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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, 1995
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
(State of Incorporation) (IRS Employer Identification Number)
150 CAMBRIDGEPARK DRIVE, CAMBRIDGE, MASSACHUSETTS 02140
(Address of principal executive offices) (Zip Code)
(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
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 Sections 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 9/14/95 of Common Stock held by other than directors and
executive officers of registrant: $633,676,208
Indicate the number of shares outstanding of each of the registrant's classes of
common stock.
Common Stock, $1.00 par value, outstanding 9/14/95: 17,534,365 shares
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement dated September 29, 1995 relating to
the Annual Meeting to be held on November 6, 1995 are incorporated by reference
into Items 10, 11, 12, and 13.
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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.
In fiscal 1995, the Company consisted of five operating units: the
Company's BBN Systems and Technologies Division, BBN Software Products
Corporation, LightStream Corporation, BBN Planet Corporation, and BBN HARK
Systems Corporation. The BBN Systems and Technologies Division includes
internetworking services and products, and collaborative systems and acoustic
technologies. BBN Software Products Corporation, a wholly-owned subsidiary of
the Company, develops, markets, and supports data analysis and process
optimization software products designed primarily for health industry and
manufacturing applications. LightStream Corporation, an 80%-owned subsidiary of
the Company which made asynchronous transfer mode ("ATM") network switches, sold
substantially all of its assets to Cisco Systems, Inc. on January 11, 1995. BBN
Planet Corporation, a 95%-owned subsidiary of the Company, provides Internet
services to businesses and other organizations. BBN HARK Systems Corporation, a
wholly-owned subsidiary of the Company, is an early stage company which develops
and markets commercial speech recognition software products.
During fiscal 1995, the Company reported 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 advanced network systems (including the Company's defense
communications activities) and network services and products, the activities of
BBN Planet Corporation, and the activities of LightStream Corporation up to the
date of sale of substantially all of its assets on January 11, 1995. The Data
Analysis Software business segment includes the activities of BBN Software
Products Corporation. The Collaborative Systems and Acoustic Technologies
business segment includes that part of the activities of the BBN Systems and
Technologies Division relating to collaborative systems, sensor systems, and
acoustic technologies, and the activities of BBN HARK Systems Corporation.
The Company's overall business strategy is to capitalize upon its technical
expertise and problem solving experience in the internetworking, data analysis,
and collaborative systems and acoustic technologies areas. This strategy is to
create focused, entrepreneurial subsidiary companies while maintaining contract
research and development activities within the parent corporation. As of July 1,
1995 the Company is comprised of five distinct and complementary business units,
including two operating divisions and three operating subsidiaries, as described
below:
- BBN Systems and Technologies Division, an operating division of the
Company which generates a majority of the Company's revenue, provides a
range of services, including advanced systems and technologies to
government and commercial organizations, and performs most of the
Company's government contract activities, and its results are reported in
part in the Internetworking business segment, and in part in the
Collaborative Systems and Acoustic Technologies business segment. The
Internetworking activities of the BBN Systems and Technologies Division
include advanced network systems and network services and products, and a
majority of the revenue of these activities is related to defense
communications. The Collaborative Systems and Acoustic Technologies
activities of the BBN Systems and Technologies Division also includes
sensor systems. (See "Advanced Network Systems and Services", "Network
Services and Products", "Collaborative Systems", "Acoustic Technologies",
and "Sensor Systems" below.)
- BBN Software Products Corporation, a wholly-owned subsidiary of the
Company, the name of which is being changed to BBN Domain Corporation,
develops and markets data analysis and process optimization software
products, and its results comprise the Data Analysis Software segment.
(See "BBN Domain Corporation" below.)
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- BBN Planet Corporation (formerly named BBN Internet Services
Corporation), a 95%-owned subsidiary of the Company, provides Internet
services to businesses and other organizations. BBN Planet Corporation,
which was incorporated in 1994 to pursue certain commercial
Internet-related business opportunities, utilizes the Company's
experience and technical expertise in computer networking and
Internet-related activities (which dates back to 1968 when BBN
participated in the design and implementation of the ARPAnet, the
foundation of today's Internet). BBN Planet Corporation has expanded
through the acquisition of three regional Internet access providers
(including NEARnet in June 1993, and BARRNet and SURAnet in fiscal 1995),
and its results are included in the Internetworking segment. (See "BBN
Planet Corporation" below.)
- BBN HARK Systems Corporation, a wholly-owned subsidiary of the Company,
was established in 1994 (continuing certain of the Company's prior
development activities in speech recognition previously residing in the
BBN Systems and Technologies Division) to develop and market commercial
speech recognition computer software products and services which are
marketed primarily to the customer telephony market for call centers and
enhanced telephone services applications. Its results are included in the
Collaborative Systems and Acoustic Technologies business segment. (See
"BBN HARK Systems Corporation" below.)
- BBN Acoustic Technologies Division, an operating division of the Company
formed in July 1995, consolidates BBN's expertise in acoustic and
environmental technologies (continuing those activities previously
performed by the BBN Systems and Technologies Division). The BBN Acoustic
Technologies Division provides structural acoustic, environmental, and
noise control consulting services primarily to government customers, and
designs and develops Active Noise and Vibration Control products and
systems. Its results are reported in the Collaborative Systems and
Acoustic Technologies business segment. (See "Acoustic Technologies"
below.)
The Company's strategy is to continue to develop advanced technologies at
its BBN Systems and Technologies Division, and to create operating subsidiaries
and divisions focused on transforming these technologies into services and
products for the commercial and government markets. BBN Software Products
Corporation, BBN HARK Systems Corporation, and BBN Planet Corporation all were
founded on technologies that were originally developed at the BBN Systems and
Technologies Division, and the Division continues to work on a range of advanced
technologies. In addition, collaboration among the Company's operating
subsidiaries and divisions and its BBN Systems and Technologies Division is
designed to expand the opportunities of each for shared customers.
BBN has in the past sold minority interests in subsidiary companies to
outside investors in private transactions. That strategy is expected to
continue, as appropriate, with the Company considering from time to time the
sale of a minority interest in one or more subsidiary companies to outside
investors, including in public sales.
A significant portion of BBN'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 1996, particularly in the Company's defense
communications, acoustic technologies, and sensor systems activities. (See
"United States Government Contracts" below.)
BBN 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 and services to address emerging market requirements and to
improve existing products and services. In recent years, the Company's
traditional commercial businesses, consisting principally of RS/Series(TM) data
analysis software products and X.25 network systems, have been experiencing
substantially lower revenue. The Company has discontinued sales of most of its
traditional X.25 systems and products, and has substantially eliminated its
development efforts and significantly reduced its selling efforts
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related to this business. In recent periods, the Company has been investing
heavily in development of new products, including the LightStream Corporation
ATM network switches, Cornerstone(TM) data analysis and visualization software,
the T/10(TM) Integrated Access Device ("IAD") for computer networks, and the BBN
HARK(TM) speech recognition software. In fiscal 1995, the Company made
significant investment in Internet services.
During the three most recent fiscal years, BBN's operating results have
been adversely affected by this high level of investment in new products and
services, by declines in the Company's defense communications and acoustic
technologies businesses, by substantially lower demand for the Company's
traditional X.25 network systems and RS/Series data analysis software products,
and by restructuring charges in fiscal 1993 relating to downsizing and staff
reductions.
In January 1995, Cisco Systems, Inc. acquired substantially all of the
assets of LightStream Corporation, resulting in a $105 million gain to the
Company before taxes and minority interest. The Company's fiscal 1995 results
include revenue of approximately $8.4 million and an operating loss of
approximately $3.7 million relating to LightStream Corporation's activities
(through the date of sale to Cisco in January 1995). (See "LightStream
Corporation" below.)
The Company continues to invest in its commercial businesses, and recorded
operating losses for fiscal 1995 at BBN Planet Corporation, BBN HARK Systems
Corporation, and BBN Software Products Corporation, as well as decreased
operating income at the BBN Systems and Technologies Division. The Company
expects to incur significant operating losses at BBN Planet Corporation during
fiscal 1996, which is expected to adversely impact the financial performance of
the Company. The outlook could also be affected by further expenditures on
commercial business opportunities available to the Company. The Company's
objective is to achieve increased revenue growth in fiscal 1996. However, this
outlook is strongly dependent upon achieving a significant increase in revenue,
primarily from BBN Planet Corporation and BBN Software Products Corporation.
There can be no assurance that such an increase will be realized. The Company's
revenue growth objective is dependent upon market acceptance of BBN Planet
Corporation's Internet-related services and BBN Software Products Corporation's
offerings; 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;
and the Company's success at maintaining comparable levels of the Company's
government business. The implementation of the Company's overall business
strategy will continue to require significant additional investment in sales and
marketing and product development.
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The Company's business segments represented approximately the following
percentages of BBN's total revenue in fiscal 1995, 1994, and 1993:
<CAPTION>
YEAR ENDED JUNE 30,
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PERCENTAGE OF TOTAL BBN REVENUE 1995 1994 1993
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Internetworking........................................................ 41 % 39 % 39 %
Data Analysis Software................................................. 18 % 18 % 16 %
Collaborative Systems and Acoustic Technologies........................ 41 % 43 % 45 %
--- --- ---
100 % 100 % 100 %
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The Company's contracts and subcontracts involving the U.S. government and
its agencies represented approximately 58%, 67%, and 62% of BBN's total revenue
in fiscal years 1995, 1994, and 1993, respectively.
INTERNETWORKING
ADVANCED NETWORK SYSTEMS
Overview.
BBN designs, develops, and operates wide-area communications network
systems, designs and develops advanced routers and other communications network
products, and offers and performs contract research,
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development, and consulting services, primarily for government organizations
and, to a lesser extent, for commercial organizations. (For certain information
on the Company's Internet services activities, see generally the discussion
under "BBN Planet Corporation" below.)
For the past several years, BBN has provided network systems and services
to the U.S. Department of Defense, including to 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 fourth option year of that DDN
contract, valued at approximately $15 million, which will continue the Company's
existing activities through October 1995. The Company has been awarded a
six-month extension of the DDN contract, which will continue these activities
through April 1996. The value of this extension award is approximately $7.5
million. The Company does not expect that this activity will continue beyond
April 1996, although the Company may compete for follow-on contracts for the
DDN, at reduced funding levels.
BBN provides a range of other network services, systems, and products, for
use primarily by the U.S. government under various contracts. BBN provides
research, development, hardware, software, and professional services for
wide-area networks supporting distributed simulation and training, warfighting
simulation, and command and control functionality; advanced Internet routers
supporting integrated video, voice, and data requirements; and cryptographic
systems and products for sophisticated network security applications.
The Company's newly organized "Enterprise Networks" commercial consulting
services group is currently offering consulting services, strategic analysis and
planning, network management, network security, and advanced technology
integration for large commercial organizations.
In March 1995, the Company entered into an agreement with America Online,
Inc. ("AOL") to build, maintain, and operate a portion of AOL's nationwide,
high-speed, dial-in network. The Company's five-year agreement with AOL, valued
at approximately $11 million per year, includes substantial pass-through costs
to BBN for telecommunications circuits and other services provided by local and
interexchange carriers. In connection with the provision of such services to
AOL, the Company has built a Network Operations Center ("NOC") based in
Columbia, Maryland. As part of BBN's agreement with AOL, the Company has access
to use of the excess capacity of the portion of the network operated by BBN, and
BBN has the right to resell such excess capacity. The Company is exploring
opportunities to resell such excess capacity, the availability of which is
currently limited primarily to business hours.
Marketing.
The primary market for BBN's advanced network systems is U.S. government
agencies, primarily the U.S. Department of Defense. BBN markets its advanced
network systems to government customers both directly and through teaming
arrangements with large defense contractors. 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 the government marketplace. (See "United
States Government Contracts" below.) The Company is also targeting for its
services offerings large commercial organizations with significant existing
network infrastructures that need to integrate, migrate, or build new enterprise
networks that incorporate emerging internetworking technologies.
The Company's success in offering advanced network systems is dependent
upon the Company's continued ability to recruit, hire, and retain suitable
scientific and engineering personnel who possess a high level of technical
expertise, knowledge, and experience in the computer networking field.
Competition.
Competition in the field of advanced network systems is intense. Government
contracts may be awarded either through a sole-source or competitive
procurement, although competitive procurements are increasingly common. 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.
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The Company believes that the primary factors of competition in the
government sector are the technical expertise and experience of the supplier,
and price. BBN believes that its ability to compete successfully will depend
heavily upon the Company's ability to attract and retain employees with a
high-level of technical expertise, knowledge, and experience.
In the commercial marketplace, the Company believes that its success will
depend upon BBN Systems and Technologies Division's success in continuing to
provide advanced networking consulting and contract research and development
services to certain U.S. government customers, including the Advanced Research
Projects Agency. These efforts provide the Company with extensive knowledge and
expertise relating to future internetworking trends and opportunities. Factors
of competition in the commercial sector include the extensiveness of the
supplier's consulting capabilities and service offerings, reputation,
responsiveness, and to a lesser extent, price.
NETWORK SERVICES AND PRODUCTS
BBN markets and supports network services and products, as described below.
BBN's X.25 network systems and products, which are based upon
packet-switching technology, include switching equipment, access devices, and
network management systems. The Company's X.25 network services and products
business has experienced significantly lower revenue for several years.
Substantially all of the Company's X.25 network services and products revenue in
fiscal 1995 was generated from sales into the Company's existing customer base
in connection with the maintenance and support of networks previously installed
by BBN. The Company has discontinued sales of most of its traditional X.25
systems and products, and has substantially eliminated its development efforts
and significantly reduced its selling efforts related to this business.
BBN's T/10 IAD 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. The T/10 IAD
operates simultaneously as an Internet Protocol router, X.25 packet switch, and
async, bisynch, and SNA packet assembler/disassembler, and provides frame relay
functionality. To date, revenue from the Company's T/10 IAD activities has been
substantially below expectations, and the Company has experienced operating
losses in connection with that business. The Company has substantially reduced
spending relating to the T/10 IAD from prior year levels.
The Company's T/10 IAD activities are now being primarily focused on a
limited number of reseller and strategic licensing opportunities, and the future
success of the T/10 IAD is highly dependent on these opportunities. In July
1995, the Company entered into an agreement with NEC Corporation ("NEC")
granting to NEC technology and manufacturing license rights in the T/10 IAD and
in the Company's T/40(TM) Video Internet Router (which BBN has under
development), and agreed to perform certain development activities in connection
with the joint development of a new multi-media access device. The value of the
NEC agreement is approximately $4.6 million, $1.9 million of which relates to
future development efforts.
The Company has outsourced most of its manufacturing capabilities for its
internetworking products. The Company does not currently maintain a qualified
second manufacturing source for the T/10 IAD and certain X.25 network 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, primarily for the DDN.
Marketing.
The market for the Company's X.25 network services and products is
primarily BBN's existing commercial customer base. These customers typically
require ongoing maintenance, upgrade, operation, or expansion of a private X.25
network system previously installed by the Company. The Company markets its X.25
network services and products both directly and through third party resellers,
although the Company has
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substantially reduced its direct selling and marketing capabilities for X.25
network services and products in recent years.
Competition.
The Company believes that the primary factors of competition for X.25
network services and products are functionality, product performance, price,
reliability, and experience of the supplier. Several important trends have
adversely affected the Company's X.25 network services and products business,
including the growth of desktop computing, the widespread installation of LANs,
and increased transmission circuit speed and improved circuit quality. These
trends have led to market requirements for networking technologies such as
routers. The Company is not currently investing in additional development of its
X.25 products.
BBN PLANET CORPORATION
Overview.
BBN Planet Corporation ("BBN Planet") provides Internet services to
businesses and other organizations by operating a high-bandwidth digital data
communications network providing dedicated local access to its customers across
the United States. BBN Planet's Internet access services include a range of
dedicated leased line connectivity options, network design, implementation,
management, monitoring and problem-resolution services. BBN Planet also intends
to develop or acquire additional Internet-related value added services. In
addition to Internet access services, the Company currently offers managed
network security, World Wide Web server hosting, and application development
services.
In June 1993, BBN organized its commercial Internet-related business
activities into a new subsidiary which acquired the assets of the New England
Academic Research Network ("NEARnet"). This organization, evolving into BBN
Planet, has since acquired the business and assets of two additional regional
Internet access providers (including BARRNet in 1994 and SURAnet in 1995),
expanding its geographical service area and customer base, and supplementing the
technical expertise and the approximately 100 employees transferred to BBN
Planet from BBN. In addition, BBN Planet has recently hired senior management
and marketing personnel.
BBN Planet's high-bandwidth network utilizes both BBN Planet-owned network
points of presence ("POPs") and interconnected frame-relay and switched
multi-megabit facilities provided by local exchange and interexchange carriers,
in order to make available to its customers local Internet access throughout the
United States. BBN Planet is beginning to expand and upgrade its network
backbone, in order to meet the anticipated increase in Internet traffic and the
demand for high capacity Internet connections. To support its service offerings,
BBN Planet maintains a primary network operations center staffed 7 days-a-week,
24 hours per day, as well as two operations support centers that can serve as
limited back-up network operations centers in the event of an emergency. Field
service staff, consulting service engineers, and applications design personnel
are located in regional offices to provide technical sales and customer support.
Marketing.
Currently, BBN Planet's customers consist of over 1,300 businesses,
universities, and governmental customers. BBN Planet intends to target
organizational and business customers, in particular organizations and
businesses with extensive customer service and support requirements, including
computer and computer software companies, telecommunications companies, high
technology companies, consumer-oriented financial services companies,
publishers, manufacturers, and professional service firms. BBN Planet currently
sells its services through its own sales force and through AT&T Corp. ("AT&T").
In June 1995, BBN Planet and AT&T entered into a strategic relationship
under which BBN Planet is to be the exclusive provider for a period of up to
three years of dedicated Internet access and managed network security services
to AT&T for resale to customers of AT&T's Business Communications Services
division ("BCS") in the United States. During such three year period, as long as
BBN Planet is the exclusive provider of dedicated Internet access and managed
Internet security services to customers of BCS, BBN Planet is
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prohibited from providing such services to, or in conjunction with, other
telecommunications carriers or on-line service providers. Under the agreement,
AT&T provides certain incentives to BBN Planet to develop additional
Internet-related value-added services for sale to such customers. BBN Planet
will also provide training and sales support and post-sale implementation
support to AT&T. The agreement provides AT&T with discounts off of benchmark
pricing, based upon comparable pricing to BBN Planet's most favored customers.
In addition, either AT&T or BBN Planet may at any time initiate modifications in
the benchmark pricing for BBN Planet's Internet access services, as necessary to
ensure that BBN Planet's prices remain competitive with the prices charged by
other providers of similar services. AT&T's BCS sales force will resell BBN
Planet's dedicated Internet access services to AT&T customers. The relationship
offers to BBN Planet an opportunity to accelerate the expansion of BBN Planet's
Internet access and related value-added services business. AT&T has agreed to
purchase the following minimum order amounts of services during the first three
years of the agreement: year one, $20 million; year two, $40 million; and year
three, $60 million (subject to potential reduction under specified
circumstances). In addition, in years 4 and 5 of the agreement, AT&T has agreed,
to the extent BCS continues to receive revenue from the sale of dedicated
Internet access services, to purchase services from BBN Planet such that in
general BBN Planet's revenue from the sale of services to AT&T and AT&T
customers in such years is not less than two-thirds and one-third, respectively,
of BBN Planet's revenue from the sale of dedicated Internet access services to
AT&T and continuing AT&T customers during year 3 of the agreement. AT&T's
obligations to purchase a minimum amount of services in years 4 and 5 of the
agreement will terminate, among other reasons, if a telecommunications carrier
or on-line service provider having the right to appoint a director of BBN or BBN
Planet acquires ownership of 15% or more of the outstanding stock of BBN or BBN
Planet. In addition to certain other termination provisions, AT&T may cancel the
agreement in the event either BBN or BBN Planet merges with, or becomes
controlled by, another telecommunications carrier or an on-line service provider
and has the right to terminate the exclusivity obligation and to withhold other
financial benefits in certain other situations. BBN Planet's performance of the
AT&T agreement has been guaranteed by BBN. In July 1995, AT&T Venture Company
L.P., a venture capital partnership with AT&T as the sole limited partner, made
an $8.0 million investment in BBN Planet.
Competition.
The market for Internet services is rapidly expanding, and there are
considerable uncertainties as to how the market will develop. The market for
Internet access and related value-added services is highly competitive and in
general there are no substantial barriers to entry. BBN Planet believes there
are certain key marketing considerations in this market, including: price;
quality of service; technical expertise; the quality of network backbone and
infrastructure; and the quality and scope of sales, marketing, and distribution
channels. BBN Planet expects that competition in the market will intensify in
the future.
BBN Planet's current and prospective competitors may, in general, be
divided into the following four groups: (1) Internet access providers, such as
Performance Systems International, Inc. and UUNET Technologies Inc.; (2)
telecommunications companies, such as AT&T, MCI Telecommunications, Inc.,
Metropolitan Fiber Systems Communications, Inc., Sprint, Inc., regional Bell
operating companies, and various cable companies; (3) on-line services
providers, such as AOL and CompuServe Incorporated (a division of H&R Block,
Inc.); and (4) value-added networks and systems integrators, such as General
Electric Information Services and International Business Machines Corporation's
Advantis. Many of these competitors have greater market presence and have
engineering, marketing, financial, technological, and personnel resources
greater than those available to BBN Planet. As a result, they may be able to
develop and expand their communications and network infrastructures more
quickly, adapt more swiftly to new or emerging technologies and changes in
customer requirements, take advantage of acquisition and other opportunities
more readily, and devote greater resources to the marketing and sale of their
products than can BBN Planet. BBN Planet expects that all of the major online
services and telecommunications companies will compete fully in the Internet
services market, and that new competitors, including large computer hardware,
software, media, and other technology and telecommunications companies, will
enter the Internet services market, resulting in even greater competition for
BBN Planet.
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As a result of increased competition in the industry, the Company expects
to encounter pricing pressure, which in turn could result in significant
reductions in the selling price of BBN Planet's Internet access services
(including changes to the pricing to AT&T under BBN Planet's agreement with
AT&T). In addition, those of BBN Planet's competitors which are
telecommunications companies may be able to provide customers with reduced
overall communications costs by combining Internet access services with other
services, thereby reducing the overall cost of their Internet access services
and increasing pricing pressures on BBN Planet. There can be no assurance that
BBN Planet will be able to offset the effects of any such price reductions with
an increase in the number of its customers, higher revenue from value-added
services, cost reductions, or otherwise. There can be no assurance that BBN
Planet will have the financial resources, technical expertise, or marketing and
support capabilities to continue to compete successfully.
BBN Planet's success will primarily depend upon the development and
expansion of the market for Internet access services and products and the
networks which comprise the Internet; the capacity, reliability, and security of
its network infrastructure; its ability to develop value-added products and
services that meet changing customer requirements or acquire rights to such
products and services from BBN or other providers; its ability to attract and
retain additional highly qualified management, technical, marketing, and sales
personnel; and its ability to manage its growth.
LIGHTSTREAM CORPORATION
Until January 1995, BBN had invested heavily for several years in the
development of networking products based on ATM technology. The Company's ATM
development activities were conducted from October 1993 by LightStream
Corporation, a BBN subsidiary 80% owned by the Company and 20% owned by UB
Networks, Inc. (formerly Ungermann-Bass, Inc.), a wholly-owned subsidiary of
Tandem Computers, Inc. Sales of LightStream ATM switches were approximately $1.5
million in fiscal year 1994 and $8.4 million for the six months ended December
31, 1994. Operating losses relating to the LightStream ATM activities were
approximately $14.8 million in fiscal year 1994 and $3.7 million for the six
months ended December 31, 1994.
In January 1995, LightStream Corporation sold substantially all of its
assets to Cisco Systems, Inc. ("Cisco"), which resulted in a $105.0 million gain
to the Company before taxes and minority interest. BBN realized approximately
$80 million in cash from this transaction.
Simultaneous with the sale of LightStream Corporation, BBN entered into an
agreement with Cisco providing the Company with significant discounts on the
purchase of up to $30 million in Cisco equipment. The Company also formed a
strategic alliance with Cisco relating to Internet services. BBN was also
selected as a primary provider of Internet access services to Cisco and
currently manages part of Cisco's internal
network.
DATA ANALYSIS SOFTWARE
BBN DOMAIN CORPORATION
Overview.
Through its wholly-owned subsidiary BBN Software Products Corporation, the
name of which is being changed to BBN Domain Corporation (herein sometimes
referred to as "BBN Domain"), the Company develops, markets, and supports data
analysis and process optimization software products and services primarily
designed for companies in the health and manufacturing industries. The Company's
data analysis and process optimization software products embody data management,
data analysis, and domain-specific methodologies in visually-oriented,
client/server environments.
BBN Domain's offerings of software products, including RS/Series,
Clintrial(TM), Clintrace(TM), Cornerstone, BBN/Probe(TM), and BBN/Patterns(TM)
computer software, 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), and RS/QCA II(TM)
software. RS/1 software is a fully integrated data analysis system
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used by engineers in manufacturing companies. RS/Explore, RS/Discover,
and RS/QCA II software are sold as product options to RS/1 software.
Collectively, the RS/Series software is used to monitor and improve
processes through the use of data analysis, statistical process control,
and design of experiments.
- Clintrial and Clintrace. Clintrial and Clintrace data management
software are health industry applications software products used by
pharmaceutical, biotechnology, and medical devices companies, as well as
contract research organizations. Clintrial software is designed to
support data management of clinical trials, and Clintrace software is
designed to unify a company's adverse events processing.
- Cornerstone. Cornerstone data analysis and visualization software
provides integrated data access, visualization, analysis, and
presentation of results within a single consistent graphical user
interface. Cornerstone software is specifically designed for use on
desktop computers in a client/server environment, and operates on
workstations and personal computers from a number of manufacturers.
- BBN/Probe and BBN/Patterns. BBN/Probe and BBN/Patterns software provide
recognition, visualization, and analysis of complicated time-series data.
BBN/Probe software is used by engineers, primarily in the aerospace and
defense industries, to access and analyze complicated time-series data.
BBN/Patterns software helps engineers and scientists in the manufacturing
and aerospace industries recognize simple to complex signatures in their
data streams.
BBN Domain software products operate on a variety of operating systems, as
applicable, including VMS and Open VMS from Digital Equipment Corporation;
Windows 3.x, Windows95, and Windows NT from Microsoft Corporation; SunOS from
Sun Microsystems; HP-UX from Hewlett-Packard Corporation; and AIX from IBM
Corporation.
The Company's traditional data analysis software products, including
mini-computer based versions of the Company's RS/Series software, have been
affected over the last several years by a number of market changes, most notably
the growth of distributed processing and the associated use of personal
computers, workstations, and other desktop computers. As demand for
minicomputer-based software has declined, the Company has experienced
substantially lower RS/Series software revenue and downward pressure on prices.
In response to the trend toward desktop computing, the Company has developed
desktop versions of certain RS/Series software products including RS/Series for
Windows, and in 1994 the Company introduced Cornerstone software, a
desktop-based data analysis and visualization software tool. Sales of
Cornerstone software to date have been substantially below expectations.
Commencing in fiscal 1995, BBN Domain is more tightly integrating its
Cornerstone software with its RS/Series software products to provide platform
migration and ease of use for its existing RS/Series customer base, and to
provide greater capabilities and flexibility in client/server computing
environments.
Recently, the Company has refocused its traditional data analysis software
activities, and now targets customers principally in the health and
manufacturing industries. The Company's products are typically used in research,
development, and manufacturing operations.
In fiscal 1995, BBN acquired from IBM the exclusive rights to IBM's Process
Analysis Navigation System ("PANS") technology and software for manufacturing
processes. The Company is currently integrating and significantly enhancing this
methodology and technology with BBN's data analysis and visualization software
for manufacturers, and BBN Domain expects to release the resulting product in
fiscal 1996. The product is intended to combine data analysis and visualization
capabilities with process optimization methodology to assist customers in
reengineering on a statistical basis their manufacturing processes to improve
productivity in bringing products to market.
In the health industry, BBN Domain is participating with pharmaceutical
companies in the development of new features and functions for its Clintrial
clinical data management software for client/server computing environments.
The Company is increasing its development expenditures at BBN Domain, and
is investing in additional sales and marketing personnel. The Company believes
that the future success of its data analysis and process
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optimization software will depend primarily on the development and marketing of
software applications that permit operation on personal computers; on continued
market acceptance of its health industry software products; on development and
acceptance of its PANS manufacturing methodology; and on timely integration of
its Cornerstone and RS/Series software.
BBN Domain also offers maintenance, training, and consulting services 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 use of statistical methods embodied in the Company's software
products. Consulting services include principally installation, implementation,
and customization of BBN's software products for its customers.
Marketing.
The primary markets targeted by BBN Domain for its software products are
the health and manufacturing industries. In the health industry, the Company's
software products are used primarily by administrative and management personnel
who are responsible for conducting and managing clinical research, clinical
trials, drug safety, and regulatory affairs in the pharmaceutical,
biotechnology, and medical devices fields, and contract research organizations
supporting such companies. In the manufacturing industry, the Company's software
products are used primarily by engineers and management personnel in the
semiconductor, electronics, automotive, chemical, and pharmaceutical fields. The
manufacturing market is characterized by a need to acquire, analyze, visualize,
graph, and report engineering and manufacturing data.
BBN Domain markets its software products to organizations worldwide.
Selling and marketing is done principally through a direct sales force at
offices in the United States, Western Europe, and the Pacific Rim. The Company
is increasing its international activities, and has recently opened sales
offices in the People's Republic of China and Singapore.
Sales of the Company's health industry software have increased recently. In
June 1995, the Company announced that the Pharma Division of Ciba-Geigy Limited
will standardize on Clintrial software for its worldwide drug development
projects. In addition, in August 1995 the Company announced that Eli Lilly and
Company had licensed Clintrial and Clintrace software to help standardize its
clinical data management processes. However, the market for Clintrial and
Clintrace software is primarily pharmaceutical, biotechnology, and medical
devices companies and contract research organizations. Accordingly, the
Company's ability to continue to sustain revenue growth from its health industry
software is dependent upon the continued development by the Company of
enhancements and new product offerings for its limited customer base.
Competition.
BBN Domain's software for the health and manufacturing industries competes
principally with customized software solutions developed by in-house programmers
for internal use by corporations. Many of the companies using in-house systems
are also clients of the Company. The Company believes that there is currently no
other company offering a similar level of integrated process optimization
solutions to companies in the manufacturing industry, but many competitors do
offer discrete software products that improve a company's processes. BBN
Domain's principal competition for data analysis and visualization software
products from non-in-house suppliers is from statistical 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. Several of these
packages are marketed by organizations with established reputations and with
financial and marketing resources greater than those of BBN.
BBN Domain believes that competition in the data analysis and visualization
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, BBN Domain 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
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<PAGE> 12
do not need the level of functional integration which is embedded within the
Company's applications software products.
COLLABORATIVE SYSTEMS AND ACOUSTIC TECHNOLOGIES
COLLABORATIVE SYSTEMS
Overview.
BBN designs, develops, and markets collaborative systems, primarily in the
fields of distributed computing, speech and language processing, and education
technology. In each of these fields, BBN offers customized solutions to complex
problems.
In the field of distributed computing, the Company offers research,
development, and consulting services, primarily to government agencies, 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.
Advanced Research Projects Agency (distributed collaborative planning systems
for joint task force operations).
In the field of speech and language processing, the Company offers
research, development, and consulting services, primarily to government
customers, relating to speech recognition, natural language processing, spoken
language systems, and text processing. For example, under contract to the U.S.
Advanced Research Projects Agency, the Company is developing interactive spoken
language systems enabling military personnel to interface efficiently and
effectively with intelligent computer applications. (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 and the National Science Foundation, and to
public and private educational institutions. For example, under contract to the
New American Schools Development Corporation, the Company has developed and is
assisting in the implementation of the "Cooperative Networked Educational
Community for Tomorrow" (Co-NECT(TM)) School Design program, utilizing computer
and networked communications technology as part of a project-based curriculum.
In fiscal 1995, the Company announced an agreement with the Dade County Public
School system to assist in the creation of three model middle schools in the
Miami, Florida area.
The Company also designs, develops, and markets collaborative systems in
the fields of advanced command and control, cognitive sciences and systems,
intelligent systems, and underwater simulation.
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.
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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. Competitors include corporations and non-profit 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. Increased competition for its
collaborative systems and services has had an adverse impact on the Company's
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.
Through its wholly-owned subsidiary, BBN HARK Systems Corporation ("BBN
HARK"), the Company develops, markets, and supports commercial speech
recognition computer software products and services, which are marketed
primarily to the customer telephony market for call centers and enhanced
telephone services applications. The foundation of the Company's commercial
speech recognition software-based solutions is the BBN HARK Recognizer software
product, which provides speaker independent, continuous speech recognition based
on a scalable, client/server architecture. The BBN 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 Company also provides
contract research and development services to commercial customers to develop
and implement customized speech recognition-based software applications. BBN
HARK is an early-stage company which is currently incurring operating losses.
Marketing.
The market for commercial speech recognition products and services consists
of two principal market segments, the customer telephony market (focused on
speech recognition capabilities for call centers and enhanced telephone
services) and the desktop speech market (focused on speech recognition
capabilities for operating system and applications software for desktop
computers and dictation systems). The principal market currently targeted by the
Company for its speech recognition products and services is the telephony call
center market. Potential customers for BBN HARK speech recognition products and
services include companies that interact with their customers through call
centers in a variety of fields, including the telephone, travel, transportation,
financial services, and health care industries, for a range of applications,
including customer service, reservations, sales and direct marketing, help desk,
product support, collection, fundraising, and dispatch.
The Company markets and sells its commercial speech recognition products
and services through a combination of direct and indirect channels, principally
in the United States. Currently, the Company has only modest direct sales
capabilities for its speech recognition products and services. In addition to
utilizing a direct sales force, the Company intends to establish multiple
distribution channels with telephony and computer hardware platform providers,
systems integrators, and value-added resellers.
In July 1995, the Company announced a distribution agreement for its speech
recognition software with IBM and a pilot program with AT&T for application of
the BBN HARK software in networked telephony applications. During fiscal 1995,
the Company also entered into an agreement with Time Warner Cable to develop
systems design for integrating speech recognition into Time Warner's prototype
interactive cable services, to be deployed in the later phases of a field trial
in Orlando, Florida.
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The Company's speech recognition software products are currently available
only in English-language versions, and are currently marketed primarily to
commercial organizations in the United States.
Computer speech recognition is an emerging market. Although the Company
expects that the telephony call center market segment presents greater
opportunities for the Company's speech recognition products and services than
the desktop speech market segment, there currently exists only a limited market
demand. In addition, the sale of the Company's speech recognition products and
services is characterized by long sales cycles, often including a lengthy
small-scale "pilot" test phase. Accordingly, the Company's success in the
commercial speech recognition marketplace will depend heavily upon the
development of market demand for large vocabulary speech recognition
capabilities; the ability of the Company to sustain technological superiority,
ease-of-use, and cost-competitiveness for its speech recognition products and
services; the development of third party applications incorporating the BBN HARK
speech recognition technology; and the establishment of productive distribution
channels (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. Although
the Company believes its technical resources compare favorably with its
competition, some competitors have established reputations and financial,
marketing, and distribution resources substantially greater than those of BBN,
and accordingly there can be no assurance of success in this highly competitive
market.
ACOUSTIC TECHNOLOGIES
Overview.
BBN performs contract research, development, and consulting services
primarily for U.S. government agencies in the defense application fields of
sonar, submarine, surface ship, and ocean environmental acoustics; signal and
information processing; shock and vibration analysis; marine systems; radar
cross-section reduction; materials engineering; and psychoacoustics.
BBN, through its BBN Acoustic Technologies Division, also is exploring
commercial applications for active noise and vibration control ("ANVC") products
and systems. Active control of noise and vibration is accomplished by
introducing one or more secondary sources of noise and vibration to generate
"anti-waves" that significantly reduce the original disturbance.
The market for acoustic technologies with defense applications 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 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. The Company experienced an approximately
30% decline in defense acoustic technologies revenue for fiscal year 1995 as
compared to the prior fiscal year. In light of these changes, BBN believes its
ability to sustain revenue in the acoustic technologies business area will
depend on continued program funding for acoustic systems by the U.S. government,
and an increase in commercial customer revenue, particularly in connection with
ANVC systems.
Marketing.
The primary customers for BBN's acoustic technologies consist of the U.S.
Navy, the U.S. Advanced Research Projects Agency, anti-submarine warfare prime
contractors, and the National Aeronautics and Space Agency.
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BBN markets its defense acoustic technologies capabilities to customers
both directly and, in connection with some large government procurements,
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 Company is now targeting certain of its acoustic technologies
capabilities to commercial customers, primarily in the ANVC area. The market for
ANVC products and systems is slowly emerging, and manufacturers in the
automotive, aerospace, industrial equipment, and consumer products industries
are exploring applications of ANVC technology. This market is characterized by a
need to control noise and vibrations produced by systems such as automobiles,
airplanes, machine tools, commercial HVAC Systems, mining and construction
machinery, and office equipment. Company revenue from such commercial customers
has not been significant to date. In connection with the marketing of ANVC
products and systems, the Company is seeking to augment its direct sales
capabilities through the establishment of strategic alliances and other
distribution channels.
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
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.)
The ANVC systems market is slowly emerging, and a number of manufacturers
are developing in-house ANVC applications. In addition, some competitors have
been actively pursuing patent rights in certain segments of ANVC technologies,
which could impact the Company's ability to compete in certain areas of the
commercial ANVC market.
SENSOR SYSTEMS
Overview.
BBN designs, develops, and markets underwater acoustic sonar and prototype
sensor systems, both fixed and mobile, primarily for U.S government agencies.
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 is currently teamed with Loral Federal Systems to perform engineering
and development services in connection with two U.S. Navy procurements, the
Fixed Distributed System Shore Signal and Information Processing Segment ("FDS
SSIPS") program and the Advanced Deployable Systems ("ADS") program. Both the
FDS SSIPS and ADS programs are components of the U.S. Navy's Integrated
Underwater Surveillance System. In connection with the FDS SSIPS program, BBN's
role has been to define the overall operational concept for FDS SSIPS, and to
provide software development and operational training. BBN expects to perform a
similar role in connection with the ADS program. Although the scale of the FDS
SSIPS program has been reduced since its inception, the Company currently
believes that it will continue to be involved in the FDS SSIPS program for
several more years. The award of the ADS program to the BBN/Loral team is
currently the subject of a bid protest. While there exists some uncertainty over
the U.S. government's long-term level of funding for the FDS SSIPS and ADS
programs, the Company believes that
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the U.S. Navy will continue to fund development programs for its underwater
surveillance system. (See "United States Government Contracts" below.)
Marketing.
The primary customers for BBN's sensor systems consist of the U.S. Navy and
the Advanced Research Projects Agency. BBN markets its sensor systems 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 sensor systems 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 contract research and development and program funding
for underwater sensor systems by the U.S. government.
Competition.
The primary factors of competition for sensor systems are superior
technical expertise, experience of the supplier, and price.
Competition in the field of sensor systems 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 connection with contract research and development activities, the
Company occasionally contracts directly with the U.S. government. 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 are included as appropriate in the Collaborative Systems and
Acoustic Technologies business segment.
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 services, and
to develop new software and hardware products and new services to address
emerging market requirements. The Company has incurred substantial internally
funded research and development costs, including $25,306,000, $23,306,000, and
$34,048,000 in fiscal 1995, 1994, and 1993, respectively.
In fiscal 1995, the largest portion of the Company's internally funded
research and development spending was directed principally toward data analysis
and process optimization software products at BBN Domain (see
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"BBN Domain Corporation"). 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 27 and 29, and on page 39 under the caption
"Research and Development Costs" in the Notes to Consolidated Financial
Statements below.
UNITED STATES GOVERNMENT CONTRACTS
During fiscal 1995, 1994, and 1993, approximately 58%, 67%, and 62%,
respectively, of BBN's total revenue was derived from contracts and subcontracts
involving the U.S. government and its agencies. In fiscal 1995, approximately
$106,000,000 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
$42,000,000, $19,000,000 and $19,000,000, respectively.
The U.S. government accounted for approximately the following percentages
of revenue in each of the Company's current business segments in fiscal 1995,
1994, and 1993:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------
PERCENTAGE OF U.S. GOVERNMENT REVENUE 1995 1994 1993
- ----------------------------------------------------------------------- ---- ---- ----
<S> <C> <C> <C>
Internetworking........................................................ 50% 64% 72%
Data Analysis Software................................................. 2% 4% 4%
Collaborative Systems and Acoustic Technologies........................ 91% 96% 74%
</TABLE>
The decreased percentage of U.S. government revenue in the Internetworking
business segment for fiscal 1995 reflects increased revenue in BBN's commercial
Internetworking subsidiaries (BBN Planet Corporation and LightStream
Corporation), as well as decreased advanced network systems revenue. The
decreased percentage of U.S. government revenue in the Collaborative Systems and
Acoustic Technologies business segment for fiscal 1995 reflects increased
revenue in the Company's commercial speech subsidiary BBN HARK.
The decreased percentage of U.S. government revenue in the Internetworking
business segment for fiscal 1994 reflects decreased advanced network systems
revenue due to the substantial completion of the Company's Mobile Subscriber
Equipment 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 fiscal 1993 sale of
the Company's simulation systems business (which had significant non-U.S.
government revenue in fiscal 1993). (See "Advanced Network Systems" 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 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
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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 revenue from the U.S. government and its agencies is
pursuant to contracts 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 in fiscal 1996, particularly in the Company's defense
communications, acoustic technologies, and sensor systems activities.
The Company anticipates that competition in all defense-related areas will
continue to be intense. Accordingly, the Company is experiencing competitive
pressure which is reducing profitability and decreasing government revenue,
particularly in the defense communications and acoustic areas. 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 result in additional competitive pressure.
The books and records of the Company are subject to audit by the Defense
Contract Audit Agency ("DCAA"); such audits can result in adjustments to
contract billings. Final contract billing rates have been established for years
through fiscal 1991, except for the Company's former BBN Communications
activities for which final contract billing rates have been established only
through fiscal 1984. BBN expects that any adjustments which may be made as a
result of audits of fiscal years 1985 through 1995 of the Company 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. 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.
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 were made by the
government agencies and the Company was informed in August 1995 that the
investigation had been concluded. The audit of the Company's former BBN
Communications activities by the DCAA for fiscal years 1985 through 1993, which
was delayed as a result of the investigation, is currently in process. U.S.
government revenue for the Company's former BBN Communications activities,
during the nine year period under audit, represented approximately 40% of the
Company's total U.S. government revenue.
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<PAGE> 19
BACKLOG
BBN's backlog of orders at June 30, 1995 and June 30, 1994 was
approximately $213,000,000 and $158,000,000, respectively. The increased backlog
at June 30, 1995 compared to June 30, 1994 particularly reflects the backlog
from a contract with America Online, Inc. ("AOL") in the Internetworking
business segment. This AOL agreement is valued at approximately $55,000,000 over
a five-year period, and includes substantial pass-through revenue to BBN for
telecommunications circuits and other telecommunications services. The backlog
at June 30, 1995 does not include minimum order amounts for Internet services
under BBN Planet's agreement with AT&T. Under that agreement, AT&T has agreed to
purchase from BBN Planet a minimum of $120,000,000 of services over three years
(subject to potential reduction under specified circumstances). For additional
information about the AT&T agreement with BBN Planet, see "BBN Planet
Corporation" above.
The backlog at June 30, 1995 includes approximately $55,000,000 of funded
U.S. government orders (expenditures appropriated by Congress), approximately
$60,000,000 of unfunded government orders, and approximately $98,000,000 of
commercial orders (approximately $55,000,000 of which is under the AOL
agreement). 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, 1995 backlog
relates to work expected to be performed during fiscal 1996.
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 Domain (where the majority of
products are shipped almost immediately after receipt of an order). BBN HARK has
a small backlog in connection with certain custom 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 its BBN Domain and BBN HARK subsidiaries. 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 commercial 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 and that there has recently been a general increase in
patent activity by others in each of the commercial business segments in which
the Company conducts its business. In response, the Company has increased its
patent activity. However, the Company's patent efforts cover a wide range of
technologies, and it is probable that a competitor in any one technology can
outspend the Company's patent program in that area. 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.
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<PAGE> 20
It may be possible for commercial competitors to replicate aspects of BBN's
products and services 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 commercial businesses, patent or other formal
protection of proprietary information is less significant than the knowledge and
experience of BBN personnel and the ability of BBN to develop, enhance, and
market its products and services.
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 14, 1995, the Company employed approximately 2,000 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 continued as chairman of the board.
BBN has named new presidents to each of its three operating subsidiaries and to
one operating division in the last fifteen months, including John T. Kish, Jr.
at BBN Software Products Corporation (June 1994), Julie R. Donahue at BBN HARK
Systems Corporation (October 1994), Paul R. Gudonis at BBN Planet Corporation
(November 1994), and David N. Campbell at BBN Systems and Technologies Division
(July 1995).
A number of senior executives have left the Company in the last fifteen
months. These include Frank Heart, former president of the Company's BBN Systems
and Technologies Division, who retired in July 1994 after 28 years with the
Company; W.B. Barker, former senior vice president of the Company, who left in
January 1995 after 26 years with the Company; and David C. Walden, former senior
vice president of the Company, who left in January 1995 after 24 years with the
Company. In addition, Stephen R. Levy, Chairman of the Board and former chief
executive officer of the Company, has announced his retirement as an officer and
employee of the Company after 29 years of service, effective November 6, 1995.
BBN, along with other high-technology companies, faces competition in
hiring and retaining skilled technical, professional, marketing, and sales
personnel. In certain areas, such as emerging technologies and marketing, the
supply of such people is limited. The Company believes that its future success
depends in part upon its ability to attract and retain such personnel. The
Company is actively recruiting for a number of marketing, product management,
and sales positions throughout the Company.
EXPORT SALES
Export sales by the Company in fiscal 1995 were concentrated in the data
analysis software and network services and products areas. Revenue in fiscal
1995, 1994, and 1993 included U.S. export sales of $24,000,000, $27,300,000, and
$51,100,000, respectively. These figures include U.S. export sales relating to
the Company's former simulation systems business of approximately $19,000,000 in
fiscal 1993.
The Company's foreign operations, which are conducted in Western Europe and
the Pacific Rim, 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,
19
<PAGE> 21
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 speech
recognition software products, are impacted by the current unavailability of
foreign language versions.
The Company enters into foreign exchange contracts to hedge certain of its
exposures to foreign currency fluctuations against the U.S. dollar. Such
contracts are with large banking institutions, and are based upon a direct,
non-multiple relationship between the dollar and the foreign currency being
hedged (primarily the British pound, the German mark, the Japanese yen, and the
French franc). At June 30, 1995 and 1994, BBN had foreign exchange contracts to
sell $950,000 and $750,000, respectively, of foreign currencies. To date, the
Company has not repatriated significant foreign currencies, the level of Company
sales denominated in non-US currencies has not been material to the Company, and
the impact of foreign exchange rate changes on the Company's financial
statements has not been material.
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 in the Notes to the Consolidated Financial Statements below.
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 641,600 square feet of building space, of
which approximately 106,800 square feet is currently leased or subleased by the
Company to unaffiliated parties. 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. 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
$8,800,000 in fiscal 1996.
The Company also leases, on a short-term basis, office space at 24 other
domestic locations containing an aggregate of approximately 156,800 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 $2,600,000 in fiscal 1996.
The Company also occupies office space in 7 foreign countries, containing
an aggregate of approximately 31,000 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 $1,800,000 in fiscal 1996.
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 1995.
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<PAGE> 22
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 or her current office are as follow:
<TABLE>
<CAPTION>
CONTINUOUSLY
IN SUCH
OFFICE
NAME AGE OFFICE SINCE
- ------------------------------------- ---- -------------------------------------------------
<S> <C> <C> <C>
George H. Conrades................... 56 President and Chief Executive Officer 1994/1994
Stephen R. Levy...................... 55 Chairman of the Board of Directors 1983
Ralph A. Goldwasser.................. 48 Senior Vice President, Chief Financial 1991/1992/
Officer, and Treasurer 1991
David N. Campbell.................... 53 Senior Vice President 1995
Julie R. Donahue..................... 36 Vice President 1994
Paul R. Gudonis...................... 41 Vice President 1994
John T. Kish, Jr..................... 39 Vice President 1994
William S. Hurley.................... 51 Vice President and Controller 1992/1992
</TABLE>
All of the executive officers except Messrs. Levy and Goldwasser have been
employed by the Company in their current or other capacities for less than the
past five years.
Mr. Conrades has been the President and Chief Executive Officer of the
Company since 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. 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
businesses and was on the board of directors of several small technology
ventures, including the board of LightStream Corporation, a subsidiary of the
Company. Mr. Conrades is also a director of Westinghouse Electric Corporation,
Pioneer Companies, Inc., and CRA Managed Care, Inc., and is chairman of the
board of the Company's operating subsidiaries, including BBN Planet Corporation,
BBN Software Products Corporation, and BBN HARK Systems Corporation.
Mr. Levy, Chairman of the Board and former chief executive officer of the
Company, has announced his retirement as an officer and employee of the Company
after 29 years of service, effective November 6, 1995.
Mr. Campbell was elected Senior Vice President of the Company in July 1995,
and has served as President of the Company's BBN Systems and Technologies
Division since that time. Prior to that time, he was with Computer Task Group,
Incorporated, an international integrated information technology services
company, from 1968 to 1994, most recently serving as its chairman and chief
executive officer, responsible for the Company's approximately 4,500 employees.
Mr. Campbell is a director of the Company's operating subsidiaries, including
BBN Planet Corporation, BBN Software Products Corporation, and BBN HARK Systems
Corporation. Mr. Campbell is also a director of Dunlop Tire Corp., First Empire
State Corporation, Gibraltar Steel Corp., and National Fuel Gas Company.
Ms. Donahue was elected Vice President of the Company in October 1994, and
has served as President and Chief Executive Officer of BBN HARK Systems
Corporation, a subsidiary of the Company, since that time. Prior to joining the
Company, she was president and chief operating officer of Voice Processing
Corporation, a speech recognition board manufacturer with approximately 60
employees, serving from August 1993 to September 1994. Prior to that, Ms.
Donahue was senior vice president, marketing and business development at Dun &
Bradstreet Software Services, Inc., where she was responsible for strategic
planning, mergers and acquisitions, marketing, and channel development. Ms.
Donahue has also held management positions at Cullinet Software and
Motorola/Four Phase Systems. Ms. Donahue is a director of BBN HARK Systems
Corporation.
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<PAGE> 23
Mr. Gudonis was elected Vice President of the Company in November 1994, and
has served as Chief Executive Officer and President of BBN Planet Corporation, a
subsidiary of the Company, since November 1994 and January 1995, respectively.
From October 1990 to October 1994, Mr. Gudonis worked at Electronic Data Systems
Corporation ("EDS"), a worldwide provider of information technology services,
most recently as vice president and general manager -- international of its
Communications Industry Group. At EDS, Mr. Gudonis was responsible for building
a global division of EDS serving the telecommunications and media industries.
Mr. Gudonis had worldwide financial responsibility for this division, which
directed the activities of approximately 400 EDS employees in over 20 countries.
Prior to that, Mr. Gudonis worked at Appex Corporation, a provider of software
and services to the cellular phone industry, from 1989 to October 1990, most
recently as a senior vice president and general manager. Appex Corporation was
acquired by EDS in October 1990. Mr. Gudonis is a director of BBN Planet
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,
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, with
a staff of approximately 150 employees. After leaving Oracle in 1993 and prior
to joining BBN, Mr. Kish provided management consulting, and development
services for the telecommunications, entertainment, financial, and information
services industries. Mr. Kish is a director of BBN Software Products
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. Hurley has
announced his resignation from the employ of the Company, effective October 6,
1995.
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 or her successor is chosen and qualified,
and each other executive officer has been elected to his or her described office
to hold office until the first meeting of 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.
The Registrant's shares of Common Stock are traded under the symbol "BBN"
primarily on the New York Stock Exchange, and to a lesser extent on the Boston,
Cincinnati, Midwest, Pacific, and Philadelphia exchanges. The Registrant's 6%
Convertible Subordinated Debentures due 2012 are traded under the symbol "BBN12"
on the New York Stock Exchange. Options in the Registrant's Common Stock are
traded on the Chicago Board Options Exchange.
Quarterly information related to high and low sales prices for the
Registrant's Common Stock may be found under the caption "Quarterly Financial
Data (Unaudited)" appearing on page 46.
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<PAGE> 24
Information related to holders of the Registrant's Common Stock and as to
dividends paid on the Registrant's Common Stock may be found under the caption
"Item 6. Selected Financial Data" below.
<TABLE>
ITEM 6. SELECTED FINANCIAL DATA.
FIVE-YEAR FINANCIAL SUMMARY
<CAPTION>
DOLLARS IN THOUSANDS, EXCEPT PER-SHARE DATA 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Revenue........................................ $ 215,031 $ 196,104 $ 233,453 $ 257,966 $ 270,628
--------------------------------------------------------------
Income (loss) from operations1................. $ (18,814) $ (8,444) $ (32,323) $ 6,878 $ 5,137
Interest and other income (expense), net2...... 97,441 620 59 (2,725) 4,065
--------------------------------------------------------------
Income (loss) before income taxes and
extraordinary item........................... 78,627 (7,824) (32,264) 4,153 9,202
Provision for income taxes..................... 13,783 151
--------------------------------------------------------------
Income (loss) before extraordinary item........ 64,844 (7,824) (32,264) 4,153 9,051
Extraordinary item3............................ 3,648 467
--------------------------------------------------------------
Net income (loss).............................. $ 64,844 $ (7,824) $ (32,264) $ 7,801 $ 9,518
--------------------------------------------------------------
Per-share amounts:
Income (loss) before extraordinary item........ $ 3.61 $ (0.48) $ (2.05) $ .24 $ .49
Extraordinary item3............................ .22 .03
--------------------------------------------------------------
Net income (loss).............................. $ 3.61 $ (0.48) $ (2.05) $ .46 $ .52
--------------------------------------------------------------
Cash dividends declared per share.............. $ .06 $ .06
-----------------------
Shares used in per-share calculations.......... 17,984,000 16,179,000 15,705,000 16,504,000 18,314,000
FINANCIAL POSITION
Cash and cash equivalents4..................... $ 110,792 $ 67,115 $ 56,835 $ 45,769 $ 66,933
Working capital................................ 108,398 60,337 57,990 78,662 88,665
Property, plant and equipment, net............. 30,075 19,658 20,861 30,152 33,654
Total assets................................... 219,466 135,940 140,645 162,619 182,616
Convertible debentures......................... 73,510 73,510 73,510 73,510 83,355
Shareholders' equity, net of treasury shares... 82,552 7,271 10,042 41,887 44,473
GENERAL INFORMATION AND RATIOS
Additions to property, plant and equipment..... $ 18,476 $ 6,938 $ 7,942 $ 11,668 $ 10,825
Revenue per average number of employees........ 118 117 125 118 116
Employees at year-end.......................... 1,954 1,694 1,663 2,086 2,284
Shareholders of record at year-end............. 2,080 2,225 2,709 3,108 3,340
Current ratio.................................. 2.8 2.1 2.0 2.7 2.7
Debt to equity ratio........................... 0.9 10.1 7.3 1.8 1.9
<FN>
1 Results for fiscal year 1993 included a restructuring charge of $20.5 million,
or $1.30 per share, associated with employee severance and excess facilities
costs.
2 Interest and other income (expense), net for fiscal year 1995 includes the
gain on the sale of assets of LightStream Corporation of approximately $105.0
million before minority interest of $11.8 million and provision for income
taxes of $13.5 million, and amounts arising from contracts which were
substantially completed in prior years.
3 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.
4 Includes restricted cash of $12.1 million at June 30, 1995.
</TABLE>
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<PAGE> 25
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
FY1995 COMPARED TO FY1994
INTRODUCTION
In FY1995, the Company consisted of five operating units: the Company's BBN
Systems and Technologies Division, BBN Software Products Corporation,
LightStream Corporation, BBN Planet Corporation, and BBN HARK Systems
Corporation. The BBN Systems and Technologies Division ("Systems and
Technologies") includes internetworking services and products, and collaborative
systems and acoustic technologies. BBN Software Products Corporation, the name
of which is being changed to BBN Domain Corporation ("BBN Domain"), a
wholly-owned subsidiary of the Company, develops, markets, and supports data
analysis and process optimization software products designed primarily for
health industry and manufacturing applications. LightStream Corporation
("LightStream"), an 80%-owned subsidiary of the Company which made asynchronous
transfer mode ("ATM") network switches, sold substantially all of its assets to
Cisco Systems, Inc. on January 11, 1995. BBN Planet Corporation ("BBN Planet"),
a 95%-owned subsidiary of the Company, provides Internet services to businesses
and other organizations. BBN HARK Systems Corporation ("BBN HARK"), a
wholly-owned subsidiary of the Company, is an early stage company which develops
and markets commercial speech recognition software products.
SUMMARY
For the year ended June 30, 1995, the Company reported net income of $64.8
million, or $3.61 per share, on revenue of $215.0 million, compared with a net
loss of $7.8 million, or $.48 per share, on revenue of $196.1 million for the
same period a year earlier. These results include a $105.0 million gain, before
taxes and minority interest, from the sale of the assets of LightStream in
January 1995. Primarily as a result of the LightStream sale, the Company's cash
and cash equivalents balance as of June 30, 1995 rose to $110.8 million and the
Company's equity increased to $82.6 million.
For the year, the Company reported a loss from operations of $18.8 million,
compared to an $8.4 million loss for the same period a year earlier. The FY1995
results reflect significant investment in sales, marketing, and new product
development, and include an operating loss of $3.7 million relating to the
LightStream activities (sold on January 11, 1995), an operating loss of $12.7
million at BBN Planet, and an operating loss of $3.7 million at BBN Domain. The
Systems and Technologies Division experienced a reduction in profitability for
the fiscal year due to declines in its defense communications and acoustics
businesses, and increased investment in sales and marketing activities.
The Company continues to invest in its commercial businesses, and recorded
operating losses for FY1995 at BBN Planet, BBN HARK, and BBN Domain as well as
declining operating income at BBN Systems and Technologies. The Company expects
to incur significant operating losses at BBN Planet during FY1996, which is
expected to adversely impact the financial performance of the Company. The
outlook could also be affected by further expenditures on commercial business
opportunities available to the Company.
REVENUE
Revenue for FY1995 increased $18.9 million from FY1994. Internetworking
segment revenue increased by $11.5 million, reflecting $8.6 million of increased
revenue at BBN Planet and $6.9 million of increased revenue at LightStream.
LightStream revenue for FY1995 included up-front technology license fees of $3.6
million. These increases were partially offset by declines in revenue in the
Systems and Technologies Division's defense communications business. Revenue of
the Company's data analysis software products business segment increased by
approximately $4.0 million in FY1995, reflecting higher health industry related
software sales, with particularly significant sales to major pharmaceutical
companies. In the collaborative systems and acoustic technologies segment,
revenue increases of approximately $3.4 million reflected increases in
government related contracts for collaborative systems and technologies as well
as revenue increases at BBN HARK, offset in part by declines in acoustic-related
activities.
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<PAGE> 26
The Company, like other companies doing business with the U.S. 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 in FY1996, particularly in the defense communications,
acoustic technologies, and sensor systems activities.
The Company anticipates that competition in all defense-related areas will
continue to be intense. Accordingly, the Company is experiencing competitive
pressure which is reducing profitability and decreasing government revenue,
particularly in the defense communications and acoustic areas. 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 result in additional competitive pressure.
In FY1991, the Defense Information Systems Agency ("DISA") awarded the
Company a one-year contract in support of the Defense Data Network ("DDN"), with
up to four one-year optional extensions. In September 1994, the Company
completed the third option year of the contract, valued at approximately $20
million. In October 1994, the Company was awarded the fourth option year of the
contract, valued at approximately $15 million, which will continue these
activities through October 1995. The Company has been awarded a six-month
extension of the DDN contract, which will continue these activities through
April 1996. The value of this extension award is approximately $7.5 million. The
Company does not expect that this activity will continue beyond April 1996,
although the Company may compete for follow-on contracts for the DDN, at reduced
funding levels. Approximately $17.8 million and $20.5 million of revenue has
been recorded under the DDN contract in FY1995 and FY1994, respectively.
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 and services to address emerging market
requirements and to improve existing products and services. In recent years, the
Company's traditional commercial businesses, consisting principally of RS/Series
data analysis software products and X.25 network systems, have been experiencing
substantially lower revenue. The Company has discontinued sales of most of its
traditional X.25 systems and products, and has substantially eliminated its
development efforts and significantly reduced its selling efforts related to
this business. In recent periods, the Company has been investing heavily in
development of new products, including the LightStream Corporation ATM network
switches, Cornerstone data analysis and visualization software, the T/10
Integrated Access Device ("IAD") for computer networks, and the BBN HARK speech
recognition software. In FY1995, the Company made significant investment in
Internet services.
The sale on January 11, 1995 of substantially all of the assets of
LightStream Corporation to Cisco Systems, Inc., is reflected in the Company's
FY1995 results. Reference is made to the Notes to the Consolidated Financial
Statements for further discussion of this transaction. The Company's T/10 IAD
activities are now being primarily focused on a limited number of reseller and
strategic licensing opportunities, and the future success of the T/10 IAD is
highly dependent on these opportunities. The Company has experienced operating
losses in connection with that business. The Company has substantially reduced
spending relating to the T/10 IAD from prior year levels. In July 1995, the
Company entered into an agreement with NEC Corporation granting to NEC
technology and manufacturing license rights in the T/10 IAD and the T/40 Video
Internet Router under development, and agreed to perform certain development
activities in connection with the joint development of a new multi-media access
device. The value of the NEC agreement is approximately $4.6 million, of which
$1.9 million is related to future development efforts.
The Company's BBN Planet subsidiary (formerly BBN Internet Services
Corporation) is significantly increasing its investment in the emerging market
for Internet access services. In August 1994, BBN Planet 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.
25
<PAGE> 27
In March 1995, BBN Planet acquired substantially all of the assets of the
Southeastern Universities Research Association Internet service ("SURAnet"), a
leading provider of Internet services in the southeastern United States, for
approximately $13.0 million in cash and the assumption of certain operating
liabilities of approximately $5.1 million.
In June 1995, BBN, BBN Planet, and AT&T Corp. ("AT&T") entered into an
agreement under which BBN Planet is to be the exclusive provider for a period of
up to three years of dedicated Internet access and managed network security
services to AT&T for resale to business customers in the United States of AT&T's
Business Communications Services division. AT&T has agreed to purchase a minimum
of $120 million of services during the first three years of the agreement. The
relationship provides BBN Planet with an opportunity to accelerate the expansion
of its Internet services business. In July 1995, AT&T Venture Company L.P., a
venture partnership with AT&T as the sole limited partner, made an $8.0 million
investment in BBN Planet.
BBN's objective is to provide Internet-related services to business and
other organizational customers which enhance interaction within the customers'
organizations and with their customers, suppliers, and business partners. In
support of its Internet business strategy, the Company may make additional
acquisitions or enter into strategic alliances.
The market for Internet services is rapidly expanding, and there are
considerable uncertainties as to how the market will develop. The market is
highly competitive, in general there are no substantial barriers to entry, and
the Company expects that competition with its Internet activities will intensify
in the future. The Company expects that all of the major on-line services and
telecommunications companies will compete fully in the Internet services market,
and that new competitors, including large computer hardware, software, media,
and other technology and telecommunications companies will enter the Internet
services market, resulting in even greater competition for the Company's
services and significant pricing pressure, which may impact operating results.
The success of BBN's Internet services will primarily depend upon the
development and expansion of the market for Internet access services and
products and the networks which comprise the Internet; the capacity,
reliability, and security of its network infrastructure; its ability to develop
value-added products and services that meet changing customer requirements; its
ability to attract and retain additional highly qualified management, technical,
marketing, and sales personnel; and its ability to manage its growth.
In March 1995, the Systems and Technologies Division entered into an
agreement with America Online, Inc. ("AOL") to build, maintain, and operate a
portion of AOL's nationwide, high-speed, dial-in network. The Company's
five-year agreement with AOL, valued at approximately $11 million per year,
includes substantial pass-through costs to BBN for telecommunications circuits
and other services provided by local and inter-exchange carriers. As part of
BBN's agreement with AOL, the Company has access to use of the excess capacity
of the portion of the network operated by the Company, and the Company has the
right to resell such excess capacity. The Company is exploring opportunities to
resell such excess capacity, the availability of which is currently limited
primarily to business hours.
The Company's traditional data analysis software business has been affected
by the growth of distributed processing and the associated use of personal
computers, workstations, and other desktop computers. The Company's mature data
analysis software products, primarily the RS/Series software, currently operate
primarily on minicomputer systems. As demand for minicomputer-based software
continues to decline, the Company is experiencing substantially lower RS/Series
software revenue and downward pressure on prices. In response to the trend
toward desktop computing, BBN Domain has been investing in recent years in
Cornerstone software, a desktop-based data analysis and visualization software
tool. Sales of Cornerstone software to date have been substantially below
expectations. Commencing in FY1995, the Company is more tightly integrating its
Cornerstone software with its RS/Series software products to provide platform
migration and ease of use for its existing RS/Series customer base, and to
provide greater capabilities and flexibility in client/server computing
environments.
26
<PAGE> 28
The Company is also focusing its software application solutions on the
health and manufacturing industries. BBN Domain health industry offerings
include applications for clinical data management (Clintrial(TM)) and adverse
events tracking (Clintrace(TM)). In March 1995 BBN acquired, for $0.7 million,
the exclusive rights to IBM's Process Analysis Navigation System ("PANS"), a
manufacturing methodology and software system. BBN Domain intends to integrate
and significantly enhance PANS methodology and technology with its data analysis
and process optimization software for manufacturers.
As part of these efforts, BBN Domain is increasing its development
expenditures in its software business and is investing in additional sales and
marketing personnel. The Company believes that the future success of its data
analysis and process optimization software will depend primarily on the
development and marketing of software applications that permit operation on
personal computers, on continued market acceptance of its health industry
software products, on development and acceptance of its PANS manufacturing
methodology, and on development and timely integration of its Cornerstone and
RS/Series software.
COST OF SALES
Cost of services and products as a percentage of revenue was 63% in FY1995
compared to 64% in FY1994. The decrease in the cost of sales percentage is
principally related to increased sales of high margin software products sales
and $3.6 million in technology license and initial development fees, with higher
gross margins at LightStream. These decreases were offset by higher costs in the
Company's government contracting business.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses for FY1995 were $25.3 million compared to
$23.3 million for FY1994. The largest portion of the Company's FY1995 internally
funded research and development spending was directed principally toward data
analysis and process optimization software products, including the $0.7 million
charge related to the purchase of IBM's PANS manufacturing methodology software
system. The increase in research and development expense was partially offset by
decreased spending on the ATM switch at LightStream and the T/10 IAD. Research
and development expenses for the ATM switch for FY1995 were $3.9 million
compared to $8.9 million for FY1994.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general, and administrative expenses for FY1995 increased $18.5
million from FY1994 reflecting the investment the Company is making primarily in
the sales and marketing of its new services and products at BBN Planet and BBN
Domain. The Company anticipates continued increased spending related to its
commercial activities in FY1996.
INTEREST
Interest income increased $2.2 million in FY1995 from FY1994 primarily as a
result of the increased cash balances resulting from the sale of LightStream
assets.
OTHER INCOME
In January 1995, LightStream sold substantially all of its assets to Cisco
Systems, Inc., which resulted in a $105.0 million gain to the Company before
taxes and minority interest. Refer to footnote, "Sale of LightStream
Corporation", for further discussion of this transaction.
In December 1994, the Company settled a claim with the U.S. government for
approximately $0.7 million. This settlement resulted in an approximately $2.6
million reduction in liabilities and is included in other income for FY1995.
Other income in each of FY1995 and FY1994 also includes approximately $0.9
million resulting from lower than expected costs associated with a previously
divested contract.
27
<PAGE> 29
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1995, the Company's cash and equivalents, which consisted
primarily of money market funds, short-term U.S. government securities, and
commercial paper, were $110.8 million, an increase of $43.7 million from June
30, 1994. The increase is primarily attributable to the sale of LightStream
assets which provided approximately $80.0 million of net cash proceeds
(including $12.1 million which is restricted for a period under the sale
agreement) to the Company after payment of amounts due for taxes, initial
payments to the minority shareholder, and certain expenses associated with the
sale.
For FY1995, the $80.0 million of cash proceeds from the LightStream sale
and $4.6 million of cash proceeds from employee stock purchase and option plans
have been offset by $15.0 million expended for the SURAnet and BARRNet
acquisitions, $18.5 million for capital expenditures, and $28.7 million of cash
used by operations. Of the $12.1 million restricted cash under the LightStream
sale agreement, $4.0 million became available on July 11, 1995 and the remainder
will become available to the Company in varying amounts, net of any claims,
within two years of the January 11, 1995 closing of the LightStream sale.
The $12.4 million increase in the Company's accounts receivable balance at
June 30, 1995 is primarily due to the increase in fourth quarter revenue.
The Company's accrued restructuring balance relates to excess facilities
costs under long-term leases, which were associated with the Company's FY1993
downsizing. The Company has sublet or assigned the majority of its excess
facilities under agreements with terms expiring between 1998 and 2005.
The Company anticipates a continued high level of capital expenditures for
the near-term in support of the investment being made in Internet services. In
addition, the Company may use a portion of its cash resources for acquisitions
of or investments in businesses, products, or technologies or through the
formation of strategic partnerships with other companies.
The Company believes that its liquidity in the form of existing cash
resources is adequate to meet its operating requirements through FY1996.
Currently, the Company does not have any bank lines of credit.
FY1994 COMPARED TO FY1993
INTRODUCTION
(The management's discussion and analysis which follows reflects the
Company's organization in effect prior to FY1995.)
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 ("BBN 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 $233.5 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 reflected the sale of the advanced simulation
business and reduced defense communications systems revenue. The Company's
losses continued to reflect significant expenditures on its LightStream ATM
switch, T/10 Integrated Access Device ("IAD"), and Cornerstone software, while
revenue from these new products remained financially insignificant. These losses
were partially offset by operating income at Systems and Technologies.
28
<PAGE> 30
REVENUE
Revenue decreased $37.3 million, or 16%, in FY1994 compared to FY1993. The
reduction reflected approximately $25.3 million in FY1993 revenue provided by
the Company's former advanced simulation business unit, as well as declines in
the Company's defense communications business and lower revenue in FY1994 from
its mature X.25 network products and RS/Series software.
RESEARCH AND DEVELOPMENT EXPENSES
The majority of the Company's internally funded research and development
spending was directed principally toward the LightStream ATM products, the T/10
IAD, and Cornerstone software. Research and development expenses in FY1994 were
$23.3 million compared to $34.0 million in FY1993. The reduction in FY1994
reflected lower spending for the T/10 program and Cornerstone software, as well
as the sale of the advanced simulation business in FY1993.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general, and administrative expenses decreased $8.1 million in
FY1994 from FY1993, primarily as a result of lower selling expenses in the
defense communications business and at BBN Software Products, as well as the
cost reduction actions taken in FY1993.
INTEREST
Interest income increased $0.7 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.
29
<PAGE> 31
<TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
YEAR ENDED JUNE 30
DOLLARS IN THOUSANDS, EXCEPT PER-SHARE DATA 1995 1994 1993
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
Revenue:
Services................................................. $176,284 $165,759 $175,917
Products................................................. 38,747 30,345 57,536
----------------------------------
215,031 196,104 233,453
----------------------------------
Costs and expenses:
Cost of services......................................... 123,554 114,723 120,411
Cost of products......................................... 11,697 11,721 27,973
Research and development expenses........................ 25,306 23,306 34,048
Selling, general and administrative expenses............. 73,288 54,798 62,874
Restructuring charge..................................... 20,470
----------------------------------
233,845 204,548 265,776
----------------------------------
Income (loss) from operations.............................. (18,814) (8,444) (32,323)
Interest income............................................ 4,422 2,190 1,446
Interest expense........................................... (4,434) (4,606) (4,511)
Minority interests......................................... (11,195) 2,071
Other income (expense), net................................ 108,648 965 3,124
----------------------------------
Income (loss) before income taxes.......................... 78,627 (7,824) (32,264)
Provision for income taxes................................. 13,783
----------------------------------
Net income (loss).......................................... $ 64,844 $ (7,824) $(32,264)
----------------------------------
Net income (loss) per share................................ $3.61 $(0.48) $(2.05)
----------------------------------
Shares used in per-share calculations...................... 17,984,000 16,179,000 15,705,000
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
30
<PAGE> 32
<TABLE>
CONSOLIDATED BALANCE SHEETS
<CAPTION>
DOLLARS IN THOUSANDS 1995 JUNE 30 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (includes restricted cash of $12,134 at
June 30, 1995).................................................... $ 110,792 $ 67,115
Accounts receivable, net............................................. 53,933 41,503
Other current assets................................................. 3,606 4,706
---------------------
Total current assets.............................................. 168,331 113,324
Property, plant and equipment, net................................... 30,075 19,658
Goodwill, net........................................................ 17,927
Other assets......................................................... 3,133 2,958
---------------------
Total assets...................................................... $ 219,466 $135,940
---------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................................... $ 11,596 $ 4,279
Accrued compensation and retirement plan contributions............... 6,319 5,198
Accrued restructuring charges........................................ 9,216 12,566
Other accrued costs.................................................. 15,888 19,832
Deferred revenue..................................................... 16,914 11,112
---------------------
Total current liabilities......................................... 59,933 52,987
---------------------
6% convertible subordinated debentures due 2012...................... 73,510 73,510
---------------------
Minority interests................................................... 3,471 2,172
---------------------
Commitments and contingencies
Shareholders' equity:
Common stock $1.00 par value, authorized: 100,000,000 shares;
issued: 1995, 22,050,887 shares; 1994, 21,253,890 shares......... 22,051 21,254
Additional paid-in capital........................................ 62,664 55,916
Foreign currency translation adjustment........................... 1,307 337
Retained earnings (deficit)....................................... 28,717 (36,127)
---------------------
114,739 41,380
Less shares in treasury, at cost: 1995, 4,527,464 shares;
1994, 4,797,734 shares............................................ 32,187 34,109
---------------------
Total shareholders' equity........................................ 82,552 7,271
---------------------
Total liabilities and shareholders' equity........................ $ 219,466 $135,940
---------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
31
<PAGE> 33
<TABLE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<CAPTION>
FOREIGN
COMMON ADDITIONAL CURRENCY RETAINED TOTAL
STOCK $1.00 PAID-IN TRANSLATION EARNINGS TREASURY SHAREHOLDERS'
DOLLARS IN THOUSANDS PAR VALUE CAPITAL ADJUSTMENT (DEFICIT) STOCK EQUITY
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
Sale of treasury shares......... 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
Stock option and other activity,
net........................... 603 1,759 2,362
Stock issued under employee
stock purchase plan........... 194 1,960 2,154
Tax benefit on stock option
exercises..................... 2,195 2,195
Sale of subsidiary stock, net... 256 256
Sale of treasury shares......... 578 1,922 2,500
Foreign currency translation
adjustment.................... 970 970
Net income...................... 64,844 64,844
--------------------------------------------------------------------------
June 30, 1995................... $22,051 $ 62,664 $1,307 $ 28,717 $(32,187) $ 82,552
--------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
32
<PAGE> 34
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
YEAR ENDED JUNE 30
DOLLARS IN THOUSANDS 1995 1994 1993
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ 64,844 $(7,824) $(32,264)
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation and amortization............................. 9,171 9,136 11,700
Amortization of goodwill and capitalized software......... 995 1,419 1,418
Contract adjustments...................................... (3,546)
Gain from sale of assets.................................. (105,096) (3,191)
Minority interests........................................ 11,195 (2,071)
Provision for inventories................................. 2,293
Restructuring charge...................................... 20,470
Change in assets and liabilities:
Accounts receivable.................................... (10,158) 8,173 17,205
Accounts payable and other liabilities................. 1,505 1,871 (358)
Restructuring expenditures............................. (3,350) (5,777) (6,651)
Deferred revenue....................................... 2,223 (226) (638)
Other.................................................. 3,518 4,087 2,986
---------------------------------
Total adjustments...................................... (93,543) 16,612 45,234
---------------------------------
Net cash provided (used) by operating activities....... (28,699) 8,788 12,970
---------------------------------
Cash flows from investing activities:
Proceeds from sale of assets.............................. 120,000 6,000
Payments to minority owner and expenses of sale of
assets................................................. (18,800)
Additions to property, plant and equipment................ (18,476) (6,938) (7,942)
Payments for businesses acquired.......................... (14,960)
---------------------------------
Net cash provided (used) by investing activities....... 67,764 (6,938) (1,942)
---------------------------------
Cash flows from financing activities:
Proceeds from employee stock purchase and option plans.... 4,612 3,217 1,234
Proceeds from sale of subsidiary stock.................... 5,000
(Purchase)/sale of treasury shares........................ 213 (723)
Dividends paid............................................ (473)
---------------------------------
Net cash provided by financing activities.............. 4,612 8,430 38
---------------------------------
Net increase in cash and cash equivalents................... 43,677 10,280 11,066
Cash and cash equivalents at beginning of year.............. 67,115 56,835 45,769
---------------------------------
Cash and cash equivalents at end of year.................... $110,792 $67,115 $ 56,835
---------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
33
<PAGE> 35
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. These reclassifications primarily relate to the formation in
fiscal year 1995 of distinct commercial business units.
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.
Services revenue (including monthly service fees relating to Internet
services) is recognized as the services are provided. Advance billings and
payments are deferred until such services are provided.
Software license revenue is recognized upon delivery and receipt of a
signed software contract. Technology fees, advance royalties and other fees
received from customers on a non-refundable basis where the Company has no
significant obligations remaining are recognized as services revenue upon
receipt of payment.
ISSUANCE OF STOCK BY SUBSIDIARIES
At the time a subsidiary sells stock to unrelated parties at a price
different from its book value, the Company's net investment in that subsidiary
changes. If at that time the subsidiary is an operating entity and not engaged
principally in research and development, the Company records the change as a
gain or loss in its consolidated statements of operations. Otherwise, the
Company records the change as an equity transaction in its consolidated
statements of shareholders' equity as a sale of subsidiary stock.
CASH AND CASH EQUIVALENTS
Cash includes all cash and cash equivalents, generally with maturities of
three months or less at the time of purchase, carried at original cost plus
accrued interest, which approximates market value. At June 30, 1995 and 1994,
cash equivalents consisted principally of money market funds (invested in U.S.
government securities and other highly rated financial instruments), U.S.
government securities, and highly rated commercial paper.
AVAILABLE-FOR-SALE INVESTMENTS
Effective July 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" ("SFAS 115"). The Company classifies its securities as
available-for-sale since the Company may liquidate these investments currently.
SFAS 115 requires that unrealized gains and losses on available-for-sale
securities be excluded from earnings and reported as a component of
shareholders' equity. Realized gains and losses are recorded in the consolidated
statements of operations and the cost assigned to securities sold is based on
the specific identification method. The unrealized loss at June 30, 1995 was
immaterial.
34
<PAGE> 36
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. Useful lives used in
computing depreciation are as follows: buildings -- 15 to 25 years, computer
equipment -- 3 years, furniture and fixtures -- 5 years. 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. 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 as well as
costs incurred for purchased software technology are capitalized and amortized
on a product-by-product basis at an annual amortization computed using the
straight-line method over the remaining estimated economic life of the product,
generally three years. Amortization commences on the date of initial product
shipment.
GOODWILL
Goodwill represents the excess of the cost to acquire businesses over the
estimated fair value of the net assets acquired. These amounts are amortized
using the straight-line method over the estimated useful lives. Accumulated
amortization at June 30, 1995 was $737,000. The Company periodically reviews
goodwill to assess recoverability, and impairments would be recognized in
operating results if a permanent dimunition in value were to occur.
FOREIGN CURRENCY TRANSLATION AND TRANSACTION ACTIVITY
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
In accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for 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 primarily from the assumed exercise of dilutive stock options and
are generally excluded from the calculation when the Company incurs net losses.
The Company's 6% convertible subordinated debentures are not considered common
stock equivalents for per-share calculations.
35
<PAGE> 37
ACCOUNTS RECEIVABLE
<TABLE>
Consolidated accounts receivable consisted of the following:
<CAPTION>
DOLLARS IN THOUSANDS 1995 JUNE 30, 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. government: Billed................................................. $11,208 $14,579
Unbilled............................................... 20,602 18,237
-------------------
31,810 32,816
Contract allowances.................................... (6,136) (7,964)
-------------------
25,674 24,852
-------------------
Other customers: Billed................................................. 27,955 15,874
Unbilled............................................... 1,245 1,187
-------------------
29,200 17,061
Allowances for doubtful accounts....................... (941) (410)
-------------------
28,259 16,651
-------------------
$53,933 $41,503
-------------------
</TABLE>
Unbilled amounts represent receivables for work performed for which
billings have 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
$4,000,000 and $3,662,000 at June 30, 1995 and 1994, respectively. A significant
portion of the retentions at June 30, 1995 is anticipated to be collected after
fiscal year 1996.
PROPERTY, PLANT AND EQUIPMENT
<TABLE>
Consolidated property, plant and equipment consisted of the following:
<CAPTION>
DOLLARS IN THOUSANDS 1995 JUNE 30 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Land.................................................................... $ 3,983 $ 3,983
Buildings............................................................... 1,947 1,947
Computer equipment...................................................... 71,329 79,034
Furniture and fixtures.................................................. 5,574 5,184
Leasehold improvements.................................................. 14,625 14,056
--------------------
97,458 104,204
Less accumulated depreciation and amortization.......................... 67,383 84,546
--------------------
$30,075 $ 19,658
--------------------
</TABLE>
CONVERTIBLE SUBORDINATED DEBENTURES
The 6% convertible subordinated debentures due 2012 (the "debentures") may
be converted by the bondholder into the Company's common stock at a price of
$30.00 per share or may be redeemed by the Company at any time prior to
maturity. Redemption of the debentures prior to April 1, 1998 requires payment
of a premium. 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, 1995 of $1,087,000 is
36
<PAGE> 38
included in "Other assets" in the consolidated balance sheets. The fair market
value of the debentures, which is based on quoted market prices, was $75,715,000
at June 30, 1995.
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. By
utilizing the $11,190,000 (face value) of debentures purchased and retired to
date by the Company, contributions to satisfy the annual sinking fund
requirements can be deferred until April 1, 2000.
LEASES
<TABLE>
The Company leases a majority of its facilities under long-term operating
leases. Operating lease commitments for real estate at June 30, 1995 consisted
of the following:
<CAPTION>
REAL ESTATE
LEASE
DOLLARS IN THOUSANDS COMMITMENTS
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Year ending June 30 1996.............................................. $14,428
1997.............................................. 13,799
1998.............................................. 13,253
1999.............................................. 5,868
2000.............................................. 4,988
Remainder......................................... 14,841
-------
Total minimum lease payments .................................................. $67,177
-------
</TABLE>
Minimum lease payments have not been reduced by future minimum sublease
rentals of $4,200,000 due under noncancelable subleases. In January 1995, the
Company assigned a lease in the United Kingdom with a remaining term of 18 1/2
years. Under the terms of the assignment, the assignee has the option of
cancelling the assignment in January 2002 and in January 2005. The Company's
operating leases for real estate generally provide for renewal options and
options to purchase the leased property.
Total rent expenditures, net of sublet income, under all operating leases
and rental agreements amounted to $17,060,000, $16,980,000 and $18,180,000 in
fiscal years 1995, 1994 and 1993, respectively.
COMMON STOCK
In December 1993, in connection with his hiring, the Company's chief
executive officer 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 (the "Act") and may not be sold, assigned, pledged, or
otherwise transferred before the sooner 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.
37
<PAGE> 39
EMPLOYEE BENEFIT PLANS
Stock Compensation Plans
Under the Company's stock option plan, options may be granted to purchase
shares of the Company's common stock at a price not less than 50% of the fair
market value of the common stock on the date of grant. All options granted in
fiscal years 1995, 1994 and 1993 were at fair market value on the dates of
grant. The plan, as amended in fiscal year 1995, provides that directors who are
not employees of the Company receive a non-qualified option for 3,000 shares
each year. 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 canceled become available for
future grant.
<TABLE>
The changes in stock options outstanding for the three years ended June 30, 1995
were as follows:
<CAPTION>
RANGE OF
NUMBER OPTION PRICES
SHARES IN THOUSANDS OF SHARES PER SHARE
<S> <C> <C>
- -------------------------------------------------------------------------------------------------
Outstanding at June 30, 1992 (141 exercisable).................. 1,677 $ 4.63 - $7.63
Granted......................................................... 170 5.00
Exercised....................................................... (12) 5.00
Canceled........................................................ (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
Canceled........................................................ (65) 5.00 - 12.63
-------------------------------
Outstanding at June 30, 1994 (635 exercisable) 2,450 4.63 - 15.25
Granted......................................................... 613 14.13 - 19.50
Exercised....................................................... (654) 4.63 - 7.63
Canceled........................................................ (109) 5.00 - 15.25
-------------------------------
Outstanding at June 30, 1995 (641 exercisable).................. 2,300 5.00 - 19.50
-------------------------------
</TABLE>
At June 30, 1995 and 1994, 415,000 shares and 73,000 shares, respectively,
of authorized but unissued common stock were reserved and available for granting
additional options.
During fiscal years 1995 and 1994, BBN Planet, BBN Software Products, and
BBN HARK adopted stock option plans under which options may be granted enabling
the purchase at a price not less than the par value of the common stock on the
date of grant. Options granted under these plans are exercisable 90 days after
the closing of an initial public offering of the respective subsidiaries' common
stock. As of June 30, 1995, options to purchase shares of subsidiaries' common
stock ranged from 8% to 12% of the common shares outstanding of the respective
subsidiaries and substantially all of the options were granted at the fair value
on the date of grant.
In fiscal year 1994, LightStream adopted stock option plans enabling
employees of LightStream and the Company to purchase shares of LightStream
common stock at the fair value of the common stock on the date of grant. In
connection with the sale of LightStream assets, stock options held by
LightStream employees were exchanged for a cash payment. Stock options held by
employees of the Company were not vested and were canceled.
Employee Stock Purchase Plan
Under the Company's 1983 Stock Purchase Plan, as amended, 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
38
<PAGE> 40
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. Amounts are accumulated through payroll deductions ranging from 2% to
10% of each participating employee's compensation, as defined, but in no event
more than $12,500 or 1,000 shares during any six-month option period.
Options were exercised to purchase 194,000, 185,000, and 283,000 shares for
a total of $2,154,000, $1,519,000, and $1,125,000 in fiscal years 1995, 1994 and
1993, respectively. At June 30, 1995, 493,000 shares of authorized but unissued
common stock were reserved for future issuance under this plan.
Retirement Plans
The Company has a defined contribution retirement plan (the "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. Effective
July 1, 1994, the Company adopted an amendment to the 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 also provides for matching contributions as determined annually by the
Company's Board of Directors. The Company's total costs pursuant to the plan
were $5,603,000, $5,517,000 and $6,515,000 in fiscal years 1995, 1994 and 1993,
respectively.
Effective April 1, 1995, the Company adopted a non-qualified deferred
compensation plan. Eligible employees are permitted to defer a portion of their
salary and incentive compensation subject to limitations. On an annual basis,
the deferred compensation plan also provides for a discretionary retirement
contribution by the Company for selected employees. The Company's cost pursuant
to its deferred compensation plan in fiscal year 1995 was insignificant.
Incentive Compensation Plans
The Company maintains incentive compensation and other performance related
bonus 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 $1,014,000, $1,820,000 and $510,000
in fiscal years 1995, 1994 and 1993, 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. 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.
39
<PAGE> 41
The books and records of the Company are subject to audit by the Defense
Contract Audit Agency ("DCAA"); such audits can result in adjustments to
contract billings. Final contract billing rates have been established for years
through fiscal year 1991, except for the Company's former BBN Communications
activities for which final contract billing rates have been established only
through fiscal year 1984. BBN expects that any adjustments which may be made as
a result of audits of fiscal years 1985 through 1995 of the Company will not
have a material adverse effect on the Company's results of operations.
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 were made by the
government agencies and the Company was informed in August 1995 that the
investigation had been concluded. The audit of the Company's former BBN
Communications activities by the DCAA for fiscal years 1985 through 1993, which
was delayed as a result of the investigation, is currently in process. U.S.
government revenue for the Company's former BBN Communications activities,
during the nine year period under audit, represented approximately 40% of the
Company's total U.S. government revenue.
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.
INCOME TAXES
<TABLE>
The components of domestic and foreign income (loss) before income taxes
were as follows:
<CAPTION>
YEAR ENDED JUNE 30
DOLLARS IN THOUSANDS 1995 1994 1993
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic......................................................... $79,631 $(7,870) $(31,014)
Foreign.......................................................... (1,004) 46 (1,250)
----------------------------
Income (loss) before income taxes................................ $78,627 $(7,824) $(32,264)
----------------------------
</TABLE>
<TABLE>
The provision (benefit) for income taxes consisted of the following:
<S> <C> <C> <C>
Currently payable:
Federal..................................................... $12,522
State....................................................... 2,558 $ 50 $ 78
Foreign..................................................... 298 105
----------------------------
15,378 155 78
Deferred:
Federal..................................................... (1,595) (155) (78)
----------------------------
Provision for income taxes....................................... $13,783
----------------------------
</TABLE>
<TABLE>
The provision (benefit) for income taxes differs from the amount computed
using the statutory rate as follows:
<S> <C> <C> <C>
Tax provision at the federal statutory rate...................... $27,519 $(2,660) $(10,970)
State taxes, net................................................. 1,663 33 51
Minority interests............................................... 3,918 (704)
Change in valuation allowance.................................... (18,857) 3,929 12,067
Research, investment and foreign tax credits..................... (1,281) (704) (1,068)
Other, net....................................................... 821 106 (80)
----------------------------
$13,783
----------------------------
</TABLE>
40
<PAGE> 42
<TABLE>
The significant components of deferred income taxes are as follows:
<CAPTION>
YEAR ENDED JUNE 30
1995 1994
<S> <C> <C>
- ----------------------------------------------------------------------------------------------
Accruals and reserves not deducted for tax purposes.................... $ 11,472 $ 14,197
Tax credit carryforwards............................................... 4,403 7,346
Depreciation and amortization.......................................... 2,900 3,690
Net operating loss carryforwards....................................... 1,801 12,152
Deferred revenue....................................................... (2,357) (3,586)
Other, net............................................................. 339 622
---------------------
18,558 34,421
Valuation allowance.................................................... (16,963) (34,421)
---------------------
Net deferred tax asset................................................. $ 1,595
---------------------
</TABLE>
During fiscal year 1995, a significant portion of the Company's net
operating losses and tax credit carryforwards were utilized in connection with
the sale of LightStream assets. The remaining net operating losses and general
business credits expire in fiscal years 2008 through 2012. A portion of the net
operating loss carryforward is related to a fiscal year 1987 acquisition and is
subject to certain limitations. The tax benefits of approximately $1,600,000
related to the exercise of stock options will be credited to additional paid-in
capital when certain tax credit carryforwards are utilized.
SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
Cash paid and received for income taxes and interest was as follows:
<CAPTION>
YEAR ENDED JUNE 30
DOLLARS IN THOUSANDS 1995 1994 1993
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
Cash paid for:
Income taxes............................................... $12,094 $ 215 $ 246
Interest................................................... 4,418 4,438 4,453
Cash received for:
Income tax refunds......................................... 6 309 3,091
</TABLE>
In connection with the Company's fiscal year 1995 acquisitions of BARRNet
and SURAnet, the Company assumed certain operating liabilities of $5,100,000 and
issued 270,270 shares of BBN's common stock and 200,000 shares of BBN Planet's
common stock. Refer to the "Acquisitions" footnote for further discussion of
these transactions.
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 excess facilities
costs, reflecting a reduction of employment of approximately 300 employees in
fiscal year 1993. The accrued restructuring charges at June 30, 1995 relates to
excess facilities costs. The Company has sublet or assigned the majority of its
excess facilities under agreements with terms expiring between 1998 and 2005.
OTHER INCOME
Refer to the "Sale of LightStream Corporation" footnote for discussion of
the gain included in other income for fiscal year 1995.
41
<PAGE> 43
In December 1994, the Company settled a claim with the U.S. government for
approximately $700,000. This settlement resulted in an approximate $2,550,000
reduction in liabilities and is included in other income for fiscal year 1995.
Other income in each of fiscal years 1995 and 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 fiscal year 1993 included a gain of $3,191,000
in connection with the sale.
FOREIGN EXCHANGE CONTRACTS
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, 1995 and 1994, the Company had foreign exchange
contracts to sell $950,000 and $750,000, respectively, of foreign currencies.
SALE OF LIGHTSTREAM CORPORATION
The sale of the assets of the Company's majority-owned subsidiary
LightStream Corporation to Cisco Systems, Inc. ("Cisco") for a cash
consideration of $120,000,000 which was completed on January 11, 1995, is
reflected in the Company's fiscal year 1995 results. The Company's portion is
83% of the net proceeds and Ungermann-Bass Networks, Inc., which owns the
minority interest in LightStream, will receive the remainder. Of the cash
consideration paid to LightStream, $12,000,000 was placed in a restricted Escrow
Fund, and periodically declining portions of such amount together with interest
are to be maintained for up to two years following the closing of the
transaction, subject to any claims under the Asset Purchase Agreement by Cisco.
On July 11, 1995 $4,000,000 was released from the Escrow Fund. As part of the
sale, Cisco hired substantially all of the employees of LightStream, and is
operating from the Company's former facility in Billerica, Massachusetts. The
Company recorded a pre-tax gain from the sale of approximately $105,000,000
before minority interest of $11,800,000 and income taxes of $13,500,000.
LightStream's fiscal year 1995 results through the date of the sale included
revenue of approximately $8,400,000 and an operating loss of approximately
$3,700,000. In fiscal year 1994, the Company's ATM activities, which prior to
the formation of LightStream were conducted by its then Communications Division,
had aggregate revenue of approximately $1,500,000 and an operating loss of
approximately $14,800,000.
ACQUISITIONS
BARRNet Acquisition
On August 19, 1994, BBN Planet 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 $6,500,000 consisting
principally of $2,000,000 cash, 270,270 shares of BBN common stock and 200,000
shares of BBN Planet common stock. The common stocks issued were valued at their
fair value which reflects a discount attributable to their restricted nature.
The transaction was accounted for using the purchase method of accounting.
Accordingly, the acquired assets and liabilities were recorded at their
estimated fair values on the date of the acquisition. The aggregate cost in
excess of net assets acquired of approximately $4,500,000 is being amortized
over ten years.
SURAnet Acquisition
On March 31, 1995, BBN Planet acquired from the Southeastern Universities
Research Association, the SURAnet Internet services organization, a provider of
Internet services in the Southeastern United States. Substantially all of the
SURAnet net assets were acquired for approximately $12,960,000 in cash and the
assumption of certain operating liabilities of approximately $5,100,000. The
transaction was accounted for using the purchase method of accounting.
Accordingly, the acquired assets and liabilities were recorded at
42
<PAGE> 44
their estimated fair values on the date of the acquisition. The aggregate cost
in excess of net assets acquired of approximately $14,000,000 is being amortized
over ten years.
SEGMENT INFORMATION
Business Segments
During fiscal year 1995, the Company reported 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 advanced network systems (including the
Company's defense communications activities) and network services and products,
the activities of BBN Planet Corporation, and the activities of LightStream
Corporation up to the date of sale of substantially all of its assets on January
11, 1995. The Data Analysis Software business segment includes the activities of
BBN Domain. The Collaborative Systems and Acoustic Technologies business segment
includes that part of the activities of the BBN Systems and Technologies
Division relating to collaborative systems, sensor systems, and acoustic
technologies, and the activities of BBN HARK Systems Corporation. In fiscal year
1993, 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, 1995, 1994,
and 1993, respectively. All data are shown net of intersegment transactions.
<TABLE>
<CAPTION>
DOLLARS IN THOUSANDS 1995 1994 1993
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
Revenue:
Internetworking.......................................... $ 88,259 $ 76,765 $ 91,936
Data Analysis Software................................... 39,428 35,393 38,151
Collaborative Systems and Acoustic Technologies.......... 87,344 83,946 103,366
----------------------------------
$215,031 $196,104 $233,453
----------------------------------
Income (loss) from operations:
Internetworking.......................................... $(10,147) $ (9,362) $(32,411)
Data Analysis Software................................... (3,621) 497 (5,347)
Collaborative Systems and Acoustic Technologies.......... (2,210) 2,095 5,435
Unallocated corporate costs.............................. (2,836) (1,674)
----------------------------------
$(18,814) $ (8,444) $(32,323)
----------------------------------
U.S. government sales:
Internetworking.......................................... $ 44,272 $ 48,884 $ 66,175
Data Analysis Software................................... 644 1,377 1,607
Collaborative Systems and Acoustic Technologies.......... 79,892 80,303 76,655
----------------------------------
$124,808 $130,564 $144,437
----------------------------------
Depreciation and amortization:
Internetworking.......................................... $ 5,637 $ 4,835 $ 5,862
Data Analysis Software................................... 2,030 3,282 3,870
Collaborative Systems and Acoustic Technologies.......... 2,499 2,438 3,386
----------------------------------
$ 10,166 $ 10,555 $ 13,118
----------------------------------
</TABLE>
43
<PAGE> 45
<TABLE>
<CAPTION>
DOLLARS IN THOUSANDS 1995 1994 1993
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
Identifiable assets:
Internetworking.......................................... $ 57,138 $ 38,076 $ 34,865
Data Analysis Software................................... 23,485 15,954 16,602
Collaborative Systems and Acoustic Technologies.......... 25,169 23,085 28,913
Corporate................................................ 113,674 58,825 60,265
----------------------------------
$219,466 $135,940 $140,645
----------------------------------
Capital expenditures:
Internetworking.......................................... $ 10,110 $ 3,677 $ 3,315
Data Analysis Software................................... 4,397 1,351 2,069
Collaborative Systems and Acoustic Technologies.......... 3,547 1,598 2,369
Corporate................................................ 422 312 189
----------------------------------
$ 18,476 $ 6,938 $ 7,942
----------------------------------
</TABLE>
Geographic Segments
Revenue includes U.S. export sales primarily to Western Europe and Japan of
$24,000,000, $27,300,000 and $51,100,000 in fiscal years 1995, 1994, and 1993,
respectively.
SUBSEQUENT EVENT
On July 12, 1995, the Company announced that AT&T Venture Company, L.P.
made an investment in BBN Planet by purchasing 1,000,000 shares of BBN Planet's
Series A Convertible Preferred Stock at $8.00 per share. Such preferred shares
are subject to mandatory conversion into 1,000,000 shares of BBN Planet common
stock upon a public offering of BBN Planet, and may be put to the Company or BBN
Planet at $8.00 per share within twelve months.
44
<PAGE> 46
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, 1995 and 1994, and the related consolidated statements of
operations, shareholders' equity, and cash flows for each of the three years in
the period ended June 30, 1995. 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, 1995 and 1994, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
June 30, 1995, in conformity with generally accepted accounting principles.
Boston, Massachusetts
August 8, 1995
45
<PAGE> 47
QUARTERLY FINANCIAL DATA
(UNAUDITED)
Quarterly financial data for the years ended June 30, 1995 and 1994 was as
follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
1995 THREE MONTHS ENDED YEAR ENDED
DOLLARS IN THOUSANDS, EXCEPT PER-SHARE SEPT. 30 DEC. 31 MARCH 31 JUNE 30 JUNE 30
DATA 1994 1994 1995 1995 1995
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
Revenue:
Services............................... $ 44,376 $41,016 $42,954 $47,938 $176,284
Products............................... 7,367 10,156 9,003 12,221 38,747
------------------------------------------------------------
$ 51,743 $51,172 $51,957 $60,159 $215,031
------------------------------------------------------------
Gross margin........................... $ 20,581 $19,342 $18,805 $21,052 $ 79,780
Income (loss) from operations.......... (1,492) (5,107) (5,597 ) (6,618) (18,814)
Net income (loss)...................... (1,808) (1,925) 74,466 (5,889) 64,844
Net income (loss) per share............ (.11) (.11) 4.11 (.34) 3.61
Sales price of common stock: High..... 18 3/4 20 7/8 22 1/4 30
Low... 10 12 5/8 14 5/8 16 1/2
</TABLE>
<TABLE>
<CAPTION>
1994 THREE MONTHS ENDED YEAR ENDED
DOLLARS IN THOUSANDS, EXCEPT PER-SHARE SEPT. 30 DEC. 31 MARCH 31 JUNE 30 JUNE 30
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........................... $ 17,167 $17,575 $16,274 $18,644 $ 69,660
Income (loss) from operations.......... (1,524) (2,528) (2,356 ) (2,036) (8,444)
Net income (loss)...................... (1,947) (1,666) (2,259 ) (1,952) (7,824)
Net income (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>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
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" in the Company's definitive Proxy Statement dated
September 29, 1995 for the Registrant's Annual Meeting to be held on November 6,
1995, 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 21 and 22 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", in the sections entitled "Compensation and
46
<PAGE> 48
Certain Other Transactions Involving Executive Officers", "Summary Compensation
Table", "Option Grants in Last Fiscal Year", and "Option Exercises in Fiscal
Year 1995 and Year-End Option Values", in the section entitled "Report of
Compensation and Stock Option Committee on Annual Executive Compensation", and
in the section entitled "Comparative Stock Performance", each in the Company's
definitive Proxy Statement dated September 29, 1995 for the Registrant's Annual
Meeting to be held on November 6, 1995, and such information is incorporated
herein by reference.
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", and in
the section entitled "Principal Holders of Company Common Stock", each in the
Company's definitive Proxy Statement dated September 29, 1995 for the
Registrant's Annual Meeting to be held on November 6, 1995, and such information
is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information in response to this may be found in the section entitled
"Compensation and Certain Other Transactions Involving Executive Officers" in
the Company's definitive Proxy Statement dated September 29, 1995 for the
Registrant's Annual Meeting to be held on November 6, 1995, and such information
is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K.
(a) List of Financial Statements, Financial Statement Schedules, and
Exhibits.
1. Financial Statements
Consolidated Statements of Operations (page 30)
Consolidated Balance Sheets (page 31)
Consolidated Statements of Shareholders' Equity (page 32)
Consolidated Statements of Cash Flows (page 33)
Notes to Consolidated Financial Statements (pages 34-44)
Report of Independent Accountants (page 45)
2. FINANCIAL STATEMENT SCHEDULES
Schedules other than those listed below have been omitted because they are
inapplicable or are not required.
II Valuation and Qualifying Accounts, Years Ended June 30, 1995, 1994, and
1993 (page 51)
3. LIST OF EXHIBITS
<TABLE>
<S> <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).
</TABLE>
47
<PAGE> 49
<TABLE>
<S> <C>
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
Registrants'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 (filed with the Securities and Exchange Commission as
Exhibit 4.4 of Registrant's Annual Report on Form 10-K for the fiscal
year ended June 30, 1994, and incorporated herein by reference).
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 (filed with the
Securities and Exchange Commission as Exhibit 10.1 of Registrant's
Annual Report on Form 10-K for the fiscal year ended June 30, 1994, and
incorporated herein by reference).
10.2 Registrant's 1986 Stock Incentive Plan, as amended (filed with the
Securities and Exchange Commission as Exhibit 10.1 of Registrant's
Quarterly Report on Form 10-Q for the quarter ended December 31, 1994,
and incorporated herein by reference).
10.3 Registrant's 1983 Employee Stock Purchase Plan, as amended.
10.4 BBN Planet Corporation 1994 Stock Option Plan, as amended.
10.5 BBN HARK Systems Corporation 1995 Stock Option Plan, as amended.
10.6 BBN Software Products Corporation 1993 Stock Option Plan, as amended.
10.7 Incentive Compensation Plan for George H. Conrades (filed with the
Securities and Exchange Commission as Exhibit 10.14 of Registrant's
Quarterly Report on Form 10-Q for the quarter ended December 31, 1993,
and incorporated herein by reference).
10.8 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).
10.9 Registrant's Deferred Compensation Plan for Employees (filed with the
Securities and Exchange Commission as Exhibit 10.1 of Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1995, and
incorporated herein by reference).
</TABLE>
48
<PAGE> 50
<TABLE>
<S> <C>
10.10 Registrant's Executive Protection Policy (Executive, Outside
Directorship, and Fiduciary Liability), Directors and Officers
Liability and Reimbursements Excess Policy, Excess Directors and
Officers Liability and Corporate Indemnification Policy, Excess
Directors and Officers and Company Reimbursement Policy, and Excess
Insurance Policy, each for the policy period ending December 1, 1995.
10.11 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).
10.12 Asset Purchase Agreement dated as of December 8, 1994 between
Registrant and Cisco Systems, Inc. and Amendment No. 1 thereto (filed
with the Securities and Exchange Commission as Exhibit 1 of
Registrant's Current Report on Form 8-K dated January 11, 1995, and
incorporated herein by reference).
10.13 Internet Services Agreement dated June 19, 1995 among Registrant, BBN
Planet Corporation, and AT&T Corp. (The exhibits and schedules to the
agreement are not being filed herewith. Except to the extent covered by
an application for an order pursuant to Rule 24b-2 under the Securities
Exchange Act of 1934, granting confidential treatment of certain
contractual provisions, which application may be filed in the future, a
copy of any exhibit or schedule will be furnished supplementary to the
Commission, upon request. A description of the exhibits and schedules
identifying the contents of such exhibits and schedules is contained in
the agreement.)
10.14 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).
10.15 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 as Exhibit 1 of Registrant's
Current Report on Form 8-K for the month of July 1975, respectively,
and incorporated herein by reference).
10.16 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).
10.17 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 Calculations of net income (loss) per share.
21.1 Subsidiaries of Registrant.
23.1 Consent of Coopers & Lybrand L.L.P.
27.1 Financial Data Schedule.
<FN>
(b) Reports on Form 8-K for the quarter ended June 30, 1995 filed by the
Registrant were as follows:
</TABLE>
None
49
<PAGE> 51
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 28th day of
September, 1995.
BOLT BERANEK AND NEWMAN INC.
/S/ GEORGE H. CONRADES
By:.................................
GEORGE H. CONRADES
(PRESIDENT, CHIEF EXECUTIVE
OFFICER, AND DIRECTOR)
<TABLE>
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 28th day of September,
1995.
<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
/S/ LUCIE J. FJELDSTAD 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>
50
<PAGE> 52
<TABLE>
SCHEDULE II
BOLT BERANEK AND NEWMAN INC.
VALUATION AND QUALIFYING ACCOUNTS
Years Ended June 30, 1995, 1994 and 1993
(Dollars in thousands)
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ---------------------------------------------------------------------------------------------------------
BALANCE AT
BEGINNING CHARGED TO BALANCE AT
OF COSTS AND OTHER CHANGES END OF
DESCRIPTION YEAR EXPENSES ADD (DEDUCT) YEAR(F)
- ---------------------------------------------------------------------------------------------------------
Allowances for Accounts Receivable:
1995....................................... $ 8,374 $ 462 $(1,759)(a) $7,077
1994....................................... 8,912 405 (943)(a)(e) 8,374
1993....................................... 10,147 703 (1,938)(a) 8,912
Inventory Reserves:
1995....................................... $ 3,296 $ $(3,296)(d)
1994....................................... 2,795 501(e) 3,296
1993....................................... 3,108 2,993(b)(c) (3,306)(d) 2,795
<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>
51
<PAGE> 53
LIST OF EXHIBITS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
10.3 Registrant's 1983 Employee Stock Purchase Plan, as amended.
10.4 BBN Planet Corporation 1994 Stock Option Plan, as amended.
10.5 BBN HARK Systems Corporation 1995 Stock Option Plan, as amended.
10.6 BBN Software Products Corporation 1993 Stock Option Plan, as amended.
10.10 Registrant's Executive Protection (Executive, Outside Directorship, and
Fiduciary Liability), Directors and Officers Liability and Reimbursements Excess
Policy, Excess Directors and Officers Liability and Corporate Indemnification
Policy, Excess Directors and Officers and Company Reimbursement Policy, and
Excess Insurance Policy, each for the policy period ending December 1, 1995.
10.13 Internet Services Agreement dated June 19, 1995 among Registrant, BBN Planet
Corporation, and AT&T Corp. (The exhibits and schedules to the agreement are not
being filed herewith. Except to the extent covered by an application for an
order pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, granting
confidential treatment of certain contractual provisions, which application may
be filed in the future, a copy of any exhibit or schedule will be furnished
supplementary to the Commission, upon request. A description of the exhibits and
schedules identifying the contents of such exhibits and schedules is contained
in the agreement.)
11.1 Calculations of net income (loss) per share.
21.1 Subsidiaries of Registrant.
23.1 Consent of Coopers & Lybrand L.L.P.
27.1 Financial Data Schedule.
</TABLE>
<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 shall
be eligible to participate in the Plan(1); provided that an employee of the
Company subject to Section 16 of the Securities Exchange Act of 1934, as
amended, shall be eligible to participate in the Plan only after completing six
months or more of continuous service in the employ of the Company.
(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.
______________________
(1) as amended effective January 1, 1996
<PAGE> 2
(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.
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. 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 Plan, 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
2
<PAGE> 3
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 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.
3
<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. PARTICIPANTS 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.
4
<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.
7/94
9/95
5
<PAGE> 1
Exhibit 10.4
BBN PLANET CORPORATION
1994 STOCK OPTION PLAN
1. PURPOSE
-------
The purpose of this 1994 Stock Option Plan (the "Plan") is to advance
the interests of BBN Planet Corporation (the "Company") by enhancing the
ability of the Company and its parent and subsidiaries to attract and retain
able employees, consultants or advisors to the Company; to reward such
individuals for their contributions; and to encourage such individuals to take
into account the long-term interests of the Company through interests in
shares of the Company's common stock, $.01 par value (the "Stock"). Any
employee, consultant, or advisor selected to receive an award under the Plan is
referred to as a "participant".
Options granted pursuant to the Plan may be incentive stock options as
defined in section 422 of the Internal Revenue Code of 1986 (as from time to
time amended, the "Code") (any option that is intended so to qualify as an
incentive stock option being referred to herein as an "incentive option"), or
options that are not incentive options, or both. Except as otherwise expressly
provided with respect to an option grant, no option granted pursuant to the
Plan shall be an incentive option.
2. ADMINISTRATION
--------------
The Plan shall be administered by the Board of Directors (the "Board")
of the Company. The Board shall have authority, not inconsistent with the
express provisions of the Plan: (a) to grant awards consisting of options or
stock appreciation rights ("SARs"), or both, to such participants as the Board
may select; (b) to determine the time or times when awards shall be granted and
the number of shares of Stock subject to each award; (C) to determine which
options are, and which options are not, intended to be incentive options; (d)
to determine the terms and conditions of each award; (e) to prescribe the form
or forms of any instruments evidencing awards and any other instruments
required under the Plan and to change such forms from time to time; (f) to
adopt, amend, and rescind rules and regulations for the administration of the
Plan; and (g) to interpret the Plan and to decide any questions and settle all
controversies and disputes that may arise in connection with the Plan. Such
determinations of the Board shall be conclusive and shall bind all parties.
Subject to Section 8, the Board shall also have the authority, both generally
and in particular instances, to waive compliance by a participant with any
obligation to be performed by the participant under an award, to waive any
condition or provision of an award, and to amend or cancel any award (and if an
award is canceled, to grant a new award on such terms as the Board shall
specify) except that the Board may not take any action with respect to an
outstanding award that would adversely affect the rights of the participant
under such award without such participant's consent. Nothing in the preceding
sentence shall be construed as limiting the power of the Board to make
adjustments required by Section 4(C) and Section 6(j). The Board in the
discharge of its administrative responsibilities under the Plan shall cause the
Company at least annually to provide Company financial statements to each Plan
participant. The preceding sentence shall not apply in the case of any key
employee or similarly situated participant whose duties in connection with the
Company assure him or her access to equivalent information.
1
<PAGE> 2
The Board may, in its discretion, delegate some or all of its powers with
respect to the Plan to a committee (the "Committee"), in which event all
references (as appropriate) to the Board hereunder shall be deemed to refer to
the Committee. The Committee, if one is appointed, shall consist of at least
two directors. A majority of the members of the Committee shall constitute a
quorum, and all determinations of the Committee shall be made by a majority of
its members. Any determination of the Committee under the Plan may be made
without notice or meeting of the Committee by a writing signed by a majority of
the Committee members. On and after registration of the Stock under the
Securities Exchange Act of 1934 (the "1934 Act"), the Board shall delegate the
power to select directors and officers to receive awards under the Plan and the
timing, pricing, and amount of such awards to a Committee, all members of which
shall be disinterested persons within the meaning of Rule 16b-3 under the 1934
Act and "outside directors" within the meaning of section 162(m)(4)(c)(I) of
the Code.
3. EFFECTIVE DATE AND TERM OF PLAN
-------------------------------
The Plan shall become effective on the date on which it is approved by
the shareholders of the Company. Grants of awards under the Plan may be made
prior to that date (but after Board adoption of the Plan), subject to approval
of the Plan by the shareholders.
No awards shall be granted under the Plan after the completion of ten
years from the date on which the Plan was adopted by the Board, but awards
previously granted may extend beyond that date.
4. SHARES SUBJECT TO THE PLAN
--------------------------
(a) NUMBER OF SHARES. Subject to adjustment as provided in Section
4(c), the aggregate number of shares of Stock that may be delivered upon the
exercise of award granted under the Plan shall be 1,950,000. If any award
granted under the Plan terminates without having been exercised in full, or
upon exercise is satisfied other than by delivery of Stock, the number of
shares of Stock as to which such award was not exercised shall be available for
future grants within the limits set forth in this Section 4(a).
(b) SHARES TO BE DELIVERED. Shares delivered under the Plan shall be
authorized but unissued Stock or, if the Board so decides in its sole
discretion, previously issued Stock acquired by the Company and held in its
treasury. No fractional shares of Stock shall be delivered under the Plan.
(C) CHANGES IN STOCK. In the event of a stock dividend, stock split, or
combination of shares, recapitalization, or other change in the Company's
capital stock, the number and kind of shares of stock or securities of the
Company subject to awards then outstanding or subsequently granted under the
Plan, the exercise price of such awards, the maximum number of shares or
securities that may be delivered under the Plan, and other relevant provisions
shall be appropriately adjusted by the Board, whose determination shall be
binding on all persons.
The Board may also adjust the number of shares subject to outstanding
awards, the exercise price of outstanding awards, and the terms of outstanding
awards, to take into consideration material changes in accounting practices or
principles, extraordinary dividends, consolidations or mergers (except as
described in Section 6(j)), acquisitions or dispositions of stock or property,
or any other event if it is
2
<PAGE> 3
determined by the Board that such adjustment is appropriate to avoid distortion
in the operation of the Plan, provided that no such adjustment shall be made in
the case of an incentive option, without the consent of the participant, if it
would constitute a modification, extension, or renewal of the option within the
meaning of section 424(h) of the Code.
5. ELIGIBILITY FOR AWARDS
----------------------
Persons eligible to receive awards under the Plan shall be those
employees of the Company, its parent, or subsidiaries, or consultants, or
advisors to any of them, who in the opinion of the Board are in a position to
make a contribution to the Company. Participants shall be selected by the
Board. A parent for purposes of the Plan shall be a corporation which owns,
directly or indirectly, 50% or more of the total combined voting power of all
classes of the Company's stock. A subsidiary for purposes of the Plan shall be
(i) a 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, or (ii) a corporation in which the Company's parent owns, directly or
indirectly, stock possessing 50% or more of the total combined voting power of
all classes of stock. The Board may grant awards covering up to the entire
number of shares available for issuance under the Plan (as determined under
Section 4(a)) to any one participant or to several participants, in the sole
discretion of the Board.
Incentive options shall be granted only to "employees" as defined in
the provisions of the Code or regulations thereunder applicable to incentive
stock options.
6. TERMS AND CONDITIONS OF OPTIONS AND SARS
----------------------------------------
(a) EXERCISE PRICE OF OPTIONS. The exercise price of each option shall
be determined by the Board but in the case of an incentive option shall not be
less than 100% (110%, in the case of an incentive option granted to a
ten-percent shareholder) of the fair market value of the Stock at the time the
option is granted; nor shall the exercise price be less, in the case of an
original issue of authorized stock, than par value. For this purpose, "fair
market value" in the case of incentive options shall have the same meaning as
it does in the provisions of the Code and the regulations thereunder applicable
to incentive options; and "ten-percent shareholder" shall mean any participant
who at the time of grant owns directly, or by reason of the attribution rules
set forth in section 424(d) of the Code is deemed to own, stock possessing more
than 10% of the total combined voting power of all classes of stock of the
Company or of any of its parent or subsidiary corporations.
(b) DURATION OF OPTIONS. An option shall be exercisable during such
period or periods as the Board may specify. The latest date on which an option
may be exercised (the "Final Exercise Date") shall be the date which is ten
years (five years, in the case of an incentive option granted to a "ten-percent
shareholder" as defined in (a) above) from the date the option was granted or
such earlier date as may be specified by the Board at the time the option is
granted.
(c) EXERCISE OF OPTIONS.
(1) An option shall become exercisable at such time or times and
upon such conditions as the Board shall specify. In the case
of an option not immediately exercisable in full, the Board
may at any time accelerate the time at which all or any part
of the option may be exercised.
3
<PAGE> 4
(2) Any exercise of an option shall be in writing, signed by
the proper person and furnished to the Company, accompanied
by (i) such documents, representations, agreements, and
certifications as may be required by the Board and (ii)
payment in full as specified below in Section 6(d) for the
number of shares for which the option is exercised.
(3) In the case of an option that is not an incentive option,
the Board shall have the right to require that the
participant exercising the option remit to the Company an
amount sufficient to satisfy any federal, state, or local
withholding tax requirements (or make other arrangements
satisfactory to the Company with regard to such taxes)
prior to the delivery of any Stock pursuant to the exercise
of the option. If permitted by the Board either at the time
of the grant of the option or the time of exercise, the
participant may elect, at such time and in such manner as
the Board may prescribe, to satisfy such withholding
obligation by (i) delivering to the Company Stock owned by
such individual having a fair market value equal to such
withholding obligation, or (ii) requesting that the Company
withhold from the shares of Stock to be delivered upon the
exercise a number of shares of Stock having a fair market
value equal to such withholding obligation.
In the case of an incentive option, the Board may require as a
condition of exercise that the participant exercising the option
agree to inform the Company promptly of any disposition (within
the meaning of section 424(c) of the Code and the regulations
thereunder) of Stock received upon exercise. In addition, if at
the time the option is exercised the Board determines that under
applicable law and regulations the Company could be liable for the
withholding of any federal or state tax with respect to a
disposition of the Stock received upon exercise, the Board may
require as a condition of exercise that the participant exercising
the option agree to give such security as the Board deems adequate
to meet the potential liability of the Company for the withholding
of tax, and to augment such security from time to time in any
amount reasonably deemed necessary by the Board to preserve the
adequacy of such security.
(4) If 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
pursuant to such exercise until the Company is satisfied as
to the authority of the person or persons exercising the option.
(d) PAYMENT FOR STOCK. Stock purchased upon exercise of an option
under the Plan shall be paid for as follows: (i)in cash, check acceptable to
the Company (determined in accordance with such guidelines as the Board may
prescribe), or money order payable to the order of the Company, or (ii) if so
permitted by the Board (which, in the case of an incentive option, shall
specify such method of payment at the time of grant), (A) through the delivery
or shares of Stock (which, in the case of Stock acquired from the Company,
shall have been held for at least six months unless the Board specifies a
shorter period) having a fair market value on the date of exercise equal to the
purchase price, or (B) by delivery of a promissory note of the participant to
the Company, such note to be payable on such terms as are specified by
4
<PAGE> 5
the Board, or (C) by delivery of an unconditional and irrevocable undertaking
by a broker to deliver promptly to the Company sufficient funds to pay the
exercise price, or (D) by any combination of the permissible forms of payment;
provided, that if the Stock delivered upon exercise of the option is an
original issue of authorized Stock, at least so much of the exercise price as
represents the par value of such Stock shall be paid other than with a personal
check or promissory note of the person exercising the option.
(e) STOCK APPRECIATION RIGHTS. The Board in its discretion may grant
SARs either in tandem with or independent of options awarded under the Plan.
Except as hereinafter provided, each SAR will entitle the participant to
receive upon exercise, with respect to each share of Stock to which the SAR
relates, the excess of (i) the share's value on the date of exercise, over
(ii)the share's fair market value on the date it was granted. For purposes of
clause (i), "value" shall mean fair market value; provided, that the Board may
adjust such value to take into account dividends on the Stock and may also
grant SARs that provide, in such limited circumstances following a change in
control of the Company (as determined by the Board) as the Board may specify,
that "value" for purposes of clause (i) is to be determined by reference to an
average value for the Stock during a period immediately preceding the change in
control, all as determined by the Board. The amount payable to a participant
upon exercise of an SAR shall be paid either in cash or in shares of Stock, as
the Board determines. Each SAR shall be exercisable during such period or
periods and on such terms as the Board may specify. No SAR shall be exercisable
after the date which is ten years from the date of grant.
(f) DELIVERY OF STOCK. A participant shall not have the rights of a
shareholder with regard to awards under the Plan except as to Stock actually
received by such participant under the Plan.
The Company shall not be obligated to deliver any shares of Stock (i)
until, in the opinion of the Company's counsel, all applicable federal and
state laws and regulations have been complied with, (ii) if the outstanding
Stock is at the time listed on any stock exchange, until the shares to be
delivered have been listed or authorized to be listed on such exchange upon
official notice of issuance, and (iii) until all other legal matters in
connection with the issuance and delivery of such shares have been approved by
the Company's counsel. If the sale of Stock has not been registered under the
Securities Act of 1933, as amended, the Company may require, as a condition to
exercise of the award, such representations or agreements as counsel for the
Company may consider appropriate to avoid violation of such Act and may require
that the certificates evidencing such Stock bear an appropriate legend
restricting transfer.
(g) NONTRANSFERABILITY OF AWARDS. No award may be transferred other
than by will or by the laws of descent and distribution, and during a
participant's lifetime an award may be exercised only by him or her.
(h) DEATH. Except as otherwise provided in an award, if a participant
dies, each award held by the participant immediately prior to death may be
exercised, to the extent it was exercisable immediately prior to death, by his
executor or administrator, or by the person or persons to whom the award is
transferred by will or the applicable laws of descent and distribution, at any
time within the period ending (i) 180 days after the participant's death (in
the event the participant's employment or other service relationship with the
Company shall terminate by reason of death), or (ii) 120 days after the
participant's death (in the event the participant dies within the 60-day period
following termination of the participant's
5
<PAGE> 6
employment or other service relationship with the Company), or such longer
period as the Committee may determine. In no event shall an award be
exercised beyond the Final Exercise Date. Except as otherwise provided in an
award, all awards held by a participant immediately prior to death that are not
then exercisable shall terminate on the date of death.
(i) OTHER TERMINATION OF SERVICE. Except as otherwise provided in an award,
if a participant's employment or other service relationship with the Company
terminates for any reason other than death, all awards held by the participant
shall terminate to the extent not exercisable immediately prior to such event.
To the extent exercisable immediately prior to termination of employment or
other service relationship, the award shall continue to be exercisable
thereafter for a period of 60 days (180 days, if termination of employment
occurs by reason of disability), or for such longer period as the Board may
determine, but in no event beyond the Final Exercise Date. For purposes of the
preceding sentence, "disability" means permanent disability as determined by
the Board. The Board may in any award provide for post-termination exercise
provisions different from those expressly set forth in the preceding two
sentences or in (h) above, including without limitation terms allowing a later
exercise by a former employee, consultant, or advisor (or, in the case of a
former employee, consultant, or advisor who is deceased, the person or persons
to whom the award is transferred by will or the laws of descent and
distribution) as to all or any portion of the award not exercisable immediately
prior to termination of employment or other service relationship, but in no
case may an award be exercised after the Final Exercise Date. Except as
otherwise provided in an award, after completion of that 60-day or longer
period, such awards shall terminate to the extent not previously exercised,
expired, or terminated. For purposes of this Plan, the service relationship
shall not be considered terminated (i) in the case of sick leave or other bona
fide leave of absence approved for purposes of the Plan by the Board, so long
as the participant's right to reemployment or continued service is guaranteed
either by statute or by contract, or (ii) in the case of a transfer of
employment or service relationship between the Company and a subsidiary or
parent, or between subsidiaries of the Company or parent (provided the
participant's direct or indirect service to the Company continues), or to the
service of a corporation (or a parent or subsidiary corporation of such
corporation) issuing or assuming an award in a transaction to which section
424(a) of the Code applies.
(j) MERGERS. ETC. In the event of any merger, consolidation,
dissolution, or liquidation of the Company, the Board 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 Board deems equitable in the circumstances).
The Board may grant awards under the Plan in substitution for awards
held by employees, consultants, or advisors of another corporation who
concurrently become employees, consultants, or advisors of the Company, its
parent, or a subsidiary as the result of a merger or consolidation of that
corporation with the Company, its parent, or a subsidiary, or as the result of
the acquisition by the Company, its parent, or a subsidiary of property or
stock of that corporation. The Company may direct that substitute awards be
granted on such terms and conditions as the Board considers appropriate in the
circumstances.
6
<PAGE> 7
(k) CANCELLATION OF AWARDS. The Board may provide in any award that
the award shall be cancelled or rescinded and any associated shares forfeited,
and the participant shall be obligated to pay to the Company any gain received
upon exercise, in the event that the participant competes with the Company,
discloses confidential information of the Company, or otherwise is not in
compliance with applicable provisions of any award, in each case on such terms
and conditions as the Board considers appropriate in the circumstances.
7. EMPLOYMENT RIGHTS
-----------------
Neither the adoption of the Plan nor the grant of awards shall confer
upon any participant any right to continue as an employee of, or consultant or
advisor to, the Company, its parent, or any subsidiary of either or affect in
any way the right of the Company, its parent, or a subsidiary of either to
terminate the participant's relationship at any time. Except as specifically
provided by the Board in any particular case, the loss of existing or potential
profit in awards granted under this Plan shall not constitute an element of
damages in the event of termination of the relationship of a participant even
if the termination is in violation of an obligation of the Company, its parent,
or a subsidiary of either to the participant by contract or otherwise.
8. EFFECT, DISCONTINUANCE, CANCELLATION, AMENDMENT, AND TERMINATION
----------------------------------------------------------------
Neither adoption of the Plan nor the grant of awards to a participant
shall affect the Company's right to make awards to such participant that are
not subject to the Plan, to issue to such participant Stock as a bonus or
otherwise, or to adopt other plans or arrangements under which Stock may be
issued, and shall in no way affect the Company's right to operate its business
at its sole discretion.
The exercise of certain awards granted under the Plan may be made
contingent upon the closing of an initial public offering of the Company's
Stock. The grant of such awards under the Plan shall in no way obligate the
Company to consummate or consider a public offering of Stock, and the failure
of the Company to close a public offering of Stock shall not entitle a
participant granted such an award to any substitute award or other benefit, or
to any damages.
The Board may at any time discontinue granting awards under the Plan.
With the consent of the participant, the Board may at any time cancel an
existing award in whole or in part and grant another award for such number of
shares as the Board specifies. The Board may at any time or times amend the
Plan or any outstanding award for the purpose of satisfying the requirements of
section 422 of the Code or of any changes in applicable laws or regulations or
for any other purpose that may at the time be permitted by law, or may at any
time terminate the Plan as to any further grants of awards; except that no such
amendment shall adversely affect the rights of any participant (without his or
her consent) under any award previously granted.
5/3/95
8/30/95
7
<PAGE> 1
Exhibit 10.5
BBN HARK SYSTEMS CORPORATION
1995 STOCK OPTION PLAN
1. PURPOSE
-------
The purpose of this 1995 Stock Option Plan (the "Plan") is to advance
the interests of BBN HARK Systems Corporation (the "Company") by enhancing the
ability of the Company and its parent and subsidiaries to attract and retain
able employees, consultants or advisors to the Company; to reward such
individuals for their contributions; and to encourage such individuals to take
into account the long-term interests of the Company through interests in shares
of the Company's common stock, $.01 par value (the "Stock"). Any employee,
consultant, or advisor selected to receive an award under the Plan is referred
to as a "participant".
Options granted pursuant to the Plan may be incentive stock options as
defined in section 422 of the Internal Revenue Code of 1986 (as from time to
time amended, the "Code") (any option that is intended so to qualify as an
incentive stock option being referred to herein as an "incentive option"), or
options that are not incentive options, or both. Except as otherwise expressly
provided with respect to an option grant, no option granted pursuant to the
Plan shall be an incentive option.
2. ADMINISTRATION
--------------
The Plan shall be administered by the Board of Directors (the "Board")
of the Company. The Board shall have authority, not inconsistent with the
express provisions of the Plan: (a) to grant awards consisting of options or
stock appreciation rights ("SARs"), or both, to such participants as the Board
may select; (b) to determine the time or times when awards shall be granted and
the number of shares of Stock subject to each award; (C) to determine which
options are, and which options are not, intended to be incentive options; (d)
to determine the terms and conditions of each award; (e) to prescribe the form
or forms of any instruments evidencing awards and any other instruments
required under the Plan and to change such forms from time to time; (f) to
adopt, amend, and rescind rules and regulations for the administration of the
Plan; and (g) to interpret the Plan and to decide any questions and settle all
controversies and disputes that may arise in connection with the Plan. Such
determinations of the Board shall be conclusive and shall bind all parties.
Subject to Section 8, the Board shall also have the authority, both generally
and in particular instances, to waive compliance by a participant with any
obligation to be performed by the participant under an award, to waive any
condition or provision of an award, and to amend or cancel any award (and if an
award is canceled, to grant a new award on such terms as the Board shall
specify) except that the Board may not take any action with respect to an
outstanding award that would adversely affect the rights of the participant
under such award without such participant's consent. Nothing in the preceding
sentence shall be construed as limiting the power of the Board to make
adjustments required by Section 4(c) and Section 6(j).
The Board may, in its discretion, delegate some or all of its powers
with respect to the Plan to a committee (the "Committee"), in which event all
references (as appropriate) to the Board hereunder shall be deemed to refer to
the Committee. The Committee, if one is appointed, shall consist of at least
two directors. A majority of the members of the Committee shall constitute a
quorum, and all determinations of
1
<PAGE> 2
the Committee shall be made by a majority of its members. Any determination of
the Committee under the Plan may be made without notice or meeting of the
Committee by a writing signed by a majority of the Committee members. On and
after registration of the Stock under the Securities Exchange Act of 1934 (the
"1934 Act"), the Board shall delegate the power to select directors and
officers to receive awards under the Plan and the timing, pricing, and amount
of such awards to a Committee, all members of which shall be disinterested
persons within the meaning of Rule 16b-3 under the 1934 Act and "outside
directors" within the meaning of section 162(m)(4)(c)(I) of the Code.
3. EFFECTIVE DATE AND TERM OF PLAN
-------------------------------
The Plan shall become effective on the date on which it is approved by
the shareholders of the Company. Grants of awards under the Plan may be made
prior to that date (but after Board adoption of the Plan), subject to approval
of the Plan by the shareholders.
No awards shall be granted under the Plan after the completion of ten
years from the date on which the Plan was adopted by the Board, but awards
previously granted may extend beyond that date.
4. SHARES SUBJECT TO THE PLAN
--------------------------
(a) NUMBER OF SHARES. Subject to adjustment as provided in Section
4(c), the aggregate number of shares of Stock that may be delivered upon the
exercise of award granted under the Plan shall be 1,200,000. If any award
granted under the Plan terminates without having been exercised in full, or
upon exercise is satisfied other than by delivery of Stock, the number of
shares of Stock as to which such award was not exercised shall be available for
future grants within the limits set forth in this Section 4(a).
(b) SHARES TO BE DELIVERED. Shares delivered under the Plan shall be
authorized but unissued Stock or, if the Board so decides in its sole
discretion, previously issued Stock acquired by the Company and held in its
treasury. No fractional shares of Stock shall be delivered under the Plan.
(c) CHANGES IN STOCK. In the event of a stock dividend, stock split,
or combination of shares, recapitalization, or other change in the Company's
capital stock, the number and kind of shares of stock or securities of the
Company subject to awards then outstanding or subsequently granted under the
Plan, the exercise price of such awards, the maximum number of shares or
securities that may be delivered under the Plan, and other relevant provisions
shall be appropriately adjusted by the Board, whose determination shall be
binding on all persons.
The Board may also adjust the number of shares subject to outstanding
awards, the exercise price of outstanding awards, and the terms of outstanding
awards, to take into consideration material changes in accounting practices or
principles, extraordinary dividends, consolidations or mergers (except as
described in Section 6(j)), acquisitions or dispositions of stock or property,
or any other event if it is determined by the Board that such adjustment is
appropriate to avoid distortion in the operation of the Plan, provided that no
such adjustment shall be made in the case of an incentive option, without the
consent of the participant, if it would constitute a modification, extension,
or renewal of the option within the meaning of section 424(h) of the Code.
2
<PAGE> 3
5. ELIGIBILITY FOR AWARDS
----------------------
Persons eligible to receive awards under the Plan shall be those
employees of the Company, its parent, or subsidiaries, or consultants, or
advisors to any of them, who in the opinion of the Board are in a position to
make a contribution to the Company. Participants shall be selected by the
Board. A parent for purposes of the Plan shall be a corporation which owns,
directly or indirectly, 50% or more of the total combined voting power of all
classes of the Company's stock. A subsidiary for purposes of the Plan shall be
(i) a 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, or (ii) a corporation in which the Company's parent owns, directly or
indirectly, stock possessing 50% or more of the total combined voting power of
all classes of stock. The Board may grant awards covering up to the entire
number of shares available for issuance under the Plan (as determined under
Section 4(a)) to any one participant or to several participants, in the sole
discretion of the Board.
Incentive options shall be granted only to "employees" as defined in
the provisions of the Code or regulations thereunder applicable to incentive
stock options.
6. TERMS AND CONDITIONS OF OPTIONS AND SARS
----------------------------------------
(a) EXERCISE PRICE OF OPTIONS. The exercise price of each option shall
be determined by the Board but in the case of an incentive option shall not be
less than 100% (110%, in the case of an incentive option granted to a
ten-percent shareholder) of the fair market value of the Stock at the time the
option is granted; nor shall the exercise price be less, in the case of an
original issue of authorized stock, than par value. For this purpose, "fair
market value" in the case of incentive options shall have the same meaning as
it does in the provisions of the Code and the regulations thereunder applicable
to incentive options; and "ten-percent shareholder" shall mean any participant
who at the time of grant owns directly, or by reason of the attribution rules
set forth in section 424(d) of the Code is deemed to own, stock possessing more
than 10% of the total combined voting power of all classes of stock of the
Company or of any of its parent or subsidiary corporations.
(b) DURATION OF OPTIONS. An option shall be exercisable during such
period or periods as the Board may specify. The latest date on which an option
may be exercised (the "Final Exercise Date") shall be the date which is ten
years (five years, in the case of an incentive option granted to a "ten-percent
shareholder" as defined in (a) above) from the date the option was granted or
such earlier date as may be specified by the Board at the time the option is
granted.
(c) EXERCISE OF OPTIONS.
(1) An option shall become exercisable at such time or times and
upon such conditions as the Board shall specify. In the case
of an option not immediately exercisable in full, the Board
may at any time accelerate the time at which all or any part
of the option may be exercised.
(2) Any exercise of an option shall be in writing, signed by the
proper person and furnished to the Company, accompanied by (i)
such documents, representations, agreements, and
certifications as may be required by the Board and (ii)
payment in full as specified below in
3
<PAGE> 4
Section 6(d) for the number of shares for which the option is
exercised.
(3) In the case of an option that is not an incentive option, the
Board shall have the right to require that the participant
exercising the option remit to the Company an amount sufficient
to satisfy any federal, state, or local withholding tax
requirements (or make other arrangements satisfactory to the
Company with regard to such taxes) prior to the delivery of any
Stock pursuant to the exercise of the option. If permitted by
the Board either at the time of the grant of the option or the
time of exercise, the participant may elect, at such time and
in such manner as the Board may prescribe, to satisfy such
withholding obligation by (i) delivering to the Company Stock
owned by such individual having a fair market value equal to
such withholding obligation, or (ii) requesting that the
Company withhold from the shares of Stock to be delivered upon
the exercise a number of shares of Stock having a fair market
value equal to such withholding obligation.
In the case of an incentive option, the Board may require as a
condition of exercise that the participant exercising the
option agree to inform the Company promptly of any disposition
(within the meaning of section 424(C) of the Code and the
regulations thereunder) of Stock received upon exercise. In
addition, if at the time the option is exercised the Board
determines that under applicable law and regulations the
Company could be liable for the withholding of any federal or
state tax with respect to a disposition of the Stock received
upon exercise, the Board may require as a condition of
exercise that the participant exercising the option agree to
give such security as the Board deems adequate to meet the
potential liability of the Company for the withholding of tax,
and to augment such security from time to time in any amount
reasonably deemed necessary by the Board to preserve the
adequacy of such security.
(4) If 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 pursuant to such
exercise until the Company is satisfied as to the authority of
the person or persons exercising the option.
(d) PAYMENT FOR STOCK. Stock purchased upon exercise of an option under
the Plan shall be paid for as follows: (i) in cash, check acceptable to the
Company (determined in accordance with such guidelines as the Board may
prescribe), or money order payable to the order of the Company, or (ii) if so
permitted by the Board (which, in the case of an incentive option, shall
specify such method of payment at the time of grant), (A) through the delivery
of shares of Stock (which, in the case of Stock acquired from the Company,
shall have been held for at least six months unless the Board specifies a
shorter period) having a fair market value on the date of exercise equal to the
purchase price, or (B) by delivery of a promissory note of the participant to
the Company, such note to be payable on such terms as are specified by the
Board, or (C) by delivery of an unconditional and irrevocable undertaking by a
broker to deliver promptly to the Company sufficient funds to pay the exercise
price, or (D) by any combination of the permissible forms of payment; provided,
that if the Stock delivered upon exercise of the option is an original issue of
authorized Stock, at
4
<PAGE> 5
least so much of the exercise price as represents the par value of such Stock
shall be paid other than with a personal check or promissory note of the person
exercising the option.
(e) STOCK APPRECIATION RIGHTS. The Board in its discretion may grant
SARs either in tandem with or independent of options awarded under the Plan.
Except as hereinafter provided, each SAR will entitle the participant to
receive upon exercise, with respect to each share of Stock to which the SAR
relates, the excess of (i) the share's value on the date of exercise, over
(ii) the share's fair market value on the date it was granted. For purposes of
clause (i), "value" shall mean fair market value; provided, that the Board may
adjust such value to take into account dividends on the Stock and may also
grant SARs that provide, in such limited circumstances following a change in
control of the Company (as determined by the Board) as the Board may specify,
that "value" for purposes of clause (i) is to be determined by reference to an
average value for the Stock during a period immediately preceding the change in
control, all as determined by the Board. The amount payable to a participant
upon exercise of an SAR shall be paid either in cash or in shares of Stock, as
the Board determines. Each SAR shall be exercisable during such period or
periods and on such terms as the Board may specify. No SAR shall be exercisable
after the date which is ten years from the date of grant.
(f) DELIVERY OF STOCK. A participant shall not have the rights of a
shareholder with regard to awards under the Plan except as to Stock actually
received by such participant under the Plan.
The Company shall not be obligated to deliver any shares of Stock (i)
until, in the opinion of the Company's counsel, all applicable federal and
state laws and regulations have been complied with, (ii) if the outstanding
Stock is at the time listed on any stock exchange, until the shares to be
delivered have been listed or authorized to be listed on such exchange upon
official notice of issuance, and (iii) until all other legal matters in
connection with the issuance and delivery of such shares have been approved by
the Company's counsel. If the sale of Stock has not been registered under the
Securities Act of 1933, as amended, the Company may require, as a condition to
exercise of the award, such representations or agreements as counsel for the
Company may consider appropriate to avoid violation of such Act and may require
that the certificates evidencing such Stock bear an appropriate legend
restricting transfer.
(g) NONTRANSFERABILITY OF AWARDS. No award may be transferred other
than by will or by the laws of descent and distribution, and during a
participant's lifetime an award may be exercised only by him or her.
(h) DEATH. Except as otherwise provided in an award, if a participant
dies, each award held by the participant immediately prior to death may be
exercised, to the extent it was exercisable immediately prior to death, by his
executor or administrator, or by the person or persons to whom the award is
transferred by will or the applicable laws of descent and distribution, at any
time within the period ending (i) 180 days after the participant's death (in
the event the participant's employment or other service relationship with the
Company shall terminate by reason of death), or (ii) 120 days after the
participant's death (in the event the participant dies within the 60-day period
following termination of the participant's employment or other service
relationship with the Company), or such longer period as the Committee may
determine. In no event shall an award be exercised beyond the Final Exercise
Date. Except as otherwise provided in an award, all awards held by a
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<PAGE> 6
participant immediately prior to death that are not then exercisable shall
terminate on the date of death.
(i) OTHER TERMINATION OF SERVICE. Except as otherwise provided in an
award, if a participant's employment or other service relationship with the
Company terminates for any reason other than death, all awards held by the
participant shall terminate to the extent not exercisable immediately prior to
such event. To the extent exercisable immediately prior to termination of
employment or other service relationship, the award shall continue to be
exercisable thereafter for a period of 60 days (or such longer period as the
Board may determine, but in no event beyond the Final Exercise Date), unless
the participant's employment or other service relationship is terminated for
"cause" as a result of the participant's misconduct which, in the judgment of
the Board, casts discredit on him or her, or is otherwise harmful to the
business, interests, or reputation of the Company, its parent, or a subsidiary,
in which case all awards shall terminate immediately. The Board may in any
award provide for post-termination exercise provisions different from those
expressly set forth in the preceding two sentences or in (h) above, including
without limitation terms allowing a later exercise by a former employee,
consultant, or advisor (or, in the case of a former employee, consultant, or
advisor who is deceased, the person or persons to whom the award is transferred
by will or the laws of descent and distribution) as to all or any portion of
the award not exercisable immediately prior to termination of employment or
other service relationship, but in no case may an award be exercised after the
Final Exercise Date. Except as otherwise provided in an award, after completion
of that 60-day or longer period, such awards shall terminate to the extent not
previously exercised, expired, or terminated. For purposes of this Plan, the
service relationship shall not be considered terminated (i) in the case of sick
leave or other bona fide leave of absence approved for purposes of the Plan by
the Board, so long as the participant's right to reemployment or continued
service is guaranteed either by statute or by contract, or (ii) in the case of
a transfer of employment or service relationship between the Company and a
subsidiary or parent, or between subsidiaries of the Company or parent
(provided the participant's direct or indirect service to the Company
continues), or to the service of a corporation (or a parent or subsidiary
corporation of such corporation) issuing or assuming an award in a transaction
to which section 424(a) of the Code applies.
(j) MERGERS, ETC. In the event of any merger, consolidation,
dissolution, or liquidation of the Company, the Board 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 Board deems equitable in the circumstances).
The Board may grant awards under the Plan in substitution for awards
held by employees, consultants, or advisors of another corporation who
concurrently become employees, consultants, or advisors of the Company, its
parent, or a subsidiary as the result of a merger or consolidation of that
corporation with the Company, its parent, or a subsidiary, or as the result of
the acquisition by the Company, its parent, or a subsidiary of property or
stock of that corporation. The Company may direct that substitute awards be
granted on such terms and conditions as the Board considers appropriate in the
circumstances.
6
<PAGE> 7
(k) CANCELLATION OF AWARDS. The Board may provide in any award that
the award shall be canceled or rescinded and any associated shares forfeited,
and the participant shall be obligated to pay to the Company any gain received
upon exercise, in the event that the participant competes with the Company,
discloses confidential information of the Company, or otherwise is not in
compliance with applicable provisions of any award, in each case on such terms
and conditions as the Board considers appropriate in the circumstances.
7. EMPLOYMENT RIGHTS
-----------------
Neither the adoption of the Plan nor the grant of awards shall confer
upon any participant any right to continue as an employee of, or consultant or
advisor to, the Company, its parent, or any subsidiary of either or affect in
any way the right of the Company, its parent, or a subsidiary of either to
terminate the participant's relationship at any time. Except as specifically
provided by the Board in any particular case, the loss of existing or potential
profit in awards granted under this Plan shall not constitute an element of
damages in the event of termination of the relationship of a participant even
if the termination is in violation of an obligation of the Company, its parent,
or a subsidiary of either to the participant by contract or otherwise.
8. EFFECT, DISCONTINUANCE, CANCELLATION, AMENDMENT, AND TERMINATION
----------------------------------------------------------------
Neither adoption of the Plan nor the grant of awards to a participant
shall affect the Company's right to make awards to such participant that are
not subject to the Plan, to issue to such participant Stock as a bonus or
otherwise, or to adopt other plans or arrangements under which Stock may be
issued, and shall in no way affect the Company's right to operate its business
at its sole discretion.
The exercise of certain awards granted under the Plan may be made
contingent upon the closing of an initial public offering of the Company's
Stock. The grant of such awards under the Plan shall in no way obligate the
Company to consummate or consider a public offering of Stock, and the failure
of the Company to close a public offering of Stock shall not entitle a
participant granted such an award to any substitute award or other benefit, or
to any damages.
The Board may at any time discontinue granting awards under the Plan.
With the consent of the participant, the Board may at any time cancel an
existing award in whole or in part and grant another award for such number of
shares as the Board specifies. The Board may at any time or times amend the
Plan or any outstanding award for the purpose of satisfying the requirements of
section 422 of the Code or of any changes in applicable laws or regulations or
for any other purpose that may at the time be permitted by law, or may at any
time terminate the Plan as to any further grants of awards; except that no such
amendment shall adversely affect the rights of any participant (without his or
her consent) under any award previously granted.
1/10/95
7
<PAGE> 1
Exhibit 10.6
BBN SOFTWARE PRODUCTS CORPORATION
1993 STOCK OPTION PLAN
1. PURPOSE
-------
The purpose of this 1993 Stock Option Plan (the "Plan") is to advance
the interests of BBN Software Products Corporation (the "Company") by enhancing
the ability of the Company and its parent and subsidiaries to attract and
retain able employees, consultants or advisors to the Company; to reward such
individuals for their contributions; and to encourage such individuals to take
into account the long-term interests of the Company through interests in shares
of the Company's common stock, $.01 par value (the "Stock"). Any employee,
consultant, or advisor selected to receive an award under the Plan is referred
to as a "participant".
Options granted pursuant to the Plan may be incentive stock options as
defined in section 422 of the Internal Revenue Code of 1986 (as from time to
time amended, the "Code") (any option that is intended so to qualify as an
incentive stock option being referred to herein as an "incentive option"), or
options that are not incentive options, or both. Except as otherwise expressly
provided with respect to an option grant, no option granted pursuant to the
Plan shall be an incentive option.
2. ADMINISTRATION
--------------
The Plan shall be administered by the Board of Directors (the "Board")
of the Company. The Board shall have authority, not inconsistent with the
express provisions of the Plan: (a) to grant awards consisting of options or
stock appreciation rights ("SARs"), or both, to such participants as the Board
may select; (b) to determine the time or times when awards shall be granted and
the number of shares of Stock subject to each award; (C) to determine which
options are, and which options are not, intended to be incentive options; (d)
to determine the terms and conditions of each award; (e) to prescribe the form
or forms of any instruments evidencing awards and any other instruments
required under the Plan and to change such forms from time to time; (f) to
adopt, amend, and rescind rules and regulations for the administration of the
Plan; and (g) to interpret the Plan and to decide any questions and settle all
controversies and disputes that may arise in connection with the Plan. Such
determinations of the Board shall be conclusive and shall bind all parties.
Subject to Section 8, the Board shall also have the authority, both generally
and in particular instances, to waive compliance by a participant with any
obligation to be performed by the participant under an award, to waive any
condition or provision of an award, and to amend or cancel any award (and if an
award is canceled, to grant a new award on such terms as the Board shall
specify) except that the Board may not take any action with respect to an
outstanding award that would adversely affect the rights of the participant
under such award without such participant's consent. Nothing in the preceding
sentence shall be construed as limiting the power of the Board to make
adjustments required by Section 4(C) and Section 6(j).
The Board may, in its discretion, delegate some or all of its powers
with respect to the Plan to a committee (the "Committee"), in which event all
references (as appropriate) to the Board hereunder shall be deemed to refer to
the Committee. The Committee, if one is appointed, shall consist of at least
two directors. A majority of the members of the Committee shall constitute a
quorum, and all determinations of
1
<PAGE> 2
the Committee shall be made by a majority of its members. Any determination of
the Committee under the Plan may be made without notice or meeting of the
Committee by a writing signed by a majority of the Committee members. On and
after registration of the Stock under the Securities Exchange Act of 1934 (the
"1934 Act"), the Board shall delegate the power to select directors and
officers to receive awards under the Plan and the timing, pricing, and
amount of such awards to a Committee, all members of which shall be
disinterested persons within the meaning of Rule 16b-3 under the 1934 Act and
"outside directors" within the meaning of section 162(m)(4)(c)(I) of the Code.
3. EFFECTIVE DATE AND TERM OF PLAN
-------------------------------
The Plan shall become effective on the date on which it is approved by
the shareholders of the Company. Grants of awards under the Plan may be made
prior to that date (but after Board adoption of the Plan), subject to approval
of the Plan by the shareholders.
No awards shall be granted under the Plan after the completion of ten
years from the date on which the Plan was adopted by the Board, but awards
previously granted may extend beyond that date.
4. SHARES SUBJECT TO THE PLAN
--------------------------
(a) NUMBER OF SHARES. Subject to adjustment as provided in Section
4(c), the aggregate number of shares of Stock that may be delivered upon the
exercise of award granted under the Plan shall be 1,470,000. If any award
granted under the Plan terminates without having been exercised in full, or
upon exercise is satisfied other than by delivery of Stock, the number of
shares of Stock as to which such award was not exercised shall be available for
future grants within the limits set forth in this Section 4(a).
(b) SHARES TO BE DELIVERED. Shares delivered under the Plan shall be
authorized but unissued Stock or, if the Board so decides in its sole
discretion, previously issued Stock acquired by the Company and held in its
treasury. No fractional shares of Stock shall be delivered under the Plan.
(C) CHANGES IN STOCK. In the event of a stock dividend, stock split, or
combination of shares, recapitalization, or other change in the Company's
capital stock, the number and kind of shares of stock or securities of the
Company subject to awards then outstanding or subsequently granted under the
Plan, the exercise price of such awards, the maximum number of shares or
securities that may be delivered under the Plan, and other relevant provisions
shall be appropriately adjusted by the Board, whose determination shall be
binding on all persons.
The Board may also adjust the number of shares subject to outstanding
awards, the exercise price of outstanding awards, and the terms of outstanding
awards, to take into consideration material changes in accounting practices or
principles, extraordinary dividends, consolidations or mergers (except as
described in Section 6(j)), acquisitions or dispositions of stock or property,
or any other event if it is determined by the Board that such adjustment is
appropriate to avoid distortion in the operation of the Plan, provided that no
such adjustment shall be made in the case of an incentive option, without the
consent of the participant, if it would constitute a modification, extension,
or renewal of the option within the meaning of section 424(h) of the Code.
2
<PAGE> 3
5. ELIGIBILITY FOR AWARDS
----------------------
Persons eligible to receive awards under the Plan shall be those
employees of the Company, its parent, or subsidiaries, or consultants, or
advisors to any of them, who in the opinion of the Board are in a position to
make a contribution to the Company. Participants shall be selected by the
Board. A parent for purposes of the Plan shall be a corporation which owns,
directly or indirectly, 50% or more of the total combined voting power of all
classes of the Company's stock. A subsidiary for purposes of the Plan shall be
(i) a 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, or (ii) a corporation in which the Company's parent owns, directly or
indirectly, stock possessing 50% or more of the total combined voting power of
all classes of stock. The Board may grant awards covering up to the entire
number of shares available for issuance under the Plan (as determined under
Section 4(a)) to any one participant or to several participants, in the sole
discretion of the Board.
Incentive options shall be granted only to "employees" as defined in
the provisions of the Code or regulations thereunder applicable to incentive
stock options.
6. TERMS AND CONDITIONS OF OPTIONS AND SARS
----------------------------------------
(a) EXERCISE PRICE OF OPTIONS. The exercise price of each option shall
be determined by the Board but in the case of an incentive option shall not be
less than 100% (110%, in the case of an incentive option granted to a
ten-percent shareholder) of the fair market value of the Stock at the time the
option is granted; nor shall the exercise price be less, in the case of an
original issue of authorized stock, than par value. For this purpose, "fair
market value" in the case of incentive options shall have the same meaning as
it does in the provisions of the Code and the regulations thereunder applicable
to incentive options; and "ten-percent shareholder" shall mean any participant
who at the time of grant owns directly, or by reason of the attribution rules
set forth in section 424(d) of the Code is deemed to own, stock possessing more
than 10% of the total combined voting power of all classes of stock of the
Company or of any of its parent or subsidiary corporations.
(b) DURATION OF OPTIONS. An option shall be exercisable during such
period or periods as the Board may specify. The latest date on which an option
may be exercised (the "Final Exercise Date") shall be the date which is ten
years (five years, in the case of an incentive option granted to a "ten-percent
shareholder" as defined in (a) above) from the date the option was granted or
such earlier date as may be specified by the Board at the time the option is
granted.
(c) EXERCISE OF OPTIONS.
(1) An option shall become exercisable at such time or times and
upon such conditions as the Board shall specify. In the case
of an option not immediately exercisable in full, the Board
may at any time accelerate the time at which all or any part
of the option may be exercised.
(2) Any exercise of an option shall be in writing, signed by the
proper person and furnished to the Company, accompanied by
(i) such documents, representations, agreements, and
certifications as may be required by the Board and (ii)
payment in full as specified below in
3
<PAGE> 4
Section 6(d) for the number of shares for which the option is
exercised.
(3) In the case of an option that is not an incentive option,
the Board shall have the right to require that the participant
exercising the option remit to the Company an amount sufficient
to satisfy any federal, state, or local withholding tax
requirements (or make other arrangements satisfactory to the
Company with regard to such taxes) prior to the delivery of any
Stock pursuant to the exercise of the option. If permitted by
the Board either at the time of the grant of the option or the
time of exercise, the participant may elect, at such time and
in such manner as the Board may prescribe, to satisfy such
withholding obligation by (i) delivering to the Company Stock
owned by such individual having a fair market value equal to
such withholding obligation, or (ii) requesting that the
Company withhold from the shares of Stock to be delivered upon
the exercise a number of shares of Stock having a fair market
value equal to such withholding obligation.
In the case of an incentive option, the Board may require as a
condition of exercise that the participant exercising the
option agree to inform the Company promptly of any disposition
(within the meaning of section 424(c) of the Code and the
regulations thereunder) of Stock received upon exercise. In
addition, if at the time the option is exercised the Board
determines that under applicable law and regulations the
Company could be liable for the withholding of any federal or
state tax with respect to a disposition of the Stock received
upon exercise, the Board may require as a condition of
exercise that the participant exercising the option agree to
give such security as the Board deems adequate to meet the
potential liability of the Company for the withholding of tax,
and to augment such security from time to time in any amount
reasonably deemed necessary by the Board to preserve the
adequacy of such security.
(4) If 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 pursuant to such
exercise until the Company is satisfied as to the authority of
the person or persons exercising the option.
(d) PAYMENT FOR STOCK. Stock purchased upon exercise of an option
under the Plan shall be paid for as follows: (i)in cash, check acceptable to
the Company (determined in accordance with such guidelines as the Board may
prescribe), or money order payable to the order of the Company, or (ii) if so
permitted by the Board (which, in the case of an incentive option, shall
specify such method of payment at the time of grant), (A) through the delivery
of shares of Stock (which, in the case of Stock acquired from the Company,
shall have been held for at least six months unless the Board specifies a
shorter period) having a fair market value on the date of exercise equal to the
purchase price, or (B) by delivery of a promissory note of the participant to
the Company, such note to be payable on such terms as are specified by the
Board, or (C) by delivery of an unconditional and irrevocable undertaking by a
broker to deliver promptly to the Company sufficient funds to pay the exercise
price, or (D) by any combination of the permissible forms of payment; provided,
that if the Stock delivered upon exercise of the option is an original issue of
authorized Stock, at
4
<PAGE> 5
least so much of the exercise price as represents the par value of such Stock
shall be paid other than with a personal check or promissory note of the person
exercising the option.
(e) STOCK APPRECIATION RIGHTS. The Board in its discretion may grant
SARs either in tandem with or independent of options awarded under the Plan.
Except as hereinafter provided, each SAR will entitle the participant to
receive upon exercise, with respect to each share of Stock to which the SAR
relates, the excess of (i) the share's value on the date of exercise, over (ii)
the share's fair market value on the date it was granted. For purposes of
clause (i), "value" shall mean fair market value; provided, that the Board may
adjust such value to take into account dividends on the Stock and may also
grant SARs that provide, in such limited circumstances following a change in
control of the Company (as determined by the Board) as the Board may specify,
that "value" for purposes of clause (I) is to be determined by reference to an
average value for the Stock during a period immediately preceding the change in
control, all as determined by the Board. The amount payable to a participant
upon exercise of an SAR shall be paid either in cash or in shares of Stock, as
the Board determines. Each SAR shall be exercisable during such period or
periods and on such terms as the Board may specify. No SAR shall be exercisable
after the date which is ten years from the date of grant.
(f) DELIVERY OF STOCK. A participant shall not have the rights of a
shareholder with regard to awards under the Plan except as to Stock actually
received by such participant under the Plan.
The Company shall not be obligated to deliver any shares of Stock (i)
until, in the opinion of the Company's counsel, all applicable federal and state
laws and regulations have been complied with, (ii) if the outstanding Stock is
at the time listed on any stock exchange, until the shares to be delivered have
been listed or authorized to be listed on such exchange upon official notice of
issuance, and (iii) until all other legal matters in connection with the
issuance and delivery of such shares have been approved by the Company's
counsel. If the sale of Stock has not been registered under the Securities Act
of 1933, as amended, the Company may require, as a condition to exercise of the
award, such representations or agreements as counsel for the Company may
consider appropriate to avoid violation of such Act and may require that the
certificates evidencing such Stock bear an appropriate legend restricting
transfer.
(g) NONTRANSFERABILITY OF AWARDS. No award may be transferred other than
by will or by the laws of descent and distribution, and during a participant's
lifetime an award may be exercised only by him or her.
(h) DEATH. Except as otherwise provided in an award, if a participant
dies, each award held by the participant immediately prior to death may be
exercised, to the extent it was exercisable immediately prior to death, by his
executor or administrator, or by the person or persons to whom the award is
transferred by will or the applicable laws of descent and distribution, at any
time within the period ending (i) 180 days after the participant's death (in the
event the participant's employment or other service relationship with the
Company shall terminate by reason of death), or (ii) 120 days after the
participant's death (in the event the participant dies within the 60-day period
following termination of the participant's employment or other service
relationship with the Company), or such longer period as the Committee may
determine. In no event shall an award be exercised beyond the Final Exercise
Date. Except as otherwise provided in an award, all awards held by a
5
<PAGE> 6
participant immediately prior to death that are not then exercisable shall
terminate on the date of death.
(i) OTHER TERMINATION OF SERVICE. Except as otherwise provided in an
award, if a participant's employment or other service relationship with the
Company terminates for any reason other than death, all awards held by the
participant shall terminate to the extent not exercisable immediately prior to
such event. To the extent exercisable immediately prior to termination of
employment or other service relationship, the award shall continue to be
exercisable thereafter for a period of 60 days (or such longer period as the
Board may determine, but in no event beyond the Final Exercise Date), unless the
participant's employment or other service relationship is terminated for "cause"
as a result of the participant's misconduct which, in the judgment of the Board,
casts discredit on him or her, or is otherwise harmful to the business,
interests, or reputation of the Company, its parent, or a subsidiary, in which
case all awards shall terminate immediately. The Board may in any award provide
for post-termination exercise provisions different from those expressly set
forth in the preceding two sentences or in (h) above, including without
limitation terms allowing a later exercise by a former employee, consultant, or
advisor (or, in the case of a former employee, consultant, or advisor who is
deceased, the person or persons to whom the award is transferred by will or the
laws of descent and distribution) as to all or any portion of the award not
exercisable immediately prior to termination of employment or other service
relationship, but in no case may an award be exercised after the Final Exercise
Date. Except as otherwise provided in an award, after completion of that 60-day
or longer period, such awards shall terminate to the extent not previously
exercised, expired, or terminated. For purposes of this Plan, the service
relationship shall not be considered terminated (i) in the case of sick leave or
other bona fide leave of absence approved for purposes of the Plan by the Board,
so long as the participant's right to reemployment or continued service is
guaranteed either by statute or by contract, or (ii) in the case of a transfer
of employment or service relationship between the Company and a subsidiary or
parent, or between subsidiaries of the Company or parent (provided the
participant's direct or indirect service to the Company continues), or to the
service of a corporation (or a parent or subsidiary corporation of such
corporation) issuing or assuming an award in a transaction to which section
424(a) of the Code applies.
(j) MERGERS. ETC. In the event of any merger, consolidation,
dissolution, or liquidation of the Company, the Board 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 Board deems equitable in the circumstances).
The Board may grant awards under the Plan in substitution for awards
held by employees, consultants, or advisors of another corporation who
concurrently become employees, consultants, or advisors of the Company, its
parent, or a subsidiary as the result of a merger or consolidation of that
corporation with the Company, its parent, or a subsidiary, or as the result of
the acquisition by the Company, its parent, or a subsidiary of property or stock
of that corporation. The Company may direct that substitute awards be granted on
such terms and conditions as the Board considers appropriate in the
circumstances.
6
<PAGE> 7
(k) CANCELLATION OF AWARDS. The Board may provide in any award that the
award shall be canceled or rescinded and any associated shares forfeited, and
the participant shall be obligated to pay to the Company any gain received upon
exercise, in the event that the participant competes with the Company, discloses
confidential information of the Company, or otherwise is not in compliance with
applicable provisions of any award, in each case on such terms and conditions as
the Board considers appropriate in the circumstances.
7. EMPLOYMENT RIGHTS
-----------------
Neither the adoption of the Plan nor the grant of awards shall confer
upon any participant any right to continue as an employee of, or consultant or
advisor to, the Company, its parent, or any subsidiary of either or affect in
any way the right of the Company, its parent, or a subsidiary of either to
terminate the participant's relationship at any time. Except as specifically
provided by the Board in any particular case, the loss of existing or potential
profit in awards granted under this Plan shall not constitute an element of
damages in the event of termination of the relationship of a participant even if
the termination is in violation of an obligation of the Company, its parent, or
a subsidiary of either to the participant by contract or otherwise.
8. EFFECT, DISCONTINUANCE, CANCELLATION, AMENDMENT, AND TERMINATION
----------------------------------------------------------------
Neither adoption of the Plan nor the grant of awards to a participant
shall affect the Company's right to make awards to such participant that are not
subject to the Plan, to issue to such participant Stock as a bonus or otherwise,
or to adopt other plans or arrangements under which Stock may be issued, and
shall in no way affect the Company's right to operate its business at its sole
discretion.
The exercise of certain awards granted under the Plan may be made
contingent upon the closing of an initial public offering of the Company's
Stock. The grant of such awards under the Plan shall in no way obligate the
Company to consummate or consider a public offering of Stock, and the failure of
the Company to close a public offering of Stock shall not entitle a participant
granted such an award to any substitute award or other benefit, or to any
damages.
The Board may at any time discontinue granting awards under the Plan.
With the consent of the participant, the Board may at any time cancel an
existing award in whole or in part and grant another award for such number of
shares as the Board specifies. The Board may at any time or times amend the Plan
or any outstanding award for the purpose of satisfying the requirements of
section 422 of the Code or of any changes in applicable laws or regulations or
for any other purpose that may at the time be permitted by law, or may at any
time terminate the Plan as to any further grants of awards; except that no such
amendment shall adversely affect the rights of any participant (without his or
her consent) under any award previously granted.
1/95
9/95
7
<PAGE> 1
EXHIBIT 10.10
AETNA
THIS IS AN EXCESS CLAIMS MADE INDEMNITY POLICY WITH EXPENSES INCLUDED
IN THE LIMIT OF LIABILITY.
PLEASE READ THE ENTIRE POLICY CAREFULLY.
THE AETNA CASUALTY AND SURETY COMPANY
DIRECTORS AND OFFICERS LIABILITY AND REIMBURSEMENT EXCESS POLICY
DECLARATIONS
POLICY NUMBER
095 LB 100 844 655 BCA
NOTICE: THIS POLICY, SUBJECT TO ALL TERMS, CONDITIONS AND LIMITATIONS, APPLIES
ONLY TO ANY CLAIM FIRST MADE OR DEEMED MADE PURSUANT TO THE TERMS HEREOF
AGAINST THE INSUREDS DURING THE POLICY PERIOD. THE LIMIT OF LIABILITY
AVAILABLE TO PAY DAMAGES OR SETTLEMENTS SHALL BE REDUCED BY AMOUNTS INCURRED AS
DEFENSE EXPENSES. THIS POLICY DOES NOT PROVIDE FOR ANY DUTY BY THE UNDERWRITER
TO DEFEND ANY OF THE INSUREDS.
ITEM 1. PARENT ORGANIZATION NAME AND PRINCIPAL ADDRESS:
Bolt Beranek and Newman Inc.
150 Cambridge Park Drive
Cambridge, MA 02140
ITEM 2. POLICY PERIOD:
(a) From 12/1/1994 to 12/1/1995
at 12:01 a.m. Standard Time both dates at the Principal Address in
Item 1.
ITEM 3. LIMIT OF LIABILITY (inclusive of Defense Expenses):
$5,000,000.00 maximum aggregate Limit of Liability for the Policy
Period.
<TABLE>
ITEM 4. SCHEDULE OF UNDERLYING POLICIES
a. Primary Policy
<CAPTION>
Underwriter Policy Number Limit Retention
<S> <C> <C> <C>
Federal Insurance Company 8137-71-31-A $3,000,000 $0.00/$0.00/$1,000,000
b. Other Policy(ies), if any:
Underwriter(s) Policy Number(s) Limit(s) Retention(s)
See attached endorsement No. 2
</TABLE>
ITEM 5. PREMIUM:
$50,000.00 one year prepaid premium.
<PAGE> 2
ITEM 6. NOTICE REQUIRED TO BE GIVEN TO THE UNDERWRITER SHALL BE ADDRESSED TO
Vice President of Claims
Executive Risk Management Associates
P.O. Box 2002
Simsbury, CT 06070
ITEM 7. ENDORSEMENTS ATTACHED AT ISSUANCE
X-301.0
X-604.0
These Declarations, the completed signed Application and the Policy with
Endorsements shall constitute the contract between the Insureds and the
Underwriter.
THE AETNA CASUALTY AND SURETY COMPANY By (Attorney-in-Fact)
05/02/1995
INSURED'S COPY
<PAGE> 3
PRIOR AND PENDING LITIGATION EXCLUSION
To be attached to and form part of Policy No. 095 LB 100 844 655 BCA,
issued to Bolt Beranek and Newman Inc.
In consideration of the premium charged, the Underwriter shall not be
liable to make any payment for loss in connection with any claim made against
any of the Insureds based on, arising out of, directly or indirectly resulting
from, in consequence of, or in any way involving:
(a) any prior and/or pending litigation as of 12/1/93; or
(b) any fact, circumstance or situation underlying or alleged
in any prior and/or pending litigation as of 12/1/93.
All other terms, conditions and limitations of this Policy shall remain
unchanged, including, but not limited to, the maximum aggregate Limit of
Liability set forth in Item 3 of the Declarations
Complete Only When This Endorsement Is Not Prepared With The Policy OR Is Not
To Be Effective With The Policy.
Effective Date Of This Endorsement:
THE AETNA CASUALTY AND SURETY COMPANY
By:
Attorney-In-Fact
Endorsement No. 1
<PAGE> 4
ENDORSEMENT
To be attached to and form part of Policy No. 095 LB 100 844 655 BCA,
issued to Bolt Beranek and Newman Inc.
<TABLE>
In consideration of the premium charged, Item 4 of the Declarations is
amended to read as follows:
ITEM 4. SCHEDULE OF UNDERLYING POLICIES
a. Primary Policy:
<CAPTION>
Underwriter Policy Number Limit Retention
<S> <C> <C> <C>
Federal Insurance Company 8137-71-31-A $3,000,000 $0.00/$0.00/$1,000,000
b. Other Policy(ies), if any:
Underwriter Policy Number(s) Limit(s) Retention(s)
St. Paul Mercury 900DX0103 $5,000,000
Insurance Company
Federal Insurance Company 81377132-A $2,000,000
Old Republic Company CUG 24032 $5,000,000
Lloyd's of London 757/FD940716 $5,000,000
</TABLE>
All other terms, conditions and limitations of this Policy shall remain
unchanged, including, but not limited to, the maximum aggregate Limit of
Liability set forth in Item 3 of the Declarations
Complete Only When This Endorsement Is Not Prepared With The Policy OR Is Not
To Be Effective With The Policy.
Effective Date Of This Endorsement:
THE AETNA CASUALTY AND SURETY COMPANY
By:
Attorney-In-Fact
Endorsement No. 2
<PAGE> 5
ENDORSEMENT
To be attached to and form part of Policy No. 095 LB 100 844 655 BCA,
issued to Bolt Beranek and Newman Inc.
In consideration of the premium charged, the premium as set forth in Item
5 of the Declarations is amended to read as follows:
ITEM 5. Premium:
$62,088.00 one year prepaid premium.
All other terms, conditions and limitations of this Policy shall remain
unchanged, including, but not limited to, the maximum aggregate Limit of
Liability set forth in Item 3 of the Declarations
Complete Only When This Endorsement Is Not Prepared With The Policy OR Is Not
To Be Effective With The Policy.
Effective Date Of This Endorsement: 12/13/94
THE AETNA CASUALTY AND SURETY COMPANY
By:
Attorney-In-Fact
Endorsement No. 3
<PAGE> 6
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that The Aetna Casualty and Surety Company (the
"Company") of Hartford, Connecticut does hereby appoint JOHN F. KEARNEY of
EXECUTIVE RISK MANAGEMENT ASSOCIATES its Attorney-in-Fact, with full power and
authority hereby conferred to execute, acknowledge and seal with the Company's
seal (1) any an all policies of insurance ("Policies") issued by Executive Risk
Management Associates on behalf of the Company in accordance with the terms and
provisions of the Amended and Restated Agency and Insurance Services Agreement
dated as of January 1, 1994, by and among the Company, Executive Risk Inc. and
Executive Risk Management Associates, as such agreement may be amended from
time to time; and (2) any and all binders, non- renewals, cancellations,
endorsements or notices with respect to such Policies.
IN WITNESS WHEREOF, The Aetna Casualty and Surety Company has caused this
instrument to be signed by its Vice President this 9th day of February, 1994.
THE AETNA CASUALTY AND SURETY COMPANY
By:
Richard K. Blankenbicker, Vice President
State of Connecticut
ss. Hartford
County of Hartford
On this 9th day of February, 1994, before me personally appeared Richard K.
Blankenbicker, to me known, who, being by me duly sworn, did repose and say that
he is Vice President of The Aetna Casualty and Surety Company, the corporation
described in and which executed the above instrument and that he executed the
instrument on behalf and in the name of such corporation.
Notary Public
<PAGE> 7
CHICAGO UNDERWRITING GROUP
Ms. Joan Goldberg
Johnson & Higgins of Massachusetts, Inc. COMPANY USE ONLY
Three Center Plaza ASSIGNED POLICY NUMBER: CUG24032
Boston, Massachusetts 02108 PREVIOUS POLICY NUMBER: CUG23731
POLICY PERIOD: 12/01/94 TO 12/01/95
REVISED INSURANCE BINDER
Chicago Underwriting Group, Inc. on behalf of the Old Republic Company
("Company") binds the insurance stipulated herein, subject to the terms,
conditions and limitations of the policy form(s) in use by the Company. This
binder is issued in reliance upon the application for insurance and the
submission furnished to the Company. This binder should be delivered to the
Insured as evidence of insurance until replaced by the policy.
NAME AND ADDRESS Bolt Beranek and Newman Inc.
OF INSURED: 150 Cambridge Park Drive
Cambridge, Massachusetts 02140
TYPE OF INSURANCE: Excess Directors and Officers Liability
BINDER PERIOD: 12/01/94 TO 2/01/95
POLICY FORM(S): ORUG-5, CHUG-67 and CHUG-71
LIMIT OF LIABILITY: $5,000,000. Annual Aggregate
EXCESS OF: $10,000,000. Annual Aggregate provided by:
(a) $3,000,000. with Chubb
(b) $5,000,000. excess $3,000,000. with St. Paul
(c) $2,000,000. excess $8,000,000. with Chubb
PREMIUM: $80,000.
SPECIAL CONDITIONS:
1. Subject to receipt and approval of:
a. Complete copy of primary policy and underlying excess policies.
b. Complete copy of primary binder and underlying excess binders.
2. Exclusions:
Prior and/or Pending Litigation as of 12/01/93 (CHUG-41)
3. Extended Reporting Period: 12 months at 75% additional premium
4. Sixty (60) Day Notice of Cancellation.
<PAGE> 8
This binder may be cancelled by the Insured by surrender of this binder or by
written notice to the Company stating when cancellation will be effective.
This binder may be cancelled by the Company by notice to the insured in
accordance with the policy conditions. This binder is cancelled when replaced
by policy. If this binder is not replaced by a policy, the Company is entitled
to charge a premium for the binder according to the rules an rates in use by
the Company.
DATE: December 6, 1994 BY:
Diane C. Vasti
Assistant Vice President
<PAGE> 9
OLD REPUBLIC COMPANIES
In consideration of an additional of $ 19,340., it is understood and agreed
coverage is amended to provide for a predetermined allocation for securities
claims in the amounts of 100% for Securities Defense Costs and 75% for other
than Securities Defense Costs (wording to follow form of Federal Insurance
Company's primary policy no. 81377131-A.
All other terms and conditions of this policy remain unchanged.
<TABLE>
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.
<CAPTION>
Complete Only When This Endorsement Is Not Prepared with the
Must Be Completed Policy Or Is Not to be Effective with the Policy
ENDT. No. POLICY NO. ISSUED TO EFFECTIVE DATE OF THIS ENDORSEMENT
<S> <C> <C>
A CUG 24032 Bolt Beranek & Newman, Inc. 12/13/94
</TABLE>
Countersigned by
<PAGE> 10
OLD REPUBLIC COMPANIES
In consideration of the premium charged it is understood and agreed that the
insurance binder is amended, in part, to read:
BINDER PERIOD: 12/01/94 to 5/01/95
All other terms and conditions of this policy remain unchanged.
<TABLE>
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.
<CAPTION>
Complete Only When This Endorsement Is Not Prepared with the
Must Be Completed Policy Or Is Not to be Effective with the Policy
ENDT. No. POLICY NO. ISSUED TO EFFECTIVE DATE OF THIS ENDORSEMENT
<S> <C> <C> <C>
B CUG 24032 Bolt Beranek & Newman, Inc. 2/01/95
</TABLE>
Countersigned by
<PAGE> 11
OLD REPUBLIC COMPANIES
In consideration of the premium charged it is understood and agreed that the
insurance binder is amended, in part, to read:
BINDER PERIOD: 12/01/94 to 6/01/95
All other terms and conditions of this policy remain unchanged.
<TABLE>
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.
<CAPTION>
Complete Only When This Endorsement Is Not Prepared with the
Must Be Completed Policy Or Is Not to be Effective with the Policy
ENDT. No. POLICY NO. ISSUED TO EFFECTIVE DATE OF THIS ENDORSEMENT
<S> <C> <C> <C>
C CUG 24032 Bolt Beranek & Newman, Inc. 5/01/95
</TABLE>
Countersigned by
<PAGE> 12
EXECUTIVE PROTECTION POLICY
DECLARATIONS
FIDUCIARY LIABILITY
COVERAGE SECTION
Item 1. Parent Organization:
BOLT BERANEK & NEWMAN INC.
Item 2. Limits of Liability:
(A) Each Loss $20,000,000.
(B) Each Policy Periods $20,000,000.
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 or Insured Plan located anywhere in
the world sponsored, operated, maintained or administered by the
Sponsor Organization.
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> 13
EXECUTIVE PROTECTION POLICY
Fiduciary In consideration of payment of the premium and
Liability subject to the Declarations, General Terms and
Coverage Section 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.
<PAGE> 14
Defense Provisions The Insureds agree not to settle any Claim,
(Cont'd) 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.
Extended Reporting 4. If the Company terminates or refuses to renew
Period this 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 limits
of liability) for such Loss, in whole or
in part, as a result of such notice;
<PAGE> 15
Exclusions (b) based upon, arising from, or in
(Cont'd) 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 worker's
compensation, unemployment, social
security or disability benefits or any
similar law, except the Consolidated
Omnibus Budget Reconciliation Act of 1985
and amendments thereto;
(g) based upon, arising from, or in
consequence of any 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;
<PAGE> 16
Exclusions (h) based upon, arising from, or in
(Cont'd) 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
(1), 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 of 7. With respect to the Exclusions in Subsections
Exclusions 5 and 6 of 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> 17
Limit of 8. For the purpose of this coverage section, all
Liability and Loss arising out of the same Wrongful Act and
Deductible 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 the 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 the
Loss shall be the Deductible Amount for
Indemnifiable Loss.
<PAGE> 18
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.
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 a 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> 19
Changes in 10. If during the Policy Period the Sponsor
Exposure Organization creates or acquires a Subsidiary
Acquisition or or Benefit Program or otherwise become a
Creation of fiduciary of or responsible for the
Another Entity or Administration of any Benefit Program
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, of (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> 20
Changes in (a) for the merged, consolidated or acquired
Exposure Sponsor Organization and any Benefit
Acquisition by Program thereof, and for any Benefit
Another Entity Program described in subparagraph (iii)
(Cont'd) 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 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.
<PAGE> 21
Reporting and 13. The Insureds shall, as a condition precedent
Notice to 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.
Representations 14. In granting coverage to any one of the
and Severability Insureds, 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 inception 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 advice to
employees or effecting enrollment, termination
or cancellation of employees under a Benefit
Program.
<PAGE> 22
Definitions Benefit Program means:
(cont'd)
(a) any Sponsored Plan, or
(b) any Insured Plan.
Claim means:
(a) a civil proceeding commended 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 cost, charges, fees
(including but not limited to attorney's 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.
Insureds, either in the singular or plural,
means any one 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:
<PAGE> 23
Definitions (a) natural persons serving as a past,
(Cont'd) 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,
judgements, 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, water, oil or oil products,
infectious or medical waste, asbestos or
asbestos products and any noise.
Sponsor Organization means any organization
designated in Item 4 of the Declarations for
this coverage section.
Sponsored Plan means:
<PAGE> 24
Definitions (a) an Employee Benefit Plan which is operated
(Cont'd) 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 an which
existed at the Inception Date of this
coverage section or of any policy or a
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 outlines 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 Insured Organization.
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,
<PAGE> 25
Definitions (i) any negligent act, error or omission
(Cont'd) in the Administration of any Insured Plan.
<PAGE> 26
EXECUTIVE PROTECTION POLICY
ENDORSEMENT
Coverage Section: FIDUCIARY LIABILITY Company: FEDERAL INSURANCE COMPANY
Effective date of Endorsement No. 1
this endorsement: DECEMBER 01, 1994
To be attached to and form part of
Policy No. 8134-46-02-B
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
December 7, 1994
Date
<PAGE> 27
EXECUTIVE PROTECTION POLICY
ENDORSEMENT
Coverage Section: FIDUCIARY LIABILITY Company: FEDERAL INSURANCE COMPANY
Effective date of Endorsement No. 2
this endorsement: DECEMBER 01, 1994
To be attached to and form part of
Policy No. 8134-46-02-B
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
December 7, 1994
Date
<PAGE> 28
EXECUTIVE PROTECTION POLICY
ENDORSEMENT
Coverage Section: FIDUCIARY LIABILITY Company: FEDERAL INSURANCE COMPANY
Effective date of Endorsement No. 3
this endorsement: DECEMBER 01, 1994
To be attached to and form part of
Policy No. 8134-46-02-B
Issued to: BOLT BERANEK & NEWMAN INC.
It is understood and agreed that Subsection 15, Definitions shall be amended by
deleting the definition of Claim in its entirety and replacing it with the
following:
Claim means:
(a) a written demand for monetary damages,
(b) a civil proceeding commenced by the service of a complaint or
similar pleading,
(c) a criminal proceeding commenced by a return of an indictment, or
(d) 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.
ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED.
Authorized Representative
December 7, 1994
Date
<PAGE> 29
EXECUTIVE PROTECTION POLICY
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 Periods $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 & 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: $150,000.
(B) Additional Period: One Year
Item 8. Pending or Prior Date: DECEMBER 1, 1990
Item 9. Continuity Date: DECEMBER 1, 1990
<PAGE> 30
EXECUTIVE PROTECTION POLICY
Executive Liability and In consideration of payment of the premium
Indemnification Coverage and subject to the Declarations, General
Section Terms and Conditions, and 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
Liability Coverage Insured Persons all Loss for which the Insured
Insuring Clause 1 Person is not 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 and which the Insured Person as
Clause 2 permitted or required by law, which the Insured
Person has 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.
Estates and Legal 3. Subject otherwise to the General Terms and
Representatives Conditions and 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.
<PAGE> 31
Extended Reporting 4. If the Company terminates or refuses to renew
Period this 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.
Exclusions 5. The Company shall not be liable for Loss on
Applicable to account of any Claim made against any Insured
Insuring Clauses 1 Person:
and 2
(a) based upon, arising from, or in
consequence of any 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;
<PAGE> 32
(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 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.
Exclusions
(cont'd)
Exclusions 6. The Company shall not be liable under Insuring
Applicable to Clause 1 for Loss on account of any Claim made
Insuring Clause 1 against any Insured Person:
Only
<PAGE> 33
(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 of 7. With respect to the Exclusions in Subsections
Exclusions 5 and 6 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 purpose of this coverage section, all
Liability, Loss arising out of the same Wrongful Act and
Deductible 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 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.
<PAGE> 34
Limit of The Company's liability under Insuring Clause
Liability, 2 shall apply only to that part of each Loss
Deductible and which is excess of the Deductible Amount set
Coinsurance forth in Item 4 of the Declarations for this
(continued) 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.
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.
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:
<PAGE> 35
Presumptive (i) the by-laws or certificate of incorporation
Indemnification of the Insured Organization in effect at
(continued) 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.
Reporting and 10. The Insureds shall, as a condition precedent
Notice to 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.
<PAGE> 36
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
Settlement duty of 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 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.
<PAGE> 37
Allocation 12. If both Loss covered by this coverage section
an 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.
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 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.
<PAGE> 38
Other Insurance 13. If any Loss arising from any Claim made
against any 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,
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 a 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.
Changes in 14. If the Insured Organization (i) acquires
Exposure securities or voting rights in another
Acquisition or organization or creates another organization,
Creation of which as a result of such acquisition or
Another creation becomes a Subsidiary, or (ii)
Organization 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.
<PAGE> 39
Acquisition of 15. If (i) the Parent Organization merges into or
Parent consolidates with another organization, or
Organization by (ii) another organization or person or group
Another or organizations and/or persons acting in
Organization 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
and Severability Insureds, 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 inception 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> 40
Definitions 18. When used in this coverage section:
Claim means:
Definitions (i) a written demand for monetary damages,
(cont'd)
(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 attorney's 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 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.
<PAGE> 41
Insured Person, either in the singular or
plural, means anyone or more of those persons
designated in Item 6 of the Declarations for
this coverage section.
Definitions Interrelated Wrongful Acts means all causally
(cont'd) 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, (ii) any amount
incurred by the Insured Organization
(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 more Insured Organizations.
<PAGE> 42
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> 43
EXECUTIVE PROTECTION POLICY
ENDORSEMENT
Coverage Section: EXECUTIVE LIABILITY Company: FEDERAL INSURANCE COMPANY
Effective date of Endorsement No. 1
this endorsement: DECEMBER 01, 1994
To be attached to and form part of
Policy No. 8137-71-31-A
Issued to: BOLT BERANEK & NEWMAN INC.
It is agreed that subsection 5, Exclusions: Exclusions Applicable to Insuring
Clauses 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
December 8, 1994
Date
<PAGE> 44
EXECUTIVE PROTECTION POLICY
ENDORSEMENT
Coverage Section: EXECUTIVE LIABILITY Company: FEDERAL INSURANCE COMPANY
Effective date of Endorsement No. 2
this endorsement: DECEMBER 01, 1994
To be attached to and form part of
Policy No. 8137-71-31-A
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
December 8, 1994
Date
<PAGE> 45
EXECUTIVE PROTECTION POLICY
ENDORSEMENT
Coverage Section: EXECUTIVE LIABILITY Company: FEDERAL INSURANCE COMPANY
Effective date of Endorsement No. 3
this endorsement: DECEMBER 01, 1994
To be attached to and form part of
Policy No. 8137-71-31-A
Issued to: BOLT BERANEK & NEWMAN INC.
It is understood and agreed that under Exclusion 6, found on Page 4 and 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
December 8, 1994
Date
<PAGE> 46
EXECUTIVE PROTECTION POLICY
ENDORSEMENT
Coverage Section: EXECUTIVE LIABILITY Company: FEDERAL INSURANCE COMPANY
Effective date of Endorsement No. 4
this endorsement: DECEMBER 01, 1994
To be attached to and form part of
Policy No. 8137-71-31-A
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
December 8, 1994
Date
<PAGE> 47
EXECUTIVE PROTECTION POLICY
ENDORSEMENT
Coverage Section: EXECUTIVE LIABILITY Company: FEDERAL INSURANCE COMPANY
Effective date of Endorsement No. 5
this endorsement: DECEMBER 01, 1994
To be attached to and form part of
Policy No. 8137-71-31-A
Issued to: BOLT BERANEK & NEWMAN INC.
It is understood and agreed that both Insuring Clause I., 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 or 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
December 8, 1994
Date
<PAGE> 48
EXECUTIVE PROTECTION POLICY
ENDORSEMENT
Coverage Section: EXECUTIVE LIABILITY Company: FEDERAL INSURANCE COMPANY
Effective date of Endorsement No. 6
this endorsement: DECEMBER 01, 1994
To be attached to and form part of
Policy No. 8137-71-31-A
Issued to: BOLT BERANEK & NEWMAN INC.
1. It is agreed that subsection 5, Exclusions: Exclusions Applicable to
Insuring Clauses 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 judgment
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;
2. It is further agreed that subsection 8, Limits of Liability, Deductible
and Coinsurance, is amended by deleting the fourth paragraph in its entirety
and replacing it with the following:
If a single Loss is covered in part under Insuring Clause 1 and in
part under Insuring Clause 2, the maximum 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.
ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED.
Authorized Representative
December 8, 1994
Date
<PAGE> 49
EXECUTIVE PROTECTION POLICY
ENDORSEMENT
Coverage Section: EXECUTIVE LIABILITY Company: FEDERAL INSURANCE COMPANY
Effective date of Endorsement No. 7
this endorsement: DECEMBER 01, 1994
To be attached to and form part of
Policy No. 8137-71-31-A
Issued to: BOLT BERANEK & NEWMAN INC.
PREDETERMINED ALLOCATION FOR SECURITIES CLAIMS
In consideration of the premium paid, it is agreed as follows:
1. With respect to any Securities Loss for which Insuring Clause 2 applies,
subsection 12, Allocation, is deleted in its entirety and replaced by the
following:
12. If both Securities Loss covered and not covered by this coverage
section are incurred, either because a Securities Claim against
Insured Persons includes both covered and uncovered matters or
because a Securities Claim is made against both an Insured Person and
the Insured Organization, the Insureds and the Company shall allocate
such amount to Loss as follows:
a) 100% allocation of Securities Defense Costs, which shall be
advanced on a current basis by the Company; and
b) 75% allocation of Securities Loss other than Securities Defense
Costs.
These agreed allocations shall be final and binding on the Insureds
and the Company.
2. The following is added to subsection 18, Definitions:
Securities 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, which, in whole or in part,
is based upon, arises from or is in consequence of the purchase or
sale of, or offer to purchase or sell, any securities issued by the
Insured Organization.
Securities Loss means the total amount which any Insured Person,
solely or jointly with the Insured Organization, becomes legally
obligated to pay on account of a Securities Claim, including, but
not limited to, damages, judgments, settlements, costs and
Securities Defense Costs. Securities Loss
<PAGE> 50
does not include (i) any amount not indemnified by the Insured
Organization for which an Insured is absolved from payment by reason
of any convenant, agreement or court order, (ii) any amount incurred
by an Insured Organization (including its board of directors or any
committee of the board of directors) in connection with the
investigation or evaluation of any Securities Claim or potential
Securities 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.
Securities Defense Costs means that part of Securities 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 Securities Claims and the premium for
appeal, attachment or similar bonds.
ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED.
Authorized Representative
Date
<PAGE> 51
CHUBB GROUP OF INSURANCE COMPANIES
DECLARATIONS
DIRECTORS AND OFFICERS LIABILITY AND
REIMBURSEMENT EXCESS POLICY
Item 1. Parent Organization: Policy Number 81377132-A
BOLT BERANEK & NEWMAN INC.
AND ITS SUBSIDIARIES
Item 2. Principal Address: FEDERAL INSURANCE COMPANY
150 CAMBRIDGE PARK DRIVE Incorporated under the laws of New Jersey a
CAMBRIDGE, MA 02140 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, 1994 to December 1, 1995
(B) Other Policy(ies): St. Paul Mercury Insurance Company
Policy #900DX0049
December 1, 1994 to December 1, 1995
Item 5. Policy Period: From December 01, 1994
To December 01, 1995
Item 6. Endorsement(s) Effective at Inception: Nos. 1 and 2
Item 7. Termination of Prior Policies: 8137-71-32
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
bas-12/08/94.02
<PAGE> 52
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 be 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 had been compiled 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 the 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 of the Company in each Policy
Year.
<PAGE> 53
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 appointed
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.
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 51 John F.
Kennedy Parkway, Short Hills, New Jersey 07078.
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 the 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
their 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
<PAGE> 54
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 the 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.
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
extension 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> 55
CHUBB GROUP OF INSURANCE COMPANIES
ENDORSEMENT
Company: Federal Insurance Company
Effective date of
this endorsement: December 1, 1994 Endorsement No. 1
To be attached to and form part of
Policy No. 81377132-A
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 if 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.
bas-12/08/94.03
<PAGE> 56
CHUBB GROUP OF INSURANCE COMPANIES
ENDORSEMENT
Company: Federal Insurance Company
Effective date of
this endorsement: December 1, 1994 Endorsement No. 1 - Continued
To be attached to and form part of
Policy No. 81377132-A
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 thirty days
thereafter, the cancellation shall become effective. The mailing if 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 AN CONDITIONS REMAIN UNCHANGED
AUTHORIZED REPRESENTATIVE
bas-12/08/94.04
DATE
<PAGE> 57
CHUBB GROUP OF INSURANCE COMPANIES
ENDORSEMENT
Company: Federal Insurance Company
Effective date of
this endorsement: December 1, 1994 Endorsement No. 2
To be attached to and form part of
Policy No. 81377132-A
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 judgements
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 AN CONDITIONS REMAIN UNCHANGED
AUTHORIZED REPRESENTATIVE
bas-12/08/94.05
DATE
<PAGE> 58
EXECUTIVE PROTECTION POLICY
DECLARATIONS
EXECUTIVE PROTECTION POLICY
Policy Number 8137-71-31-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, 1994
To 12:01 A.M. December 01, 1995
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: 8137-71-31
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
<PAGE> 59
EXECUTIVE PROTECTION POLICY
Effective date of
this endorsement: DECEMBER 01, 1994
Company: FEDERAL INSURANCE COMPANY
To be attached to and from part of
Policy No. 8137-71-31-A
Issued to: BOLT BERANEK & NEWMAN INC.
<TABLE>
The following is a schedule of endorsements issued with the policy at inception:
GENERAL TERMS AND CONDITIONS
<CAPTION>
ENDORSEMENT NUMBER FORM NUMBER
<S> <C>
1 14-02-0961
EXECUTIVE LIABILITY AND INDEMNIFICATION
ENDORSEMENT NUMBER FORM NUMBER
1 14-02-0961
2 14-02-0961
3 14-02-0961
4 14-02-0961
5 14-02-0961
6 14-02-0961
OUTSIDE DIRECTORSHIP LIABILITY
ENDORSEMENT NUMBER FORM NUMBER
1 14-02-0961
2 14-02-0961
</TABLE>
<PAGE> 60
CHUBB GROUP OF INSURANCE COMPANIES
PREMIUM BILL
Insured: BOLT BERANEK & NEWMAN Date: DECEMBER 6, 1994
Producer: JOHNSON & HIGGINS OF MASS INC
Company: FEDERAL INSURANCE COMPANY
THIS BILLING IS TO BE ATTACHED TO AND FORM A PART OF THE POLICY REFERENCED
BELOW.
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. PLEASE REFER TO EXECUTIVE
PROTECTION DEPT
<TABLE>
<CAPTION>
POLICY OR
EFFECTIVE CERTIFICATE COVERAGE PREMIUM
DATE NUMBER
<S> <C> <C> <C>
12/01/94 8137-71-31-A Executive Liability and $ 200,000.
to Indemnification Coverage
12/01/95
TOTAL $ 200,000.
</TABLE>
WHEN REMITTING PLEASE INDICATE POLICY OR CERTIFICATE NUMBER
<PAGE> 61
CHUBB GROUP OF INSURANCE COMPANIES
PREMIUM BILL
Insured: BOLT BERANEK & NEWMAN Date: DECEMBER 6, 1994
Producer: JOHNSON & HIGGINS OF MASS INC
Company: FEDERAL INSURANCE COMPANY
THIS BILLING IS TO BE ATTACHED TO AND FORM A PART OF THE POLICY REFERENCED
BELOW.
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. PLEASE REFER TO EXECUTIVE
PROTECTION DEPT
<TABLE>
<CAPTION>
POLICY OR
EFFECTIVE CERTIFICATE COVERAGE PREMIUM
DATE NUMBER
<S> <C> <C> <C>
12/01/94 8137-71-31-A Additional Premium For $ 48,350.
to Predetermined Allocation
12/01/95
TOTAL $ 48,350.
</TABLE>
WHEN REMITTING PLEASE INDICATE POLICY OR CERTIFICATE NUMBER
<PAGE> 62
EXECUTIVE PROTECTION POLICY
DECLARATIONS
EXECUTIVE PROTECTION POLICY
Policy Number 8134-46-02-B
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, 1994
To 12:01 A.M. December 01, 1995
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-A
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
December 13, 1994
- ------------------------------------ ------------------------------------
Date Authorized Representative
<PAGE> 63
EXECUTIVE PROTECTION POLICY
Effective date of
this endorsement: DECEMBER 01, 1994
Company: FEDERAL INSURANCE COMPANY
To be attached to and from part of
Policy No. 8134-46-02-B
Issued to: BOLT BERANEK & NEWMAN INC.
<TABLE>
The following is a schedule of endorsements issued with the policy at inception:
FIDUCIARY LIABILITY
<CAPTION>
ENDORSEMENT NUMBER FORM NUMBER
<S> <C>
1 14-02-0961
2 14-02-0961
3 14-02-1423
CRIME INSURANCE
ENDORSEMENT NUMBER FORM NUMBER
1 14-02-0961
2 14-02-0961
3 14-02-0961
4 14-02-0961
5 14-02-1498
6 14-02-0976
7 14-02-0983
8 14-02-0998
</TABLE>
<PAGE> 64
CHUBB GROUP OF INSURANCE COMPANIES
PREMIUM BILL
Insured: BOLT BERANEK & NEWMAN Date: DECEMBER 7, 1994
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-B
Policy Period: December 01, 1994 to December 01, 1995
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.
<TABLE>
<CAPTION>
COVERAGE PREMIUM
<S> <C>
Fiduciary Liability Coverage $ 27,338.
Crime Insurance Coverage $ 29,980.
TOTAL $ 57,318.
</TABLE>
WHEN REMITTING PLEASE INDICATE POLICY OR CERTIFICATE NUMBER
<PAGE> 65
CHUBB
EXECUTIVE PROTECTION POLICY
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
and Settlement it deems 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
<PAGE> 66
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.
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' 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,
the Company as 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.
<PAGE> 67
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,
(C) upon expiration of the Policy Period as set
forth in Item 2 of the Declarations of this
policy, or
(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
of 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> 68
ENDORSEMENT
Coverage Section: GENERAL TERMS Company: FEDERAL INSURANCE COMPANY
Effective date of Endorsement No.: 1
this endorsement: DECEMBER 01, 1994
To be attached to and form part of
Policy No. 8137-71-31-A
Issued to: BOLT BERANEK AND NEWMAN INC.
It is agreed that subsection 5, Investigation and Settlement, is deleted in its
entirety and replaced with the following:
5. The Company may make any investigation it deems necessary and may,
with the written consent of the Insured, make any settlement of a
claim it deems expedient. With respect to any coverage section other
than the Executive Liability and Indemnification and Outside
Directorship Liability coverage sections, 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 expense
accrued as of the date such settlement was proposed in writing by the
Company to the Insured.
ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED.
Authorized Representative
Date:
<PAGE> 69
CHUBB
EXECUTIVE PROTECTION POLICY
DECLARATIONS
OUTSIDE DIRECTORSHIP LIABILITY
COVERAGE SECTION
Item 1. Parent Organization:
BOLT BERANEK AND 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:
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
OUTSIDE DIRECTORSHIP In consideration of payment of the premium and subject
LIABILITY COVERAGE to the Declarations, General Terms and Conditions, and
the limitations,
<PAGE> 70
SECTION conditions, provisions and other terms of this
coverage section, the Company agrees as follows:
INSURING CLAUSES
Outside Directorship 1. The Company shall pay on behalf of each of the
Liability Coverage Insured Persons who serve in an Outside
Insuring Clause 1 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 Insured
Indemnification Coverage Organization all Loss (i) for which the Insured
Insuring Clause 2 Organization grants indemnification, 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 Period) following the
effective date of termination or non renewal, but
only for any Wrongful Act committed, attempted, or
allegedly committed
<PAGE> 71
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.
EXCLUSIONS
Exclusions 5. The Company shall not be liable for Loss on
Applicable to account of any Claim made against any Insured
Insuring Clauses 1 and 2 Person:
(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
judgment entered against any Insured Person
on or prior to:
(i) the Pending or Prior Dated 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;
<PAGE> 72
(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 or 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 or 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;
(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 or Outside Entity 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, the Outside Entity, or
any security holders or creditors thereof
based upon,
<PAGE> 73
arising from, or in consequence
of the matters described in (i) or (ii) of
this 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
Applicable to Clause 1 for Loss on account of any Claim made
Insuring Clause 1 Only against any Insured Person:
(a) for an accounting 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
of Exclusions and 6 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 LIABILITY, 8. For the purposes of this coverage section, all
DEDUCTIBLE AND Loss arising out of the same Wrongful Act and all
COINSURANCE Interrelated Wrongful Acts of any Insured 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
<PAGE> 74
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 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
<PAGE> 75
(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.
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
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
and Settlement of 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
<PAGE> 76
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 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, 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
<PAGE> 77
(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 Insurance 13. If the Outside Entity maintains one or more
and Indemnity insurance 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
EXPOSURE
Acquisition or 14. If the Insured Organization (i) acquires
Creation of securities or voting rights in another
organization or creates another organization,
<PAGE> 78
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 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.
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.
<PAGE> 79
SCOPE OF COVERAGE 17. The coverage under this coverage section
shall not be 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.
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 attorney's
<PAGE> 80
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
<PAGE> 81
federal income tax as an organization described
in Section 501(c)(3) of the Internal Revenue
Code of 1986, as amended.
Outside Directorship means the position of
director, 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> 82
EXECUTIVE PROTECTION POLICY
ENDORSEMENT
Coverage Section: OUTSIDE DIRECTORSHIP Company: FEDERAL INSURANCE COMPANY
Effective date of Endorsement No. 1
this endorsement: DECEMBER 01, 1994
To be attached to and form part of
Policy No. 8137-71-31-A
Issued to: BOLT BERANEK & NEWMAN INC.
- --------------------------------------------------------------------------------
<TABLE>
It is agreed that Item 4 of the Declarations for this coverage section is
amended as set forth below:
<CAPTION>
OUTSIDE ENTITY Insuring Clause 2
Deductible
<S> <C>
Non-Profit Outside Entities ............... $25,000.
</TABLE>
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> 83
EXECUTIVE PROTECTION POLICY
ENDORSEMENT
Coverage Section: OUTSIDE DIRECTORSHIP Company: FEDERAL INSURANCE COMPANY
Effective date of Endorsement No. 2
this endorsement: DECEMBER 01, 1994
To be attached to and form part of
Policy No. 8137-71-31-A
Issued to: BOLT BERANEK & NEWMAN INC.
- --------------------------------------------------------------------------------
<TABLE>
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:
<CAPTION>
Insured Outside Pending or Continuity
Person Entity Prior Date Date
<S> <C> <C> <C>
Gerald Davidson Dantel Corporation 12/01/90 12/01/90
</TABLE>
ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED.
Authorized Representative
Date
<PAGE> 84
LLOYD'S POLICY
We, Underwriting Members of the syndicates whose definitive numbers and
proportions are shown in the Table attached hereto (hereinafter referred to as
"the Underwriters"), hereby agree, in consideration of the payment to Us by or
on behalf of the Assured of the premium specified in the Schedule, to insure
against loss, including but not limited to associated expenses specified
herein, if any, to the extent and in the manner provided in this Policy.
The Underwriters hereby bind themselves severally and not jointly, each for his
own part and not one for another, and therefore each of the Underwriters (and
his heirs, Executors and Administrators ) shall be liable only for his own
share of his syndicate's proportion of any such loss and of any such
expenses. The identity of each of the Underwriters and the amount of his share
may be ascertained by the Assured or the Assured's representative on
application to Lloyd's Policy Signing Office, quoting the Lloyd's Policy
Signing Office number and date shown in the Table.
If the assured shall make any claim knowing the same to be false or fraudulent,
as regards amount or otherwise, this Policy shall become void and all claim
hereunder shall be forfeited.
In Witness whereof the General Manger of Lloyd's Policy Signing Office has
signed this Policy on behalf of each of us.
s/LLOYD'S POLICY SIGNING OFFICE
GENERAL MANAGER
<PAGE> 85
EXCESS
DIRECTORS AND OFFICERS AND
COMPANY REIMBURSEMENT POLICY
<PAGE> 86
DECLARATIONS
EXCESS DIRECTORS AND OFFICERS AND
COMPANY REIMBURSEMENT INDEMNITY POLICY
DOXS '89
NOTICE: THIS POLICY SUBJECT TO ITS TERMS APPLIES TO ANY CLAIM MADE AGAINST
THE DIRECTORS AND OFFICERS DURING THE POLICY PERIOD. THE LIMIT OF LIABILITY
AVAILABLE TO PAY DAMAGES OR SETTLEMENTS SHALL BE REDUCED AND MAY BE EXHAUSTED
BY AMOUNTS INCURRED AS REASONABLE AND NECESSARY LEGAL FEES AND EXPENSES IN
DEFENDING THE DIRECTORS AND OFFICERS. THIS POLICY DOES NOT PROVIDE FOR ANY
DUTY BY UNDERWRITERS TO DEFEND THOSE INSURED HEREUNDER.
These Declarations along with the completed signed Application, including
attachments, and the Policy with Endorsements shall constitute the contract
between those insured hereunder and Underwriters.
POLICY NO. 757/FD940716
Item A. Name Insured: BOLT BERANEK AND NEWMAN, INC.
Principal Address: 150 CambridgePark Drive
Cambridge
Massachusetts 02140
USA
Item B. Policy Period:
From 1st December 1994 to 1st December 1995 both days at
12:01 a.m. Local Standard Time At The Principal Address Stated
in Item A.
Item C. Limit of Liability: US $5,000,000 in the aggregate each
Policy year.
Item D. Premium: US $63,004.83 part of US $65,000.00
Item E. Notification to Underwriters pursuant to Clause V. shall be
given to Mr. K. Hanson, Hanson and Peters, 311 South Wacker
Drive, Suite 5500, Chicago, Illinois 60606.
<PAGE> 87
Item F. Form numbers of endorsements attached at issuance:
NMA 1256 - Nuclear Incident Exclusion Clause
NMA 1477 - Radioactive Contamination Exclusion Clause
11.01 - Prior and Pending Litigation Exclusion
Item G. Primary Policy:
Primary Insurer: Chubb Group
Policy No: 8137-71-31
Limits of Liability: US $3,000,000
Retentions/Deductibles: Nil/Nil/US $1,000,000
Participation/Co-Insurance: None
Policy Period: From 1st December 1994
To 1st December 1995
Item H. Underlying Excess Policies:
First Underlying Excess Insurer: St Paul Fire and Marine Insurance
Company
Policy No: 900DX0103
Limits of Liability: US $5,000,000
Retentions/Deductibles: As Primary
Participation/Co-Insurance: None
Policy Period: From 1st December 1994
To 1st December 1995
Second Underlying Excess Insurer: Chubb Group Inc
Policy No: 8137-71-32
Limits of Liability: US $2,000,000
Retentions/Deductibles: As Primary
Participation/Co-Insurance: None
Policy Period: From 1st December 1994
To 1st December 1995
Third Underlying Excess Insurer: Chicago Underwriter Group Inc
Policy No: CUG24032
Limits of Liability: US $5,000,000
Retentions/Deductibles: As Primary
Participation/Co-Insurance: None
Policy Period: From 1st December 1994
To 1st December 1995
Dated in London:
<PAGE> 88
EXCESS DIRECTORS AND OFFICERS AND
COMPANY REIMBURSEMENT INDEMNITY POLICY
In consideration of the payment of the premium, in reliance upon the statements
in the Application attached hereto and made a part hereof, subject to the
Declarations made a part hereof and subject to all of the terms of this Policy,
Underwriters agree as follows:-
I. CONFORMANCE WITH PRIMARY POLICY
Except as regards:
(1) the premium, and
(2) the amounts and limits of liability, and
(3) the subject matter of Clauses II, III, IV, V, VI, and VII
(4) as otherwise may be provided herein,
this Policy is subject to the same insuring clauses, definitions, terms,
conditions, exclusions and other provisions as those set forth in the Primary
Policy as described in the materials submitted to Underwriters in connection
with the application for this Policy. No changes to the Primary Policy as so
described shall be binding upon Underwriters under this Policy unless
specifically endorsed hereon.
II. DEFINITIONS
The following terms whenever used in this Policy shall have the meanings
indicated.
A. "Primary Policy" shall mean the policy identified in Item G. of the
Declarations.
B. "Underlying Policies" shall mean the policies identified in Items G.
and H. of the Declarations.
C. "Underlying Limit of Liability" shall mean the combined limits of
liability of the Underlying Policies as set forth in Item G. and H. of
the Declarations, less any reduction or exhaustion of said limits of
liability due to payment of loss under said policies.
III. MAINTENANCE OF UNDERLYING POLICIES
This Policy provides excess coverage only. It is a condition precedent to
the
<PAGE> 89
coverage afforded under this Policy that those insured hereunder maintain
the Underlying Policies with retentions/deductibles, participation/co-
insurance and limits of liability (subject to reduction or exhaustion
as a result of loss payments), as set forth in items G. and H. of the
Declarations. This Policy does not provide coverage for any loss
not covered by the Underlying Policies except and to the extent that such
loss is not paid under the Underlying Policies solely by reason of the
reduction or exhaustion of the Underlying Limits of Liability through
payments of loss thereunder. In the event the insurer under one or more of
the Underlying Policies fails to pay loss in connection with any claim as a
result of the insolvency, bankruptcy or liquidation of said insurer, then
those insured hereunder shall be deemed self-insured for the amount of the
limit of liability of said insurer which is not paid as a result of such
insolvency, bankruptcy or liquidation.
IV. LIMIT OF LIABILITY
A. Subject to Clause IV.B., Underwriters shall be liable to pay loss
which is in excess of
(1) The Underlying Limit of Liability plus
(2) the applicable retention or deductible under the Primary Policy
up to the Limit of Liability as shown under Item C. of the
Declarations resulting from each claim made against the directors
and officers.
B. The amount shown in Item C. of the Declarations shall be the
maximum aggregate Limit of Liability of Underwriters for all loss
resulting from all claims made against the directors and officers
during the Policy Period, together with all claims made against
the directors and officers which, in accordance with Clause IV.E. or
Clause V.B., shall be deemed to have been made during the Policy
Period.
C. Underwriters shall be liable hereunder only after the insurers under
each of the Underlying Policies have paid or have been held liable to
pay the full amount of the Underlying Limit of Liability.
D. Subject to Clause IV.B., in the event of the reduction or exhaustion
of the Underlying Limit of Liability by reason of payment of loss,
this Policy shall:
(1) in the event of reduction, pay excess of the reduced limits and
(2) in the event of exhaustion, continue in force as primary
insurance; provided, however that in the case of exhaustion
<PAGE> 90
this Policy shall only pay excess of the retention or deductible
applicable to the Primary Policy as set fort in Item G. of the
Declarations, which shall be applied to any subsequent loss in
the same manner as specified in this Primary Policy.
E. More than one claim involving the same wrongful act or related
wrongful acts of one or more directors and officers shall be deemed to
constitute a single claim and such single claim shall be deemed to
have been made at the earliest of the following times:
(1) the time the earliest claim involving the same wrongful act or
related wrongful acts is first made, or
(2) the time the claim involving the same wrongful act or related
wrongful acts shall be deemed to have been made pursuant to
Clause V.B., if applicable.
V. NOTIFICATION
A. If during the Policy period or any optional extension period, if
applicable, any claim is made against any director or officer, those
insured hereunder shall, as a condition precedent to their right to be
reimbursed under this Policy, give to Underwriters notice in writing
as soon as practicable of any such claim, but in no event later than
sixty (60) days after such claim is first made.
B. If during the Policy Period or any optional extension period, if
applicable, those insured hereunder first become aware of a specific
wrongful act, and if those insured hereunder shall, during such
period, give written notice to Underwriters as soon as practicable of:
(1) the specific wrongful act, and
(2) the consequences which have or may result herefrom, and
(3) the circumstances by which those insured hereunder first
became aware thereof,
then any claim not otherwise excluded by the terms of this Policy
subsequently made against the directors and officers arising out of
such wrongful act or any related wrongful act shall be deemed for the
purposes of this Policy to have been made at the time such notice was
first given.
C. Notice to Underwriters provided for in this Clause V. shall be given
to
<PAGE> 91
the firm shown under Item E. of the Declarations.
VI. WARRANTY CLAUSE
It is warranted that the particulars and statements contained in the
application for this Policy or contained in any application for any policy
issued by Underwriters of which this Policy is a renewal thereof, a copy of
which is attached hereto, and any material submitted therewith (which shall
be retained on file by Underwriters and be deemed attached hereto, as if
physically attached hereto), are the basis of this Policy and are to be
considered as incorporated in to and constituting a part of this Policy.
This Policy shall be deemed to be a single unitary contract and not a
severable contract of insurance or a series of individual contracts of
insurance with each of the persons or entities insured hereunder.
VII. SERVICE OF SUIT
It is agreed that in the event of the failure of the Underwriters heron to
pay any amount claimed to be due hereunder, the Underwriters hereon at the
request to the Insured (or Reinsured), will submit to the jurisdiction of a
Court of competent jurisdiction within the United States. Nothing in this
Clause constitutes or should be understood to constitute a waiver of
Underwriters' rights to commence an action in any court of competent
jurisdiction in the United States, to remove an action to a United States
District Court, or to seek a transfer of a case to another court as
permitted by the laws of the United States or of any State in the United
States. It is further agreed that service of process in such suit may be
made upon Mendes and Mount, 750 Seventh Avenue, New York, N.Y. 10019-6829,
U.S.A., and that in such suit instituted against any one of them upon this
contract, Underwriters will abide by the final decision of such court or of
any Appellate Court in the event of an appeal.
The above-named are authorized and directed to accept service of process on
behalf of Underwriters in any such suit and/or upon the request of the
Insured (or Reinsured) to give a written undertaking to the Insured (or
Reinsured) that they will enter a general appearance upon Underwriters'
behalf in the event such a suit shall be instituted.
Further, pursuant to the statute of any state, territory or district of the
United States which makes provision therefore, Underwriters hereon hereby
designate the Superintendent, Commissioner or Director of Insurance or
other officer specified for that purpose in the statute, or his successor
or successors in office, as their true and lawful attorney upon whom may be
served any lawful process in any action, suit or proceeding instituted by
or on behalf of the Insured (or Reinsured) or any beneficiary hereunder
arising out
<PAGE> 92
of this contract of insurance (or reinsurance), and hereby designate the
above-named as the person to whom the said officer is authorized to mail
such process or a true copy thereof.
<PAGE> 93
U.S.A.
NUCLEAR INCIDENT EXCLUSION CLAUSE - LIABILITY - DIRECT (BROAD)
(Approved by Lloyd's Underwriters' Non-Marine Association)
For attachment to insurances of the following classifications in the U.S.A.,
its Territories and Possessions, Puerto Rico and the Canal Zone:-
Owners, Landlords and Tenants Liability, Contractual Liability, Elevator
Liability, Owners or Contractors (including railroad) Protective Liability,
Manufacturers and Contractors Liability, Product Liability, Professional
and Malpractice Liability, Storekeepers Liability, Garage Liability,
Automobile Liability (including Massachusetts Motor Vehicle or Garage
Liability),
not being insurances of the classifications to which the Nuclear Incident
Exclusion Clause - Liability - Direct (Limited) applies.
THIS POLICY*
does not apply:-
1. Under any Liability Coverage, to injury, sickness, disease, death or
destruction
(a) with respect to which an insured under the 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 States of America, or any 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 immediate medical or surgical relief, to expenses
incurred with respect to bodily injury, sickness, disease or death
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 injury, sickness, disease, death or
destruction resulting from the hazardous properties of nuclear material, if
<PAGE> 94
(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 an insured; or
(c) the injury, sickness, disease, death or destruction arises out of the
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 facility is located within
the United States of America, its territories or possessions or
Canada, this exclusion (c) applies only to injury to or destruction of
property at such nuclear facility.
4. As used in this endorsement:
"HAZARDOUS PROPERTIES" include radioactive, toxic or explosive properties;
"NUCLEAR MATERIAL" means source material, special nuclear material or
byproduct material; "SOURCE MATERIAL", "SPECIAL NUCLEAR MATERIAL", and
"BYPRODUCT MATERIAL" have the meanings given them in the Atomic Energy Act
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 byproduct 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 (a) or (b) thereof:
"NUCLEAR FACILITY" means
(a) any nuclear reactor,
(b) any equipment or device 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,
(c) 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 at the premises
where such equipment or device 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,
(d) any structure, basin, excavation, premises or place prepared or
used for the storage or disposal of waste, and includes the site on
which any of the foregoing is located, all operations conducted on
such site 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 a critical mass of
fissionable material.
<PAGE> 95
With respect to injury to or destruction of property, the word "INJURY" or
"DESTRUCTION" includes all forms of radioactive contamination of property.
It is understood and agreed that, except as specifically provided in the
foregoing to the contrary, this clause is subject tot the terms,
exclusions, conditions and limitations of the Policy to which it is
attached.
*NOTE:- As respects policies which afford liability coverages and other forms
of coverage in addition, the words underlined should be amended to
designate the liability coverage to which this clause is to apply.
17/3/60
N.M.A. 1256
<PAGE> 96
U.S.A.
RADIOACTIVE CONTAMINATION EXCLUSION CLAUSE - LIABILITY -
DIRECT
(Approved by Lloyd's Underwriters' Non-Marine Association)
For attachment (in addition to the appropriate Nuclear Incident Exclusion
Clause - Liability - Direct) to liability insurances affording worldwide
coverage.
In relation to liability arising outside the U.S.A. its Territories or
Possessions, Puerto Rico or the Canal Zone, this Policy does not cover any
liability of whatsoever nature directly or indirectly caused by or contributed
to by or arising from ionizing radiations or contamination by radioactivity from
any nuclear fuel or from any nuclear waste from the combustion of nuclear fuel.
13/2/64
N.M.A. 1477
<PAGE> 97
PRIOR AND PENDING LITIGATION EXCLUSION
(11.01)
In consideration of the premium charged for this Policy, it is hereby understood
and agreed that Underwriters shall not be liable to make any payment in
connection with any Claim:
Based upon, arising out of, directly or indirectly resulting from or in
consequence of or in any way involving;
(1) any prior and/or pending litigation as of 1st December 1993, or
(2) any fact, circumstance, situation, transaction or event underlying or
alleged in such litigation,
regardless of the legal theory upon which such Claim is predicated.
<PAGE> 98
LINES CLAUSE
This Insurance, being signed for 96.9305%, of 100% insures only that proportion
of any loss, whether total or partial, including but not limited to that
proportion of associated expenses, if any, to the extent and in the manner
provided in this Insurance.
The percentages signed in the Table are percentages of 100% of the amount (s) of
Insurance stated herein.
N.M.A. 2419
SEVERAL LIABILITY NOTICE
The subscribing insurers' obligations under contracts of insurance to which they
subscribe are several and not joint and are limited solely to the extent of
their individual subscriptions. The subscribing insurers are not responsible
for the subscription of any co-subscribing insurer who for any reason does not
satisfy all or part of its obligations.
LSW 1001 (Insurance) 08/94
<PAGE> 99
Date:
Policy No: 757/FD940716
THE SCHEDULE
The Insured: BOLT BERANEK AND NEWMAN INC.
Premium: US $1,995.17 part of US $65,000.00
Limits of Liability: 3.0695% of
US $5,000,000 in the aggregate each policy
year which is excess of US $15,000,000 which
in turn is excess of :-
US$NIL/US$NIL Directors and Officers
Liability
US $1,000,000 Reimbursement Liability.
The Interest Insured: EXCESS DIRECTORS AND OFFICERS
LIABILITY AND EXCESS
REIMBURSEMENT FOR DIRECTORS AND
OFFICERS LIABILITY.
As more fully set forth in the co-insuring
Lloyd's policy.
Period of Insurance;
FROM: 1st December 1994 TO: 1st December 1995 BOTH DAYS AT 12:01 AM LOCAL
STANDARD TIME AND FOR SUCH FURTHER PERIOD OR PERIODS AS MAY BE MUTUALLY AGREED.
COINSURANCE CLAUSE
It is warranted that this Policy shall run concurrently with and be subject to
the same terms, provisions, and limitations as are contained in Policy No.
757/FD940716 issued by certain underwriting members at Lloyd's of London
covering the identical subject matter and risk.
<PAGE> 100
<TABLE>
<CAPTION>
LIRMA
COMPANY
THE INSURERS NUMBER PROPORTION REFERENCE
<S> <C> <C> <C>
Zurich
RE (UK)
Limited Z4508 3.0695% Z70003635494
</TABLE>
SEVERAL LIABILITY NOTICE
The subscribing insurers' obligations under contracts of insurance to which they
subscribe are several and not joint and are limited solely to the extent of
their individual subscriptions. The subscribing insurers are not responsible
for the subscription of any co-subscribing insurer who for any reason does not
satisfy all or part of its obligations.
LSW 1001 (Insurance) 8/94
<PAGE> 101
J. & H. 757 Dated in London:
Endorsement No.01 attaching to and forming part of LIRMA Policy No.
757/FD940716
NAME OF ASSURED: BOLT BERANEK AND NEWMAN, INC.
It is understood and agreed that with effect from 13th December 1994 this policy
shall follow the Predetermined Allocation for Securities Claims Endorsement
attaching to the Primary Policy No. 8137-71-31.
In consequence of the foregoing there is due from the Assured an Additional
Premium of US $ 482.34 part of US$15,714.00
All other terms and conditions remain unchanged.
<PAGE> 102
LIRMA POLICY
IN CONSIDERATION of the Insured named in the Schedule hereto having paid or
promised to pay the premium stated in the said Schedule to the Insurers named
herein who have hereunto subscribed their names ("the Insurers").
THE INSURERS HEREBY SEVERALLY AGREE each for the proportion set against its own
name to indemnify the Insured or the Insured's Executors and Administrators
against loss, damage or liability to the extent and in the manner set forth
herein. Provided that the aggregate liability of the Insurers shall not exceed
the Sum Insured or other limits as are set forth in the Schedule.
If the Insured shall make any claim knowing the same to be false or fraudulent,
as regards amount or otherwise, this Policy shall become void and all claim
hereunder shall be forfeited.
IN WITNESS WHEREOF the Director of Policy Signing Services of LONDON INSURANCE
AND REINSURANCE MARKET ASSOCIATION ("LIRMA") has subscribed his name on behalf
of each of the LIRMA Companies and (where the Companies Collective Signing
Agreement ("CCSA") is being implemented) on behalf of the Leading CCSA Company
which is a LIRMA member and authorized to sign this Policy (either itself or by
delegation to LIRMA) on behalf of all the other CCSA Companies.
s/
Date:
<PAGE> 103
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.
<PAGE> 104
OLD REPUBLIC
EXCESS INSURANCE POLICY
In consideration of the payment of premium and in reliance upon the statements
in the Declaration 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 stated 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 once occurrence
shall not attach unless an 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
<PAGE> 105
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.
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.
<PAGE> 106
Policy Number: CUG 24032
Previous Number: CUG 23731
DECLARATIONS - EXCESS INSURANCE POLICY
1. NAMED INSURED AND ADDRESS:
Bolt Beranek and Newman Inc.
150 Cambridge Park Drive
Cambridge, Massachusetts 02140
2. POLICY PERIOD: From: December 1, 1994 To: December 1, 1995
12:01 A.M. STANDARD TIME AT THE NAMED INSURED'S ADDRESS
ABOVE.
3. PREMIUM $80,000.
4. UNDERLYING INSURANCE:
Coverage: Directors & Officers Liability Insurance
Primary Insurer: Federal Insurance Company
Policy Number: 8137-71-31-A
Policy Term: December 1, 1994 to December 1, 1995
Limit of Liability: $3,000,000 annual aggregate
Retention: $0.00 each Director or Officer each loss, but
in no event exceeding $0.00 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: 900/DX0103
Policy Term: December 1, 1994 to December 1, 1995
Limit of Liability: $5,000,000 annual aggregate in excess of the
Limit shown above.
Second Excess Insurer: Federal Insurance Company
Policy Number: 81377132-A
Policy Term: December 1, 1994 to December 1, 1995
Limit of Liability: $2,000,000 annual aggregate in excess of the
Limits shown above.
<PAGE> 107
5. LIMIT OF LIABILITY:
$5,000,000 each claim and aggregate in excess o the total limits of
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 CLAIM (CONDITION G) TO:
CHICAGO UNDERWRITING GROUP, INC.
211 West Wacker Drive, Third Floor
Chicago, Illinois 60606
7. ATTACHMENTS: ORUG-5 (10/88), Endorsements #1, #2, #3, #4, #5, and
Application dated October 7, 1994.
Date: May 10, 1995 ____________________________________________________
Authorized Representative
<PAGE> 108
AMENDATORY ENDORSEMENTS
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 or 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 insured 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 the 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.
All other terms and conditions of this policy remain unchanged.
<TABLE>
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.
<CAPTION>
Complete Only When This Endorsement Is Not Prepared with
Must Be Completed the Policy Or Is Not to be Effective with the Policy
ENDT. NO. POLICY NO. ISSUED TO EFFECTIVE DATE OF THIS ENDORSEMENT
<S> <C>
1 CUG 24032
</TABLE>
Countersigned by___________________________
Authorized Representative
<PAGE> 109
EXCESS INSURANCE APPLICATION
It is agreed that this policy is issued in reliance upon
the statements made in the company's written application,
a copy of which is attached hereto and made a part hereof,
and upon the written applications submitted by the
insureds with respect to the underlying insurance stated
in Declaration 4 and are to be considered as incorporated
in and constituting part of this policy.
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
company's application, or any facts,
situations or circumstances alleged
therein, 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.
<TABLE>
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.
<CAPTION>
Complete Only When This Endorsement Is Not Prepared with
Must Be Completed the Policy Or Is Not to be Effective with the Policy
ENDT. NO. POLICY NO. ISSUED TO EFFECTIVE DATE OF THIS ENDORSEMENT
<S> <C>
2 CUG 24032
</TABLE>
Countersigned by___________________________
Authorized Representative
<PAGE> 110
It is understood and agreed that the Company 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 named
insured and/or any Director or Officer of the named insured and/or any
Subsidiary of the named insured 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.
<TABLE>
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.
<CAPTION>
Complete Only When This Endorsement Is Not Prepared with
Must Be Completed the Policy Or Is Not to be Effective with the Policy
ENDT. NO. POLICY NO. ISSUED TO EFFECTIVE DATE OF THIS ENDORSEMENT
<S> <C>
3 CUG 24032
</TABLE>
Countersigned by___________________________
Authorized Representative
<PAGE> 111
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.
<TABLE>
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.
<CAPTION>
Complete Only When This Endorsement Is Not Prepared with
Must Be Completed the Policy Or Is Not to be Effective with the Policy
ENDT. NO. POLICY NO. ISSUED TO EFFECTIVE DATE OF THIS ENDORSEMENT
<S> <C>
4 CUG 24032
</TABLE>
Countersigned by___________________________
Authorized Representative
<PAGE> 112
In consideration of the premium charged it is understood and agreed that
General Condition Clause J. of the policy wording, Cancellation, is amended
by deleting the words "thirty (30)" and replacing with "sixty (60)".
All other terms and conditions of this policy remain unchanged.
<TABLE>
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.
<CAPTION>
Complete Only When This Endorsement Is Not Prepared with
Must Be Completed the Policy Or Is Not to be Effective with the Policy
ENDT. NO. POLICY NO. ISSUED TO EFFECTIVE DATE OF THIS ENDORSEMENT
<S> <C>
5 CUG 34032
</TABLE>
Countersigned by___________________________
Authorized Representative
<PAGE> 113
APPLICATION FOR DIRECTORS AND OFFICERS LIABILITY
AND COMPANY REIMBURSEMENT LIABILITY INSURANCE
(for non financial institutions operating on a for-profit basis)
1. Name of Organization: Bolt Beranek and Newman, Inc.
Principal Address: 150 Cambridge Park Drive
Cambridge, MA 02140
2. (a) Date since the Company has continuously carried on business:
1948 as Partnership
(b) State of Incorporation: Massachusetts
Date of Incorporation 1953 as Corporation.
(c) Nature of business: Consulting and Diversified Technologies
3. Officer designated to receive notices pertaining to this insurance: John
Montjoy, Vice President and Corporate Counsel
4. Stock Ownership:
(a) Number of common shares outstanding: 1,665,680
(b) Number of common stock shareholders: 2,225 (as of 6/30/94)
(c) Number of common shares owned (directly and beneficially) by directors:
See Page 17 of Proxy
(d) Number of common shares owned (directly and beneficially) by officers
who o are not directors: See Page 17 of Proxy
(e) Name and percentage of holds of any shareholder owning 5% or more of the
common shares (directly or beneficially): See Page 17 of Proxy
(f) Describe fully any other securities that are convertible to common
stock: 6% convertible subordinated debentures due 2012
5. (a) Latest Moody's or Standard and Poor's bond rating: N/A
(b) Has this rating changed in the last 12 months? ( ) YES ( ) NO
(If Yes, please attach full details).
6. Has the Company under consideration at the present time or has it considered
within the last 6 months or does it contemplate any acquisitions, leveraged
buy outs, tender offers or mergers? ( ) YES ( ) NO
(If Yes, please attach full details).
7. Has the Company filed or contemplated filing any registration statement with
the Securities and Exchange Commission within the past 18 months or within
the next 12 months for a public offering for securities? ( ) YES (x) NO
(If Yes, please attach full details including copy of prospectus or
registration statement).
From time to time company has under consideration acquisition or disposition
of one or more entities or business units.
8. (a)Within the last 18 months has the Company or any of its subsidiaries made
or joined in a Schedule 13-D filing with the Securities and Exchange
Commission with respect to the ownership of the securities of another
corporation. ( ) YES (x) NO
(b)Is the Company aware that any person, corporation, or other entity has
made a Schedule 13-D filing with respect to the ownership of the
Securities of the Company or any of its subsidiaries? ( ) YES (x) NO
(If yes to either of the above, please furnish copies of all filings.)
9. Is coverage proposed for directors and officers of subsidiaries? See
Attached Schedule (x) YES ( ) NO
(If Yes, please attach a separate sheet listing the name of each
subsidiary, the date acquired or created, the percentage of ownership by the
Company, any minority shareholders and type of operation.)
10. Has the Company or any of its directors or officers been involved in any of
the following:
(a) any anti-trust, copywrite or patent litigation? ( ) YES (x) NO
(b) any civil or criminal action or administrative proceeding charging a
violation of any federal or state security law or regulation?
( ) YES (x) NO
(c) any representative actions, class actions or derivative suits?
( ) YES (x) NO
(If Yes, please attach full details).
<PAGE> 114
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 clam
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 notice 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, cancellations may
be effected by the first such named insureds for the account of
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 collective 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 tot he 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 Declaration page countersigned by a duly authorized
representative of the company.
Secretary President
<PAGE> 115
NUCLEAR ENERGY LIABILITY
EXCLUSION ENDORSEMENT
It is agreed that:
I. This policy does not apply:
(a) under any liability coverage, to injury, sickness, disease,
death, destruction or loss
1. with respect to which an insured under the 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
2. resulting from the hazardous properties or nuclear material and with
respect to which (a) any person or organization is required to
maintain financial protection pursuant to the Atomic Energy Act of
1954, or any law amendatory thereof, or (b) the insured is, or had its
policy not been issued would be, entitled to indemnity from the United
States of America, or any agency thereof, under any agreement entered
into by the United States of America, or any agency thereof, with any
person or organization;
(b) under any liability coverage, to injury, sickness, disease, death,
destruction or loss resulting from the hazardous properties of
nuclear material, if
1. the nuclear material (a) is at any nuclear facility owned by, or
operated by or on behalf of, an insured or (b) has been
discharged or dispersed therefrom;
2. 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 an insured; or
3. the injury, sickness, disease, death, destruction or loss arises out of
the 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 facility is
located within the United States of America, its territories or
possessions or Canada, this exclusion (3) applies only to injury to or
destruction of or loss of property at such nuclear facility;
II. As used in this endorsement:
"hazardous properties" include radioactive, toxic or explosive properties;
"nuclear material" means source material, special nuclear material or
byproduct material:
"source material", "special nuclear material", and "byproduct 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 byproduct 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 device designed or used for (a) separating the
isotopes of uranium or plutonium, (b) processing or
utilizing spent fuel, or (c) handling, processing or packaging waste:
3. any equipment or devise used for processing, fabricating or alloying of
special nuclear material if at any time the total amount of such
material in the custody of the insured at the premises where such
equipment or devise is located consists of or contains more than 25
grams of plutonium or uranium 223 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 storage or disposal of waste; and includes the site on which any
of the foregoing is located, all operations conducted on such
site and all premises used for such operations;
"nuclear reactor" means any apparatus designed or used to sustain nuclear
fission in self-supporting chain reaction or to contain a critical mass
of fissionable material;
With respect to injury to or destruction of or loss of property, the word
"injury" or "destruction" or "loss" includes all forms of radioactive
contamination of property;
All other terms and conditions of this policy remain unchanged.
<PAGE> 116
IMPORTANT NOTE: THIS IS CLAIMS 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 AN CORPORATE INDEMNIFICATION POLICY
DECLARATIONS
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 Cambridge Park Drive
Cambridge, MA 02140
Item 3. Policy Period
From To
12-01-94 12-01-95 (12:01 A.M. Standard Time at the address stated
in 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
shall 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 $ 149,010
Item 7. Schedule of Underlying Insurer(s)
(A)1. Underlying Insurer: Federal Insurance Company
2. Policy Number: 8137-71-31-A
3. Policy Period: From: 12-01-94 To: 12-01-95
4. Limit of Liability: $ 3,000,000
5. Retentions:
$ 1,000,000Corporate Indemnification Each Loss
$ -0- Each Insured Each Loss
$ -0- Aggregate All Insureds Each Loss
(B)1. Underlying Insurer: Not Applicable
<PAGE> 117
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.
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: 8137-71-31-A
Item 9. Forms Attached
1) St. Paul Mercury Insurance Company Policy, Form #50408.
2) Endorsement one.
3) St. Paul Mercury Insurance Renewal Application, Form #50264, and its
attachments.
<PAGE> 118
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
herewith (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 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 practical in writing,
of a failure to maintain in full force and effect, except as provided for
under Section 2(B), an 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.
<PAGE> 119
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, bot 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.
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, or
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 cancelled by the Corporation at any time by mailing written
notice to the Insurer at the address shown in Section 4 stating when thereafter
such cancellations shall be effective or by surrender of this policy to the
Insurer or its authorized agent. This policy may also be cancelled 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 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.
<PAGE> 120
Section 6. DISCOVERY PERIOD
If the Insurer shall cancel or refuse to renew (refuse to renew 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 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 note of such election together with the payment or the
additional premium due and this is received by the Insurer at the address shown
in Section 4 within then (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 an the rights granted herein to the
Corporation or the Insureds shall not apply to any cancellation resulting from
non-payment or 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
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 States of America, or an agency
thereof, under any agreement entered into by the United States
<PAGE> 121
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 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 an Insured, or
c. the bodily injury or property damage arises out of the
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 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" includes 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,
<PAGE> 122
(2) any equipment or device 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,
(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 device is located consists of or contains more than 25
grams of plutonium or uranium 223 or any combination thereof, or more than
250 grams or uranium 235,
(4) any structure, basin, excavation, premises or place prepared or used
for the storage or disposal of waste, and includes the site on which any
of the foregoing is located, and operations conducted on such site 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, nor 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 Insureds to
determine the Insured's liability, nor shall the Insurer be impleaded by the
Corporation and/or Insureds or their legal representatives. Bankruptcy or
insolvency 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 Declaration page by a duly authorized representative of the Insurer.
Secretary President
<PAGE> 123
ENDORSEMENT #1
The following spaced preceded by an asterisk (*) need not be completed if this
endorsement and the policy have the same inception date.
<TABLE>
<CAPTION>
ATTACHED TO AND * EFFECTIVE DATE OF * ISSUED TO
FORMING PART OF POLICY ENDORSEMENT
NO.
<S> <C>
900DX0103
</TABLE>
PRIOR AN 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
<PAGE> 1
EXHIBIT 10.13
INTERNET SERVICES AGREEMENT
between
BOLT BERANEK AND NEWMAN INC.
BBN PLANET CORPORATION
and
AT&T CORP.
dated as of June 20, 1995
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. SERVICE DESCRIPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.1. Initial Description of the Services . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3. SALES SUPPORT SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.2. AT&T Sales Support Department . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.3. Funding Through September 30. 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.4. Funding After September 30.1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4. AT&T RIGHTS AND RESPONSIBILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.1. AT&T Use and Sale of Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.3. Introductory Marketing Campaign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.4. Provisions Applicable to End Users . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.4.1. AT&T's Use of Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.4.2. Agreements with AT&T Customers Other than AT&T
5. INFRASTRUCTURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.1. Use of AT&T Equipment and Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.2. Provisioning of Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.3. Interconnection with BBN Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.4. Customer Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.5. Repurchase of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.6. Interfaces . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6. GEOGRAPHIC SCOPE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.1. Service Territory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.2. Expansion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
7. PRICING AND PAYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
7.1. Pricing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
7.2. Payments to BBN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
7.3. Guaranteed Minimums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.3.1. Guarantee Amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.3.2. Payments of Guaranteed Minimums . . . . . . . . . . . . . . . . . . . . . . . . . 21
7.3.3. Conditions to AT&T Obligations . . . . . . . . . . . . . . . . . . . . . . . . . 22
7.4. Funding of BBN Applications Development . . . . . . . . . . . . . . . . . . . . . . . . . 23
8. EXCLUSIVITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>
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<TABLE>
<S> <C>
8.1. Year One . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.2. Year Two . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
8.3. Year Three . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
8.4. No Other Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
9. DURATION; TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
9.1. Duration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
9.2. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
9.3. Continuing Support for Value Added Services Marketing . . . . . . . . . . . . . . . . . . 26
9.4. Termination After Governmental Action Affecting this Agreement . . . . . . . . . . . . . 27
9.5. Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
9.6. Transition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
10. CONFIDENTIALITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
11. REPRESENTATIONS, WARRANTIES, AND UNDERTAKINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
11.1. Representations of BBN and BBN Planet . . . . . . . . . . . . . . . . . . . . . . . . . . 30
11.1.1. No Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
11.1.2. No Conflicting Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
11.1.3. Necessary Rights and Authority . . . . . . . . . . . . . . . . . . . . . . . . . 30
11.1.4. BBN Marks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
11.2. Representations of AT&T . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
11.2.1. No Conflicting Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
11.2.2. Necessary Rights and Authority . . . . . . . . . . . . . . . . . . . . . . . . . 31
12. REGULATORY MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
12.1. Responsibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
12.2. Enhanced Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
13. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
13.1. BBN and BBN Planet Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
13.2. AT&T Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
13.3. Obligation to Defend; Notice; Cooperation . . . . . . . . . . . . . . . . . . . . . . . . 33
14. INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
15. RIGHT TO BOOKS AND RECORDS/AUDIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
16. RISK ALLOCATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
16.1. NO CONSEQUENTIAL DAMAGES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
</TABLE>
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<TABLE>
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17. DISPUTE RESOLUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
18. RIGHT OF FIRST NEGOTIATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
19. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
19.1. Hiring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
19.2. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
19.3. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
19.4. No Third-Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
19.5. Independent Contractors; Limitation of Liability . . . . . . . . . . . . . . . . . . . . 38
19.6. Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
19.7. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
19.8. Press Releases/Public Announcement . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
19.9. Nonexclusive Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
19.10. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
19.11. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
19.12. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
19.13. Waivers; Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
19.14. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
19.15. Titles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
19.16. Execution in Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
</TABLE>
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<PAGE> 5
INTERNET SERVICES AGREEMENT
This INTERNET SERVICES AGREEMENT ("Agreement") is made and entered
into as of the 20th day of June, 1995 (the "Effective Date"), by and between
AT&T CORP., a New York corporation, for itself and its Affiliates ("AT&T"),
acting through its Business Communications Services organization ("BCS"), BOLT
BERANEK AND NEWMAN INC., a Massachusetts corporation ("BBN"), and BBN PLANET
CORPORATION, a Massachusetts corporation and a majority-owned subsidiary of BBN
("BBN Planet").
WHEREAS, BBN, through BBN Planet, is in the business of providing, on a
dedicated basis to end user business customers, Internet and related services;
WHEREAS, AT&T desires to create and market various service offerings
to business customers incorporating or consisting entirely of a dedicated
Internet services component;
WHEREAS, BBN is able to provide such dedicated Internet services on a
scale commensurate with AT&T's anticipated business customer demand levels, and
AT&T is willing to purchase such dedicated Internet services on the terms and
subject to the conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants of this Agreement, the Parties agree as follows:
1. DEFINITIONS
For purposes of this Agreement, certain terms have been defined below
and elsewhere in this Agreement (including the attached Schedules) to encompass
meanings that may differ from, or be in addition to, the normal connotation of
the defined word. Unless the context clearly indicates otherwise, any term
defined or used in the singular shall include the plural. A defined word
intended to convey its special meaning is capitalized when used.
"Acquiring Entity" has the meaning set forth in Section 9.2.
"Active Internet Security Services" has the meaning set forth
in Section 8.1.
"Additional Guaranteed Minimum" has the meaning set forth in
Section 8.3.3.
"Affiliate" of a party shall mean an entity which is under
common control with, controls or is controlled by such party.
AT&T AND BBN PROPRIETARY: SUBJECT TO NON-DISCLOSURE AGREEMENT
<PAGE> 6
"Agreement" has the meaning set forth in the preamble.
"AT&T" has the meaning set forth in the preamble.
"AT&T Customer" means any purchaser of a service offering that
includes Services provided by BBN under this Agreement. As used in this
Agreement, an "AT&T Customer" shall include (1) any party with which AT&T
enters into an agreement relating to the sale of services that include
Services, (2) any party that purchases Services for which billing is provided
by AT&T, (3) any party that purchases Value-Added Services from BBN pursuant to
Section 4.1.2, (4) any AT&T Reseller, and (5) any purchaser of services that
include Services from an AT&T Reseller. In cases where AT&T uses Services
provided by BBN under this Agreement for its own internal purposes, AT&T shall
be deemed an "AT&T Customer" for purposes of this Agreement.
"AT&T Customer Information" shall mean all information
relating to each AT&T Customer collected in connection with the provision of
Services to such AT&T Customer, including without limitation the name, address,
usage, features and services purchased, locations served, payment history, and
all other information identifiable to a particular customer.
"AT&T Customer Site" has the meaning set forth in Section 2.8.
"AT&T Reseller" has the meaning set forth in Section 4.1.1.
"BBN" has the meaning set forth in the preamble. Unless
expressly stated otherwise, all references to BBN in this Agreement shall be
deemed to include BBN Planet.
"BBN Marks" shall mean the BBN Primary Marks, the BBN VAS
Marks, such other Marks as are used by BBN to promote, advertise and market the
Services, and such other Marks as the Parties shall agree in writing.
"BBN Planet" has the meaning set forth in the preamble.
"BBN Point of Presence" shall mean one of the points of
presence representing a point of interconnection to the BBN network. The
initial BBN Points of Presence are listed in Schedule 5.2 to this Agreement,
and BBN shall promptly update such schedule during the Term on reasonable
notice to AT&T. At any time during the term of this Agreement, BBN Points of
Presence could be collocated with points of presence on the AT&T network
pursuant to Section 5.1.
"BBN Primary Marks" shall mean the Marks "BBN" and "BBN
PLANET."
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"BBN VAS Marks" shall mean such Marks as are used by BBN to
promote, advertise and market Value Added Services.
"BBN Training Services" Program has the meaning set forth in
Section 2.1.2.
"BCS" has the meaning set forth in the preamble.
"Carrier" means any entity that (1) on its own or through an
Affiliate, provides local exchange carrier service. interexchange carrier
service, local or international telephone service outside the United States,
value added network services or on-line services, and/or resale of any of the
foregoing, and (2) had annual revenues in the most recently completed fiscal
year of at least $500 million. For purposes of this definition, "on-line
services" refers to services that are used to enable end users to access
electronic information and other services from multiple providers of
information and other services, and are purchasable independent of other
products or services of the provider, and excludes special-purpose vertical
industry applications.
"Claim" means any pending or threatened claim, action,
proceeding or suit by any Third Party.
"Confidential Information" means information not publicly
available and given by one Party to the other Party or otherwise deemed to be
Confidential Information pursuant to Section 10 of this Agreement.
"Damages" means any loss, debt, liability, damage, obligation.
claim, demand, judgment or settlement of any nature or kind, known or unknown,
liquidated or unliquidated, including without limitation all reasonable costs
and expenses incurred (legal, accounting or otherwise).
"Dedicated Internet Services" has the meaning set forth in
Section 8.1.
"Discloser" means that Party which, in any particular
instance, discloses its Confidential Information to the other Party or
otherwise owes a duty of confidentiality to the other Party pursuant to Section
10.
"Documentation" shall mean Reseller Documentation and End User
Documentation.
"Effective Date" has the meaning set forth in the preamble.
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"End User Documentation" shall mean all documentation provided
by BBN in the Territory for use by end users of its services in connection with
the use and operation of the Services provided under this Agreement, including
without limitation all marketing and other materials describing such services,
as such documentation may be amended, modified or supplemented from time to
time.
"Exclusive Territory" means (i) the continental United States,
Alaska and Hawaii, and (ii) any other territory agreed to by the Parties in
writing.
"Exclusivity Restrictions" has the meaning set forth in
Section 8.1.
"First Service Activation Date" means the earlier to occur of
(1) the first day of the calendar month in which AT&T first realizes revenues
from the provision of services to AT&T Customers using the Services provided
under this Agreement, or (2) September 1, 1995.
"Guaranteed Minimum" means the minimum annual payment amount
AT&T is obligated to pay to BBN pursuant to Section 7.3.
"Indemnitee" means a Party claiming indemnification benefits
under Section 13.1 or 13.2.
"Indemnitor" means a Party against whom an indemnification
claim is made under Section 13.1 or 13.2.
"Intellectual Property Rights" shall mean all intangible
property rights protectible by law throughout the world including all
copyrights (including, without limitation, the exclusive right to reproduce,
distribute copies of, display and perform the copyrighted work and to prepare
derivative works), copyright registrations and applications, trademark rights
(including trade dress), trademark registrations and applications, service mark
rights, service mark registrations and applications, patent rights (including
the right to apply therefor), patent applications therefor (including the right
to claim priority under applicable international conventions) and all patents
issuing thereon, and inventions, whether or not patentable, together with all
utility and design, know-how, specifications, trade names, mask-work rights,
trade secrets, moral rights, author's rights, algorithms, rights in packaging,
goodwill and other intangible property rights, as may exist now and/or
hereafter come into existence, and all renewals and extensions thereof,
regardless of whether any of such rights arise under the laws of the United
States or of any other state, country or jurisdiction.
"Managed Connectivity Services" has the meaning set forth in
Section 2.1.1.
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"Marks" shall mean trade names, logos, trademarks, trade
devices, trade dress, service marks, symbols, abbreviations or registered
marks, or contractions or simulations thereof, or any other indicia of origin.
"Party" means AT&T, individually, or BBN and BBN Planet,
collectively.
"Parties" means AT&T, BBN and BBN Planet, collectively.
"Recipient" means that Party to this Agreement to which
Confidential Information has been disclosed by the other Party or is otherwise
owed a duty of confidentiality by the other Party pursuant to Section 10.
"Reseller Documentation" shall mean all documentation made
available in the Territory by BBN for use by any reseller or distributor of
services of the type comprising the Services to describe the methods and
procedures used by BBN in the provisioning and support of users of services of
the type comprising any of the Services provided under this Agreement, as such
documentation may be amended, modified or supplemented from time to time.
"Sales Support Services" has the meaning set forth in Section
3.1.
"Secondary Territory" has the meaning set forth in Section
2.1.1.
"Secondary Territory Services" has the meaning set forth in
Section 2.1.1.
"Services" means Managed Connectivity Services and Value Added
Services.
"Soft Landing Guarantees" has the meaning set forth in Section
7.3.1.
"Term" means the time period from the Effective Date to the
earlier of (i) the five year anniversary of the First Service Activation Date,
and (ii) such earlier date as of which this Agreement expires or is terminated
pursuant to Section 9.2 or otherwise.
"Territory" means (i) the Exclusive Territory, and (ii) any
other territory agreed to by the Parties in writing.
"Third Party" means an entity other than a Party or any
Affiliate of a Party.
"Value Added Services" has the meaning set forth in Section
2.1.2.
"VAS Development Programs" has the meaning set forth in
Section 7.4.
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"Year" means whichever of Year One, Year Two, Year Three, Year
Four or Year Five is in effect at the time of the event being described.
"Year One" means the period from the First Service Activation
Date to and including August 31, 1996.
"Year Two" means the one year period from September 1, 1996 to
and including August 31, 1997.
"Year Three" means the one year period from September 1, 1997
to and including August 31, 1998.
"Year Four" means the one year period from September 1, 1998
to and including August 31, 1999.
"Year Five" means the one year period from September 1, 1999
to and including August 31, 2000.
2. SERVICE DESCRIPTION
2.1. Initial Description of the Services. From and after the First
Service Activation Date, on the terms and subject to the conditions set forth in
this Agreement, BBN Planet shall provide to AT&T the following services in the
Territory:
2.1.1. Managed Connectivity Services, which consist of the
provision of dedicated access to the Internet to business customers and all
related products and services offered or provided by BBN that facilitate such
access, provided that in no event shall Managed Connectivity Services be deemed
to include the provision of services that include dial-up access to the
Internet directly to end users or other services that are not marketed by BBN
as a standard or optional product feature of Managed Connectivity Services.
The initial Managed Connectivity Services shall comply with the description in
Schedule 2.1.1., including without limitation the functional, technical and
performance requirements set forth in such schedule. From time to time, the
Parties will agree on such modifications to the functional, technical and
performance requirements for Managed Connectivity Services as are necessary to
address requirements of AT&T Customers. At such times as BBN provides enhanced
versions of Managed Connectivity Services, the Parties shall agree, for
purposes of this Agreement, upon the functional, technical and performance
requirements for such services, which requirements shall, at a minimum, ensure
that such services comply with the minimum requirements in Section 2.2.
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2.1.2. Value Added Services, consisting of the following
services and products: (i) BBN's Site Patrol service, (ii) BBN's Internet
Training Program (including any modified form of such program developed
pursuant to Section 2.7), (iii) BBN's Web Advantage World Wide Web Services,
(iv) any services marketed or offered by BBN the development of which was
funded in whole or in part by AT&T pursuant to Section 7.4, and (v) any other
services or products marketed or offered by BBN Planet as a generally available
service or product offering other than Managed Connectivity Services that
stimulate demand for, or enhance the value or utility of, access to the
Internet and are not subject to exclusive marketing relationships with Third
Parties. The initial Value Added Services shall consist of the services
described in clauses (i), (ii) and (iii) of the preceding sentence, and shall
comply with the descriptions for each such service in Schedule 2.1.2, including
without limitation the functional, technical and performance requirements set
forth in such schedule. At such times as BBN provides additional Value Added
Services, the Parties shall also agree, for purposes of this Agreement, upon
the functional, technical and performance requirements for such services, which
requirements shall, at a minimum, ensure that such services comply with the
minimum requirements in Section 2.2.
2.2. Minimum Requirements. The Managed Connectivity Services and
Value Added Services provided by BBN under this Agreement shall at all times
meet the following minimum requirements:
2.2.1. The Managed Connectivity Services and BBN's Site
Patrol service provided by BBN under this Agreement shall be offered and
provided with features and a level of quality that, on average and taken as a
whole, equal or exceed that provided by other leading providers of Internet
services offering comparable services in a substantial portion of the
Territory. The Parties agree to work together on a broader range of offers as
needed to address market demand for Dedicated Internet Services and Active
Internet Security Services.
2.2.2. The Managed Connectivity Services and Value Added
Services provided by BBN under this Agreement shall be offered and provided
with features and a level of quality that equals or exceeds that which BBN
offers or provides any other customer.
2.2.3. The Managed Connectivity Services and Value Added
Services provided by BBN under this Agreement shall comply with all
Documentation relating to the Managed Connectivity Services and Value Added
Services offered or provided by BBN as of the Effective Date and as updated
from time to time (provided that no such update may operate to have a material
adverse impact on (i) any Managed Connectivity Service or Active Internet
Security Services (including without limitation the level or quality of service
provided to AT&T Customers), taken as a whole, without the prior written
consent of AT&T, except to the extent necessary to deal with network
emergencies and other circumstances beyond the control of BBN, in which case
BBN shall consult with AT&T concerning such change as soon
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as reasonably practicable, or (ii) any other Services without providing AT&T
with advance written notice of such changes as soon as reasonably practicable).
2.2.4. BBN shall not make any changes (i) in any Managed
Connectivity Service or Active Internet Security Service that may reasonably be
expected to have a material adverse impact on such Service (including without
limitation the level or quality of service provided to AT&T Customers), taken
as a whole, without the prior written consent of AT&T, except to the extent
necessary to deal with network emergencies and other circumstances beyond the
control of BBN, in which case BBN shall consult with AT&T concerning such
change as soon as reasonably practicable, or (ii) in any other Services without
providing AT&T with advance written notice of such changes as soon as
reasonably practicable.
2.2.5. Notwithstanding the foregoing provisions of this
Section 2.2, in no event shall BBN be responsible for any diminution in the
quality of the Services, or any delay in the provision of the Services, to the
extent caused by actions or omissions of AT&T or any local exchange carrier.
2.3. Documentation. BBN represents that (1) Schedule 2.3
contains a true and complete list of all Documentation relating to the Managed
Connectivity Services and Value Added Services offered or provided by BBN as of
the Effective Date, and (2) true and complete copies of all such Documentation
have been provided to AT&T prior to the Effective Date. In the event BBN
decides to amend, modify or supplement any such Documentation, or creates new
Documentation in connection with enhanced versions of Managed Connectivity
Services or additional Value Added Services added pursuant to Section 2.1, BBN
shall as soon as practicable provide AT&T with written notice of any such
amendments, modifications, supplements or new Documentation, including copies
of the foregoing.
2.4. License to Documentation and Other Intellectual Property
Rights.
2.4.1. BBN hereby grants (i) to AT&T and all AT&T Resellers
a non-exclusive, royalty-free, worldwide license, with the right to sublicense
to AT&T Resellers pursuant to this clause (i) and to AT&T Customers pursuant to
clause (ii), by all means and in any media, whether now known or hereafter
developed, to use, reproduce, distribute, make derivative works of, publicly
display, publicly perform and demonstrate the Documentation in connection with
the provision of the Services to AT&T and AT&T Customers in the Territory and
in the Secondary Territory and in connection with the advertising, marketing
and promotion of Services to be used within the Territory or within the
Secondary Territory, and (ii) to AT&T Customers a non-exclusive, royalty-free,
worldwide license, by all means and in any media, whether now known or
hereafter developed, to use and reproduce the Documentation in connection with
the use of any of the Services or Secondary Territory Services (provided that,
without the written consent of BBN, AT&T Customers may only use
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portions of Reseller Documentation, other than portions consisting of
techniques or methods for marketing or selling the services and competitive
information, to the extent reasonably necessary for AT&T and AT&T Resellers to
market and sell the services). BBN warrants that it has, and will have, all
necessary rights. title and interest in the Documentation. The license
contained in this subsection 2.4.1, and any sublicenses granted pursuant to
this subsection 2.4.1, shall commence on the Effective Date and shall continue
in full force and effect throughout the Term, or for such longer period as the
Services or Secondary Territory Services are provided to any AT&T Customer
pursuant to Section 9.6.
2.4.2. Except as set forth in Schedule 2.4.2 or otherwise
in this Agreement, BBN represents that no further licenses to any Intellectual
Property Rights of BBN or any Third Party are required in connection with the
marketing, offering, provision or use of the Services by AT&T or any AT&T
Customer as contemplated by this Agreement as of the Effective Date. In the
event that any such licenses are required in connection with the marketing,
offering, provision or use of any Services or Secondary Territory Services as
contemplated by this Agreement after the Effective Date, BBN shall grant to,
and if applicable shall procure for, AT&T and AT&T Customers licenses on
commercially reasonable terms, consistent with the requirements of Section 2.2
and Paragraph 4 of Schedule 7.1, under such Intellectual Property rights as are
necessary in connection with such Services or Secondary Territory Services.
2.5. Right To Use BBN Marks.
2.5.1. BBN hereby grants to AT&T and any AT&T Reseller a
royalty-free, nonexclusive, worldwide license, with the right to sublicense to
AT&T Resellers, to use the BBN Marks during the term of this Agreement to use
the BBN Marks in conjunction with the marketing, offering or provision of
Services to be used within the Territory or within the Secondary Territory
(including without limitation (i) on periodic statements, customer agreements
and other communications to AT&T Customers, and (ii) in marketing and
advertising and promotional communications). AT&T agrees that the use of any
of the BBN Marks shall conform to the generally applicable standards reasonably
set by BBN from time-to-time. AT&T agrees to cooperate with BBN in
facilitating BBN's monitoring and control of the BBN Marks and to supply BBN
with samples of use of the BBN Marks upon reasonable request by BBN. In the
event BBN ceases to use a BBN Mark (other than one of the BBN Primary Marks),
AT&T agrees to use reasonable efforts to promptly cease using such Mark
following written notice from BBN. Such reasonable efforts shall include
instructing its sales and marketing personnel to cease to use such Mark, and
using reasonable efforts to cease use of any marketing or sales collateral that
use such Mark, provided that BBN shall reimburse AT&T for the incremental
expenses associated with modifying or replacing such collateral.
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2.5.2. AT&T shall not claim ownership or any other rights
in the BBN Marks. Upon expiration or termination of this Agreement, AT&T
agrees to cease and discontinue any further use of the BBN Marks within three
(3) months of the date of any such expiration or termination. Within three (3)
months of the date of the termination of the Exclusivity Restrictions in
Section 8 (or, if AT&T notifies BBN in writing that it commits to continue to
prominently identify BBN's role in the provision of Managed Connectivity
Services as provided in Section 4.1, the date on which such commitment expires
or terminates), AT&T's right to use the BBN Marks shall conform to reasonable
guidelines generally applied by BBN to resellers or distributors of services of
the type comprising the Services or Secondary Territory Services.
2.6. AT&T Customer Information. BBN agrees to make all AT&T
Customer Information collected by BBN available to AT&T upon reasonable notice
without charge to AT&T, excluding Confidential Information required to be kept
confidential pursuant to a confidentiality agreement between BBN and an AT&T
Customer entered into at the request of the AT&T Customer. BBN will, to the
extent consistent with the terms of any such confidentiality agreement, provide
written notice to AT&T of restrictions imposed under such agreements.
2.7. Additional Training. BBN, in collaboration with AT&T, will
establish as a modified Value Added Service for AT&T technical and sales
personnel and AT&T Customers, training in the Internet. AT&T reserves the right
to establish an AT&T certification program for AT&T technical and sales
personnel and AT&T Customers, provided that AT&T shall not be permitted to
provide any Documentation or any modified form thereof to any current or
prospective AT&T Customer in conjunction with such AT&T certification program or
any similar program without the written consent of BBN (which shall not be
unreasonably withheld to the extent such program does not compete with any Value
Added Service).
2.8. Coordination with Respect to AT&T Customers. BBN and BCS will
coordinate to develop processes reasonably designed to avoid marketing by BBN or
BCS of Services to existing customers of the other Party. The foregoing
sentence is intended as an expression of intent between the Parties in order to
maximize efficiency for both Parties. This Section shall not be construed to
prohibit either Party from marketing or selling any services to any Third Party
(including existing customers of AT&T or BBN), except that (i) BBN shall not
market or sell Managed Connectivity Services to any AT&T Customer Site except
pursuant to this Agreement, (ii) BBN will not target the marketing of Value
Added Services to any AT&T Customer Site in competition with AT&T's marketing of
Value Added Services (subject to compliance with the coordination processes
developed pursuant to the first sentence of this Section 2.8), and (iii) BBN
will take reasonable measures such that BBN sales personnel will not target
sales of Value Added Services to any AT&T Customer Site in competition with
AT&T's marketing of Value Added Services (subject to compliance with the
coordination
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processes developed pursuant to the first sentence of this Section 2.8). For
purposes of this Section 2.8. an "AT&T Customer Site" shall be, with respect to
any AT&T Customer, any identifiable portion of such entity (whether defined by
location, business unit, functional responsibility or otherwise) that has
purchased Managed Connectivity Services from AT&T pursuant to this Agreement.
2.9. BBN Liability for Affiliate Obligations. BBN shall remain
primarily liable for all obligations of its Affiliates, including BBN Planet,
pursuant to this Agreement, except that BBN (and not BBN Planet) shall be
relieved from such liability in the event BBN Planet undergoes a material change
in ownership or control through acquisition by or merger with an Acquiring
Entity (as defined in Section 9.2) and such Acquiring Entity meets the
conditions set forth in clause (B) of Section 9.2 for precluding AT&T from
having the right to cancel this Agreement by virtue of such acquisition or
merger.
2.10. Forecasts. BBN agrees to coordinate with AT&T to estimate the
level and location of demand and traffic for Services during the term of this
Agreement. In that connection, no later than the 15th day of each month of each
year during the term of this Agreement, AT&T shall provide BBN its projected
requirements for Services, indicating amounts, types, and location, during the
following three calendar months. These forecasts shall be used for the planning
convenience of BBN and shall not be binding upon AT&T, but BBN intends to use
the forecasts to estimate needed staffing, network provisioning, and product
levels for its performance of the terms of this Agreement and shall only be
responsible for using commercially reasonable efforts to satisfy demand to the
extent it materially exceeds such forecasts. AT&T shall provide its initial
projected requirements for Services for the period from the First Service
Activation Date through September 30, 1995 as soon as practicable following the
Effective Date. All forecasts provided under this Section 2.10 shall be treated
as Confidential Information of AT&T pursuant to Section 10.
2.11. Provision of Services Outside the Exclusive Territory. In any
area outside the Exclusive Territory in which BBN or one of its Affiliates
directly or through a franchisee (i) markets or sells services comparable to the
Services ("Secondary Territory Services") to end users of such services, (ii)
has a sales representatives located within or assigned to such location with
respect to the marketing or selling of Secondary Territory Services to end
users, or (iii) has a BBN Point of Presence in such location (the areas referred
to in clauses (i), (ii) and (iii) are referred to herein as the "Secondary
Territory"), BBN agrees to provide such Secondary Territory Services in such
location to AT&T for resale to AT&T Customers on price and other terms generally
offered by BBN to its customers in such location. The provision of services
under this Section 2.11 by BBN or one of its Affiliates directly shall be
subject to the applicable discount percentages at which Services are then being
sold to AT&T under this Agreement pursuant to Schedule 7.1, but shall not be
governed by the requirements of Section 2.2.1 or Paragraph 4(C) of Schedule 7.1.
The provision of services under this
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Section 2.11 by BBN or one of its Affiliates through a franchisee shall be the
subject of negotiation among AT&T, BBN and the franchisee, and shall not be
governed by the requirements of Section 2.2.1 or Paragraph 4 of Schedule 7.1.
Secondary Territory Services shall be made available to AT&T on price and other
terms and conditions at least as favorable as those on which BBN makes such
services available in such location to any other United States-based reseller or
distributor of BBN. Purchases in any Year by AT&T pursuant to this Section 2.11
may be used to satisfy a maximum of 25% of the applicable Guaranteed Minimum
under Section 7.3 in such Year.
3. SALES SUPPORT SERVICES
3.1. Pre-Sale Support and Post-Sale Implementation Support. From and
after the Effective Date, BBN Planet shall offer and provide pre-sale support
and post-sale implementation support services ("Sales Support Services") to AT&T
technical personnel and sales channels as specified in Schedule 3.1, including
assisting AT&T personnel in acquiring skills that are necessary or useful in the
provision of the foregoing services. Sales Support Services shall not include
services offered or provided by BBN to its customers as part of Managed
Connectivity Services. In providing Sales Support Services under this Agreement,
BBN shall at all times provide Sales Support Services that are at a level of
quality and service that, on average and taken as a whole, equals or exceeds
that provided by other leading providers of Internet services offering
comparable services in the Territory and that are at least equal in quality and
level of service to comparable services offered by BBN to any of its other
resellers or distributors of services of the type comprising the Services. All
Sales Support Services shall be provided in compliance with methods and
procedures to be agreed upon by AT&T and BBN.
3.2. AT&T Sales Support Department. BBN shall create and manage an
AT&T Sales Support Department exclusively for the purpose of providing Sales
Support Services under Section 3.1. BBN shall adequately staff the AT&T Sales
Support Department with knowledgeable, experienced and trained Internet
professionals capable of providing support to the AT&T technical personnel and
sales channels and customer care to AT&T Customers consistent with the
requirements of Section 3.1. All such professionals shall be employed on a
dedicated, full-time basis to support the activities contemplated under Section
3.1, except for BBN employees assigned by BBN from time to time in order to
assist the AT&T Sales Support Department on a part-time basis, where the use of
such employees would be more efficient than the use of dedicated employees or
where such employees would perform work that could not be performed by the
dedicated Sales Support Services employees, and with respect to whom BBN gives
AT&T a timely accounting.
3.3. Funding Through September 30. 1995. Through September 30, 1995,
AT&T shall fund the operations of the AT&T Sales Support Department at a rate of
$12,500 per
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month for each full-time professional, and $80 per hour for each part-time
employee assigned to the AT&T Sales Support Department pursuant to Section 3.2,
at a staffing level that is reasonably required to support the anticipated
demand for Sales Support Services under this Agreement. AT&T shall also
reimburse BBN for reasonable travel and other out-of-pocket expenses incurred
in connection with Sales Support Services requested by AT&T, provided that BBN
shall use good business judgment to minimize such expenses. AT&T's obligation
to fund the operations of the AT&T Sales Support Department under this Section
3.3 (including BBN's expenses) shall not exceed an aggregate maximum of SI
million. BBN shall fund all other expenses associated with the AT&T Sales
Support Department during this period.
3.4. Funding After September 30.1995. From and after October 1,
1995, AT&T shall fund the operations of the AT&T Sales Support Department at a
rate of $12,500 per month for each full-time professional, and $80 per hour for
each part-time employee, assigned to the AT&T Sales Support Department pursuant
to Section 3.2, which staffing level shall be set at a level that is reasonably
required to support the anticipated demand for Sales Support Services under this
Agreement, as agreed by AT&T and BBN (i) for the period from October 1, 1995
through January 1, 1996, by September 15, 1995, and (ii) for the period after
January 1, 1996, not less than 90 days in advance. AT&T shall also reimburse BBN
for reasonable travel and other out-of-pocket expenses incurred in connection
with Sales Support Services requested by AT&T, provided that BBN shall use good
business judgment to minimize such expenses. BBN shall fund all other continuing
expenses associated with the AT&T Sales Support Department during this period.
4. AT&T RIGHTS AND RESPONSIBILITIES
4.1. AT&T Use and Sale of Services.
4.1.1. AT&T may use the Services made available to it
pursuant to this Agreement for any lawful purpose, including without limitation
for its own account, for resale to AT&T Customers or for resale to Third
Parties for further resale or distribution (such Third Parties are referred to
herein as "AT&T Resellers"), either alone or in combination with any other
products or services. Services offered by AT&T that incorporate Managed
Connectivity Services made available to it pursuant to this Agreement shall, at
AT&T's discretion, be branded exclusively as AT&T services or otherwise as AT&T
shall determine, provided that, for so long as the Exclusivity Restrictions in
Section 8 continue under this Agreement, AT&T shall, where reasonably
practicable in the Territory, prominently identify BBN's role in the provision
of Managed Connectivity Services provided under this Agreement. AT&T shall
specify the design of any user interface associated with any Managed
Connectivity Services, consistent with the preceding sentence. AT&T shall have
complete discretion to determine the prices to be charged to AT&T Customers for
the Services provided under this Agreement. Subject to the provisions of
Section 4.4, AT&T shall also have complete discretion to
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determine the other terms and conditions on which AT&T makes such Services
available to AT&T Customers. Except as otherwise provided in this Agreement
(including without limitation pursuant to Section 5.6), and except as reasonably
necessary for BBN to assist AT&T during the introduction of AT&T Internet
services under this Agreement, AT&T shall provide the primary interface to AT&T
Customers in connection with the marketing, offering or provision of AT&T
services that incorporate the Services, including (a) providing first tier
support for Services provided to AT&T Customers; and (b) handling communications
to and business relations with AT&T Customers related to contractual agreements,
handling invoicing and payment matters, and handling inquiries and questions
from AT&T Customers about Services.
4.1.2. Notwithstanding Section 4.1.1, unless the parties
otherwise agree, Value Added Services will be marketed and sold under this
Agreement as BBN-branded products and pursuant to agreements between BBN and
AT&T Customers, but will, where practicable, be billed by AT&T. The Parties
will agree on the extent to which it would be appropriate for AT&T to provide
the primary interface to AT&T Customers for Value Added Services where BBN
enters into an agreement directly with an AT&T Customer for the provision of
such Services.
4.2. Use of AT&T Marks. Except as provided herein or by advance
written consent of AT&T, BBN agrees not to (i) display or use, in advertising or
otherwise, any of AT&T's Marks, (ii) permit any Affiliate to display or use any
of AT&T's Marks, or (iii) give its permission to the display or use of any of
AT&T's Marks by any Third Party. Any use by BBN of any of AT&T's Marks shall be
subject to AT&T's advance approval in writing, in its discretion, subject to
compliance with guidelines provided by AT&T. BBN shall not claim ownership or
any other rights in any of AT&T's Marks. Upon termination or expiration of this
Agreement, any and all rights or privileges granted by AT&T to BBN to use any of
AT&T's Marks shall immediately expire and BBN shall immediately discontinue the
use of AT&T's Marks. Nothing herein shall preclude BBN from making factual
references to AT&T in governmental filings. disclosure documents, and other
public statements, as provided under Sections 10 and 19.8.
4.3. Introductory Marketing Campaign. AT&T shall conduct a high-
profile marketing campaign in support of the introduction of AT&T Internet
services using the Services provided under this Agreement as soon as reasonably
practicable following the Effective Date. In connection with such marketing
activities, AT&T shall prominently mention BBN's role in the provision of such
services. AT&T shall consult with BBN as appropriate in connection with such
campaign. AT&T shall design, establish, and fund such promotional activities in
its discretion based upon internal AT&T business considerations, including the
appropriateness of the channels for such services, the likely return from such
expenditures, and other marketing efforts being conducted by AT&T, and shall
devote a level
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of resources to such marketing campaign consistent with the level of resources
BCS devotes to the introduction of other comparable high profile new product
offerings marketed principally to its data communications customers.
4.4. Provisions Applicable to End Users.
4.4.1. AT&T's Use of Services. AT&T's use of Services in
AT&T's capacity as an end user of Services for its own account shall be
governed by Schedule 4.4.1.
4.4.2. Agreements with AT&T Customers Other than AT&T.
AT&T's agreements with AT&T Customers relating to the provision of Services
shall comply with Schedule 4.4.2.
5. INFRASTRUCTURE
5.1. Use of AT&T Equipment and Facilities. In providing the
Services to AT&T under this Agreement, BBN shall purchase infrastructure,
equipment, facilities and services necessary for the transmission of data
(collectively, "Infrastructure") from AT&T provided (i) BBN is not restricted
from purchasing such Infrastructure from AT&T under contractual obligations
binding on BBN at the time the purchase decision is being considered, (ii) such
Infrastructure meets BBN's reasonable functional, technical and performance
requirements, and (iii) AT&T offers such Infrastructure to BBN at a price and on
terms and conditions that, on average and taken as a whole, are competitive as
compared to those offered to BBN in good faith by other leading providers of
infrastructure, equipment, facilities and services similar to the Infrastructure
at the time AT&T makes its offer.
5.2. Provisioning of Customers. In connection with the provision of
Managed Connectivity Services hereunder, AT&T shall assume primary
responsibility for providing, at AT&T's expense or the expense of the AT&T
Customer, (i) connectivity between the AT&T Customer's premises and any BBN
Point of Presence listed in Schedule 5.2 (as such schedule may be modified or
supplemented from time to time) that is selected by AT&T, subject to Section
5.3, and (ii) unless the AT&T Customer otherwise determines, any standard
commercial, off-the-shelf premises equipment required in connection with the
Services. To the extent the Benchmark Prices in Schedule 7.1 include the
provision of such services and equipment, such prices shall be adjusted to take
into account a fair allocation for the exclusion of such services and equipment,
provided that such adjustments (or, if any Benchmark Prices in Schedule 7.1 are
already adjusted to take into account the exclusion of such services or
equipment, the amount of such adjustment already taken into account in such
price) shall be counted in calculating AT&T's compliance with the Guaranteed
Minimums under Section 7.3 of this Agreement, except that, if AT&T sells
equipment contemplated by subclause (ii) in the first sentence of this Section
5.2 to such AT&T Customer, no such adjustment in respect of
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such equipment shall be counted in calculating AT&T's compliance with the
Guaranteed Minimums, and provided further that the amount of any such
adjustment in respect of subclause (i) in the first sentence of this Section
5.2 counted in calculating AT&T's compliance with the Guaranteed Minimums shall
be equal to the differential, if any, between the price (or adjusted price) of
the service actually purchased by AT&T from BBN and the Benchmark Price that
would apply based on the manner in which BBN, following its own standard
practices, would have provisioned such service.
5.3. Interconnection with BBN Facilities. AT&T and BBN shall
coordinate with respect to (1) the definition of the interfaces between the AT&T
network and the BBN network at the BBN Points of Presence, (2) the management of
traffic routed by AT&T from the premises of AT&T Customers to BBN Points of
Presence, and (3) access by BBN to the AT&T network for the purposes of
providing Services under this Agreement to AT&T Customers. AT&T, in its
discretion, in consultation with BBN, shall establish the policies governing
management and provisioning of the AT&T network to the extent it is used to
support AT&T Customers, including without limitation addressing schemes. BBN
shall be responsible for the day-to-day management of the network relating to
the provision of Services, including monitoring and taking the actions necessary
to remedy problems with, or disruption of, the Services. AT&T will reimburse BBN
for incremental expenses incurred by BBN as a result of complying with policies
established by AT&T.
5.4. Customer Transfers. At any time after the Exclusivity
Restrictions in Section 8 no longer continue under this Agreement, and subject
to AT&T's obligations under Section 7.3, AT&T shall have the right to migrate
the provisioning of Dedicated Internet Services to any AT&T Customer of Managed
Connectivity Services such that such services are provided directly by AT&T or
on AT&T's behalf by a Third Party. BBN shall provide all reasonable cooperation
in support of a seamless, minimally disruptive migration of such AT&T Customers
in connection with such services (including without limitation any necessary
transfer of customer addresses), and the Parties shall structure the
provisioning of Managed Connectivity Services during the Term in a manner
designed to facilitate such migration. In consideration for the foregoing, AT&T
shall pay BBN (i) for any migration that occurs during the Term, a Customer
Transition Services Fee equal to 1.5 times the Closing Average Monthly Revenue
with respect to each such AT&T Customer, and (ii) for any migration that occurs
at any time (whether during or after the Term) any reasonable direct expenses
incurred by BBN in connection with such migration. The "Closing Average Monthly
Revenue" with respect to any AT&T Customer transferred pursuant to the prior
sentence shall be an amount equal to the average of the monthly payments made by
AT&T to BBN pursuant to Schedule 7.1 in respect of such AT&T Customer during the
six-month period (or such shorter period as such AT&T Customer shall have
received Services pursuant to this Agreement) preceding such transfer for
Dedicated Internet Services to be provided by AT&T (or by a Third Party on
behalf of AT&T) following such transfer (or, in the case of AT&T Customers that
paid in
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advance for Services provided during and after such six-month (or shorter)
period, the average monthly revenue accrued by BBN in respect of such AT&T
Customer in respect of Services provided during such six-month (or shorter)
period. In no event shall AT&T's liability for Customer Transition Services
Fees under this Section 5.4 exceed $75 million in the aggregate. In the event
any AT&T Customer with respect to which AT&T has paid BBN a Customer Transition
Services Fee terminates its relationship with AT&T and purchases Dedicated
Internet Services directly or indirectly from BBN within a period of one year
of the related transfer, BBN shall refund to AT&T the Customer Transition
Services Fee paid with respect to such AT&T Customer.
5.5. Repurchase of Assets. At any time during the Term after Year
Three (or within ninety (90) days after the Term if this Agreement is terminated
prior to the conclusion of Year Five), (1) BBN shall have the option to sell to
AT&T (and if such option is exercised, AT&T shall purchase), and (2) AT&T shall
have the option to purchase from BBN (and if such option is exercised, BBN shall
sell), in either case upon 90 days' advance written notice, at fair market value
(but not less than BBN's net book value for such equipment, in no event to be
calculated on a depreciation basis that is less rapid than three-year
straight-line depreciation) those network infrastructure assets consisting of
routers, brouters, DSUs, CSUs and servers that were paid for and owned by BBN
during the Term of the Agreement and were used primarily for the purpose of
providing Managed Connectivity Services to those AT&T Customers that have (or
are intended, contemporaneously with the purchase and sale of equipment under
this Section 5.5, to be) transferred to an AT&T service. If the Parties are
unable to agree upon a fair market valuation for any or all assets, a mutually
agreed upon independent appraiser shall be appointed by the Parties to determine
the fair market value of such assets. The cost of the independent appraiser
shall be borne equally by the Parties. If the Parties cannot agree upon an
independent appraiser, one shall be appointed by an independent accounting firm
jointly selected by the Parties. In the event AT&T exercises its option pursuant
to (2) above, AT&T shall reimburse BBN for reasonable travel expenses and labor
costs incurred at AT&T's request in connection with putting AT&T in operating
control of such assets.
5.6. Interfaces. The Parties shall develop methods and procedures,
and associated interfaces, for cooperating on a "seamless" basis in all areas
relating to the marketing and provision of the Services, including without
limitation order processing, customer care, network monitoring and maintenance,
problem resolution, and billing. AT&T shall fund and own any electronic
interfaces that are uniquely developed to support the cooperation contemplated
under this Section 5.6, and BBN shall have the right to use such interfaces in
connection with the performance of this Agreement. The Parties shall use
commercially reasonable efforts to agree on an initial plan to accomplish the
foregoing, including appropriate training of each other's employees, by no later
than the First Service Activation Date. At any
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time during the Term, BBN will cooperate with AT&T in connection with inquiries
concerning potential problems affecting any aspect of the provision of the
Services.
6. GEOGRAPHIC SCOPE.
6.1. Service Territory. BBN agrees to make the Services available to
AT&T Customers throughout the Territory consistent with the provisions of this
Agreement on a continuous basis throughout the Term. The Parties agree that
prior to September 1, 1995, the offering of the Services shall be targeted to
customers in up to five metropolitan areas to be identified by AT&T and BBN.
Prior to such date, BBN's obligation with respect to all other areas within the
Territory shall be to use commercially reasonable efforts to provide the
Services to select AT&T Customers designated by AT&T consistent with the
provisions otherwise applicable under this Agreement.
6.2. Expansion. During the Term of this Agreement, the Parties
intend to explore opportunities in areas not included in the Territory as
defined in this Agreement. Notwithstanding the foregoing, neither Party shall
have any obligation to expand the Territory to include any areas beyond those
initially included in this Agreement or, except for Secondary Territory Services
contemplated in Section 2.11, any obligation to offer or purchase services
outside the Territory.
7. PRICING AND PAYMENT
7.1. Pricing. During the Term, AT&T shall pay BBN for the Services
according to the schedule set forth in Schedule 7.1.
7.2. Payments to BBN.
7.2.1. Except as modified during Years One and Two pursuant
to Section 7.2.2., AT&T shall pay BBN for the Services and Sales Support
Services as provided in this Section 7.2.1. Within ten (10) business days
after the end of each calendar month, BBN shall provide AT&T a statement of
Amounts Due for all Services provided during such calendar month pursuant to
Section 7.1 and all Sales Support Services provided during such calendar month
pursuant to Section 3. For purposes of such statement, "Amounts Due" shall
include fees for installations performed during such month, all annual fees
commencing in such month (to the extent AT&T bills the AT&T Customer for such
Services on an annual basis, subject to adjustment in the event fees are later
refunded to such AT&T Customer due to a termination of Services prior to the
expiration of the period for which any such prepayment is made), and a pro rata
portion of annual fees for Services provided during such month (to the extent
AT&T bills the AT&T Customer for such Services on a monthly basis). Such
statement shall include a complete and accurate written accounting, and shall
be in such electronic or paper format as
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AT&T shall reasonably request. AT&T shall pay BBN for such Services and Sales
Support Services, net of any credits or adjustments due pursuant to this
Agreement, by check or wire transfer within forty-five (45) days of the date of
receipt of BBN's statement. Such payment shall be accompanied by a complete
and accurate written accounting of any credits or adjustments taken pursuant to
this Agreement.
7.2.2. During Years One and Two, the payment process set
forth in Section 7.2.1 with respect to the Services shall be modified as
provided in this Section 7.2.2. For each calendar month, in lieu of payment for
actual Amounts Due during such month as provided in Section 7.2.1, AT&T shall
pay BBN equal monthly installments of the Guaranteed Minimum for the Year in
which such month occurs. Following the period from the First Service
Activation Date to and including November 30, 1995, and each successive
three-calendar month period during Years One and Two, AT&T shall also make such
additional payments to BBN as are necessary to pay in full the actual Amounts
Due for each of the three months during such period (or, if credits or
adjustments taken pursuant to this Agreement or other events affecting the
Guaranteed Minimums pursuant to Section 7.3.3 result in a balance owing in
AT&T's favor for such period, BBN shall make such payment to AT&T as is
necessary to pay such balance in full).
7.3. Guaranteed Minimums.
7.3.1. Guarantee Amounts. Except as provided below, AT&T
agrees to purchase the following minimum dollar amounts of Services from BBN
during Years One, Two and Three of this Agreement (based upon amounts paid by
AT&T to BBN under Schedule 7.1 that are either (i) paid in respect of Services
provided during the applicable period, but including for this purpose amounts
otherwise deducted from payments to BBN pursuant to Schedule 7.1 or adjustments
made or deemed made pursuant to Section 5.2, or (ii) prepaid by AT&T at its
option in respect of Services to be provided by BBN during the Year following
Year in which such prepayment is made):
<TABLE>
<S> <C>
For Year One, $20 million
For Year Two, $40 million
For Year Three, $60 million
</TABLE>
In addition, in the event this Agreement continues in effect until the end of
Year Three, and AT&T and BBN have not agreed to extend their relationship by
virtue of AT&T's unwillingness to continue this Agreement past Year Three on
terms that are as favorable or more favorable to it than are initially provided
under this Agreement for Years One through Three, AT&T shall also purchase the
following minimum amounts of Services (calculated as provided above for Years
One, Two and Three) from BBN during Years Four and Five of this Agreement (the
"Soft Landing Guarantees"):
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For Year Four, An amount equal to the lesser of (1)
to the extent BCS (or any Third
Party on behalf of BCS) continues to
receive revenues from Dedicated
Internet Services during Year Four
(measured by the prices that would
be payable under Section 7.2 to BBN
during Year Four in respect of such
services had such services been
provided pursuant to this
Agreement), two-thirds (2/3) of the
total amount paid by AT&T to BBN in
respect of Managed Connectivity
Services pursuant to Section 7.1 in
respect of Year Three (excluding
payments in respect of AT&T
Customers who are not AT&T
Customers, or otherwise customers of
AT&T, for Dedicated Internet
Services at any time during Year
Four, or AT&T Customers who become
BBN customers, and not AT&T
Customers, for Dedicated Internet
Services at any time during Year
Four), and, if zero or a positive
number, (2) an amount equal to (A)
the total amount paid by AT&T to BBN
in respect of Managed Connectivity
Services pursuant to Section 7.1 in
respect of Year Three (excluding
payments in respect of AT&T
Customers who are not AT&T
Customers, or otherwise customers of
AT&T for services comparable to the
Services, at any time during Year
Four, or AT&T Customers who become
BBN customers, and not AT&T
Customers, for Dedicated Internet
Services at any time during Year
Four), less (B) the amount by which
the total revenues earned by BBN in
respect of the sale of all Value
Added Services to AT&T Customers
(including AT&T) and former AT&T
Customers who purchase Services
directly or indirectly from BBN
during Year Four exceeds the total
revenues earned by BBN in respect of
the sale of all Value Added Services
to such customers during Year Three.
For Year Five, An amount equal to the lesser of (1)
to the extent BCS (or any Third
Party on behalf of BCS) continues to
receive revenues from Dedicated
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Internet Services during Year Five
(measured by the prices that would be
payable under Section 7.2 to BBN
during Year Five in respect of such
services had such services been
provided pursuant to this Agreement),
one-third (1/3) of the total amount
paid by AT&T to BBN in respect of
Managed Connectivity Services
pursuant to Section 7.1 in respect of
Year Three (excluding payments in
respect of AT&T Customers who are not
AT&T Customers, or otherwise
customers of AT&T for Dedicated
Internet Services, at any time during
Year Five, or AT&T Customers who
become BBN customers, and not AT&T
Customers, for Dedicated Internet
Services at any time during Year
Five), and, if zero or a positive
number, (2) an amount equal to (A)
the total amount paid by AT&T to BBN
in respect of Managed Connectivity
Services pursuant to Section 7.1 in
respect of Year Three (excluding
payments in respect of AT&T Customers
who are not AT&T Customers, or
otherwise customers of AT&T for
services comparable to the Services,
at any time during Year Five, or AT&T
Customers who become BBN customers,
and not AT&T Customers, for Dedicated
Internet Services at any time during
Year Five), less (B) the amount by
which the total revenues earned by
BBN in respect of the sale of all
Value Added Services to AT&T
Customers (including AT&T) and former
AT&T Customers who purchase Services
directly or indirectly from BBN
during Year Five exceeds the total
revenues earned by BBN in respect of
the sale of all Value Added Services
to such customers during Year Four.
For purposes of this Section 7.3.1, charges for access from the premises of any
AT&T Customer to the applicable point of presence that are purchased from a
Third Party and passed through to the AT&T Customer shall not be counted toward
the Guaranteed Minimums.
7.3.2. Payments of Guaranteed Minimums. In the event that
the aggregate amounts paid pursuant to Section 7.2 in any Year do not equal or
exceed the Guaranteed
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Minimum amounts set forth in subsection 7.3.1, within ninety (90) days after
the end of each applicable Year:
7.3.2.1. except as provided in clause (ii), AT&T
shall pay to BBN an amount equal to one hundred percent (100%) of the amount by
which such amounts paid fall below such Guaranteed Minimum for the applicable
Year, and
7.3.2.2. in the case of Year Three, if and to the
extent the aggregate amount of BCS's sales of Dedicated Internet Services and
Active Internet Security Services to its customers (measured by the prices that
would be payable under Section 7.2 to BBN in respect of such services during
Year Three had all such services been provided pursuant to this Agreement),
pursuant to this Agreement or otherwise (such aggregate amount referred to
herein as the "Aggregate BCS DIS/IASS Amount"), falls below the Guaranteed
Minimum for Year Three, AT&T shall pay to BBN (A) 100% of the amount equal to
(x) the Aggregate BCS DIS/IASS Amount, less (y) BCS's total actual payments for
Services under Section 7.2 to BBN in respect of Year Three, plus (B) an amount
(not to exceed $15 million) equal to thirty-three percent (33 )%) of the amount
by which the Guaranteed Minimum for Year Three exceeds the Aggregate BCS
DIS/IASS Amount. If with respect to Year Three amounts paid pursuant to
Section 7.2 exceed $60 million, but do not equal or exceed the Additional
Guaranteed Minimums (if any), AT&T shall pay to BBN an amount equal to one
hundred percent (100%) of the amount by which such amounts paid fall below such
Additional Guaranteed Minimums.
7.3.3. Conditions to AT&T Obligations. AT&T's obligations
under this Section 7.3(i) shall be excused to the extent that AT&T does not
purchase the Guaranteed Minimum during any, Year as a result of any breach by
BBN of its obligations to provide the Services and Sales Support Services to
AT&T under this Agreement, including without limitation the obligation to
provide Services including the features, and with the quantity, quality and
timing, required under this Agreement, provided that AT&T shall, in each case,
have given BBN prompt written notification of such breach, and (ii) shall
terminate to the extent not theretofore earned through the provision of
Services hereunder with respect to any Year if this Agreement is terminated for
any reason other than as a result of a breach hereof by AT&T prior to the
conclusion of such Year. In addition, AT&T's obligation with respect to the
Soft Landing Guarantees shall automatically terminate in their entirety if (i)
the Exclusivity Restrictions in Section 8 do not continue during Year Two, (ii)
the Exclusivity Restrictions in Section 8 do not continue during Year Three
pursuant to Section 8.3.4 or (iii) any Carrier other than AT&T acquires an
aggregate beneficial ownership of 15% or more of the outstanding voting
securities of BBN (or any successor company or any Affiliate having control of
BBN) or BBN Planet and that Carrier also has a right to appoint or cause to be
appointed or elected a director of BBN (or any successor company or any
Affiliate having control of BBN) or BBN Planet.
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7.4. Funding of BBN Applications Development. During Year One, Year
Two and Year Three, AT&T will fund development or acquisition by BBN of
applications and services designed to stimulate demand for, or enhance the value
or utility of, access to the Internet, that are designed to operate in
conjunction with the Managed Connectivity Services (the development or
acquisition of such applications or services are referred to herein as "VAS
Development Programs"). BBN shall provide AT&T with advance written notice
(which written notice shall, subject to Section IO, be treated as Confidential
Information of BBN) of any VAS Development Program to be funded under this
Section 7.4, together with a projected budget covering the anticipated expenses
to be associated with such program. AT&T shall fund expenses to such programs
based on BBN's internal cost accounting system (and accounting for time on a
basis consistent with that applicable to BBN's cost-plus contracts with the
Federal government). BBN shall provide a complete accounting of the expenses
associated with each such program within 30 days of the completion of the
program (or upon reasonable request by AT&T during the period of the program),
and the Parties shall make appropriate payments necessary to "true up" funding
by AT&T to the actual expenses. AT&T shall be obligated to fund VAS Development
Programs pursuant to this Section 7.4 in the amounts specified in Schedule 7.4.
AT&T shall not claim ownership in any Intellectual Property Rights developed by
BBN pursuant to any VAS Development Program by virtue of the fact that AT&T has
funded such development pursuant to this Section 7.4.
8. EXCLUSIVITY
8.1. Year One. Except as otherwise provided in Section 8.4, during
the period from the Effective Date through the conclusion of the Year One, (1)
neither BBN nor any of its Affiliates shall (A) market, offer or provide
Dedicated Internet Services or Active Internet Security Services within the
Exclusive Territory to or in conjunction with any Carrier, or (B) agree with any
Carrier to license any BBN Mark for use in connection with any Dedicated
Internet Services or Active Internet Security Services to be provided within the
Exclusive Territory, and (2) BCS shall not (1) purchase Dedicated Internet
Services or Active Internet Security Services for resale to customers within the
Exclusive Territory from any entity other than BBN or one of BBN's Affiliates,
or (2) provide Dedicated Internet Services or Active Internet Security Services
within the Exclusive Territory other than as contemplated by this Agreement.
Subject to Section 8.4, "Dedicated Internet Services" means services consisting
of the provision of access to the Internet to business customers that use such
access solely for their own account using only dedicated telecommunications
facilities between such customers, premises and the facilities of the service
provider, and excludes any service involving dial-up access to the Internet.
Subject to Section 8.4, "Active Internet Security Services" means services
provided in conjunction with Dedicated Internet Services that enhance the
security of customer data processing and network facilities from unauthorized
access through the Internet and are actively monitored and managed remotely on a
continuous basis by operations
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personnel of the service provider. BCS's obligations under this Section 8.1
shall be excused on a case-by-case basis where required due to a breach by BBN
of any of its obligations to provide the Services to AT&T under this Agreement,
including without limitation the obligation to provide Services including the
features, with the quantity, quality and timing, required under this Agreement,
provided that AT&T shall, in each case, have first given BBN prompt written
notification of such breach and an opportunity to cure such breach on a prompt
basis in light of the circumstances. The restrictions on each Party contained
in this Section 8.1 are referred to herein as the "Exclusivity Restrictions."
8.2. Year Two. If prior to the first day of Year Two AT&T shall have
delivered written notice to BBN of its election to increase the Guaranteed
Minimums for Year Two pursuant to Section 7.3.1 to $100 million, in lieu of the
Guaranteed Minimum otherwise in effect for Year Two, then the Exclusivity
Restrictions shall continue in full force and effect until the conclusion of
Year Two. If AT&T shall not have delivered such a notice, then BBN shall have
the right at any time prior to the end of Year Two, upon 90 days' prior written
notice to AT&T, to elect not to continue the Exclusivity Restrictions under this
Agreement. If BBN provides such a notice to AT&T, the Exclusivity Restrictions
shall terminate on the ninety-first (91st) day following the date of actual
receipt of such notice by AT&T. Notwithstanding the foregoing, if, pursuant to
Section 8.3.1, the Parties determine to extend the Exclusivity Restrictions
until the conclusion of Year Three, BBN shall have no further right to elect to
terminate such restrictions in accordance with this Section 8.2 and any notice
delivered by BBN pursuant to this Section 8.2 but not yet effective shall be
deemed rescinded and nullified.
8.3. Year Three. If the Exclusivity Restrictions are continuing, the
Parties shall have discussions for the purpose of deciding, on or before January
31, 1997, whether to extend such restrictions until the conclusion of Year
Three. The following shall become effective depending on the outcome of such
discussions (unless the Parties otherwise agree in writing):
8.3.1. If AT&T and BBN both indicate their desire to extend
the Exclusivity Restrictions, the Exclusivity Restrictions shall be extended
for the duration of Year Three, and there shall be no other effect upon any of
the terms and conditions of this Agreement.
8.3.2. If AT&T and BBN both indicate their desire not to
extend the Exclusivity Restrictions, the Exclusivity Restrictions shall not be
extended past the conclusion of Year Two, and there shall be no other effect
upon any of the terms and conditions of this Agreement.
8.3.3. If AT&T indicates its desire not to extend the
Exclusivity Restrictions and BBN indicates its desire to extend the Exclusivity
Restrictions, the Exclusivity Restrictions shall not be extended past the
conclusion of Year Two, and the Guaranteed Minimum payment
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under Section 7.3.1 for AT&T for Year Three shall be the Guaranteed Minimum in
effect for such Year prior to the outcome of the discussions plus 50% of the
amounts in excess of such Guaranteed Minimum (such amounts in excess of such
Guaranteed Minimum referred to herein as the "Additional Guaranteed Minimum")
that would be payable under Section 7.2 to BBN in respect of Dedicated Internet
Services and Active Internet Security Services if BCS had continued to provide
all such services to its customers pursuant to this Agreement.
8.3.4. If AT&T indicates its desire to extend the
Exclusivity Restrictions and BBN indicates its desire not to extend the
Exclusivity Restrictions, the Exclusivity Restrictions shall not be extended
past the conclusion of Year Two, the Guaranteed Minimum payment under Section
7.3.1 for AT&T for Year Three shall be reduced by one-third (1/3) from the
Guaranteed Minimum in effect for such Year prior to the outcome of the
discussions.
8.3.5. For purposes of this Section 8.3, a Party's desire
shall be evidenced by written notice delivered to the other Party on or before
January 31, 1997. The failure of a Party to deliver such notice by such time
shall be deemed notice of a desire not to extend the Exclusivity Restrictions.
8.4. No Other Restrictions. Notwithstanding any other provision of
this Agreement, nothing in this Agreement shall limit or in any way affect (1)
the Parties' activities outside the Exclusive Territory, (2) the performance of
any Party's obligations under any binding agreement in effect as of the
Effective Date (and each Party shall disclose to the other such agreements that,
to such Party's knowledge, are in effect as of such date to the extent possible
consistent with any obligations of confidentiality owing to Third Parties), (3)
any AT&T business unit other than BCS or any successor to BCS, (4) BBN's right
to provide Dedicated Internet Services or Active Internet Security Services
directly to any end user customer (subject to Section 2.8), including without
limitation any Carrier, (5) AT&T's right to build, operate and mountain its own
global data network, including without limitation for the purpose of providing
its customers with dial-in access to the Internet and other on-line services,
(6) either Party's right in any way to market, offer or provide any products and
services that are not, in the aggregate, marketed principally as Dedicated
Internet Services or Active Internet Security Services, either on a stand-alone
basis or as part of a broader offering of products and services, and are not
comparable to the end-to-end functionality provided in conjunction with BBN's
Dedicated Internet Services or Active Internet Security Services (including
without limitation the inclusion of Internet services in AT&T Netware Connect
Service, AT&T Network Notes Service, AT&T EasyLink Services, AT&T Interchange
Online Network, and other AT&T "on-line services" as defined in the definition
of "Carrier" in Section 1). As used in this Agreement, the terms "Dedicated
Internet Services" and "Active Internet Security Services" shall be construed
not to include any of the activities or services described in this Section 8.4.
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9. DURATION; TERMINATION
9.1. Duration. This Agreement shall commence on the Effective Date
and, unless earlier terminated by agreement of the Parties or as set forth
below, shall continue in effect until the conclusion of Year Five. Prior to the
conclusion of Year Three, the Parties shall consider whether to extend past Year
Three the relationship contemplated by this Agreement for Years One through
Three.
9.2. Termination. Upon not less than 30 days' written notice to the
other Party, either Party may cancel this Agreement without incurring
termination liability if the other Party: (a) consents; (b) commits a material
breach or is in material default of any warranty, representation or other
material provision hereof, which breach or failure is incapable of cure or
which, being capable of cure, has not been cured within sixty (60) calendar days
after receipt of written notice of such breach or failure or such additional
cure period as the notifying Party may authorize in writing, provided that the
exercise of such right of termination shall be in addition to, and not in lieu
of, any other remedies the terminating Party may have by virtue of such breach;
(c) files or has filed against it a petition in bankruptcy that it is not
contesting in good faith; (d) has a receiver appointed to handle its assets or
affairs that it is not contesting in good faith; or (e) makes or attempts to
make an assignment for the benefit of creditors. In addition, upon advance
,written notice to BBN of any length in excess of 30 days, AT&T may cancel this
Agreement without incurring termination liability (A) at any time during the
Term if either BBN or BBN Planet is subject to a material change in ownership or
control through acquisition by or merger with or into a Carrier, or (B) within
thirty (30) days of the consummation of the event, if either BBN or BBN Planet
is subject to a material change in ownership or control through acquisition by
or merger with or into an entity (an "Acquiring Entity") that is not a Carrier,
unless the Acquiring Entity shall have a market capitalization in excess of $750
million and shall enter into an assumption agreement in form and substance
reasonably satisfactory to AT&T pursuant to which the Acquiring Entity shall
agree to guarantee the performance of all of BBN's and BBN Planet's obligations
under this Agreement to the full extent and provide reasonable assurances that
such obligations will be full), performed. For purposes of this Section 9.2, a
"material change in ownership or control through acquisition" shall mean the
direct or indirect acquisition of 50% or more of the outstanding voting shares
of the affected Party (by a Carrier or an Acquiring Entity, or an Affiliate of a
Carrier or an Acquiring Entity, as the case may be), or the acquisition (by a
Carrier or an Acquiring Entity, or an Affiliate of a Carrier or an Acquiring
Entity, as the case may be) of the ability, by contract or otherwise, to direct
or control the management of the affected Party.
9.3. Continuing Support for Value Added Services Marketing. Prior to
the end of Year Three, the Parties will work jointly to develop a plan to
jointly take all reasonable and
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commercially practicable efforts to actively sell and promote Value Added
Services offered by BBN Planet to AT&T Customers in conjunction with the BCS
sales force during the Term.
9.4. Termination After Governmental Action Affecting this Agreement.
Upon not less than six-months' written notice to the other Party, either Party
may cancel this Agreement without incurring termination liability promptly (and
in no event later than 30 days) following a final, nonappealable decision by
an), governmental authority voiding all or a material portion of this Agreement.
9.5. Survival. The obligations of the Parties under Section 9, and
all other obligations which by their nature continue beyond the term of this
Agreement (including without limitation the Parties' obligations pursuant to
Section 5.4 other than AT&T's obligations to pay Customer Transition Services
Fees, Section 10 and Section 13), shall survive any termination or the
expiration of this Agreement.
9.6. Transition. After any expiration or termination of this
Agreement, the Parties shall cooperate as necessary to minimize disruption of
services to existing customers of either Party. With respect to AT&T Customers
that continue to receive Services under then-existing agreements with AT&T or
BBN that continue past the date of expiration or termination of this Agreement
("Continuing Agreements"), the Parties shall abide by the terms of this
Agreement as they may relate to such Continuing Agreements (including without
limitation as they relate to quality of service, pricing, and payment) until the
expiration or termination of such Continuing Agreements.
10. CONFIDENTIALITY
10.1. Confidential Information shall automatically be deemed
proprietary to the Discloser and subject to this Agreement, unless otherwise
confirmed in writing by the Discloser. In addition, all AT&T Customer
Information, whether disclosed by AT&T to BBN or otherwise acquired by BBN in
the course of the performance of this Agreement, shall be deemed Confidential
Information of AT&T for all purposes under this Agreement, unless such
information would not be required to be kept confidential pursuant to Section
10.5.
10.2. Except as otherwise specified in this Agreement, for a period
of five years from the receipt of Confidential Information from the Discloser
(except that, with respect to AT&T Customer Information, such obligations shall
continue indefinitely), the Recipient agrees (a) to use it only for the purpose
of performing under this Agreement, (b) to hold it in confidence and disclose it
to no one other than its employees having a need to know for the purpose of
performing under this Agreement, and (c) to safeguard it from unauthorized use
or disclosure using the same degree of care with which the Recipient safeguards
its own Confidential Information of a similar nature (and in no event less than
a reasonable degree of care). If the
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Recipient wishes to disclose the Discloser's Confidential Information to a
Third Party agent or consultant, such disclosure must be mutually agreed to in
writing by the Recipient and Discloser, and the agent or consultant must have
executed a written agreement of non-disclosure and non-use no less restrictive
than the terms of this Section 10. Nothing in this Section 10 shall preclude
BBN from using, in connection with the sale by BBN or its Affiliates of
services or products, AT&T Customer Information collected by BBN in conjunction
with the provision of any Service where (A) BBN, in its own capacity, has
entered directly into an agreement with the AT&T Customer with respect to the
provision of such Service, and (B) the AT&T Customer views itself as having a
primary relationship with BBN with respect to such services. Following the
expiration or termination of this Agreement, at BBN's option, the Parties will
send to AT&T Customers a letter, in form and substance reasonably satisfactory
to each Party, giving such AT&T Customers the opportunity, by returning a
business reply card, to authorize the use of AT&T Customer Information by BBN
to market BBN services or products to such AT&T Customer in the future.
10.3. The Recipient may make copies of Confidential Information only
as reasonably necessary to perform its obligations under this Agreement. All
such copies shall bear the same copyright and proprietary rights notices as are
contained on the original.
10.4. The Recipient agrees to return all Confidential Information in
tangible form received from the Discloser, including any copies made by the
Recipient, within thirty (30) days after a written request is delivered to the
Recipient, or will destroy all such Confidential Information, except for
Confidential Information that the Recipient reasonably requires to perform its
obligations under this Agreement. If either Party loses or makes an unauthorized
disclosure of the other Party's Confidential Information, it shall notify such
other Party immediately and use reasonable efforts to retrieve the lost or
wrongfully disclosed Confidential Information.
10.5. The Recipient shall have no obligation to safeguard
Confidential Information: (a) which was in the possession of the Recipient free
of restriction prior to its receipt from the Discloser; (b) after it becomes
publicly known or available through no breach of this Agreement by the
Recipient; (c) after it is rightfully acquired by the Recipient free of
restrictions on its disclosure; or (d) after it is developed by personnel of the
Recipient to whom the Discloser's Confidential Information had not been
previously disclosed. In addition, the Recipient may disclose Confidential
Information if so required by (i) the Securities and Exchange Commission (or any
exchange or over-the-counter market on which the Recipient's securities are then
traded), or (ii) law, a court, or governmental agency, so long as the Discloser
has been notified of the requirement promptly after the Recipient becomes aware
of the requirement and has been afforded a meaningful opportunity to oppose or
intervene in such request, so long as the Recipient cooperates fully with the
Discloser to take all available steps
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to seek confidential treatment for such Confidential Information, and so long
as the Recipient complies with any protective order that covers the
Confidential Information to be disclosed.
10.6. Each Party's obligations to safeguard Confidential Information
disclosed prior to expiration or termination of this Agreement shall survive
such expiration or termination.
10.7. Except as otherwise expressly provided elsewhere in this
Agreement, no other license is hereby granted under any Intellectual Property
Right, nor is any such license implied, solely by virtue of the disclosure of
any Confidential Information.
10.8. Neither Party shall remove any copyright notices or Proprietary
legends contained in Information provided by the other Party.
10.9. The Parties acknowledge that any products, software, and
technical information (including, without limitation. services and training)
provided under this Agreement are subject to U.S. exports laws and regulations
and any use or transfer of such products, software, and technical information
must be authorized under those regulations. The Recipient agrees that it will
not use, distribute, transfer, or transmit the products, software, or technical
information (even if incorporated into other products) except in compliance with
U.S. export regulations. On request, each Party agrees to sign written
assurances and other export-related documents as may reasonably be required for
the other Party to comply with U.S. export regulations.
10.10. The terms of confidentiality under this Agreement shall not be
construed to limit either Party's right to independently develop or acquire
products without use of the other Party's Confidential Information. Either Party
shall be free to use for any internal business purpose the residuals resulting
from access to or work with the other Party's Confidential Information, provided
that such Party otherwise complies with the confidentiality provisions of this
Agreement. The term "residuals" means information in non-tangible form that is
inadvertently retained by persons who have had access, as authorized in this
Agreement, to the Confidential Information, including ideas, concepts, know-how
or techniques contained therein. The term "residuals" does not include ideas,
concepts, know-how or techniques which such persons know or should have reason
to believe were acquired from access to Confidential Information of the
Discloser. The foregoing shall not be deemed to grant either Party a license to
any of the other Party's Intellectual Property Rights.
10.11. The terms of this Agreement and the fact and substance of the
Parties' discussions and correspondence relating to this Agreement, including
the identification of either Party by name or identifiable description in
connection with the Parties' participation in such process shall be treated by
each Party as if it were Confidential Information of the other Party.
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11. REPRESENTATIONS, WARRANTIES, AND UNDERTAKINGS
11.1. Representations of BBN and BBN Planet. BBN and BBN Planet
hereby warrant and represent that:
11.1.1. No Claims. As of the Effective Date, no claim has
been made or is pending against BBN, BBN Planet or any Third Party (whether or
not embodied in an action, past or present or threatened) that any intellectual
property of BBN or BBN Planet necessary for the performance of the Services or
Sales Support Services under this Agreement infringes, misappropriates or
otherwise violates any Intellectual Property Rights or constitutes unfair
competition.
11.1.2. No Conflicting Obligations. BBN and BBN Planet
have, as of the Effective Date, and during the Term will have, no interest or
obligation that is inconsistent with or in conflict with its obligations under
this Agreement or that would prevent, limit, or impair BBN's or BBN Planet's
performance of any part of this Agreement.
11.1.3. Necessary Rights and Authority. BBN and BBN Planet
possess, as of the Effective Date, and during the Term will possess, all
necessary rights and corporate authority to enter into this Agreement and to
execute its obligations hereunder, and, BBN and BBN Planet shall not take any
action or enter into any agreement that would impair such rights. To the
knowledge of BBN and BBN Planet, no governmental, judicial or Third Party
approvals, consents or waivers are required for the performance by BBN and BBN
Planet of their obligations hereunder. The execution of this Agreement, the
consummation of the transactions contemplated hereunder and the performance by
BBN and BBN Planet of this Agreement in accordance with its terms and
conditions will not conflict with or result in the breach or violation of any
terms or conditions of, or constitute (and with notice or lapse of time or both
would not constitute) a default under: (A) the Articles of Organization,
by-laws or other constituent documents of BBN and BBN Planet, (B) any
instrument, contract or other agreement to which BBN or BBN Planet is a party
or by or to which BBN, BBN Planet or the assets or properties of BBN or BBN
Planet are bound or subject, or (C) any statute or any regulation, order,
judgment or decree of any court or governmental or regulatory body.
11.1.4. BBN Marks. As of the Effective Date, (1) all
right, title and interest in the BBN Primary Marks have been acquired by and
are the exclusive property of BBN and its Affiliates and do not infringe any
trademark, trade dress or other rights of any Third Party and neither BBN nor
BBN Planet have received any notice of such infringement, and (2) neither BBN
nor BBN Planet has any actual knowledge that any BBN Marks infringes any
trademark, trade dress or other rights of any Third Party and neither BBN nor
BBN Planet has received any notice of such infringement. BBN makes no
representation or warranty with respect to
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any BBN Marks (other than BBN Primary Marks and BBN VAS Marks) used by BBN to
promote, advertise and market Managed Connectivity Services, and AT&T
acknowledges, notwithstanding the license granted by BBN to AT&T in such Marks
pursuant to Section 2.5.12, that any use of such Marks shall be at AT&T's own
risk. During the Term, BBN agrees to provide AT&T prompt written notice of any
claim that any BBN Mark infringes any trademark, trade dress or other rights of
any Third Party.
11.2. Representations of AT&T. AT&T hereby warrants and represents
that:
11.2.1. No Conflicting Obligations. AT&T has, as of the
Effective Date, and during the Term will have, no interest or obligation that
is inconsistent with or in conflict with its obligations under this Agreement
or that would prevent, limit, or impair AT&T's performance of any part of this
Agreement.
11.2.2. Necessary Rights and Authority. AT&T possesses, as
of the Effective Date, and during the Term will possess, all necessary rights
and corporate authority to enter into this Agreement and to execute its
obligations hereunder, and, AT&T shall not take any action or enter into any
agreement that would impair such rights. To AT&T's knowledge, no governmental,
judicial or Third Party approvals, consents or waivers are required for the
performance by AT&T of its obligations hereunder. The execution of this
Agreement. the consummation of the transactions contemplated hereunder and the
performance by AT&T of this Agreement in accordance with its terms and
conditions will not conflict with or result in the breach or violation of any
terms or conditions of, or constitute (and with notice or lapse of time or both
would not constitute) a default under: (A) the Certificate of Incorporation,
by-laws or other constituent documents of AT&T, (B) any instrument, contract or
other agreement to which AT&T is a party or by or to which it or its assets or
properties are bound or subject, or (C) any statute or any regulation, order,
judgment or decree of any court or governmental or regulatory body.
12. REGULATORY MATTERS
12.1. Responsibility. AT&T shall be responsible for obtaining and
keeping in effect all Federal Communications Commission ("FCC"), state
regulatory commission, franchise authority and other governmental or regulatory
approvals that may be required in connection with its offering of services,
including the Services, by AT&T to AT&T Customers. BBN shall be responsible for
obtaining and keeping in effect all FCC, state regulatory commission, franchise
authority and other governmental or regulatory approvals that may be required in
connection with its offering of Services under this Agreement. AT&T shall
reasonably cooperate with BBN in obtaining and maintaining any required
approvals for which BBN is responsible, and BBN shall reasonably cooperate with
AT&T in obtaining and maintaining any required approvals for which AT&T is
responsible.
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12.2. Enhanced Services. The Parties intend only to market under this
Agreement services that are classified as "enhanced services" under the rules
and regulations of the FCC or otherwise not subject to regulation by the FCC. In
the event that any services offered under this Agreement are determined to be
classified as "basic services" under the rules and regulations of the FCC, the
Parties agree to work together to modify such services in order to maintain
their status as enhanced services and take such other actions (including making
necessary changes to this Agreement) as are necessary to maintain the
expectations of the Parties and a material portion of the value to each Party
otherwise intended in this Agreement.
13. INDEMNIFICATION
13.1. BBN and BBN Planet Indemnity. BBN and BBN Planet shall, and
each hereby agrees to, defend, indemnify and hold harmless AT&T and each of its
officers, directors, employees and agents against and in respect of any Damages
arising out of, resulting from or based upon any Claim alleging: (i) any breach
of any representation, warranty or covenant made by BBN or BBN Planet in this
Agreement, (ii) injuries or damage to any person or property arising out of acts
or omissions of BBN or BBN Planet, or the officers, directors, employees,
agents, affiliates and subcontractors of BBN or BBN Planet in the performance of
their duties and obligations under this Agreement; and (iii) infringement,
misappropriation or other violation of any Intellectual Property Rights of any
Third Party based upon the use or sale of Services, Sales Support Services or
Documentation within the Territory or any other territory in which Secondary
Territory Services are marketed or sold pursuant to Section 2.11, provided that
neither BBN nor BBN Planet shall have any obligation hereunder with respect to
Claims based upon the use of a Mark, other than Claims based upon the use of (i)
any BBN Primary Mark or (ii) any BBN VAS Mark to the extent the use of such BBN
Primary Marks and BBN VAS Marks complies with Section 2.5.
13.2. AT&T Indemnity. AT&T shall and hereby agrees to defend,
indemnify and hold harmless BBN, BBN Planet, and the officers, directors,
employees and agents of BBN and BBN Planet against and in respect of any Damages
arising out of, resulting from or based upon any Claim alleging: (i) any breach
of any representation, warranty or covenant made by AT&T in this Agreement, (ii)
injuries or damage to any person or property arising out of acts or omissions of
AT&T, its officers, directors, employees, agents, affiliates and subcontractors
in the performance of their duties and obligations under this Agreement, and
(iii) infringement, misappropriation or other violation of any Intellectual
Property Rights of any Third Party based upon the use or sale of Services or
Documentation solely to the extent such Claim is based upon a modification to
the Services or Documentation made by or at the direction of AT&T without the
consent of BBN or BBN Planet.
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13.3. Obligation to Defend; Notice; Cooperation. Whenever a Claim
shall arise for indemnification under Section 13.1 or 13.2, the relevant
Indemnitees, as appropriate, shall promptly notify the Indemnitor and request
the Indemnitor to defend the same. Failure to so notify the Indemnitor shall not
relieve the Indemnitor of any liability that the Indemnitor might have, except
to the extent that such failure prejudices the Indemnitor's ability to defend
such Claim. The Indemnitor shall have the right to defend against such liability
or assertion in which event the Indemnitor shall give written notice to the
relevant Indemnitees of acceptance of the defense of such Claim and the identity
of counsel selected by the Indemnitor. Except as set forth below, such notice to
the relevant Indemnitees shall give the Indemnitor full authority to defend,
adjust, compromise or settle such Claim with respect to which such notice shall
have been given, except to the extent that any compromise or settlement shall
prejudice the Intellectual Property Rights of the relevant Indemnitees. The
Indemnitor shall consult with the relevant Indemnitees prior to any compromise
or settlement that would affect the Intellectual Property Rights or other rights
of any Indemnitee, and the relevant Indemnitees shall have the right to refuse
such compromise or settlement and, at the refusing Indemnitee's cost, to take
over such defense, provided that in such event the Indemnitor shall not be
responsible for, nor shall it be obligated to indemnify the relevant refusing
Indemnitees against, any cost or liability in excess of such refused compromise
or settlement.
The Indemnitee shall be entitled to participate with the Indemnitor in
the defense of any Claim requesting equitable or injunctive relief or other
relief that could affect the rights of the Indemnitee and also shall be
entitled to employ separate counsel for such defense at the Indemnitor's
expense. In the event the Indemnitor does not accept the defense of any
indemnified Claim as provided above, the relevant Indemnitees shall have the
right to employ counsel for such defense at the expense of the Indemnitor.
Each Party agrees to cooperate and to cause its employees and agents to
cooperate with the other Party in the defense of an), such Claim and the
relevant records of each Party shall be available to the other Party with
respect to any such defense.
14. INSURANCE
BBN certifies that it presently maintains the following levels of
insurance coverage in full force and effect, which include coverage for the
business activities of BBN Planet:
<TABLE>
<CAPTION>
Type Amount
<S> <C>
Property (media) $2,000,000
Property including EDP 172,956,000
Extra Expense 10,000,000
</TABLE>
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<TABLE>
<S> <C>
General Liability 1,000,000
Professional Liability 2,000,000
including Computer
Services and Software
Errors and Omissions
Business Auto 1,000,000
Commercial Umbrella 60,000,000
Employee Benefits Liability Per Statutory
Requirements
Workers' Comp. Per Statutory
Requirements
Crime - Employee Dishonesty 10,000,000
Computer Fraud 10,000,000
</TABLE>
Certificates of insurance in form and substance satisfactory
to AT&T shall be provided to AT&T annually during the Term. AT&T shall not be
required to make any payments under this Agreement prior to receiving such
certificates of insurance.
15. RIGHT TO BOOKS AND RECORDS/AUDIT
The Parties shall keep and maintain complete and accurate accounting
records in accordance with generally accepted accounting principles to support
and document all amounts becoming payable hereunder. Upon the request of one
Party (the "Auditing Party"), the other Party (the "Audited Party") shall
provide access to representatives of the Audited Party's independent public
accountants selected by the Auditing Party, to such records for the purpose of
auditing such records during normal business hours not more than once per year
to verify monies and/or credits due and owing. The cost of such audits shall
be borne by the Auditing Party unless an underpayment or overpayment greater
than or equal to five percent (5%) is discovered, in which case the Party
making the error giving rise to such underpayment or overpayment shall pay the
costs of the audit. Any Party found to have been overpaid by the other Party
shall refund immediately any undisputed overpayment. Each Party shall retain
all relevant records for two (2) years after any expiration or termination of
this Agreement.
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16. RISK ALLOCATION
16.1. NO CONSEQUENTIAL DAMAGES. NOTWITHSTANDING ANY OTHER PROVISION
OF THIS AGREEMENT, NEITHER AT&T NOR BBN OR BBN PLANET SHALL BE LIABLE TO THE
OTHER PARTY FOR ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL, RELIANCE, OR SPECIAL
DAMAGES SUFFERED BY SUCH OTHER PARTY (INCLUDING WITHOUT LIMITATION DAMAGES FOR
HARM TO BUSINESS, LOST REVENUES, LOST SAVINGS, OR LOST PROFITS SUFFERED BY SUCH
OTHER PARTY TO THE EXTENT COMPRISING INCIDENTAL, CONSEQUENTIAL, RELIANCE, OR
SPECIAL DAMAGES), REGARDLESS OF THE FORM OF ACTION, WHETHER IN CONTRACT,
WARRANTY, STRICT LIABILITY, OR TORT, INCLUDING WITHOUT LIMITATION NEGLIGENCE OF
ANY KIND WHETHER ACTIVE OR PASSIVE, AND REGARDLESS OF WHETHER THE PARTY KNEW OF
THE POSSIBILITY THAT SUCH DAMAGES COULD RESULT. EACH PARTY HEREBY RELEASES THE
OTHER PARTY (AND SUCH OTHER PARTY'S SUBSIDIARIES AND AFFILIATES, AND THEIR
RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, AND SUPPLIERS) FROM ANY SUCH
CLAIM.
16.2. Each Party's aggregate liability to the other Party for any and
all claims and damages incurred by such Party relating to or arising out of the
subject matter of this Agreement, whether in contract, tort, implied warranty,
strict liability or other form of action, except for (a) the infringement or
misappropriation of a Party's Intellectual Property Rights, (b) any Claim or
damages relating to or arising out of any Claim that is subject to any right of
indemnity provided in Section 13, and (c) either Party's obligations with
respect to the payment of money under this Agreement then due and owing, shall
be limited to the lesser of actual proven damages or Twenty-Five Million Dollars
($25,000,000), plus, in respect of AT&T's liability for the Guaranteed Minimums,
the Additional Guaranteed Minimums and the Soft Landing Guarantees, the lesser
of actual proven damages or Fifty Million Dollars ($50,000,000).
16.3. Except for Claims under the indemnification provisions
contained in Section 13, no action or proceeding against a Party may be
commenced more than two (2) years after the cause of action arises.
16.4. AT&T and BBN each acknowledges that the provisions of this
Agreement were negotiated to reflect an informed, voluntary allocation between
them of all risks (both known and unknown) associated with the transactions
associated with this Agreement. The remedy limitations, and the limitations of
liability, are separately intended to limit the forms of relief available to the
Parties. The provisions of this Section 16 shall be enforceable independent of
and severable from any other enforceable or unenforceable provision of this
Agreement.
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17. DISPUTE RESOLUTION
17.1. The Parties agree that resolving disputes at the earliest
possible moment will best serve their respective interests. In no event shall
the Parties pen-nit the pendency of a dispute to disrupt service to any AT&T
Customer contemplated by this Agreement.
17.2. In the event any dispute arising out of or related to this
Agreement, or the breach, termination or validity thereof, cannot be resolved to
the satisfaction of both Parties, then each Party shall nominate one senior
officer of the rank of vice president or higher as its representative for
purposes of attempting to resolve the dispute. These representatives shall meet
in person and alone (except for one assistant allowed for each Party) and shall
attempt in good faith to resolve the dispute. Such representatives shall have
ten (10) business days from the date on which either Party delivers written
notice of the need to resolve any dispute pursuant to this Section 17. This
procedure shall be a required prerequisite before either Party may terminate
this Agreement (if permitted under Section 9) or may seek resolution of the
dispute through arbitration under this Section 17. The foregoing
notwithstanding, this Section 17.2 shall not be construed to prevent either
Party from seeking and obtaining temporary equitable remedies, including
temporary restraining orders. A request by a Party to a court for interim
measures or equitable relief shall not be deemed a waiver of the obligation to
mediate and arbitrate. The Parties may agree to pursue any other additional
mutually acceptable dispute resolution method but such pursuit shall not be
construed to modify or eliminate the prerequisite stated in this Section 17.2.
17.3. If any dispute is not resolved by use of the foregoing dispute
resolution procedure within the time period provided in Section 17.2, the
Parties voluntarily agree to submit the dispute to nonbinding mediation by a
sole mediator selected by the Parties (or, if the Parties have not selected a
mediator, at the option of either Party, to a mediator selected by the American
Arbitration Association ("AAA")) in accordance with the commercial mediation
rules of the AAA.
17.4. IF A CONTROVERSY, CLAIM, OR DISPUTE BETWEEN AT&T AND BBN
RELATING TO OR ARISING DIRECTLY OR INDIRECTLY UNDER THIS AGREEMENT, WHETHER
BASED ON CONTRACT, TORT, FRAUD, MISREPRESENTATION, OR OTHER LEGAL THEORY, CANNOT
BE RESOLVED THROUGH NEGOTIATION UNDER SECTION 17.2 OR THROUGH MEDIATION PURSUANT
TO SECTION 17.3, AT&T AND BBN SHALL SETTLE THE CONTROVERSY, CLAIM, OR DISPUTE BY
ARBITRATION PURSUANT TO THE FEDERAL ARBITRATION ACT. A SINGLE ARBITRATOR SHALL
CONDUCT THE ARBITRATION IN NEW YORK, NEW YORK, UNDER THE SUPERVISION OF THE AAA
PURSUANT TO THE THEN-CURRENT COMMERCIAL ARBITRATION RULES OF THE AAA. AT&T AND
BBN SHALL SELECT THE ARBITRATOR FROM A PANEL
AT&T AND BBN PROPRIETARY: SUBJECT TO NON-DISCLOSURE AGREEMENT
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<PAGE> 41
OF PERSONS KNOWLEDGEABLE IN COMPUTER NETWORK HARDWARE, NETWORK OPERATING
SYSTEMS AND SOFTWARE, AND SERVICES, AND IN TELECOMMUNICATIONS NETWORK HARDWARE,
SOFTWARE, AND SERVICES. THE ARBITRATOR SHALL BE BOUND TO APPLY THE LAW IN
EFFECT IN THE STATE OF NEW YORK, AND SHALL NOT HAVE AUTHORITY TO AWARD PUNITIVE
OR OTHER DAMAGES IN EXCESS OF COMPENSATORY DAMAGES (TO WHICH EACH PARTY
IRREVOCABLY WAIVES ANY CLAIM) OR TO SET ASIDE OR DISREGARD THE TERMS AND
CONDITIONS OF THIS AGREEMENT, INCLUDING BY WAY OF EXAMPLE AND NOT OF
LIMITATION, PROVISIONS RELATING TO WARRANTIES AND LIMITATIONS OF LIABILITY.
ANY AWARD MADE (A) SHALL BE FINAL AND BINDING; (B) SHALL BE A BARE AWARD
LIMITED TO A HOLDING FOR OR AGAINST A PARTY AND AFFORDING SUCH REMEDY AS IS
DEEMED EQUITABLE, JUST AND WITHIN THE COPE OF THIS AGREEMENT; (C) SHALL BE
WITHOUT FINDINGS AS TO ISSUES (INCLUDING WITHOUT LIMITATION PATENT VALIDITY
AND/OR INFRINGEMENT) OR A STATEMENT OF THE REASONING ON WHICH THE AWARD RESTS;
(D) MAY IN APPROPRIATE CIRCUMSTANCES (OTHER THAN PATENT DISPUTES) INCLUDE
INJUNCTIVE RELIEF; (E) SHALL BE MADE WITHIN FOUR (4) MONTHS OF THE APPOINTMENT
OF THE ARBITRATOR; AND (F) MAY BE ENTERED IN ANY COURT OF COMPETENT
JURISDICTION. THE REQUIREMENT FOR MEDIATION AND ARBITRATION SHALL NOT BE
DEEMED A WAIVER OF ANY RIGHT OF TERMINATION UNDER THIS AGREEMENT AND THE
ARBITRATOR IS NOT EMPOWERED TO ACT OR MAKE ANY AWARD OTHER THAN BASED SOLELY ON
THE RIGHTS AND OBLIGATIONS OF THE PARTIES PRIOR TO ANY SUCH TERMINATION. THE
PARTIES, THEIR REPRESENTATIVES, OTHER PARTICIPANTS, AND THE ARBITRATOR SHALL
HOLD THE EXISTENCE, CONTENT, AND RESULT OF THE ARBITRATION IN CONFIDENCE. AT&T
AND BBN SHALL EACH PAY ITS OWN ATTORNEYS' FEES ASSOCIATED WITH THE ARBITRATION,
AND SHALL PAY THE OTHER COSTS AND EXPENSES OF THE ARBITRATION AS THE RULES OF
THE AMERICAN ARBITRATION ASSOCIATION PROVIDE. THE PARTIES, THEIR
REPRESENTATIVES, OTHER PARTICIPANTS AND THE MEDIATOR AND ARBITRATOR SHALL HOLD
THE EXISTENCE, CONTENT AND RESULT OF MEDIATION AND ARBITRATION IN CONFIDENCE
PURSUANT TO THE TERMS OF SECTION 10.
18. RIGHT OF FIRST NEGOTIATION
Except as provided below, in the event BBN determines to solicit
offers to purchase substantially all of the assets of BBN Planet, or more than
15% of the outstanding voting shares of BBN or BBN Planet, BBN shall notify
AT&T that such discussions or definitive steps are pending and the Parties
shall, at AT&T's option, negotiate in good faith for a period of not less than
forty-five (45) days toward an agreement for AT&T to purchase such
AT&T AND BBN PROPRIETARY: SUBJECT TO NON-DISCLOSURE AGREEMENT
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<PAGE> 42
securities or assets. The foregoing provisions of this Section 18 shall not
apply in the event BBN or BBN Planet determines to offer shares pursuant to a
registration statement filed pursuant to the Securities Act of 1933, as
amended.
19. MISCELLANEOUS
19.1. Hiring. BCS will not solicit the hiring of any employee of BBN
involved in internetworking technical activities during the Term and for two (2)
years following the expiration or termination of this Agreement.
19.2. Assignment. This Agreement shall be binding upon and inure to
the benefit of the successors and permitted assigns of each of the Parties.
Notwithstanding the preceding sentence, no rights, obligations or liabilities of
any Party may be assigned or assumed, whether by operation of law or otherwise,
without the prior written consent of the other Party, except that AT&T may
assign any of its rights and obligations under this Agreement to any of its
subsidiaries or affiliates, provided that no such assignment shall operate to
relieve AT&T of its liability under this Agreement.
19.3. GOVERNING LAW. THE PARTIES ARE FAMILIAR WITH THE PRINCIPLES OF
NEW YORK COMMERCIAL LAW AND DESIRE AND AGREE THAT THE LAWS OF THE STATE OF NEW
YORK WITHOUT REGARD FOR ITS CHOICE OF LAW PRINCIPLES SHALL APPLY IN ANY DISPUTE
ARISING UNDER OR IN CONNECTION WITH THIS AGREEMENT. CONSISTENT WITH SECTION 17
OF THIS AGREEMENT GOVERNING DISPUTE RESOLUTION, THE PARTIES HEREBY CONSENT TO BE
SUBJECT TO THE NONEXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK
FOR PURPOSES OF ENFORCING THIS AGREEMENT.
19.4. No Third-Party Beneficiaries. Nothing herein expressed or
implied is intended or shall be construed to confer upon or give to any person,
other than the Parties hereto and their respective successors and permitted
assigns, any rights or remedies under or by reason of this Agreement.
19.5. Independent Contractors; Limitation of Liability. The
undertakings described in this Agreement shall not be deemed to constitute a
joint venture or partnership between AT&T and BBN. Except as expressly provided
in this Agreement, neither Party shall be liable for acts or omissions of the
other merely by virtue of the signing of this Agreement.
19.6. Force Majeure.
AT&T AND BBN PROPRIETARY: SUBJECT TO NON-DISCLOSURE AGREEMENT
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<PAGE> 43
19.6.1. Except as otherwise expressly provided in this
Agreement, neither Party shall be liable to the other for damages or other
payments under this Agreement (including Guaranteed Minimums, Additional
Guaranteed Minimums and Soft Landing Guarantees) to the extent resulting from
any of the following force majeure events: the elements; lightning; pest
damage; power surges, fluctuations or failures; strikes or labor disputes;
water; acts of God; war, civil disturbances, acts of civil or military
authorities, or the public enemy; fuel or energy shortages; or any other cause
beyond such Party's reasonable control. If any force majeure event occurs, the
Party whose performance fails or is delayed (or whose payment obligations would
otherwise arise) because of such force majeure event shall give prompt notice
to the other Party and, upon cessation of such force majeure condition, shall
give like notice and commence performance hereunder as promptly as reasonably
practicable. In the event that any performance or payment obligation under
this Agreement is suspended under this provision (or is substantially certain
to continue) for a period in excess of 60 days, either Party may terminate this
Agreement on not less than 30 days' advance written notice to the other Party.
19.6.2. In addition, in the event of any development that
has a serious adverse effect upon the market for Internet services generally
(including without limitation any legislation, regulation, judicial decision or
other act of any governmental authority or any virus or other occurrence that
significantly affects the risks incurred by providers of Internet services or
significantly undermines confidence in the Internet) and causes a significant
portion of the other leading providers of Internet services to announce they
intend to cease to offer (or to significantly diminish their sales and
marketing of) Internet services, either Party may terminate this Agreement on
not less than thirty (30) days' advance written notice to the other Party. If
AT&T seeks to terminate this Agreement pursuant to this subsection 19.6.2, AT&T
shall promptly begin to exit (and cease offering to new customers) Dedicated
Internet Services, including Managed Connectivity Services, and BBN shall have
the option to continue to provide Dedicated Internet Services to AT&T
Customers, subject to the consent of such customers. In the event BBN
exercises such option to continue to provide Dedicated Internet Services to
AT&T Customers, AT&T shall, without charge to BBN, provide reasonable
cooperation to transition such customers to BBN, and the Parties shall
negotiate in good faith the terms upon which the necessary infrastructure and
equipment will be provided to BBN to continue to service such customers.
19.7. Taxes.
19.7.1. The Parties' respective responsibilities for taxes
arising or in connection with this Agreement shall be as follows:
AT&T AND BBN PROPRIETARY: SUBJECT TO NON-DISCLOSURE AGREEMENT
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<PAGE> 44
19.7.1.1. Each Party shall be responsible for all
franchise and privilege taxes on its business; taxes based upon net income or
gross receipts; property taxes and other taxes imposed directly on the Party.
19.7.1.2. The purchasing Party, agrees to pay to
the other Party all applicable Federal. state or local sales, use, or excise
taxes, duties, or levies imposed upon charges made by one Party, to the other
pursuant to the terms of this Agreement and which are not subject to a tax
exemption certificate provided by the purchasing Party.
19.7.1.3. In the event that a sales, use, excise
tax, duty or levy is assessed by a Federal. state or local taxing jurisdiction
on the charges for the provision of any of the products or services covered by
this Agreement, the Parties agree to fully cooperate with each other to
accurately determine its own tax liability and minimize such liability to the
extent legally permissible. Each Party shall promptly notify, the other of any
claim for taxes asserted by a taxing jurisdictions for any, products or
services covered by this Agreement for which the other Party may be
responsible. The Party receiving the asserted claim shall have the right to
control and settle the claim. The other Party shall have such rights, at its
own cost and expense, to participate in the responses and settlements as are
appropriate to its potential responsibilities and liabilities.
19.7.2. All persons famished by a Party shall be considered
solely the furnishing Party's employees or agents. The furnishing Party shall
be responsible for the payment of all unemployment, social security, and other
payroll taxes, including contribution when required by law. The furnishing
Party agrees to indemnify and save harmless the other Party, its affiliates and
successors and assigns from and against any losses, damages, claims, demands,
suits, liabilities and expenses (including reasonable attorneys' fees) that
arise out of and failure by the famishing Party to perform its obligations
under this clause.
19.8. Press Releases/Public Announcement. Except as may be required
by law or regulation or a court or regulator), authority or any stock exchange
(or over-the-counter market), neither AT&T nor BBN, nor any of their respective
Affiliates, shall issue a press release or make any public announcement or any
disclosure to any Third Party related to the terms of this Agreement without the
prior consent of the other Party, which consent shall not be unreasonably
withheld or delayed. The Parties anticipate making a public announcement
promptly following the Effective Date.
19.9. Nonexclusive Remedies. Except as otherwise expressly provided
in this Agreement, each of the remedies provided under this Agreement is
cumulative and is in addition to any remedies that may be available at law or in
equity.
AT&T AND BBN PROPRIETARY: SUBJECT TO NON-DISCLOSURE AGREEMENT
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<PAGE> 45
19.10. Expenses. Except as otherwise specifically provided in this
Agreement, each Party shall bear and pay its own expenses and taxes incurred in
connection with its performance under this Agreement.
19.11. Notices. All notices, requests, consents, approvals, waivers
and other communications under this Agreement shall be in writing and shall be
effective upon actual delivery or refusal of delivery to the following address:
If to AT&T, to:
AT&T Corp.
55 Corporate Drive
Bridgewater, New Jersey 08807
Attention: Product Marketing Director, Gateway Services
with a courtesy copy to:
AT&T Corp.
295 North Maple Avenue
Basking Ridge, New Jersey 07920
Attention: Vice President - Law,
Business Multimedia Services
If to BBN, to:
Bolt Beranek and Newman Inc.
150 Cambridge Park Drive
Cambridge, Massachusetts 02140
Attention: George Conrades, Chief Executive Officer
Paul Gudonis, Chief Executive Officer, BBN Planet
John Montjoy, Vice President and General Counsel
Notices may be given by electronic facsimile device or receipted courier
service; provided, that for notice by electronic facsimile device to be
effective, its receipt must be acknowledged by the addressee in writing by
return facsimile. Notice of any change in any such address shall also be given
in the manner set forth above.
19.12. Entire Agreement. This Agreement, together with all schedules
hereto, sets forth the entire understanding of the Parties with respect to the
matters covered herein, and supersedes all prior agreements, covenants,
arrangements. communications, representations or warranties, whether oral or
written, of any Party, including without limitation the Non-
AT&T AND BBN PROPRIETARY: SUBJECT TO NON-DISCLOSURE AGREEMENT
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<PAGE> 46
Disclosure Agreement between BBN and AT&T dated as of February, 1995. Except
(i) as otherwise provided in this Agreement, (ii) as otherwise provided in any
schedule with a specific reference of an intent to modify this Agreement, or
(iii) with respect to Schedules 4.4.1, 4.4.2, 7.1, and 7.4, if any provision
contained in the Agreement or in Schedules 4.4.1, 4.4.2, 7.1, and 7.4 is in
conflict with, or inconsistent with any provision in any other schedule, the
provision contained in this Agreement or Schedule 4.4.1, 4.4.2, 7.1, or 7.4. as
the case may be, shall govern and control. Other than as provided in this
Agreement, neither Party is responsible or liable for any business decisions
made or inferences drawn by the other Party in reliance on actions taken or
disclosures made in connection with this Agreement (including without
limitation prior to the date of execution of this Agreement).
19.13. Waivers; Amendments. Waiver by any Party of any breach of or
failure to comply with any provision of this Agreement by the other Party shall
not be construed as, or constitute, a continuing waiver of such provision, or a
waiver of any other breach of, or failure to comply with, any other provision of
this Agreement. No waiver, modification or amendment of this Agreement shall be
effective unless made by an instrument in writing duly executed by an authorized
representative of the waiving Party in the case of a waiver, and of each of the
Parties in the case of an amendment or modification.
19.14. Severability. Wherever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law. If, however, any provision of this Agreement shall be prohibited
by or invalid under applicable law, and except where either Party exercises its
right to terminate this Agreement under Section 9.2, (a) such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement, and (b) in the event any such provision is an essential element of
the Agreement, the Parties shall promptly negotiate a replacement that will
achieve the intent of such unenforceable provision to the extent permitted by
law.
19.15. Titles. The titles to the sections. appendices and schedules
are inserted for convenience only and shall not be taken as an interpretation of
the contents of those passages or as an attempt to enlarge, limit or define
terms covered by this Agreement.
19.16. Execution in Counterparts. More than one counterpart of this
Agreement may be executed by the Parties, and each fully executed counterpart
shall be deemed an original.
AT&T AND BBN PROPRIETARY: SUBJECT TO NON-DISCLOSURE AGREEMENT
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<PAGE> 47
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
as of the day and the year first above written.
BOLT BERANEK AND NEWMAN INC. AT&T CORP.
By: By:
------------------------------- --------------------------------
Name: Name:
----------------------------- ------------------------------
Title: Title:
---------------------------- -----------------------------
Date: Date:
----------------------------- ------------------------------
BBN PLANET CORPORATION
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
Date:
-----------------------------
AT&T AND BBN PROPRIETARY: SUBJECT TO NON-DISCLOSURE AGREEMENT
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<PAGE> 48
SCHEDULE 2.1.1
Description of Managed Connectivity Services
AT&T AND BBN PROPRIETARY: SUBJECT TO NON-DISCLOSURE AGREEMENT
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<PAGE> 1
EXHIBIT 11.1
BOLT BERANEK AND NEWMAN INC.
CALCULATIONS OF NET INCOME (LOSS) PER SHARE
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS, EXCEPT PER-SHARE DATA)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
1995 1994 1993
FULLY FULLY FULLY
PRIMARY DILUTED PRIMARY DILUTED PRIMARY DILUTED
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Calculation of shares:
Weighted average of shares
outstanding......................... 16,984,000 16,984,000 16,179,000 16,179,000 15,705,000 15,705,000
Incremental shares from use of
treasury stock method for stock
options............................. 1,000,000 1,490,000 (a) (a) (a) (a)
---------- ---------- ---------- ---------- ---------- ----------
Shares used in per-share
calculations........................ 17,984,000 18,474,000 16,179,000 16,179,000 15,705,000 15,705,000
========== ========== ========== ========== ========== ==========
Net income (loss)..................... $64,844 $(7,824) $(32,264)
======= ======= ========
Net income (loss) per share........... $3.61 $3.51 $(.48) $(.48) $(2.05) $(2.05)
========== ========== ========== ========== ========== ==========
</TABLE>
- ---------------
(a) 1994 and 1993 incremental shares were antidilutive and, as a result, were
not included in the calculation of net loss per share.
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES
<TABLE>
<S> <C>
DOMESTIC OPERATING SUBSIDIARIES
BBN HARK Systems Corporation (a Massachusetts corporation, 100% owned by BBN)
BBN Planet Corporation (a Massachusetts corporation, 95% owned by BBN)
BBN Software Products Corporation (a Massachusetts corporation, 100% owned by BBN)
OTHER DOMESTIC SUBSIDIARIES
BBN Advanced Computers Inc. (a Massachusetts corporation)
BBN BARRNet Inc. (a Massachusetts corporation, 100% owned by BBN
Planet Corporation)
BBN Corporation (a Massachusetts domestic securities corporation)
BBN Inc. (a Maine corporation)
BBN Instruments Corporation (a Delaware corporation)
BBN SURAnet Inc. (a Massachusetts corporation, 100% owned by BBN)
BBN NEARnet Inc. (a Massachusetts corporation, 100% owned by BBN
Planet Corporation)
LightStream Corporation (a Massachusetts corporation, 80% owned by BBN)
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 Singapore Pte. Ltd. (a Singapore corporation)
BBN U.K. Limited (a United Kingdom corporation)
Nihon BBN K.K. (a Japanese corporation)
</TABLE>
54
<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. 33-61489, 33-52656,
33-44894, 33-32023, 33-31385, 33-20216, 33-13857, 2-88754, and 2-88724) of our
reports dated August 8, 1995, on our audits of the consolidated financial
statements and financial statement schedules of Bolt Beranek and Newman Inc. as
of June 30, 1995, 1994, and 1993, which reports are included in this Annual
Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
August 21, 1995
55
<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.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> JUN-30-1995
<CASH> 110,792
<SECURITIES> 0
<RECEIVABLES> 61,010
<ALLOWANCES> 7,077
<INVENTORY> 546
<CURRENT-ASSETS> 168,331
<PP&E> 97,458
<DEPRECIATION> 67,383
<TOTAL-ASSETS> 219,466
<CURRENT-LIABILITIES> 59,933
<BONDS> 73,510
<COMMON> 22,051
0
0
<OTHER-SE> 60,501
<TOTAL-LIABILITY-AND-EQUITY> 219,466
<SALES> 215,031
<TOTAL-REVENUES> 215,031
<CGS> 135,251
<TOTAL-COSTS> 135,251
<OTHER-EXPENSES> 110,291
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,434
<INCOME-PRETAX> 78,627
<INCOME-TAX> 13,783
<INCOME-CONTINUING> 64,844
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 64,844
<EPS-PRIMARY> 3.61
<EPS-DILUTED> 0
</TABLE>
