financially significant. During FY1994,
spending relating to the T/10 business was significantly reduced from prior year
levels. Effective April 1, 1994, the T/10 activities were merged into Systems
and Technologies. The T/10 effort is now being primarily focused on a few
reseller opportunities, and accordingly, the future success of the T/10 is
highly dependent upon the timely development of these opportunities.
23
<PAGE> 5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The company's data analysis software products business has been affected
by the growth of distributed processing and the associated use of personal
computers, workstations, and other desktop computers. Most of the company's
data analysis software products, primarily the RS/Series software, currently
operate on minicomputer systems. As demand for minicomputer-based software
declines, the company is experiencing substantially lower RS/Series software
revenue and downward pressure on prices.
In response to the trend toward desktop computing, Software Products
introduced its BBN/Cornerstone software during the fourth quarter of FY1993.
BBN/Cornerstone software is the first of a new series of data analysis software
products specifically designed for use on desktop computers in a client/server
environment. The initial release of BBN/Cornerstone software operates on
Unix-based workstations, utilizing a number of established graphical user
interfaces. Planned subsequent releases in the second half of FY1995 will
operate on personal computers. The company is also working to more tightly
integrate BBN/Cornerstone and its RS/Series software products. To date, sales
of BBN/Cornerstone have been financially insignificant. Software Products also
develops health industry applications software, including BBN/Clintrial[TM]
software used to support clinical trials. In FY1994, BBN/ClinTRACE[TM], an
adverse events tracking system, was also introduced to serve this market.
COST OF SALES
Cost of services and products as a percentage of revenue was 66% in
FY1994 compared to 64% in FY1993. The increase in the cost of sales percentage
is principally due to a lower proportion of products revenue primarily as a
result of the sale of the Advanced Simulation business and to competitive price
pressures in the company's defense-related business. Services revenue, which
typically contributes lower margins than products sales, represented 85% of
total revenue in FY1994 compared to 75% in FY1993.
RESEARCH AND DEVELOPMENT EXPENSES
The majority of the company's internally funded research and development
spending is currently directed principally toward the LightStream ATM products,
the T/10 and BBN/Cornerstone. Research and development expenses in FY1994 were
$22.5 million compared to $34.0 million in FY1993. The reduction in FY1994
reflects lower spending for the T/10 program and BBN/Cornerstone as well as the
sale of the Advanced Simulation business in FY1993. The company's continued
significant investment in research and development is dependent upon the timely
market acceptance of its new products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses decreased $10.9 million in
FY1994 from FY1993 primarily as a result of lower selling expenses in the
defense communications systems business and at Software Products as well as the
cost reduction actions taken in FY1993.
INTEREST
Interest income increased $.7 million in FY1994 from FY1993 primarily in
connection with a state tax refund.
OTHER INCOME
Other income decreased $2.2 million in FY1994 from FY1993 primarily
reflecting the $3.2 million gain in FY1993 resulting from the sale of the
company's Advanced Simulation business and $.9 million in FY1994 resulting from
lower than expected costs associated with a previously divested contract.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1994, the company's cash and temporary investments,
which consisted primarily of money market funds and short term U.S. government
securities, were $67.1 million, an increase of $10.3 million from June 30,
1993. The increase is primarily attributable to the investment by UB Networks,
Inc. in LightStream and cash proceeds from the sale of stock options.
As a result of the FY1993 downsizing, the company has unutilized space
which it is in the process of subleasing.
In December 1992, the Board of Directors of the company voted to suspend
the semiannual dividend of three cents per share. The company currently has no
plans to reinstate a dividend.
MANAGEMENT CHANGES
In January 1994, George H. Conrades became president and chief executive
officer, succeeding Stephen R. Levy who remains as chairman of the board.
24
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Mr. Conrades, 55, a former senior vice president of IBM who spent more
than thirty years with that company, also became a director. In January 1994,
LightStream named Jonathan C. Crane its president and chief executive officer
and in June 1994, John T. Kish joined Software Products as its president and
chief executive officer. In July 1994, Frank E. Heart, 65, president of the
company's Systems and Technologies Division, retired after 28 years with the
company. Searches are currently in process for a chief executive of both the
newly formed speech and Internet subsidiaries, and the company is also actively
recruiting for a number of marketing and sales positions throughout the
company.
FY1993 COMPARED TO FY1992
- - -------------------------
The management's discussion and analysis which follows reflects the
company's organization in effect prior to FY1994. During FY1993 and FY1992, the
company was organized in three divisions: BBN Systems and Technologies, which
includes internetworking services, collaborative and acoustic technologies, and
simulation systems; BBN Communications, which concentrates on defense
communications systems and X.25 network products, and also included the
company's ATM and T/10 activities; and BBN Software Products, which develops,
markets and supports data analysis software products designed primarily for
manufacturing, engineering and health industry applications. Effective July 1,
1993, BBN Systems and Technologies assumed responsibility for all of the
company's X.25 network systems and defense communications businesses and
performs virtually all government contracts for the company.
SUMMARY
The company reported a loss of $32.3 million, or $2.05 per share, on
revenue of $233.5 million in FY1993 compared to net income of $7.8 million, or
$.46 per share, on revenue of $258.0 million in FY1992. Results for FY1993
included a restructuring charge of $20.5 million, or $1.30 per share, in
connection with downsizing and staff reductions, and a gain of $3.2 million, or
$.20 per share, from the sale of the company's Advanced Simulation business.
Results for FY1992 included an extraordinary gain of $3.6 million, or $.22 per
share, from the purchase and early retirement of $9.8 million (face value) of
the company's 6% convertible subordinated debentures.
The company reported a loss from operations (excluding the $20.5 million
restructuring charge) of $11.9 million in FY1993 compared to income from
operations of $6.9 million in FY1992. Operating results for FY1993 reflected
significant losses at the former BBN Communications Division, arising from the
high level of investment the company was expending for network products (the
T/10 Integrated Access Device and the ATM switch), compounded by significant
revenue declines in its defense communications systems business and lower demand
for its mature X.25 network systems and data analysis software products.
REVENUE
Revenue decreased $24.5 million, or 10%, in FY1993 compared to FY1992.
The decrease primarily reflected significantly reduced defense communications
systems revenue and to a lesser extent lower revenue from the company's mature
X.25 network systems and data analysis software products. These declines were
partially offset by a revenue increase in the areas of advanced internetworking
and acoustic systems.
COST OF SALES
Cost of services and products as a percentage of revenue was 64% in
FY1993 compared to 57% in FY1992. The increase in the cost of sales percentage
primarily related to competitive price pressures in the company's
defense-related business, declines in the company's X.25 network systems and
data analysis software products businesses and inventory provisions. The lower
cost of sales percentage for FY1992 also included a $2.9 million benefit
relating the company's finalization of pricing in FY1992 for the Mobile
Subscriber Equipment program which was substantially completed FY1993.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses were $34.0 million in FY1993 compared
to $33.7 million in FY1992. A significant portion of the company's internally
funded research and development spending in FY1993 was directed toward the
LightStream 2010, T/10 Integrated Access Device, BBN/Cornerstone software,
and the
25
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GT-200 Computer Image Generator in the Advanced Simulation business.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses decreased $7.6 million in
FY1993 compared to FY1992 which primarily reflected lower sales and marketing
expenses at Software Products, lower sales expenses in the Advanced Simulation
business and reduced administrative expenses caused mainly by reduction in
personnel.
INTEREST
Interest income decreased $1.0 million in FY1993 compared to FY1992
primarily attributable to a decline in short-term interest rates in FY1993.
OTHER INCOME
In the fourth quarter of FY1993, the company sold the fixed assets,
inventory and technology of its Advanced Simulation business to a subsidiary of
Loral Corporation for $6.0 million in cash. In connection with the sale, the
buyer assumed the lease obligation for the company's facility in Bellevue,
Washington and leased from the company certain space occupied by the Advanced
Simulation business in Massachusetts. More than 100 employees of the Advanced
Simulation business moved to the buyer. The company retained accounts
receivable of approximately $7.2 million associated with the Advanced Simulation
business which have been collected. In FY1993, approximately $25.3 million of
the company's revenue related to this business. Results for the fourth quarter
of FY1993 included a gain of $3.2 million in connection with the sale.
INCOME TAXES
In FY1993, the company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). The adoption
of SFAS 109 did not have a material impact on the company's consolidated
financial position and results of operations.
RESTRUCTURING
The company recorded a restructuring charge of $20.5 million in the
second quarter of FY1993 primarily associated with employee severance and
related facilities costs. Approximately one-half of the second quarter
restructuring charge related to the estimated cost of unutilized space. The
remainder of the restructuring charge reflected the company's downsizing and
cost reduction efforts at its former BBN Communications Division, the
consolidation of the company's defense business within the BBN Systems and
Technologies Division, and the elimination of substantially all of the company's
internal manufacturing capability.
In FY1993, the company consolidated a number of senior management
positions including those of chief executive officer and chief operating
officer. The company also made management changes at its former BBN
Communications Division and BBN Systems and Technologies Division, including
replacing the presidents of those divisions.
26
<PAGE> 8
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Year Ended June 30
Dollars in thousands, except per-share data 1994 1993 1992
- - ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue:
Services $ 165,759 $ 175,917 $ 181,088
Products 30,345 57,536 76,908
-------------------------------------------
196,104 233,453 257,996
-------------------------------------------
Costs and expenses:
Cost of services 118,147 120,411 116,376
Cost of products 11,938 27,973 30,520
Research and development expenses 22,451 34,048 33,732
Selling, general and administrative expenses 52,012 62,874 70,490
Restructuring charge 20,470
-------------------------------------------
204,548 265,776 251,118
-------------------------------------------
Income (loss) from operations (8,444) (32,323) 6,878
Interest income 2,190 1,446 2,452
Interest expense (4,606) (4,511) (4,830)
Minority interest 2,071
Other income (expense), net 965 3,124 (347)
-------------------------------------------
Income (loss) before extraordinary item (7,824) (32,264) 4,153
Extraordinary item 3,648
-------------------------------------------
Net income (loss) $ (7,824) $ (32,264) $ 7,801
-------------------------------------------
Per-share amounts:
Income (loss) before extraordinary item $ (0.48) $ (2.05) $ 0.24
Extraordinary item 0.22
-------------------------------------------
Net income (loss) $ (0.48) $ (2.05) $ 0.46
- - ---------------------------------------------------------------------------------------------------
Shares used in per-share calculations 16,179,000 15,705,000 16,504,000
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
27
<PAGE> 9
<TABLE>
CONSOLIDATED BALANCE SHEETS
<CAPTION>
June 30
Dollars in thousands 1994 1993
- - ------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and temporary investments $ 67,115 $ 56,835
Accounts receivable, net 41,503 49,676
Inventories, net 1,114 1,830
Other current assets 3,592 6,742
--------------------------
Total current assets 113,324 115,083
Property, plant and equipment, net 19,658 20,861
Other assets 2,958 4,701
--------------------------
Total assets $135,940 $140,645
- - ------------------------------------------------------------------------------------------------
LIABILITES AND SHAREHOLDERS' EQUITY
Current liabilites:
Accounts payable $ 4,279 $ 2,891
Accrued compensation and retirement plan contributions 5,198 3,600
Accrued restructuring charges 12,566 18,343
Accrued contract costs 1,414 3,392
Other accrued costs 18,418 17,529
Deferred revenue 11,112 11,338
--------------------------
Total current liabilities 52,987 57,093
--------------------------
6% convertible subordinated debentures due 2012 73,510 73,510
Minority interest 2,172
Commitments and contingencies
Shareholders' equity:
Common stock $1.00 par value, authorized: 100,000,000 shares;
issued: 1994, 21,253,890 shares; 1993, 20,710,223 shares 21,254 20,710
Additional paid-in capital 55,916 52,093
Foreign currency translation adjustment 337 (206)
Retained deficit (36,127) (28,303)
--------------------------
41,380 44,294
Less shares in treasury, at cost: 1994, 4,797,734 shares;
1993, 4,817,936 shares 34,109 34,252
--------------------------
Total shareholders' equity 7,271 10,042
--------------------------
Total liabilities and shareholders' equity $135,940 $140,645
- - ------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
28
<PAGE> 10
<TABLE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<CAPTION>
Common Foreign
Stock Additional Currency Retained Total
$1.00 Paid-In Translation Earnings Treasury Shareholders'
Dollars in thousands, except per-share data Par Value Capital Adjustment (Deficit) Shares Equity
- - ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
June 30, 1991 $20,082 $50,052 $ 225 $ (2,898) $(22,988) $ 44,473
Stock option and other activity, net 3 30 33
Stock issued under
employee stock purchase plan 330 1,072 1,402
Purchase of treasury shares (10,541) (10,541)
Foreign currency translation adjustment (339) (339)
Net income 7,801 7,801
Cash dividends - $.06 per share (942) (942)
------------------------------------------------------------------------
June 30, 1992 20,415 51,154 (114) 3,961 (33,529) 41,887
Stock option and other activity, net 12 97 109
Stock issued under
employee stock purchase plan 283 842 1,125
Purchase of treasury shares (723) (723)
Foreign currency translation adjustment (92) (92)
Net loss (32,264) (32,264)
------------------------------------------------------------------------
June 30, 1993 20,710 52,093 (206) (28,303) (34,252) 10,042
Stock option and other activity, net 359 1,393 1,752
Stock issued under
employee stock purchase plan 185 1,334 1,519
Sale of subsidiary stock 990 990
Treasury shares issued 106 143 249
Foreign currency translation adjustment 543 543
Net loss (7,824) (7,824)
------------------------------------------------------------------------
June 30, 1994 $21,254 $55,916 $ 337 $(36,127) $(34,109) $ 7,271
- - ------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
29
<PAGE> 11
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Year Ended June 30
Dollars in thousands 1994 1993 1992
- - ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activites:
Net income (loss) $(7,824) $(32,264) $ 7,801
Adjustments to reconcile net income (loss) to net cash
provided by operating activites:
Depreciation and amortization 9,136 11,700 14,449
Amortization of purchased and capitalized software 1,419 1,418 1,515
Gain from sale of Advanced Simulation business (3,191)
Extraordinary gain (3,648)
Provision for allowances for accounts receivable 405 703 1,796
Provision for inventories 2,293 83
Restructuring charge 20,470
Change in assets and liabilites:
Accounts receivable 7,768 16,502 (5,425)
Inventories 716 983 (501)
Income taxes, net (276) 1,454 (831)
Accounts payable and other liablities 2,209 (1,223) 268
Restructuring expenditures (5,777) (6,651) (1,797)
Deferred revenue (226) (638) (3,992)
Other 1,300 2,003 (1,326)
---------------------------------
Total adjustments 16,674 45,823 591
---------------------------------
Net cash provided by operating activites 8,850 13,559 8,392
---------------------------------
Cash flows from investing activites:
Additions to property, plant and equipment (6,938) (7,942) (11,668)
Proceeds from sale of Advanced Simulation business 6,000
---------------------------------
Net cash used by investing activites (6,938) (1,942) (11,668)
---------------------------------
Cash flows from financing activites:
Reduction of equipment loan and capital leases (62) (589) (1,597)
Purchase of 6% convertible subordinated debentures (6,190)
Proceeds from employee stock purchase and option plans 3,217 1,234 1,435
Proceeds from sale of subsidiary stock 5,000
(Purchase)/sale of treasury shares 213 (723) (10,541)
Dividends paid (473) (995)
---------------------------------
Net cash provided (used) by financing activites 8,368 (551) (17,888)
---------------------------------
Net increase (decrease) in cash and temporary investments 10,280 11,066 (21,164)
Cash and temporary investments at beginning of the year 56,835 45,769 66,933
---------------------------------
Cash and temporary investments at end of year $67,115 $ 56,835 $ 45,769
- - ---------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
30
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- - ------------------------------------------
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
company and its majority- and wholly-owned subsidiaries. All significant
intercompany transactions and balances have been eliminated. Certain amounts
reported in prior years have been reclassified to be consistent with the current
year's presentation.
REVENUE RECOGNITION
Revenue from cost-reimbursement contracts, principally consisting of
services, is recorded as costs are incurred and fees are earned. Revenue from
fixed-price contracts, relating to services and certain systems, is recognized
using the percentage-of-completion method of accounting in the proportion that
costs incurred bear to total estimated costs at completion. Losses, if any, are
provided for in the period in which the loss is determined. Products revenue is
recognized at the time of shipment.
GAIN ON ISSUANCE OF STOCK BY SUBSIDIARIES
At the time a subsidiary sells its stock to unrelated parties at a price
in excess of its book value, the company's net investment in that subsidiary
increases. If at that time the subsidiary is an operating entity and not
engaged principally in research and development, the company records the
increase as a gain in its consolidated statements of operations. Otherwise, the
company records the increase as an equity transaction which is reflected in the
consolidated statements of shareholders' equity as a gain on the sale of
subsidiary stock.
CASH AND TEMPORARY INVESTMENTS
For purposes of the consolidated statements of cash flows, cash includes
all cash and temporary investments, generally with original maturities of three
months or less, carried at original cost plus accrued interest, which
approximates market value. At June 30, 1994 and 1993, temporary investments
consisted principally of money market funds (invested in U.S. government
securities and other highly rated financial instruments) and U.S. government
securities.
INVENTORIES
Inventories are stated at the lower of cost (using the first-in,
first-out method) or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost less accumulated
depreciation and amortization. Depreciation is computed over the assets'
estimated useful lives using the straight-line method. Leasehold improvements
are amortized over the shorter of the lease period or their estimated useful
lives using the straight-line method. Maintenance and repairs are charged to
expense as incurred; improvements are capitalized. Beginning in fiscal year
1994, the company's policy is to remove the amounts related to fully-depreciated
assets from its accounting records.
SOFTWARE COSTS
The company capitalizes purchased software technology and certain
internally developed computer software costs to be sold or otherwise marketed to
customers. Costs incurred internally after establishing technological
feasibility and before general release of a computer software product are
amortized over 3 years. Costs incurred for purchased software technology
are amortized over periods up to 7 years.
FOREIGN CURRENCY TRANSLATION
The assets and liabilities of the company's foreign subsidiaries are
translated at year-end exchange rates, and the related statements of operations
are translated at average exchange rates for the year. Translation gains and
losses are accumulated as a separate component of shareholders' equity.
Transaction gains and losses, which are immaterial, are included in "Other
income (expense), net" in the consolidated statements of operations.
INCOME TAXES
A deferred tax asset or liability is determined based on both the
difference between the financial statement and tax basis of assets and
liabilities as measured by the enacted tax rates which will be in effect when
these differences reverse, and the future tax benefit to be derived from tax
loss and tax credit carryforwards. A valuation allowance has been established
to reflect the likelihood of realization of deferred tax assets.
NET INCOME (LOSS) PER SHARE
Net income (loss) per share is calculated based on the weighted average
number of common and common equivalent shares outstanding. Common equivalent
shares result from the assumed exercise of dilutive stock options. The
company's 6% convertible subordinated debentures are not considered common stock
equivalents for per-share calculations. Common equivalent shares were
anti-dilutive in fiscal years 1994 and 1993 and, therefore, were excluded from
the net loss per-share calculation.
31
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
Accounts Receivable
- - -------------------
Consolidated accounts receivable consisted of the following:
<CAPTION>
June 30
Dollars in thousands 1994 1993
- - ----------------------------------------------------------------------------
<S> <C> <C>
U.S. government: Billed $14,579 $19,747
Unbilled 18,237 22,855
--------------------
32,816 42,602
Contract allowances (7,964) (8,499)
--------------------
24,852 34,103
--------------------
Other customers: Billed 15,874 15,013
Unbilled 1,187 973
--------------------
17,061 15,986
Allowances for doubtful accounts (410) (413)
--------------------
16,651 15,573
--------------------
$41,503 $49,676
- - ----------------------------------------------------------------------------
</TABLE>
Unbilled amounts represent receivables for work performed for which billings
had not been presented to the customers or which were not yet contractually
billable. Unbilled receivables, except for retentions, are generally billed
and collected within one year. Retentions amounted to $3,662,000 and
$6,078,000 at June 30, 1994 and 1993, respectively. A significant portion of
the retentions at June 30, 1994 is anticipated to be collected after fiscal
year 1995.
<TABLE>
Inventories
- - -----------
Consolidated inventories consisted of the following:
<CAPTION>
June 30
Dollars in thousands 1994 1993
- - ---------------------------------------------------------------------------
<S> <C> <C>
Materials and purchased parts $ 71 $ 998
Work in progress 832
Finished goods 1,043
-------------------
$1,114 $1,830
- - ---------------------------------------------------------------------------
</TABLE>
The company has entered into outsourcing arrangements for the manufacture of
certain of its internetworking products. Under these agreements, in the event
the company discontinues the manufacture and shipment of any of these
products, the company would be liable for the cost of the related materials on
hand at the manufacturer. The cost of these materials at June 30, 1994 (which
is not reflected in the company's accounting records) was approximately
$1,600,000.
<TABLE>
Property, Plant and Equipment
- - -----------------------------
Consolidated property, plant and equipment consisted of the following:
<CAPTION>
June 30
Dollars in thousands 1994 1993
- - ----------------------------------------------------------------------
<S> <C> <C>
Land $ 3,983 $ 3,983
Buildings 1,947 2,051
Computer equipment and machinery 79,034 114,029
Furniture and fixtures 5,184 10,335
Leasehold improvements 14,056 20,066
Construction in progress 214
----------------------
104,204 150,678
Less accumulated depreciation and amortization 84,546 129,817
----------------------
$ 19,658 $ 20,861
- - ----------------------------------------------------------------------
</TABLE>
In fiscal year 1994, the company eliminated from its accounts a significant
portion of the cost and accumulated depreciation of property, plant and
equipment which is fully depreciated and no longer in use.
32
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONVERTIBLE SUBORDINATED DEBENTURES
- - -----------------------------------
The 6% convertible subordinated debentures due 2012 (the "debentures")
may be converted into the company's common stock at a price of $30.00 per
share any time prior to maturity. The company has reserved 2,823,000 shares
of its authorized but unissued common stock to be available for the conversion
of the debentures. The debentures are unsecured obligations of the company and
are subordinated in right of payment to all of the company's senior
indebtedness. Debt issuance costs are being amortized over the term of the
debentures. The unamortized balance at June 30, 1994 of $1,152,000 is
included in "Other assets" in the consolidated balance sheets. The fair
market value of the debentures, which is based on quoted market prices,
was $50,722,000 at June 30, 1994.
Beginning April 1, 1998, the company is required to contribute to a
sinking fund with annual payments equal to 5% of the aggregate principal amount
issued. The sinking fund is calculated to retire 70% of the original debentures
prior to maturity. The debentures are redeemable at the company's option.
However, redemption of the debentures prior to April 1, 1998 requires payment of
a premium. None of the debentures have been redeemed.
In August 1990, the Board of Directors authorized the company to expend
from time to time in open market or negotiated transactions up to $15,000,000
for the purchase at a discount of its debentures. Any debenture purchased may
be utilized to satisfy sinking fund requirements. In fiscal year 1992,
$6,190,000 was expended under this authorization for the purchase and early
retirement of $9,845,000 (face value) of debentures resulting in an
extraordinary gain of $3,648,000. No income taxes were applied to the
extraordinary gain primarily due to the availability of net operating loss
carryforwards. As of June 30, 1994, $7,027,000 has been expended to date under
this authorization for the purchase and early retirement of $11,190,000 (face
value) of debentures. By utilizing the $11,190,000 of debentures purchased by
the company, contributions to satisfy the annual sinking fund requirements can
be deferred until April 1, 2000.
<TABLE>
LEASES
- - ------
Operating lease commitments for real estate at June 30, 1994 consisted of the
following:
<CAPTION>
Real Estate
Lease
Dollars in thousands Commitments
- - ----------------------------------------------
<S> <C>
Year ending June 30 1995 $14,314
1996 12,322
1997 12,141
1998 11,522
1999 5,837
Remainder 28,337
-------
Total minimum lease payments $84,473
- - ----------------------------------------------
</TABLE>
The company leases a majority of its facilities under long-term
operating leases which generally provide for renewal options and options to
purchase the leased property. Although in most cases such leases will be
renewed or replaced by other leases in the normal course of business,
consolidation of certain of the company's leased facilities has resulted in
diminished need for such renewals and replacements. The company is actively
pursuing subletting certain of its leased facilities.
Total rent expenditures, net of sublet income, under all operating
leases and rental agreements amounted to $16,980,000, $18,180,000 and
$18,560,000 in fiscal years 1994, 1993 and 1992, respectively.
COMMON STOCK
- - ------------
The Board of Directors authorized the purchase of up to an aggregate of
2,000,000 shares of the company's common stock under which approximately 60,000
additional shares may be purchased. In fiscal years 1993 and 1992, the company
purchased 178,500 shares and 2,112,000 shares, respectively, for $723,000 and
$10,541,000, respectively. The fiscal year 1992 purchase included 988,000
shares purchased under a separately authorized transaction at a small discount
from the market price at the time of the transaction. Approximately 4,920,000
shares costing approximately $35,400,000 have been purchased under the
repurchase program and the other separately authorized transactions.
33
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In December 1993, in connection with his hiring, an executive officer of
the company made an investment of $212,500 in the company by purchasing from the
company 20,202 restricted shares of the company's common stock at a 15% discount
from the closing market price on the date of the transaction. The restricted
shares were treasury shares and were not registered under the Securities Act of
1933 and may not be sold, assigned, pledged, or otherwise transferred before the
lesser of two years or the filing of an effective registration statement under
the Act.
The company has a Common Stock Rights Plan (the "plan") to protect the
interests of the company's shareholders. Under the plan, holders of each share
of the company's common stock have the right to purchase one additional share of
common stock at $90 per share, subject to adjustment, exercisable under certain
defined conditions. In the event that the rights become exercisable due to an
acquisition of the company or under certain other conditions, holders of the
rights would be entitled to purchase common stock of the surviving company
having a value of two times the exercise price of the rights. The holder of a
right is not entitled to vote or receive dividends until the right is
exercised. The rights are redeemable by action of the Board of Directors at
$.01 per right. The company is not currently aware of any activities which
would cause the rights to become exercisable.
EMPLOYEE BENEFIT PLANS
- - ----------------------
STOCK COMPENSATION PLANS
Under the company's stock option plan, key employees may be granted
options enabling them to purchase shares of the company's common stock at a
price of not less than 50% of the fair market value of the common stock on the
date of grant. All options granted in fiscal years 1994, 1993 and 1992 were at
fair market value on the dates of grant. The plan provides that directors who
are not employees of the company receive a non-qualified option for 10,000
shares. The plan also provides for granting of other stock-based awards at the
discretion of the Board of Directors and for granting of incentive stock
options. Options vest generally over four years and expire not more than ten
years from the dates of grant. Options which are cancelled become available for
future grants.
<TABLE>
The changes in stock options outstanding for the three years ended
June 30, 1994 were as follows:
<CAPTION>
Range of
Number Option Prices
Shares in thousands of Shares Per Share
- - --------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at June 30, 1991 (40 exercisable) 1,153 $4.13 - $20.75
Granted 604 5.00 - 5.75
Exercised (3) 5.00
Cancelled (77) 5.00 - 20.75
- - --------------------------------------------------------------------------------
Outstanding at June 30, 1992 (141 exercisable) 1,677 4.63 - 7.63
Granted 170 5.00
Exercised (12) 5.00
Cancelled (318) 5.00 - 14.25
- - --------------------------------------------------------------------------------
Outstanding at June 30, 1993 (446 exercisable) 1,517 4.63 - 7.63
Granted 1,374 9.75 - 15.25
Exercised (376) 5.00 - 6.88
Cancelled (65) 5.00 - 12.63
- - --------------------------------------------------------------------------------
Outstanding at June 30, 1994 (635 exercisable) 2,450 4.63 - 15.25
- - --------------------------------------------------------------------------------
Options granted in fiscal year 1994 include 350,000 conditional options which
are subject to shareholder approval at the 1994 Annual Meeting.
At June 30, 1994 and 1993, 73,000 shares and 1,051,000 shares, respectively,
of authorized but unissued common stock were reserved and available for
granting additional options. The shares reserved at June 30, 1994 do not
include the 350,000 conditional options granted in fiscal year 1994.
</TABLE>
In fiscal year 1994, LightStream Corporation, the company's 80%-owned
subsidiary, adopted a stock option plan under which its employees may be granted
options enabling the purchase of up to 1,300,000 shares at the fair value of the
common stock on the date of grant. Additionally, under a separate plan 300,000
shares of LightStream Corporation's common stock issued to BBN at the time
LightStream Corporation was formed are reserved for award to employees of BBN.
Options granted under both of these plans are only exercisable 90 days after the
closing of an initial public offering of LightStream Corporation's common
stock. As of June 30, 1994, options to purchase 1,229,000 shares of LightStream
Corporation's common stock were outstanding. As of June 30, 1994, LightStream
Corporation had 11,300,000 shares of authorized common stock of which 10,000,000
shares were outstanding.
In fiscal year 1994, Software Products Corporation, the company's
wholly-owned subsidiary, adopted a stock
34
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
option plan under which employees of the company and Software Products
Corporation may be granted options enabling the purchase of up to 1,000,000
shares at the fair value of the common stock on the date of grant. Options
granted under this plan are only exercisable 90 days after the closing of an
initial public offering of Software Products Corporation's common stock. As of
June 30, 1994, options to purchase 940,000 shares of Software Products
Corporation's common stock were outstanding. As of June 30, 1994, Software
Products Corporation had 11,000,000 shares of authorized common stock of which
10,000,000 shares were outstanding.
EMPLOYEE STOCK PURCHASE PLAN
Under the company's 1983 Stock Purchase Plan, an aggregate of 3,600,000
shares of common stock were made available for purchase by employees who have
completed at least six months of continuous service in the employ of the
company, upon exercise of options granted semi-annually. The options are
exercisable six months after grant, at the lower of 85% of the fair market value
of the common stock at the beginning or the end of the six-month period, but in
no event for less than the company's net book value per share as of the end of
the quarter next preceding the exercise, through accumulation of payroll
deductions ranging from 2% to 10% of each participating employee's compensation,
as defined, but in no event more than $3,000 or 400 shares during any six-month
option period prior to June 30, 1994. Effective July 1, 1994, the maximum
number of shares a participant may acquire in any six-month option period is
1,000 through the accumulation of payroll deductions which may not exceed
$12,500.
Options were exercised to purchase 185,000, 283,000 and 330,000 shares
for a total of $1,519,000, $1,125,000 and $1,402,000 in fiscal years 1994, 1993
and 1992, respectively. At June 30, 1994, 687,000 shares of authorized but
unissued common stock were reserved for future issuance under this plan.
RETIREMENT PLAN
The company has a defined contribution retirement plan covering
substantially all of its domestic employees. The company's contribution to the
plan is discretionary and is based on a percentage of employees' eligible
compensation, as defined. Employees may also contribute to the plan. The
company's total costs pursuant its retirement plan were $5,517,000, $6,515,000
and $6,535,000 in fiscal years 1994, 1993 and 1992, respectively. Effective July
1, 1994, the company adopted an amendment to its retirement plan which has been
qualified under Section 401(k) of the Internal Revenue Code. Eligible employees
are permitted to contribute to the plan through payroll deductions within the
statutory limitations and subject to any limitations included in the plan. The
plan provides for matching contributions by the company up to a maximum of $500
per employee annually.
INCENTIVE COMPENSATION PLANS
The company maintains incentive compensation plans for key employees,
including its executive management. Awards under these plans are paid in
recognition of individual contribution to divisional or corporate performance as
determined by management or the Compensation and Stock Option Committee of the
Board of Directors. Total costs pursuant to the company's incentive
compensation plans were $1,820,000, $510,000 and $460,000 in fiscal years 1994,
1993 and 1992, respectively.
RESEARCH AND DEVELOPMENT COSTS
- - ------------------------------
The company performs research and development under contracts
principally with the U.S. government. Costs incurred under these contracts are
charged to "Cost of services" in the consolidated statements of operations as
the related services revenue is recorded. Costs classified as "Research and
development expenses" in the consolidated statements of operations are costs
incurred under internally initiated programs, including independent research and
development as defined by government procurement regulations.
COMMITMENTS AND CONTINGENCIES
- - -----------------------------
The company, like other companies doing business with the U.S.
government, is subject to routine audit, and in certain circumstances to
inquiry, review, or investigation, by U.S. government agencies, of its
compliance with government procurement policies and practices. In April 1991,
the company was informed that it was the subject of an investigation by U.S.
government agencies of its compliance with certain government procurement
policies and practices. No allegations have been made by the government
agencies. Based upon government procurement regulations, under certain
circumstances a contractor violating or not complying with procurement
regulations can be subject to legal or administative proceedings, including
fines and penalties, as well as be suspended or debarred from contracting with
the government. The company's policy has been and continues to be to conduct
its activities in compliance with all applicable rules and regulations.
The company is subject to other legal proceedings and claims which arise
in the ordinary course of its business. In the opinion of management, the
results of these other legal proceedings and claims will not have a material
effect on the company's consolidated financial position and results of
operations.
35
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
INCOME TAXES
- - ------------
In fiscal year 1993, the company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). As
permitted under the new statement, prior years' financial statements were not
restated. The cumulative effect of adopting SFAS 109 is not material.
<CAPTION>
Year Ended June 30
Dollars in thousands 1994 1993 1992
- - -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
The components of domestic and foreign income (loss)
before income taxes were as follows:
Domestic $ (7,870) $(31,014) $ 4,526
Foreign 46 (1,250) (373)
-------------------------------
Income (loss) before income taxes $ (7,824) $(32,264) $ 4,153
- - -------------------------------------------------------------------------------------------------------
The provision (benefit) for income taxes consisted of the following:
Currently payable:
Federal $ $ $
State 50 78 63
Foreign 105 19
-------------------------------
155 78 82
Deferred:
Federal (155) (78) (82)
-------------------------------
Provision (benefit) for income taxes $ $ $
- - -------------------------------------------------------------------------------------------------------
The deferred provision (benefit) for income taxes consisted
of the following:
Net temporary differences without tax (provision) benefit $ (2,169) $ 6,051 $(2,158)
Revenue not contractually billlable (618) (960) (693)
Excess of book over tax depreciation and amortization (284) (127) 1,185
Provisions not currently deductible 3,109 (4,928) 1,696
Other, net (193) (114) (112)
-------------------------------
Deferred provision (benefit) for income taxes $ (155) $ (78) $ (82)
- - -------------------------------------------------------------------------------------------------------
The provision (benefit) for income taxes differs from the amount
computed using the statutory rate as follows:
Tax provision at the federal statutory rate $ (2,660) $(10,970) $ 1,412
Net temporary differences without tax (provision) benefit (2,169) 6,051 (2,158)
Research and investment tax credits (704) (1,068) (874)
Minority interest (704)
Domestic losses without current tax benefit 6,098 6,016 1,600
State taxes, net 33 51 42
Other, net 106 (80) (22)
-------------------------------
$ $ $
- - -------------------------------------------------------------------------------------------------------
No deferred taxes have been recognized in the consolidated balance
sheets at June 30, 1994 and 1993. The components were as follows:
Accruals and reserves not deducted for tax purposes $ 14,197 $ 16,389
Net operating loss carryforwards 12,152 6,070
Tax credit carryforwards 7,346 6,185
Depreciation and amortization 3,690 3,193
Deferred revenue (3,586) (4,204)
Other, net 622 523
----------------------
$ 34,421 $ 28,156
Valuation allowance (34,421) (28,156)
----------------------
$ $
- - -------------------------------------------------------------------------------------------------------
</TABLE>
The net operating losses and general business tax credits expire in fiscal
years 1997 through 2009. A portion of the net operating loss carryforward is
related to a fiscal year 1987 acquisition and is subject to certain
limitations.
36
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
SUPPLEMENTAL CASH FLOW INFORMATION
- - ----------------------------------
Cash paid and received for income taxes and interest was as follows:
<CAPTION>
Year Ended June 30
Dollars in thousands 1994 1993 1992
- - ----------------------------------------------------------------
<S> <C> <C> <C>
Cash paid for:
Income taxes $ 215 $ 246 $ 452
Interest 4,438 4,453 4,914
Cash received for:
Income tax refunds 309 3,091 461
</TABLE>
Income tax refunds received in fiscal year 1993 included $805,000 of
interest.
RESTRUCTURING CHARGE
- - --------------------
Operating results for fiscal year 1993 included a restructuring charge
of $20,470,000 primarily associated with employee severance and related
facilities costs, reflecting a reduction of employment of approximately 300
employees in fiscal year 1993.
OTHER INCOME
- - ------------
Other income in fiscal year 1994 includes approximately $900,000
resulting from lower than expected costs associated with a previously divested
contract.
In the fourth quarter of fiscal year 1993, the company sold the fixed
assets, inventory and technology of its Advanced Simulation business for
$6,000,000 in cash. Results for the fourth quarter of fiscal year 1993
included a gain of $3,191,000 in connection with the sale.
FOREIGN CURRENCY TRANSACTIONS
- - -----------------------------
The company may enter into foreign exchange contracts to hedge certain
of its exposures to foreign currency fluctuations. Gains or losses resulting
from these contracts are offset against the effects of the foreign currency
translation. At June 30, 1994 and 1993, the company had foreign exchange
contracts with maturities of three months or less to sell $750,000 and
$1,940,000, respectively, of foreign currencies.
FORMATION OF LIGHTSTREAM CORPORATION
- - ------------------------------------
In October 1993, the company and UB Networks, Inc. (formerly
Ungermann-Bass Inc.) combined technology, staff and other resources to form
LightStream Corporation, an ATM networking company, which is approximately 80%
owned by the company and a 20% minority interest owned by UB Networks, Inc. The
company and UB Networks, Inc. contributed $15,000,000 and $5,000,000 in cash,
respectively, to fund the enterprise and each signed non-exclusive Original
Equipment Manufacturer agreements with LightStream Corporation under which both
the company and UB Networks, Inc. will distribute LightStream Corporation's
products. The company recorded an increase of approximately $990,000 in both
its investment in LightStream Corporation and in its additional paid-in capital.
37
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEGMENT INFORMATION
- - -------------------
BUSINESS SEGMENTS
For fiscal year 1994, in order to provide a better understanding of the
company's performance, the company has revised its business segments:
"Internetworking" which consists of the networking activities of its Systems and
Technologies Division, including network services, defense communications, X.25
network systems and the T/10 Integrated Access Device business activities;
internet services; and the activities of its LightStream subsidiary; "Data
analysis software" which consists primarily of its Software Products subsidiary;
and "Collaborative systems and acoustic technologies" which includes the Systems
and Technologies Division's services in distributed computing, education
technology, speech processing (including HARK systems) and sensor systems and
acoustic engineering. In fiscal years 1993 and 1992 the Collaborative systems
and acoustic technologies segment included the results of the company's former
simulation business. The following is a summary of business segments
information for the fiscal years ended June 30, 1994, 1993 and 1992,
respectively. Information for fiscal years 1993 and 1992 has been restated to
reflect the change in business segments. All data are shown net of intersegment
transactions.
<TABLE>
<CAPTION>
Year Ended June 30
Dollars in thousands 1994 1993 1992
- - ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue:
Internetworking $ 76,344 $ 91,936 $111,667
Data analysis software 35,760 38,151 43,438
Collaborative systems and acoustic technologies 84,000 103,366 102,891
----------------------------------------
$196,104 $233,453 $257,996
----------------------------------------
Income (loss) from operations:
Internetworking $(11,276) $(32,411) $ 1,823
Data analysis software 309 (5,347) (1,244)
Collaborative systems and acoustic technologies 3,523 5,435 6,299
Unallocated corporate costs (1,000)
----------------------------------------
$ (8,444) $(32,323) $ 6,878
----------------------------------------
U.S. government sales:
Internetworking $ 48,884 $ 66,175 $ 80,633
Data analysis software 1,377 1,607 1,830
Collaborative systems and acoustic technologies 80,303 76,655 78,684
----------------------------------------
$130,564 $144,437 $161,147
----------------------------------------
Depreciation and amortization:
Internetworking $ 4,835 $ 5,862 $ 7,558
Data analysis software 3,282 3,870 4,173
Collaborative systems and acoustic technologies 2,438 3,386 4,233
----------------------------------------
$ 10,555 $ 13,118 $ 15,964
----------------------------------------
Identifiable assets:
Internetworking $ 38,076 $ 34,865 $ 42,772
Data analysis software 15,954 16,602 21,951
Collaborative systems and acoustic technologies 23,085 28,913 46,930
Corporate 58,825 60,265 50,966
----------------------------------------
$135,940 $140,645 $162,619
----------------------------------------
Capital expenditures:
Internetworking $ 3,677 $ 3,315 $ 4,306
Data analysis software 1,351 2,069 2,207
Collaborative systems and acoustic technologies 1,598 2,369 4,778
Corporate 312 189 377
----------------------------------------
$ 6,938 $ 7,942 $ 11,668
----------------------------------------
</TABLE>
GEOGRAPHIC SEGMENTS
Revenue includes U.S. export sales primarily to Western Europe and Japan
of $27,300,000, $51,100,000 and $52,800,000 in fiscal years 1994, 1993 and 1992,
respectively.
38
<PAGE> 20
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
Bolt Beranek and Newman Inc.
Cambridge, Massachusetts:
We have audited the consolidated balance sheets of Bolt Beranek and
Newman Inc., at June 30, 1994 and 1993, and the related consolidated statements
of operations, shareholders' equity, and cash flows for each of the three years
in the period ended June 30, 1994. These financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Bolt
Beranek and Newman Inc., at June 30, 1994 and 1993, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended June 30, 1994, in conformity with generally accepted accounting
principles.
/s/ COOPERS & LYBRAND
Boston, Massachusetts
August 11, 1994
39
<PAGE> 21
<TABLE>
QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial data for the years ended June 30, 1994 and 1993 was as follows:
<CAPTION>
Three Months Ended Year Ended
1994 Sept. 30 Dec. 31 March 31 June 30 June 30,
Dollars in thousands, except per-share data 1993 1993 1994 1994 1994
- - ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue:
Services $42,795 $40,448 $40,847 $41,669 $165,759
Products 7,135 7,959 7,678 7,573 30,345
------------------------------------------------------------
$49,930 $48,407 $48,525 $49,242 $196,104
------------------------------------------------------------
Gross margin $16,083 $16,450 $15,634 $17,852 $ 66,019
Loss from operations (1,524) (2,528) (2,356) (2,036) (8,444)
Net loss (1,947) (1,666) (2,259) (1,952) (7,824)
Net loss per share (.12) (.10) (.14) (.12) (.48)
Sales price of common stock: High 14 3/4 13 7/8 21 1/2 16 5/8
Low 7 3/8 8 3/8 11 3/4 10 1/8
- - ----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Year Ended
1993 Sept. 30 Dec. 31 March 31 June 30 June 30,
Dollars in thousands, except per-share data 1992 1992 1993 1993 1993
- - ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue:
Services $46,769 $42,031 $42,234 $44,883 $175,917
Products 17,750 17,722 12,579 9,485 57,536
------------------------------------------------------------
$64,519 $59,753 $54,813 $54,368 $233,453
------------------------------------------------------------
Gross margin $25,706 $22,383 $18,588 $18,392 $ 85,069
Income (loss) from operations 829 (24,342) (5,704) (3,106) (32,323)
Net income (loss) 128 (25,135) (6,640) (617) (32,264)
Net income (loss) per share .01 (1.61) (.42) (.04) (2.05)
Sales price of common stock: High 4 3/4 5 5/8 6 1/4 8 1/2
Low 3 3/4 3 5/8 4 1/4 4 1/4
- - ----------------------------------------------------------------------------------------------------------
</TABLE>
During the second quarter of fiscal year 1993, the Company recorded a
restructuring charge of $20.5 million, or $1.30 per share (see accompanying
notes to consolidated financial statements).
40
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES
<TABLE>
<S> <C>
DOMESTIC OPERATING SUBSIDIARIES
- - -------------------------------
BBN BARRNET Inc. (a Massachusetts corporation, 100% owned
by BBN Internet Services Corporation)
BBN HARK Systems Corporation (a Massachusetts corporation, 100% owned
by BBN)
BBN Internet Services Corporation (a Massachusetts corporation, 98%
owned by BBN)
BBN NEARNET Inc. (a Massachusetts corporation, 100% owned
by BBN Internet Services Corporation)
BBN Software Products Corporation (a Massachusetts corporation, 100%
owned by BBN)
LightStream Corporation (a Massachusetts corporation, 80% owned
by BBN)
OTHER DOMESTIC SUBSIDIARIES
- - ---------------------------
BBN Advanced Computers Inc. (a Massachusetts corporation)
BBN Corporation (a Massachusetts domestic securities
corporation)
BBN Delta Graphics Inc. (a Washington corporation)
BBN Inc. (a Maine corporation)
BBN Instruments Corporation (a Delaware corporation)
Realtech Corporation (a Massachusetts corporation)
FOREIGN SUBSIDIARIES
- - --------------------
BBN Canada Limited (a Canadian corporation)
BBN Deutschland GmbH (a German corporation)
BBN International Sales Corporation (a U.S. Virgin Islands foreign
sales corporation)
BBN Manufacturing H.K. Limited (a Hong Kong corporation)
BBN Pty Limited (an Australian corporation)
BBN S.A. (a French corporation)
BBN U.K. Limited (a United Kingdom corporation)
Nihon BBN K.K. (a Japanese corporation)
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements
of Bolt Beranek and Newman Inc. on Form S-8 (File Nos. 33-44894, 33-32023,
33-31385, 33-20216, 33-13857, 2-88754, and 2-88724) of our reports dated August
11, 1994 on our audits of the consolidated financial statements and financial
statement schedules of Bolt Beranek and Newman Inc. as of June 30, 1994 and 1993
and for the years ended June 30, 1994, 1993 and 1992, which reports are included
or incorporated by reference in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
September 26, 1994
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED STATEMENTS OF OPERATIONS AND BALANCE SHEETS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000013021
<NAME> BOLT BERANEK AND NEWMAN INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1994
<PERIOD-END> JUN-30-1994
<CASH> 67,115
<SECURITIES> 0
<RECEIVABLES> 49,877
<ALLOWANCES> 8,374
<INVENTORY> 1,114
<CURRENT-ASSETS> 113,324
<PP&E> 104,204
<DEPRECIATION> 84,546
<TOTAL-ASSETS> 135,940
<CURRENT-LIABILITIES> 52,987
<BONDS> 73,510
<COMMON> 21,254
0
0
<OTHER-SE> (13,983)
<TOTAL-LIABILITY-AND-EQUITY> 135,940
<SALES> 196,104
<TOTAL-REVENUES> 196,104
<CGS> 130,085
<TOTAL-COSTS> 130,085
<OTHER-EXPENSES> 74,463
<LOSS-PROVISION> 405
<INTEREST-EXPENSE> 4,606
<INCOME-PRETAX> (7,824)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,824)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,824)
<EPS-PRIMARY> (.48)
<EPS-DILUTED> 0
</TABLE>
