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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, 1996
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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BBN CORPORATION
(Exact name of registrant as specified in its charter)
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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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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 9/17/96 of Common Stock held by other than directors and
executive officers of registrant: $386,605,308
Indicate the number of shares outstanding of each of the registrant's classes of
common stock.
Common Stock, $1.00 par value, outstanding 9/17/96: 20,962,734 shares
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement relating to the Annual Meeting to be
held on November 6, 1996 are incorporated by reference into Part III.
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PART I
ITEM 1. BUSINESS.
GENERAL
BBN Corporation ("BBN" or the "Company", each of which terms includes,
unless the context indicates otherwise, BBN and its consolidated subsidiaries)
is a leading provider of Internet and internetworking services and solutions to
businesses and other organizations, and a provider of contract research,
development, and consulting services to governmental and other organizations.
BBN was incorporated as a Massachusetts corporation in 1953, under the name Bolt
Beranek and Newman Inc., as the successor to a partnership formed in 1948. The
Company changed its name to BBN Corporation in November 1995.
The Company currently operates through two principal business units: BBN
Planet and BBN Systems and Technologies. The activities of these business units
are described below:
- BBN Planet, an operating division of the Company, provides a range of
Internet services to businesses and other organizations, including
managed access to the Internet and a variety of value-added Internet
services such as managed network security, web server hosting, and
electronic commerce offerings. BBN Planet has expanded through the
acquisition of three regional Internet access providers (including
NEARnet in June 1993, and BARRNet and SURAnet in fiscal 1995). BBN Planet
continues the activities of BBN Planet Corporation, which was merged into
the Company in September 1996. For fiscal 1996, BBN Planet had revenue of
$73 million, including revenue from contracts with America Online, Inc.
("AOL") and AT&T Corp. ("AT&T"). (See "BBN Planet" below.)
- BBN Systems and Technologies, an operating division of the Company,
provides a range of services and products to governmental and commercial
organizations. BBN Systems and Technologies is organized into three
principal groups: Internetwork Technologies, Information Systems and
Technologies, and Physical Systems and Technologies. For fiscal 1996, BBN
Systems and Technologies had revenue of $164 million. (See "BBN Systems
and Technologies" below.)
During fiscal 1996, the Company reported financial information in two
business segments: BBN Planet, and BBN Systems and Technologies.
The Company's experience and technical expertise in computer networking and
Internet-related activities dates back to 1968 when BBN participated in the
design and implementation of the ARPAnet, the foundation of today's Internet.
Since that time, the Company has been at the forefront of numerous technological
advances that have made the Internet possible, and has participated in the
design, installation, and operation of many global computer networks for
government and commercial customers. These include the Defense Data Network for
the U.S. Department of Defense, the U.S. Treasury Department's existing data
network, and data networks for MasterCard International, Marriott Corporation,
MCI, Japan Airlines, National Westminster Bank, and others. The Company
currently provides AT&T with dedicated Internet access and managed network
security services for AT&T's WorldNet Managed Internet Service customers in the
United States, and builds, maintains, and operates a significant portion of
AOL's nationwide, high-speed, dial-up network.
In January 1996, the Company announced plans to consolidate its Internet
and internetworking services operations into its BBN Planet and BBN Systems and
Technologies business units. The Company believes this strategy will enable it
to focus principally on a broad range of Internet capabilities and to develop
new Internet-related offerings for businesses and other organizations.
In furtherance of its efforts to focus principally on Internet and
internetworking activities, the Company has recently undertaken a number of
reorganization initiatives. For example, in fiscal 1996 the Company consolidated
its Acoustic Technologies division into the BBN Systems and Technologies
division. In April 1996, the Company's former BBN HARK Systems Corporation
subsidiary was merged into the Company. Certain of BBN HARK Systems
Corporation's commercial speech recognition computer software activities
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are being continued by the BBN Systems and Technologies division. (See
"Information Systems and Technologies" below.)
On July 31, 1996, the Company completed a transaction with an investment
group led by ABS Capital Partners (collectively, "ABS") under which ABS
purchased a majority interest in the Company's former BBN Domain Corporation
subsidiary for approximately $36 million. The results of operation of BBN Domain
Corporation have been reported as discontinued operations and the financial
statements of the Company have been restated accordingly. BBN continues to
retain a minority voting stock interest in BBN Domain Corporation, the name of
which has been changed to Domain Solutions Corporation. (See "BBN Domain
Corporation" below.)
In January 1995, substantially all of the assets of LightStream
Corporation, an 80%-owned subsidiary of the Company, were sold, resulting in a
$105.0 million gain to the Company before taxes and minority interest.
LightStream Corporation developed and marketed asynchronous transfer mode
("ATM") network switches. The Company's fiscal 1995 results include revenue of
approximately $8.4 million and an operating loss of approximately $3.7 million
relating to the Company's LightStream Corporation activities (through the date
of sale). (See "LightStream Corporation" below.)
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. Although the Company's U.S. government revenue increased in fiscal
1996 from the prior period, the Company has been experiencing reduced operating
margins and increased competition within the consolidating defense industry. The
Company anticipates that competition in all defense-related areas will continue
to be intense, including continued significant competitive pressure to lower
prices, which may reduce profitability in this area of the Company's business.
(See "United States Government Contracts" below.)
BBN conducts its commercial businesses in markets which are characterized
by rapidly changing technology, evolving industry standards, intense
competition, and frequent new service and product introductions. These factors
require significant expenditures to develop new services and products to address
emerging market requirements and to improve the Company's existing services and
products.
During fiscal 1996, BBN's operating results were adversely affected by the
Company's continued investment in Internet-related activities, including
expenses related to the significant expansion of BBN's high-speed Internet
backbone and services-delivery infrastructure; expansion of direct sales and
distribution channels, principally at BBN Planet; and the Company's continued
investment in new value-added Internet services.
Although the Company expects continued revenue growth, principally in its
BBN Planet business segment, it expects to incur substantial operating losses in
fiscal 1997 principally as a result of its continued investment in BBN's
Internet-related businesses.
The Company expects that the success of its Internet-related efforts will
depend upon a number of factors, including the development and expansion of the
market for Internet access services and products, and of the networks which
comprise the Internet; the ability of the Company to continue and expand its
current relationships with AOL and AT&T; the capacity, reliability, cost, and
security of its network infrastructure; its ability to finance the expansion of
its network infrastructure; its ability to develop price competitive services
that meet changing customer requirements or acquire rights to such products and
services from other providers; its ability to compete with larger competitors,
including telecommunications companies with greater resources and existing
customer relationships and with installed infrastructure and other compatible
service offerings; its ability on a timely basis to attract and retain
additional highly qualified management, technical, marketing, and sales
personnel; its ability to manage its growth; and its ability to improve its
overall margins through improved operating efficiencies and an increase in the
value-added services portion of its revenues. In addition, the Company may need
to raise additional funds through public or private debt or equity financings in
order to implement its strategy. There can be no assurance that any such funding
will be available, or of the terms or timing of any such funding.
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In recent years, the Company's traditional commercial products businesses,
consisting principally of X.25 network systems and products, have reached
maturity in their life cycles. The Company has been experiencing substantially
lower revenue, and significantly reduced its development and selling efforts,
for such X.25 network systems and products. With the divestiture of the
Company's LightStream Corporation and BBN Domain Corporation subsidiaries, the
Company no longer offers for sale a number of products in which it invested
heavily in development in recent periods, including the LightStreamTM ATM
switch, and BBN Domain Corporation's CornerstoneTM, ClintrialTM and Starfire
software.
The Company's current business segment revenues (before intercompany
eliminations) in fiscal 1996, 1995, and 1994 were as follows:
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<CAPTION>
YEAR ENDED JUNE 30,
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BUSINESS SEGMENT 1996 1995 1994
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BBN Planet..................................... $ 73,030,000 $ 17,820,000 $ 7,932,000
BBN Systems and Technologies................... $163,998,000 $152,620,000 $152,230,000
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The Company's contracts and subcontracts involving the U.S. government and
its agencies represented approximately 55%, 70%, and 80% of BBN's total revenue
in fiscal years 1996, 1995, and 1994, respectively.
BBN PLANET
Overview.
BBN Planet provides a range of Internet services and solutions to
businesses and other organizations. Through this division, the Company operates
a high-bandwidth digital data communications network providing dedicated
Internet access to its customers across the United States. BBN Planet's Internet
access services include a range of dedicated leased line connectivity options,
bulk private-label business dial-up services, network design, implementation,
management, monitoring, and problem-resolution services. In addition to Internet
access services, the Company currently offers a range of value-added Internet
services, including managed Internet security, World Wide Web server hosting,
commercial transaction and payment processing services, applications
development, and systems integration services.
The Company has been at the forefront of the technological advances that
made the Internet possible. Under contract with U.S. government agencies and
commercial customers, BBN has participated in the design and operation of a
number of the most extensive, reliable, and secure computer networks in the
world. For example, BBN:
- DESIGNED AND IMPLEMENTED THE ARPANET, and later played an important role
in its transformation into the modern Internet.
- DESIGNED, INSTALLED, AND OPERATED THE DEFENSE DATA NETWORK for the U.S.
Defense Department, one of the most important networks ever developed and
essential for the operation of the U.S. military's worldwide defense
communications infrastructure. (See "Internetwork Technologies" below.)
- DESIGNED AND BUILT OTHER LARGE NETWORKS FOR GOVERNMENT AND COMMERCIAL
ORGANIZATIONS, including the U.S. Department of Treasury, Mastercard,
MCI, Japan Airlines, National Westminster Bank, and others. (See
"Internetwork Technologies" below.)
- PROVIDES AT&T WITH DEDICATED INTERNET ACCESS AND MANAGED NETWORK SECURITY
SERVICES for AT&T's WorldNet Managed Internet Service customers in the
United States.
- BUILDS, MAINTAINS, AND OPERATES A SIGNIFICANT PORTION OF AOL'S
NATIONWIDE, HIGH-SPEED, DIAL-UP NETWORK.
As the Internet becomes increasingly important, the needs of businesses and
other organizations are approaching the long-standing requirements of the U.S.
government's defense, intelligence, and treasury agencies for high-performance,
reliable, and secure network management, and for expansion over diverse network
infrastructures. The Company believes that its depth of experience and
reputation in internetworking
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are the foundation for it becoming one of the nation's leading providers of
managed Internet access and value-added Internet services for businesses and
other organizations.
The Company's BBN Planet division (formerly BBN Planet Corporation, which
was merged into BBN Corporation in September 1996) traces its origins back to
June 1993, when BBN acquired the assets of the New England Academic Research
Network ("NEARnet"). BBN subsequently acquired the business and assets of two
additional regional Internet access providers (the Bay Area Regional Research
Network ("BARRNet") in 1994, and the Southeastern Universities Research
Association Network ("SURAnet") in 1995), expanding its geographical service
area and customer base, and supplementing the technical expertise of the
employees transferred into BBN Planet from other business units of the Company.
The Company has consolidated into BBN Planet certain commercial Internet-related
business activities previously carried out by other business units of the
Company.
Industry Background.
The construction of the modern Internet's infrastructure began over 25
years ago. Historically, the infrastructure was used by academic institutions
and governmental agencies for remote access to host computers and electronic
mail communications. Accordingly, the U.S. government historically provided the
majority of funding for the infrastructure. However, as the modern Internet
developed and became commercial, funding shifted to the private sector. Over the
past year, the number of worldwide Internet users has increased significantly.
In addition, the number of domains registered, which the Company believes is a
forward-indicator of activity on the Internet, has increased at a rapid pace.
There are several key drivers responsible for the rapid proliferation of
Internet use:
- GROWTH OF MODEM-ENABLED PCS: As the installed personal computer ("PC")
base has grown, it has become increasingly common for those PCs to have a
modem connection. Many new computers now have pre-installed modems,
allowing connections to be made even more easily.
- EXPANSION OF LANS AND WANS: Corporate, government, and educational local
area networks ("LANs") and wide area networks ("WANs") are expanding and
these installed networks enable multiple users to be connected to the
Internet through a single point of contact. Therefore, the actual number
of Internet users connected through these LANs and WANs greatly exceeds
the number of connection points.
- IMPROVING PERFORMANCE: There have been significant bandwidth,
communications, and price/performance improvements in communications over
the Internet. These developments make the Internet an increasingly
attractive medium for conducting business, adding convenience, and
attracting more users.
- DRAMATIC INCREASE IN NAVIGATIONAL AND UTILITY TOOLS: The proliferation
and improvement of software tools and browsers which facilitate Internet
use have attracted more users. The World Wide Web and other user-friendly
interfaces have made it easier for users to access desired information on
the Internet.
- IMPROVED CONTENT: As the Internet grows, new information and services
available on the Internet have attracted attention and created a more
widespread appeal.
- EXPECTATIONS FOR ELECTRONIC COMMERCE OVER THE INTERNET: With the
increased recognition of the Internet's potential as a medium for
marketing and purchasing, a growing number of companies are initiating or
expanding their use of the Internet for commercial purposes.
The convergence of these factors is creating an environment in which
individuals and businesses and other organizations perceive a compelling need to
establish Internet access and an Internet presence. The Company believes that
its Internet access and value-added offerings are particularly appealing to
businesses for a number of reasons. For example, many businesses are accustomed
to working with established vendors, and may prefer to contract with an Internet
services provider such as BBN which has extensive experience in providing
dependable service. Furthermore, many businesses have Internet requirements that
go beyond the
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simple access that most Internet access providers offer. These Internet
requirements may include security, high-bandwidth managed access, and
integration of the Internet with a company's information systems.
Strategy.
The Company believes that it has the depth of Internet and internetworking
expertise, and a wide range of Internet services, needed to serve a high-demand
business user. BBN has demonstrated superior network management and engineering
skills, knowledge of advanced network security methods, and complex problem
solving and advanced research and development capability. BBN's record of
internetworking success and its reputation for technological leadership allows a
business or other organization to select, with confidence, BBN as its Internet
provider. The Company believes that its unique combination of high-bandwidth
managed access with managed security, together with a broad range of value-added
services and systems integration capabilities, distinguishes it from other
Internet service providers and will enable businesses and other organizations to
utilize the Internet through BBN for mission-critical applications.
BBN's Internet strategy is to capitalize on its extensive
internetworking-related experience and unique capabilities by offering Internet
services with global reach, as well as Internet and intranet business
application solutions. The Company's objective is to create a growing, recurring
service revenue base by providing high-bandwidth managed access with managed
security, and value-added services. Through its research and development
activities under U.S. government contracts (see "BBN Systems and Technologies"
below), the Company's strategy is to leverage its advanced network and related
technologies into Internet-related offerings.
More specifically, the Company's strategy is to:
- FOCUS ON BUSINESSES AND ORGANIZATIONS. The Company believes that
businesses and other organizations, and the users within such entities,
rather than individual consumers, offer the greatest potential market for
the Company's services. Utilizing its extensive experience in managing
high-speed data communications networks, BBN is focusing many of its
resources on businesses and other organizations where higher bandwidth
connections, value-added services, systems integration, and customized
Internet solutions can generate significant revenue per customer. In
particular, BBN is targeting organizations that have extensive customer
service and document distribution requirements such as high technology,
financial services, and newspaper publishing companies.
- PROVIDE HIGH-BANDWIDTH, RELIABLE INFRASTRUCTURE SERVICES. BBN has a
nationwide network backbone, with an emphasis on providing local access
in major business centers in the United States. Drawing on its experience
and expertise in the configuration and management of high-capacity data
networks, BBN is expanding its nationwide network backbone through T-3
leased lines in order to meet anticipated increase in Internet traffic
and greater customer demand for high-bandwidth Internet connections. The
Company is also offering dedicated Internet access in a select number of
countries outside of the United States, with planned potential expansion
to reach in excess of 100 countries, through a strategic alliance with
Scitor International Telecommunications Services, Inc.
- PROVIDE VALUE-ADDED SERVICE OFFERINGS. BBN offers a range of value-added
services designed to assist customers in taking strategic advantage of
opportunities offered by the Internet in electronic commerce. These
include managed network security, Web server hosting, commercial
transaction and payment processing services, managed Internet Protocol
("IP") networks, and intranet applications development.
- USE MULTIPLE DISTRIBUTION CHANNELS. BBN intends to market its services
through a variety of sales channels, including its own direct sales
force, AT&T, value-added resellers (including systems integrators and
Internet consultants), and a telesales force. The Company expects to grow
its direct sales force, which currently maintains regional sales
headquarters in Boston, Chicago, Dallas, New York, Palo Alto, and
Washington, D.C. Under the Company's agreement with AT&T, the AT&T
Business Communications Services sales organization exclusively sells
BBN's dedicated Internet access and managed security services in the
United States. (See "Business Relationships" below.) The
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Company has signed up over 350 value-added resellers under its Business
Partners program to resell BBN's Internet services into their focused
markets, and has a telesales program.
- LEVERAGE GOVERNMENT-FUNDED RESEARCH AND DEVELOPMENT. Through its BBN
Systems and Technologies division, the Company is pursuing
government-funded contracts with an emphasis on advanced technologies in
areas such as network security, videoconferencing, wireless networks,
speech recognition, and network sensor systems. The Company believes that
such contracts will further its commercial capabilities as it adapts such
technologies to the commercial market. (See "BBN Systems and
Technologies" below.)
- AUGMENT ITS OFFERINGS TO BUSINESS CUSTOMERS WITH DIAL-UP CAPACITY. The
Company is augmenting its dedicated access offerings to its business
customers by offering bulk, private-label dial-up Internet access through
approximately 175 local calling locations throughout the United States
available as a result of the Company's build-out of the AOL network. The
Company believes that its dial-up Internet access offering complements
the Company's dedicated Internet access services for those business
customers needing remote Internet access.
Internet Access and Value-Added Services.
The Company offers managed access to the Internet, and a variety of
value-added services for businesses and other organizations.
MANAGED CONNECTIVITY. The Company offers a wide range of connectivity
options under the InterNET Advantage(TM) brand name, all of which include
round-the-clock network management, monitoring, and problem resolution. The
InterNET Advantage connectivity options include dedicated leased lines with 56
kbps to 45 mbps (T-3) bandwidth. More than half of BBN's customers use
bandwidths of T-1 or higher. All customers receive 7-days-per-week,
24-hours-per-day line monitoring by experienced operators and technicians, and
24-hour access to the BBN network operations center ("NOC") telephone hotline.
In addition, the Company offers enhanced features at additional costs. These
features include Internet domain name service administration, network news
feeds, packet filtering, and usage reporting. The Company also can provide its
customers with routers and other hardware and software necessary for full
Internet access.
The Company also offers bulk, private-label dial-up Internet access service
to provide businesses and other organizations local dial access to their
networks from approximately 175 local calling locations in the United States.
BBN offers raw dial bandwidth, as well as optional private-label help desk,
desktop software suites, and mail and news services.
VALUE-ADDED SERVICES. BBN provides its customers with a wide range of
value-added services, including security, web services, transaction services,
and application solutions:
- Internet Site Patrol(TM). Internet Site Patrol provides a comprehensive
solution to network security. Internet Site Patrol provides customers
using the Internet with a fully-managed, protective electronic firewall
between an organization's internal network and the external Internet. The
solution includes the firewall hardware and software, installation,
integration, configuration management, security updates, alerts, and
24-hour monitoring and response by BBN's NOC.
- Web Advantage(TM). Web Advantage provides a wide range of World Wide Web
("Web") server hosting services, providing customers with high levels of
performance, reliability, and security. Bandwidth demands are continually
monitored, statistical analysis of site traffic reported, security issues
addressed, and content can be frequently updated via secure connection.
BBN's servers route high-volume publishing traffic directly onto the
backbone of the Internet without increasing the load of the customer's
regular Internet connection. Web Advantage may be purchased as a shared
service, whereby the customer's data is located on a server which also
holds data from other customers, or the customer may opt for a dedicated
server. Through established relationships with Sun Microsystems, Silicon
Graphics, and Netscape, BBN can offer its customers an attractive and
affordable solution to its Web hosting requirements.
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- Merchant Advantage(TM). Merchant Advantage, which provides transaction
security, payment settlement, and order management for merchant Web
sites, enables businesses to sell goods or services directly from their
Web sites without costly custom development. Merchant Advantage provides,
to businesses with Web-based catalogs, the ability to process orders,
obtain credit authorization, calculate and apply sales tax and shipping
charges, forward orders, and settle payments with security and in a
cost-effective manner.
- Application Solutions. The Company performs business needs analyses,
customizes standard products, and integrates third-party systems,
applications, and content for internetworking. It has incorporated
state-of-the art development tools from third parties and is building a
library of reusable components. The Company also specializes in
delivering intranet-based network architecture, design, consulting,
engineering, deployment, and operational services for private and
internetworking requirements.
The anticipated annualized revenue from BBN Planet's existing accounts for
managed connectivity and value-added services approximated $53,000,000 and
$22,000,000 as of June 30, 1996 and June 30, 1995, respectively.
To help ensure that BBN remains at the leading edge of advancements in
Internet-related services and products, the Company has established a Research
and Education Advisory Board to provide a senior level interface between BBN and
the research and academic community regarding the evolution and use of the
Internet in relation to this community. Outside members of this Board include:
Dennis Barnes, President of the Southeastern Universities Research Association,
a consortium of 41 institutions that manages large scientific and technological
projects on behalf of its member institutions; James Bruce, Vice President for
Information Systems and Professor of Electrical Engineering in the Department of
Electrical Engineering and Computer Science at the Massachusetts Institute of
Technology; Stephen Hall, information technology consultant and former Director
of Harvard University's Office for Information and Technology; Raman Khanna,
Director of Distributed Computing and Communication Systems at Stanford
University; John Porter, Associate Provost for Information Technology at Boston
University; Glen Ricart, Chief Technology Officer for Novell, Inc.; and David
Roselle, President of the University of Delaware.
Network Infrastructure.
The Company supports its BBN Planet service offerings with a high bandwidth
network infrastructure, two network operations centers ("NOCs"), two web hosting
and server operations centers, and a 7-days-per-week, 24-hours-per-day technical
support organization. BBN's current network infrastructure includes Cisco
7500-series routers and high-speed T-3 circuits. BBN's network architecture
permits the Company to maximize the number of local Internet access points by
utilizing both dedicated points of presence ("POPs") and interconnected frame
relay access facilities provided by local exchange and interexchange carriers.
The Company currently has agreements with major telecommunications providers to
use their frame relay access points to augment BBN's network backbone and local
access POP network capabilities.
BBN is undertaking a major upgrade and expansion of its network backbone,
with a planned completion by March 1997, to accommodate growing customer demand.
This new network infrastructure is designed to include backbone and metropolitan
T-3 POPs, other high-speed POPs, redundant T-3 circuits, and interconnections at
major peering points. All metropolitan POPs will be connected to the backbone
nodes via T-3 circuits, or via multiple T-1 circuits which support dynamic
routing of traffic even if circuit failures are experienced. When fully
operational, the network will provide higher bandwidth, increased throughput and
reliability, and greater capacity than the Company's existing network. The
Company is currently expanding the number of POPs with T-3 capacity.
In connection with providing managed connectivity services to its customers
and performing under its network management contract with AOL, the Company
relies on certain national and regional telecommunications providers for data
communications services, including telecommunications circuits. These services
constitute a significant portion of the Company's costs to deliver managed
connectivity services and to perform under its agreement with AOL. The Company's
agreements with such telecommunications providers generally
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are for multi-year terms, are cancelable or renegotiable upon the occurrence of
specified events, and in certain circumstances provide for minimum purchase
commitments. In the event that any of the Company's current telecommunications
providers is unable or unwilling to provide or expand its current levels of
service to the Company in the future, or in the event of potential disruption in
services, the Company's operations could be materially adversely affected. In
addition, there can be no assurance that the Company could obtain substitute
services from other providers at reasonable or comparable prices or in a timely
fashion. The Company's significant providers of telecommunications services
include WorldCom, Inc. (formerly Wiltel) ("WorldCom") and MFS Communications
Company, Inc. ("MFS"), which have recently announced plans to merge. This merger
will increase the Company's reliance on the combined WorldCom/MFS as a supplier
of telecommunications circuits. In addition, MFS recently consummated an
acquisition of UUNET Technologies, Inc., a provider of Internet access and other
services and a competitor of BBN Planet.
BBN is focusing on providing dedicated Internet access to major business
centers in the United States. Through an agreement with Scitor International
Telecommunications Services, Inc. ("Scitor") (an affiliate of SITA, a worldwide
airline industry network provider), the Company also offers Internet access in a
select number of countries utilizing Scitor's frame relay network. The Company
is working with Scitor to expand BBN's international dedicated Internet access
capabilities to certain additional countries currently covered by Scitor's
existing global managed telecommunications network.
Operations and Customer Support.
BBN maintains a high level of network reliability and service by
continuously monitoring, on a 7-days-per-week, 24-hours-per-day basis, both data
communications traffic across its network and the integrity of services to the
customer. BBN has committed substantial resources to network operations and
support. BBN maintains NOCs at its headquarters in Cambridge, Massachusetts and
in Columbia, Maryland, and operates web hosting and server operations centers in
Palo Alto, California and Cambridge, Massachusetts. BBN believes its end-to-end
monitoring, round-the-clock availability, and operations redundancy combine to
provide targeted business customers with the level of assurance they will
require to use the Internet for their electronic commerce activities.
The Company's success will depend upon the capacity, reliability, and
security of its network infrastructure. The Company must continue to expand and
adapt its network infrastructure on a timely basis to meet additional demand,
evolving industry standards, and changing customer requirements. The expansion
of the Company's network infrastructure will continue to require substantial
financial, operational, and management resources, and there can be no assurance
that the Company will be able to expand or adapt its network on a timely basis,
at a commercially reasonable cost, or at all. Any failure of the Company to
expand its network infrastructure could have a material adverse effect on the
Company's business, financial condition, or results of operations. In addition,
the Company's network infrastructure is subject to malfunction, service
interruptions, slowdowns, power loss, telecommunications failures, break-ins,
computer viruses, fire, floods, natural disasters, and other disruptive problems
which could materially adversely affect the Company's network operations. Any
event that causes interruption in operations of the Company's network could have
a material adverse effect on the Company's business, financial condition, or
results of operation.
Business Relationships.
BBN's strategy depends on collaboration with strategic partners and
business customers to expand BBN's distribution capabilities and to develop and
deliver a full array of value-added services. Major business relationships
include:
- AT&T CORP. In June 1995, BBN and AT&T entered into a strategic
relationship under which BBN is 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 ("BCS") division in the United States. During
such three-year period, as long as BBN is the exclusive provider of
dedicated Internet access and managed Internet security services to
customers of BCS, BBN is prohibited from providing such services to, or
in conjunction with, other telecommunica-
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tions carriers or on-line service providers. The exclusivity provisions
are subject to termination under certain conditions. At any time after
the exclusivity provisions are discontinued, and subject to the
guaranteed minimums, BBN agrees to provide reasonable cooperation in
support of a migration of the provision of Internet access services to
any AT&T customer such that the services are provided by AT&T or another
party other than BBN. Under the agreement, AT&T provides certain
incentives to BBN to develop additional Internet-related value-added
services for sale to such customers. BBN also provides 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's most favored customers. In addition, either
AT&T or BBN may at any time initiate modifications in the benchmark
pricing for BBN's Internet access services, as necessary to ensure that
BBN's prices remain competitive with the prices charged by other
providers of similar services. AT&T's BCS sales force is reselling BBN's
dedicated Internet access services to AT&T customers. AT&T has agreed to
purchase the following minimum order amounts of services during the first
three years of the agreement, commencing on September 1, 1995: 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 such that in general BBN'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'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 acquires ownership of 15% or more of the
outstanding stock of BBN. In addition to certain other termination
provisions, AT&T may cancel the agreement in the event BBN 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.
- AMERICA ONLINE, INC. In March 1995, the Company entered into an agreement
with AOL to build, maintain, and operate a significant portion of AOL's
nationwide, high-speed, dial-in network. The Company's five-year
agreement with AOL, initially 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 NOC based in Columbia, Maryland. As part
of BBN's agreement with AOL, the Company has access to use certain
capacity of the portion of the network operated by BBN, and BBN has the
right to resell such capacity. BBN uses this network capacity, the
availability of which is currently limited primarily to business hours,
as the basis for its own dial-up service for business users. The Company
expects that its activities relating to the AOL network over the
five-year period will be substantially greater than that originally
specified in the March 1995 agreement, and the Company is currently in
negotiations with AOL as to the terms of such additional activities.
- ANDERSEN CONSULTING LLP. In August 1996, BBN and Andersen Consulting LLP
finalized an agreement to form a joint venture to establish a unique,
plug-in utility that offers customers a network infrastructure,
7-days-per-week, 24-hours-per-day data operations center, and a suite of
reliable business applications that will enable them to conduct
electronic commerce over the Internet or private intranets. BBN
contributed $5 million in exchange for an approximately 12.5% ownership
stake in the joint venture entity; Andersen Consulting retains the
remaining 87.5% interest. In addition, BBN has entered into an agreement
with Andersen Consulting to provide the joint venture with technical and
engineering services, the value of which is expected to be approximately
$4 million in fiscal 1997. The Company believes that the joint venture
will generate additional demand for BBN's value-added Internet services.
- CONTINENTAL CABLEVISION. In January 1996, Continental Cablevision
announced a pilot program with BBN to provide high-speed Internet access
and on-line services to Continental Cablevision's home
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television subscribers in the Boston area. The pilot program utilizes
BBN's combined network engineering, technical support, and network
infrastructure to bring next generation access services to potentially
millions of home PC users.
- OTHER. In fiscal 1996, BBN entered into agreements with U.S. Web Corp.
and Inacom Corp., pursuant to which such partners will resell BBN
Planet's Internet connectivity, web hosting, electronic commerce, and
other value-added Internet services to their customers and affiliates
throughout the United States.
Many of the Company's services are marketed in conjunction with the
services or products of other vendors, and the Company plans to continue its
strategy of maintaining and developing key strategic relationships. There can be
no assurance that the Company will be successful in its ongoing strategic
relationships or that the Company will be able to find further suitable business
relationships as it develops new services or expands current services. Moreover,
there can be no assurance that the Company's distributors and other strategic
partners, many of which have significantly greater financial and marketing
resources than the Company, will not develop and market products in competition
with the Company in the future, discontinue their relationships with the
Company, or form competing arrangements with the Company's competitors. In
particular, there is no assurance that AT&T will continue to purchase Internet
services from the Company after the expiration of the current agreement.
Moreover, 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 the Company, acquires ownership of 15% or more of the
outstanding stock of the Company. In addition to certain other termination
provisions upon breach of the agreement by BBN, AT&T may cancel the agreement in
the event the Company merges with, or becomes controlled by, another
telecommunications carrier or an on-line service provider, and AT&T has the
right to terminate the exclusivity obligation and to withhold other financial
benefits in certain other situations.
Marketing.
BBN intends to grow its Internet revenue both by providing additional
services to its existing customers and by substantially growing its customer
base. To meet its business objectives, the Company has developed a three-point
sales and marketing strategy:
- DEVELOP A RANGE OF BUSINESS PARTNERS. BBN Planet's Business Partners
Program, which currently has over 350 participants (including U.S. Web
Corp. and Inacom Corp.), is seeking reseller relationships with a variety
of value-added resellers. These channels will sell BBN Planet's services
into their focused markets and will incorporate them into systems
integration and solutions projects.
- EXPAND ITS DIRECT SALES ORGANIZATION. BBN Planet is expanding its direct
sales force in major business centers in the United States. A technical
sales support team supports BBN Planet's sales efforts by analyzing
customer requirements and designing Internet solutions to meet those
requirements.
- EXPAND TELESALES FORCE. BBN Planet plans to expand its telesales force to
close lower-value sales opportunities for its InterNET Advantage managed
connectivity, Internet Site Patrol, and Web Advantage offerings.
BBN Planet provides Internet services to businesses, educational
institutions, and governmental organizations. Through both internal growth and
acquisitions, the Company's account base has grown from approximately 300
high-speed connections in August 1994 to approximately 2,300 high-speed
connections as of June 30, 1996. BBN Planet's Internet accounts include many
leading U.S. information technology companies, including Apple Computer, Cisco
Systems, Digital Equipment Corporation, Oracle, Silicon Graphics, and Sun
Microsystems; leading manufacturing organizations, such as Polaroid, TRW, United
Technologies, and Xerox; leading telecommunications providers, such as AT&T,
Ameritech, Continental Cablevision, GTE, and Pacific Telesis; leading
universities, such as Harvard University, Johns Hopkins University, the
Massachusetts Institute of Technology, and Stanford University; government
entities, such as NASA, the U.S. Senate, the U.S. Departments of Agriculture,
Defense, Education, Energy, Housing and
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Urban Development, State, and Transportation, and the States of California,
Delaware, Georgia, Massachusetts, Rhode Island, and Tennessee; leading financial
institutions such as Alex Brown & Sons, Bank of America, Bank of Boston, Chase
Manhattan Bank, Chicago Mercantile Exchange, Dow Jones, and Scudder, Stevens &
Clark; and leading media companies such as The Boston Globe, Cahners Publishing,
Forbes Magazine, The Los Angeles Times, and Miramax Films.
Competition.
The markets for the Company's BBN Planet offerings are highly competitive.
In particular, 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 believes there are
certain key competitive considerations in this market, including: price; quality
of service; technical expertise; quality of network backbone and infrastructure;
and quality and scope of sales, marketing, and distribution channels. BBN
expects that competition in the market will intensify in the future.
BBN's current and prospective competitors in the Internet services market
may, in general, be divided into the following four groups: (1)
telecommunications companies, such as AT&T, MCI Telecommunications, Inc., MFS
(which recently acquired UUNET Technologies, Inc.), WorldCom (which recently
announced plans to merge with MFS), Sprint, Inc., regional Bell operating
companies, and various cable companies; (2) Internet access providers, such as
PSINet Inc. and NETCOM On-Line Communication Services, Inc.; (3) on-line
services providers, such as AOL and CompuServe Incorporated; 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 recognition and existing customer relationships,
and have engineering, marketing, financial, technological, and personnel
resources greater than those available to BBN. 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 and services than can BBN. BBN expects that all of the major online
services and telecommunications companies will compete fully in the Internet
services market, and that other 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.
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's agreement with AT&T). In
addition, those of BBN'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 or taking advantage of
installed infrastructure, thereby reducing the overall cost of their Internet
access services and increasing pricing pressures on BBN. Competition could
increase if new companies enter the market or if existing competitors expand
their services and product lines or combine with other providers of Internet
services or complementary services. There can be no assurance that BBN 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 will have the
financial resources, technical expertise, or marketing and support capabilities
to continue to compete successfully.
BBN Planet's competitive success will primarily depend upon the development
and expansion of the market for Internet access services and products, and of
the networks which comprise the Internet; the ability of the Company to continue
and expand its current relationships with AOL and AT&T; the capacity,
reliability, cost, and security of its network infrastructure; its ability to
develop price competitive services that meet changing customer requirements or
acquire rights to such products and services from other providers; its ability
to compete with larger competitors, including telecommunications companies with
greater resources and existing customer relationships and with installed
infrastructure and other compatible service offerings; its ability on a timely
basis to attract and retain additional highly qualified management, technical,
marketing,
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and sales personnel; its ability to manage its growth; and its ability to
improve its overall margins through improved operating efficiencies and an
increase in the value-added services portion of its revenues.
There can be no assurance that the Company will be able to compete
successfully in the future. Maintaining any technological advantages that the
Company may have or may develop, and developing value-added services, will
require continued significant investment by the Company in research and
development and in sales and marketing. There can be no assurance that the
Company will have or be able to obtain sufficient resources to make such
investments or that the Company will be able to make the technological advances
necessary to maintain such competitive advantages.
There are currently few domestic or foreign laws or regulations directly
applicable to access to or commerce on the Internet. However, due to the
increasing popularity and use of the Internet, it is possible that a number of
laws and regulations, domestic and foreign, may be adopted with respect to the
Internet, covering issues such as telecommunications in general, message
content, user privacy, property ownership, libel, pricing, characteristics and
quality of services and products, and export controls. The adoption of any such
laws or regulations may decrease the growth of the Internet, which could in turn
decrease the demand for the Company's Internet-related services and products and
increase the Company's cost of doing business or otherwise have an adverse
effect on the Company's business, financial condition, or results of operations.
Moreover, the Company's status or regulation under telecommunications laws, and
the applicability to the Internet of existing laws governing issues such as
property ownership, libel, and personal privacy, are uncertain.
Changes in the regulatory environment relating to the Internet access
industry or the telecommunications industry in general, including regulatory
changes which directly or indirectly affect telecommunication costs, the
Company's status or regulation under telecommunications laws, or the scope of
competition from regional telephone companies or others, could have an adverse
effect on the Company's business. The Company cannot predict the impact, if any,
that regulation or regulatory changes may have on its business.
BBN SYSTEMS AND TECHNOLOGIES
INTERNETWORK TECHNOLOGIES
Overview.
Through the Internetwork Technologies group of the Company's BBN Systems
and Technologies division, BBN designs, builds, and operates wide-area
communications networks; and offers and performs contract research, development,
and consulting services for government and commercial organizations in advanced
networking and Internet-related technologies. (For information on the Company's
Internet access and value-added services, see generally the discussion under
"BBN Planet" above.)
The Company's strategy is to pursue government-funded advanced networking
and Internet-related opportunities, to continue to develop advanced
Internet-related technologies, and to transform such technologies into services
and products for the commercial and government markets.
The activities of the Internetwork Technologies group of the Company's BBN
Systems and Technologies division include the following:
- Advanced Network Systems and Technologies.
BBN designs, develops, and operates integrated network systems for
U.S. government agencies and commercial organizations. These customers
typically have existing network infrastructures with requirements to
integrate, migrate, or build new enterprise networks that incorporate
emerging intra- and internetwork technologies.
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. The Company's multi-year contract to support the DDN expired in
April 1996.
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The Defense Information Systems Agency ("DISA") has awarded the Company a
one-year extension, valued at approximately $10 million, which would
continue the Company's existing activities through April 1997. However,
this contract is terminable at the convenience of the U.S. government upon
sixty days notice. The Company expects that DISA will exercise its right to
terminate this contract prior to April 1997, following the commencement of
operations under a follow-on contract for DDN awarded to another
contractor, thereby discontinuing BBN's activities related to this
contract.
In fiscal 1996, the Company was selected, under a subcontract with
TRW, to design and build an expansion of the U.S. Treasury's nationwide
telecommunications system. This one-year subcontract, with a value of
approximately $15 million, includes up to ten one-year optional extensions.
In addition, the Company has a contract to build and operate the Defense
Simulation Internet ("DSI"), a secure global network offering real-time
distributed simulation and training via packet, voice, and
videoconferencing communications.
Under contract with the Defense Advanced Research Projects Agency
("DARPA"), BBN is designing and developing a multi-gigabit router, an IP
router that is expected to transmit breakthrough levels of traffic among
WANs and LANs. The multi-gigabit router is expected to be 25 times faster
than current commercial products, providing sufficient speed and bandwidth
for high-capacity backbones, sophisticated data intensive applications, and
supercomputing.
BBN designs, develops, and implements network security solutions for
data network environments, including packet network encryption technology
to protect classified data for transmission across the Internet; user
authentication and access control systems; and directory servers including
security packages. BBN also offers e-mail security technology and Public
Key Infrastructure ("PKI") certification system models for electronic
commerce applications for government and commercial customers. Under
contract with the Department of Defense, the Company has developed a
Certification Authority Workstation ("CAW"), which assists in managing the
cryptographic devices and security parameters throughout the Defense
Message System.
Under contract with U.S. government agencies, the Company is designing
and developing wireless mobile network systems. These network systems are
expected to provide new solutions for government and commercial
organizations with a need to connect to central communications networks,
personnel and equipment that are on the move. BBN's research in this area
includes its Near-Term Digital Radio ("NTDR") contract, awarded in fiscal
1996 by the U.S. Army, to design, develop, and deploy a secure, mobile
wireless voice and video network connecting over 400 vehicles across a
600-square mile area. The Company also has been awarded a contract by DARPA
to develop advanced mobile IP network protocols.
- Network Access Products and Services.
BBN markets and supports, primarily for commercial customers, legacy
network access products and services, as described below.
The Company's network access products and services include X.25
network systems and products based upon packet-switching technology,
including switching equipment, access devices, and network management
systems. The Company's X.25 network access products and services business
has experienced significantly lower revenue for several years.
Substantially all of the Company's X.25 network access products and
services revenue in fiscal 1996 was generated from sales into the Company's
existing customer base in connection with the maintenance and support of
networks previously installed by BBN. In response to rapid technological
change and the emergence of new networking technologies, products and
services, 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.
The Company's network access products include the T/10 Integrated
Access Device ("IAD"). The T/10 IAD, which operates simultaneously as an
Internet Protocol ("IP") router, X.25 packet switch, and asynch, bisynch,
and SNA packet assembler/disassembler, and provides frame relay
functionality, is
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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 network. To date, revenue from the
Company's T/10 IAD activities has been substantially below expectations,
and the Company has substantially reduced spending relating to the T/10 IAD
in recent years.
The Company is currently developing a multimedia access device
("MMAD"), an internetworking access device. The MMAD, which is being
designed to enhance a multi-protocol peripheral router with the
capabilities of a voice-capable frame relay access device ("FRAD"), is
expected to be capable of handling a variety of networking needs by
providing a common access point for all traffic to share a common frame
relay backbone while maintaining the ability to route the more common
traffic types such as IP.
The Company is focusing sales of its network access products and services
to a limited number of resellers and strategic licensing opportunities primarily
in Europe and Japan. The Company has entered into several strategic development
and license agreements with NEC Corporation ("NEC"), granting to NEC certain
technology and manufacturing rights in the Company's T/10 IAD, T/40 Video
Internet Router (for which BBN had substantially reduced its development
efforts), and the MMAD.
The Company has outsourced most of its manufacturing capabilities for its
internetwork technologies products. The Company does not currently maintain a
qualified second manufacturing source for certain of its network access
products. Field service, consisting of on-site hardware and software maintenance
for BBN's internetwork technologies 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 BBN's internetwork technologies, products, and services
includes the U.S. government and commercial organizations.
U.S. government agencies, primarily the U.S. Department of Defense, are
BBN's principal customers for its advanced network systems and technologies. To
offset the general decline in the U.S. Department of Defense budget and
increased competition for defense contracts (see "United States Government
Contracts" below), BBN is targeting other government agencies for its
internetwork technologies offerings, and supports BBN Planet's efforts to target
commercial organizations with significant existing network infrastructures that
need to integrate, migrate, or build new enterprise networks that incorporate
emerging intra- and internetwork technologies. The Company believes that many of
its internetwork technologies currently marketed to U.S. government agencies
hold promise for commercial markets as well. In the area of network security
services, the Company believes that the increasing use of the Internet and
numerous private intranets has created a demand for more advanced, secure levels
of electronic commerce, including exchanging mission-critical or competitive
information, conducting negotiations, placing and fulfilling orders for goods
and services, and conducting financial transactions. The Company believes that
this demand will open up new markets for its network security products and
services both in the U.S. government and commercial marketplace.
In the area of network access products and services, the market for the
Company's X.25 network access products and services 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 access products
and services both directly and through third party resellers, although the
Company substantially reduced its direct selling and marketing capabilities for
X.25 network services and products in recent years. The market for the Company's
T/10 IAD and MMAD network access products includes commercial organizations
which require access devices that enable the transmission of traffic from both
legacy terminal-to-host applications as well as newer client/server applications
over a single, high-speed frame relay backbone. The Company's distribution
strategy for network access products and services is based on a limited number
of OEM partnerships.
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Competition.
Competition in the field of internetwork technologies is intense. U.S.
Government contracts may be awarded either through a sole-source or competitive
procurement, although competitive procurements are increasingly common. BBN is
focusing on areas in which it has particular expertise, such as security and
high-performance networking.
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 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.
In the commercial marketplace, factors of competition include the
extensiveness of the supplier's consulting capabilities and service offerings,
reputation, responsiveness, and to a lesser extent, price. Through its
government-funded contract research and development efforts, the Company
believes that it can provide significant competitive advantage to the commercial
marketplace. Commercial customers benefit from the extensive knowledge and
expertise relating to state-of-the-art internetworking trends and opportunities
that the Company derives from its government-funded projects. The Company
believes that its success in the commercial sector will depend upon its success
in continuing to provide advanced networking-related contract research and
development services to certain U.S. government customers, including DARPA,
which efforts provide the Company with extensive knowledge and expertise
relating to future internetworking trends and opportunities. Many of these
services are also made available to BBN Planet customers, to differentiate that
division's offerings.
The Company also believes that its efforts to adapt government-funded
technologies to meet commercial market requirements results in more robust
applications that are attractive to government agencies who are seeking to
integrate commercial-off-the-shelf applications into their programs whenever
possible.
The Company believes that the primary factors of competition for network
access products and services are functionality, product performance, price,
reliability, and experience of the supplier. Several important trends have
adversely affected the Company's X.25 network access products and services
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.
INFORMATION SYSTEMS AND TECHNOLOGIES
Overview.
BBN designs, develops, and markets information systems and technologies,
primarily in the fields of distributed systems and computing technologies,
advanced command and control systems, speech and language processing, and
education and training. In each of these fields, BBN offers customized solutions
to complex problems.
Through the Information Systems and Technologies group of the Company's BBN
Systems and Technologies division, the Company is engaged in the following
activities:
- Advanced Command and Control Systems.
The Company offers research, development, and consulting services,
primarily to government agencies, to develop and implement advanced command
and control systems which incorporate the Company's expertise in the fields
of human-computer applications, advanced computing, expert systems, and
artificial intelligence.
The Company has designed, developed, and deployed field logistics and
transportation support systems for a number of government customers. For
example, under contract to the U.S. Army, BBN has
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designed, developed, and deployed a field logistics system, called the
Logistics Anchor Desk ("LOG-AD"), which is currently being used to support
the U.S. peace-keeping forces in Bosnia.
- Speech and Language Technologies.
BBN performs research, development, and consulting services, primarily
to government customers, in a range of advanced speech and language
technologies, including speech and language processing, speech recognition,
wordspotting, speaker identification, language identification, character
recognition, data extraction from text, and name finding in text. For
example, under contract to DARPA, the Company is developing interactive
spoken language systems enabling military personnel to interface
efficiently and effectively with computer applications ranging from
specific military logistics systems to the Internet.
The Company's former BBN HARK Systems Corporation ("BBN Hark")
subsidiary, an early-stage company which provided commercial speech
recognition computer software products and services, was merged into the
Company in April 1996. Certain of the commercial speech recognition
computer software activities previously resident in BBN Hark are now being
continued by the BBN Systems and Technologies division.
- Education and Training Technologies.
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 Co-NECT School Design program, utilizing computer and
networked communications technology as part of a project based curriculum.
Marketing.
BBN markets its information systems and technologies principally to U.S.
government agencies, and to a lesser extent to commercial and non-profit
organizations. Substantially all of BBN's information systems and technologies
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.
In the logistics sector, BBN is pursuing the use of many of the Logistics
Anchor Desk and advanced command and control systems components in its offerings
to the commercial logistics market. Organizations with complex scheduling
requirements are the major targets of this activity.
BBN markets speech and language-related research and development
principally to U.S. government agencies, such as DARPA and the U.S. Air Force
Rome Laboratory. Substantially all of the contracts in these fields are won on
the basis of the technical merits of BBN's proposals and BBN's professional
reputation.
Competition.
The primary factors of competition for BBN's information systems and
technologies 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
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available within such agencies. Information as to the Company's U.S. government
contract activities may be found in the section captioned "United States
Government Contracts" below.
PHYSICAL SYSTEMS AND TECHNOLOGIES
Overview.
BBN performs contract research, development, and consulting services,
primarily for U.S. government agencies, in the field of physical systems and
technologies.
The Company designs, develops, and markets underwater acoustic sonar and
prototype sensor systems, both fixed and mobile, primarily for U.S. government
agencies, including in undersea sensor and surveillance systems. 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. Some of this work is carried out under subcontract
to major defense contractors
In the area of acoustic technologies, the Company provides 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 is currently teamed with Lockheed-Martin Federal Systems to perform
engineering and development services in connection with two U.S. Navy programs,
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 is performing a
related 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 the
near future. 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 the U.S. Navy will continue to fund development programs for its
underwater surveillance and sonar systems. (See "United States Government
Contracts" below.)
In the commercial marketplace, BBN designs and develops instrumentation
systems for deep water offshore oil platforms used in the petrochemical
industry.
The Company also designs and develops 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.
Under contract to the U.S. Navy, the Company has designed an ANVC system to
reduce the noise generated by propellers and other machinery on a U.S. Navy
vessel.
Marketing.
The primary customers for BBN's physical systems and technologies consist
of the U.S. Navy, DARPA, anti-submarine warfare prime contractors, and the
National Aeronautics and Space Administration. 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 physical systems and technologies 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,
develop-
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ment, training, and evaluation, often stopping short of full-scale production of
a system until necessary. Currently, the Company is pursuing opportunities for
coastal defense sensor and surveillance systems both in the United States and
with allied foreign countries. The Company believes its ability to sustain
revenue in this business area will depend on continued contract research and
development and program funding by the U.S. government.
The market for ANVC products and systems is slowly emerging, and
manufacturers in the automotive, aerospace, industrial equipment, and consumer
products industries are exploring commercial applications of ANVC technology.
Company revenue from commercial ANVC products and services has not been
significant to date.
Competition.
The primary factors of competition for physical systems and technologies
are superior technical expertise, experience of the supplier, and price.
Competition in the field of physical systems and 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.)
FORMER BUSINESSES
BBN DOMAIN CORPORATION
BBN Domain Corporation (formerly named BBN Software Products Corporation)
was until July 31, 1996 a wholly-owned subsidiary of the Company. BBN Domain
Corporation develops, markets, and supports data analysis and process
optimization software products and services primarily designed for companies in
the health and manufacturing industries. Its offerings of software products
includes RS/Series(TM), Clintrial(TM), Clintrace(TM), Cornerstone(TM),
BBN/Patterns(TM), and BBN/Probe(TM), and Starfire computer software. In recent
periods, the Company had invested heavily in the development of a number of BBN
Domain Corporation's software products, including principally Cornerstone,
Clintrial, and Starfire software.
On July 31, 1996, the Company completed a transaction with an investment
group led by ABS Capital Partners (collectively, "ABS") under which ABS
purchased a majority interest in BBN Domain Corporation subsidiary for
approximately $36 million. The Company continues to retain a minority voting
stock interest in BBN Domain Corporation, the name of which has been changed to
Domain Solutions Corporation. The results of operations of BBN Domain
Corporation have been reported as discontinued operations and the financial
statements of the Company have been restated accordingly.
The Company's decision to divest the majority interest in its BBN Domain
Corporation subsidiary was in furtherance of BBN's strategy of focusing
principally on Internet-related and internetworking activities. The Company
believes that the divestiture will permit BBN to concentrate more intently on
the Internet marketplace, with the cash proceeds providing BBN with the
financial flexibility to continue to invest aggressively in the expansion of the
Company's network infrastructure, the expansion of distribution channels, and
the development of value-added services.
LIGHTSTREAM CORPORATION
Until January 1995, BBN had invested heavily for several years in the
development of networking products based on asynchronous transfer mode ("ATM")
technology. The Company's ATM development activities were conducted from October
1993 by LightStream Corporation, a BBN subsidiary formerly 80% owned by the
Company and 20% owned by UB Networks, Inc. (formerly Ungermann-Bass, Inc.), a
wholly
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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 of the LightStream activities
were approximately $14.8 million in fiscal year 1994 and $3.7 million for the
six months ended December 31, 1994. Prospects for future sales were uncertain.
The Company believed that the emerging market for ATM products was very
competitive, and many other communications companies possessed marketing,
distribution, and other resources significantly greater than those available to
LightStream Corporation. In addition, the ATM enterprise switch market segment,
which was the market segment addressed by the LightStream ATM switches, was
developing significantly slower than other market segments for ATM
communications switches.
In January 1995, LightStream Corporation 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. 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. BBN was also selected as a
primary provider of Internet access services to Cisco and currently manages part
of Cisco's internal network.
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 (now Lockheed Martin Corp.). The results of the
Company's former simulation systems business are included as appropriate in the
BBN Systems and Technologies business segment.
RESEARCH AND DEVELOPMENT
The markets (both governmental and commercial) in which the Company
competes are characterized by rapidly changing technology, evolving industry
standards, intense competition, and frequent new service and product
introductions, which require, among other things, continued research and
development expenditures by the Company to improve its existing services and
products, and to develop new services and products to address emerging market
requirements. Internally-funded research and development costs (exclusive of
LightStream Corporation) were $12,929,000, $9,801,000, and $7,221,000 in fiscal
1996, 1995, and 1994, respectively.
The Company's success in its markets will depend upon its ability on a
timely basis to develop and provide new or enhanced service and product
offerings, at competitive prices, that meet changing customer requirements or to
acquire rights to such services and related products from other providers. There
can be no assurance that the Company can successfully identify new opportunities
and develop or obtain and bring competitive new offerings to market in a timely
manner and at a competitive price. The Company's pursuit of necessary
technological advances may require substantial effort, time, and expenditures.
Development and introduction of technological advances is typically expensive
and the investment often involves a long pay-back cycle. The Company has made
significant investments in product and service developments in the past, some of
which have not been financially successful. Failure of the Company, for
technological or other reasons, to develop or obtain and introduce, in a timely
manner, and market new services that are compatible with industry standards and
that satisfy customer requirements at a competitive price, would have a material
adverse effect on the Company's business, financial condition, and results of
operations.
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In addition, the Company or its competitors may introduce enhancements to
existing services or products, or embodying new technologies, industry
standards, or customer requirements, that have the potential to replace or
provide lower cost alternatives to the Company's existing offerings. The
introduction of such enhancements or new services or products could render any
of the Company's existing services and products obsolete and unmarketable. Any
such event could have a material adverse effect on the Company's business,
financial condition, or results of operations.
UNITED STATES GOVERNMENT CONTRACTS
During fiscal 1996, 1995, and 1994, approximately 55%, 70%, and 80%,
respectively, of BBN's total revenue was derived from contracts and subcontracts
involving the U.S. government and its agencies. Substantially all of such
revenue was in the BBN Systems and Technologies business segment. In fiscal
1996, approximately $124,000,000 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 $39,000,000, $25,000,000 and $21,000,000, respectively.
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 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 significant changes in defense spending
and attendant increased competition within the defense industry, which the
Company expects will 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
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cancellation of existing or emerging programs. These factors have reduced the
Company's U.S. government revenue and operating margins in recent fiscal years.
The Company anticipates that competition in all defense-related areas will
continue to be intense. Accordingly, the Company is expecting competitive
pressure which may reduce profitability in this area of the Company's business.
The defense markets are dominated by large defense contractors with
substantially greater financial and marketing resources and larger technical
staffs than the Company. Recent trends in this area are toward further market
consolidation of large defense contractors into a smaller number of very large
entities, further concentrating financial, marketing, and technical strength and
increasing competitive and pricing pressure in the industry.
The Company has established a governmental business development group to
seek out new U.S. government opportunities. It works in collaboration with the
Board of Visitors of BBN Systems and Technologies, a group with considerable
experience in government procurements, including Dr. John Albertine, Chairman
and CEO, Albertine Enterprises (also a Director of the Company); C. Albert
Fowler former Vice President of Raytheon and Chairman of Defense Services Board;
General Al Gray (Ret.), former Commandant of the U.S. Marine Corps; General
David Maddox (Ret.), former Commander of all U.S. ground forces in Europe;
General Tony McPeak (Ret.), former Chief of Staff for the U.S. Air Force; Vice
Admiral Guy Reynolds (Ret.), former senior naval officer for all Navy research
and development; and Larry Smith, former counselor to two Secretaries of
Defense.
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 for the Company have been
established and billings audited 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. The audit by DCAA of the
Company's former BBN Communications activities for fiscal years 1985 through
1993, which had been delayed, is currently in progress. U.S. government revenue
for BBN Communications activities during the nine-year period under audit
represented approximately 40% of the Company's total U.S. government revenue
during the period. Based upon its interpretations of government contract
regulations, DCAA in August 1996 recommended to the responsible governmental
administrative contracting officer that adjustments to BBN Communications
contract billings be made which, if asserted and sustained upon appeal, would
have a material adverse effect on the Company's financial condition and results
of operations. The amount of any adjustments which may ultimately be asserted by
the administrative contracting officer on the basis of the DCAA recommendations
is not currently determinable. The Company and its counsel believe that DCAA's
recommendations, in substantial part, are based upon incorrect interpretations
of government contract regulations and are inconsistent with decided cases. The
Company expects that any adjustments which may ultimately be asserted and
sustained on appeal as a result of audits of the Company's fiscal years 1985
through 1995 (including the 1985 through 1993 period for BBN Communications)
will not have a material adverse effect on the Company's financial condition and
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.
BACKLOG
The backlog of orders at BBN Systems and Technologies at June 30, 1996 and
June 30, 1995 was approximately $107,000,000 and $133,000,000 respectively. The
decrease from fiscal 1995 results from the wind-down in fiscal 1996 of certain
multi-year U.S. government contracts along with the current trend experienced by
the Company towards shorter term, incrementally funded awards from the U.S.
government. The backlog at June 30, 1996 includes approximately $47,000,000 of
funded U.S. government orders
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(expenditures appropriated by Congress), approximately $40,000,000 of unfunded
government orders, and approximately $20,000,000 of commercial orders. The
amounts include estimates relating to customer-requirements contracts, and to
long-term contracts of a cost-reimbursement nature. Assuming no terminations,
cancellations, or changes, and completion of orders in the normal course, BBN
estimates that approximately 69% of the June 30, 1996 backlog relates to work
expected to be performed during fiscal 1997.
At BBN Planet, under the Company's March 1995 agreement with AOL, backlog
was approximately $43,000,000 and $54,000,000 at June 30, 1996 and June 30,
1995, respectively. These figures include substantial pass-through costs to BBN
for telecommunications circuits and other telecommunications services. During
fiscal 1996, BBN Planet received substantial additional network deployment
tasking from AOL. The Company is currently in negotiation with AOL regarding an
expansion of the original March 1995 agreement, which the Company anticipates
will substantially increase the backlog in connection with its AOL activities.
At BBN Planet, under the Company's Internet services agreement with AT&T,
AT&T has agreed to purchase from BBN a minimum of $120 million of services over
a three year period commencing on September 1, 1995 (subject to potential
reduction under specified circumstances). As of August 31, 1996, AT&T has
fulfilled its first year's minimum order commitment of $20 million as provided
by the Agreement. AT&T's minimum order commitments under the agreement for the
second contract year ending August 31, 1997 and the third contract year ending
August 31, 1998 are $40 million and $60 million, respectively. For additional
information about the AT&T agreement with BBN, see "BBN Planet" above.
For information regarding BBN Planet's anticipated annualized revenue for
managed connectivity and value-added services, see "BBN Planet" above.
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.
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.
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. In response, the Company has increased its patent
activity. However, the Company's patent efforts are spread over a wide range of
technologies, and it is
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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.
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 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 17, 1996, 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 remains on the Company's board of
directors. In addition, the presidents of BBN's two principal operating
divisions have joined BBN within the last two years, including Paul R. Gudonis
at BBN Planet (November 1994) and David N. Campbell at BBN Systems and
Technologies (July 1995).
A number of senior executives have left the employ of the Company in the
last three years. These include Stephen R. Levy, former chief executive officer
of the Company, who retired as an officer and employee of the Company after 29
years with the Company as an employee; 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 head of several BBN activities,
who left in January 1995 after 26 years with the Company; and David C. Walden,
former head of several BBN activities and divisions, who left in January 1995
after 24 years with the Company.
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 process of locating personnel with the
combination of skills and attributes required to carry out the Company's
strategy is often lengthy. The Company's employees may voluntarily terminate
their employment with the Company at any time. The Company believes that its
future success depends in part upon its ability to attract and retain such
personnel. The Company is currently actively recruiting for a number of
technical, marketing, product management, and sales positions throughout the
Company. The loss of service of key personnel, or the inability to attract
additional qualified personnel, could have a material adverse effect on the
Company's product development efforts, business, financial condition, or results
of operations.
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EXPORT SALES
Certain of the Company's services and products, including products
containing encryption technology, are subject to U.S. export controls. There can
be no assurance that such export controls, either in their current form or as
may be subsequently enacted, will not limit the Company's ability to distribute
products outside of the United States or electronically. While the Company takes
precautions against unlawful exportation, the global nature of the Internet
makes control of distribution on the Internet virtually impossible. In addition,
federal or state legislation or regulation may further limit levels of
encryption or authentication technology. Any such export restrictions or new
legislation or regulation could have a material adverse impact on the Company's
business, financial condition, or results of operations.
The Company's foreign operations currently include offices in Italy and the
United Kingdom, principally focusing on sales and marketing activities for the
Company's network access products. Sales from such activities are not
significant. In the countries in which BBN focuses its export sales activities,
the Company knows of no unusual risks. The Company does not currently directly
market and sell its Internet connectivity services outside of the United States.
Export sales by the Company in fiscal 1996, 1995, and 1994 were
concentrated principally in the network access products and services and
physical systems and technologies areas of the Company's BBN Systems and
Technologies business segment. Revenue from U.S. export sales in fiscal 1996,
1995, and 1994 was $19,820,000, $9,296,000, and $11,650,000, respectively. U.S.
export sales revenue from the Company's former BBN Domain Corporation
subsidiary, a majority voting stock interest of which was sold by the Company in
July 1996, is excluded from such calculations. (See "BBN Domain Corporation"
above.)
FACTORS AFFECTING FUTURE RESULTS
From time to time information provided by the Company, statements made by
its employees, or information included in its filings with the Securities and
Exchange Commission (including this Form 10-K), may contain statements which are
not historic facts (so called "forward-looking statements"), including
statements about the Company's confidence and strategies and its expectations
about revenue and market growth, new and existing technologies, services, and
opportunities, and operational efficiencies and earnings. These forward-looking
statements involve risks and uncertainties that could cause the actual results
to vary materially. Factors that may cause such differences include, but are not
limited to, the factors discussed in this section and elsewhere in this Form
10-K. Each of these factors, and others, are discussed from time to time in the
Company's filings with the Securities and Exchange Commission, including its
report on Form 8-K dated May 15, 1996.
The businesses in which the Company is engaged involve a high degree of
risk and uncertainties. The markets (both governmental and commercial) in which
the Company competes are characterized by rapidly changing technology, intense
competition, and frequent new service and product introductions, which require,
among other things, the Company to make significant and ongoing investment. The
Company's success will depend upon its ability on a timely basis to develop and
provide new or enhanced offerings, at competitive prices, that meet changing
customer requirements or to acquire rights to such services and related products
from other providers. In addition, fundamental changes in the way services and
products are marketed and delivered, including bundled services and products,
could have a material adverse effect on the Company's business. The Company's
plans include significant investment in technological and infrastructure
development for Internet-related business opportunities. Failure of the Company,
for technological or other reasons, to develop or obtain and introduce, in a
timely manner, and market new services that are compatible with industry
standards and that satisfy customer requirements at a competitive price would
have a materially adverse effect on the Company's business. The Company has made
a strategic decision to transition its business to focus principally on
commercial Internet-related business opportunities. The success of the Company's
initiative will depend particularly upon the development and expansion of the
market for Internet services and products. This market has only recently begun
to be developed, there is considerable uncertainty as to how the market will
develop, and critical issues which may affect its commercial viability remain
unresolved. For example, the Company believes that the market for commercial
Internet services will continue
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to develop only if security, reliability, ease and cost of access, availability
of electronic commerce services, and quality of offerings are achieved. The
market will also be affected by application to it of existing or new laws or
regulations.
The Company expects that the success of its Internet-related efforts will
depend upon a number of factors, including the development and expansion of the
market for Internet access services and products, and of the networks which
comprise the Internet; the ability of the Company to continue and expand its
current relationships with AOL and AT&T; the capacity, reliability, cost, and
security of its network infrastructure; its ability to finance the expansion of
its network infrastructure; its ability to develop price competitive services
that meet changing customer requirements or acquire rights to such products and
services from other providers; its ability to compete with larger competitors,
including telecommunications companies with greater resources and existing
customer relationships and with installed infrastructure and other compatible
service offerings; its ability on a timely basis to attract and retain
additional highly qualified management, technical, marketing, and sales
personnel; its ability to manage its growth; and its ability to improve its
overall margins through improved operating efficiencies and an increase in the
value-added services portion of its revenues. In addition, the Company may need
to raise additional funds through public or private debt or equity financings in
order to implement its strategy. There can be no assurance that any such funding
will be available, or of the terms or timing of any such funding.
The Company has historically derived the majority of its revenues from
contracts and subcontracts with the U.S. government, and currently approximately
one-half of the Company's revenue is derived from 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 significant changes in
defense spending and by increased competition within the consolidating defense
industry. The Company anticipates that competition in all defense-related areas
will continue to be intense and accordingly, that there will be continued
significant competitive pressure to lower prices, which may reduce profitability
in this area of the Company's business.
The Company has incurred operating losses in recent fiscal periods and
operating activities continue to consume cash. Further cash usage will be
required to fund operating losses as well as the high level of capital
expenditures in support of the investment being made in the Company's
Internet-related business. There can be no assurance that the Company will be
able to generate or otherwise obtain sufficient cash to meet its needs. Such
inability could have a material adverse effect on the Company's business.
Currently many of the Company's services are marketed in conjunction with the
services or products of other vendors and the Company plans to continue its
strategy of maintaining and developing key strategic relationships. Examples of
important strategic partners of the Company include AT&T and AOL. There can be
no assurance that the Company will be successful in its ongoing strategic
relationships or that the Company will be able to find further suitable business
relationships as it develops new services or expands current services. Further,
there can be no assurance that the Company's strategic partners, many of which
have significantly greater financial and marketing resources than the Company,
will not develop and market products in competition with the Company in the
future, discontinue their relationships with the Company, or form competing
arrangements with the Company's competitors. In particular, the Company expects
the competition with its Internet-related activities will intensify in the
future. The Company expects that all of the major online services and
telecommunications companies will compete fully in the Internet services market,
and that other 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. Many of the Company's
competitors are more established, benefit from greater market recognition and
existing customer relationships, and have engineering, marketing, financial,
technological, and personnel resources greater than the Company. In addition,
competitors which are telecommunications companies may be able to reduce
customers' overall communication costs by combining Internet access services
with other services or take advantage of installed infrastructure, thereby
reducing the overall cost of their Internet access services and increasing
pricing pressure on the Company. Competition could also increase if new
companies enter the market or if existing competitors expand their service and
product lines, or combine with other providers of Internet services or
complementary services.
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<PAGE> 27
The Company, along with other high-technology companies, faces competition
in hiring and retaining skilled technical, professional, marketing, and sales
personnel. The Company's employees may voluntarily terminate their employment
with the Company at any time. The loss of services of key personnel, or the
inability to attract additional qualified personnel, could have a materially
adverse effect on the Company.
The Company may need to raise additional funds through public or private
debt or equity financings in order to implement its strategy of exploiting new
and emerging technologies. Capital needs may include funding cash flow losses
from operations; building and expanding its Internet network infrastructure;
investing in working capital, other capital equipment, and selling and marketing
infrastructure; and pursuing potential investments, acquisitions, and other
expansion opportunities. There can be no assurance that any such funding will be
available to the Company, or of the terms or timing of any such funding. If
adequate funds are not available, such inability could have a material adverse
effect on the Company.
The Company, like other companies doing business with the U.S. government,
is subject to routine audit, and in certain circumstances to inquiry, reviews,
or investigation, by U.S. government agencies, of its compliance with
governmental procurement policies and practices. Audits can result in adjustment
to contract billings. 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. Material adjustments to contract billings
or the institution of such proceedings against the Company could, and suspension
or debarment from contracting with the government would, materially adversely
affect the Company.
There are currently few domestic or foreign laws or regulations directly
applicable to access to or commerce on the Internet. However, due to the
increasing popularity and use of the Internet, it is possible that a number of
laws and regulations, domestic and foreign, may be adopted with respect to the
Internet, covering issues such as telecommunications in general, message
content, user privacy, property ownership, libel, pricing, characteristics and
quality of service and products, and export controls. The adoption of any such
law or regulation may decrease the growth of the Internet and adversely affect
the Company's business. Moreover, the Company's status or regulation under
telecommunication laws, and the applicability to the Internet of existing laws
governing issues such as property ownership, libel, and personal privacy, are
uncertain. Additional changes in the regulatory environment relating to the
Internet access industry or the telecommunications industry in general,
including regulatory changes which directly or indirectly affect
telecommunication costs, the Company's status or regulation under the
telecommunications laws, or the scope of competition from regional telephone
companies or others, could have an adverse effect on the Company's business.
INDUSTRY SEGMENTS
Financial information with respect to the Company's activities in its two
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 642,000 square feet of building space.
Approximately 123,200 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.
Approximately 147,100 square feet of the Cambridge, Massachusetts complex
is subleased, including 49,500 square feet to Domain Solutions Corporation
(formerly BBN Domain Corporation) under a sublease expiring June 30, 1998, and
97,600 square feet to unaffiliated parties. The aggregate rental to be paid by
the Company for all of its leased Massachusetts facilities, net of sublease
income and including taxes and certain operating expenses, will be approximately
$7,700,000 in fiscal 1997.
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<PAGE> 28
The Company also leases, on a short-term basis, office space at 18 other
domestic locations containing an aggregate of approximately 150,000 square feet
of space, net of subleases. The aggregate rental to be paid by the Company for
such locations, net of sublease income and including taxes and certain operating
expenses, will be approximately $2,882,000 in fiscal 1997.
The Company also occupies office space in 2 foreign countries, containing
an aggregate of approximately 9,500 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 $736,000 in fiscal 1997. The Company is seeking to sublease excess
space, resulting from the divestiture of BBN Domain Corporation, at its Heathrow
facility in the United Kingdom.
The Company believes that it 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 1996.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.
The executive officers of the Company, the age of each, and the period
during which each has served in his current office, are as follow:
<TABLE>
<CAPTION>
CONTINUOUSLY
IN SUCH
NAME AGE OFFICE OFFICE SINCE
- --------------------------------- ---- --------------------------------- ---------------
<S> <C> <C> <C>
George H. Conrades............... 57 Chairman of the Board of 1995/1994/1994
Directors, President, and Chief
Executive Officer
Ralph A. Goldwasser.............. 49 Senior Vice President, Chief 1991/1992/1991
Financial Officer, and Treasurer
David N. Campbell................ 54 Senior Vice President 1995
John Montjoy..................... 52 Senior Vice President and General 1995/1984
Counsel
Paul R. Gudonis.................. 42 Vice President 1994
Paul F. Brauneis................. 51 Vice President and Controller 1995/1995
</TABLE>
All of the executive officers except Messrs. Goldwasser and Montjoy have
been employed by the Company in their present 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, including hardware,
software, maintenance, and services, responsible for all of that company's
customer-related operations in the United States. 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 a
subsidiary of the Company. Mr. Conrades is also a director of Westinghouse
Electric Corporation, Cubist Pharmaceuticals Corporation, and CRA Managed Care,
Inc.
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,
Inc. an international integrated information technology services company, from
1968 to 1994, most recently serving as its chairman and chief executive officer.
Mr. Campbell is a
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<PAGE> 29
director of Dunlop Tire Corp., First Empire State Corporation, Gibraltar Steel
Corp., and National Fuel Gas Company.
Mr. Gudonis was elected Vice President of the Company in November 1994, and
has served as President of BBN Planet since that time. 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 of its Communications Industry Group. At EDS, Mr.
Gudonis was responsible for building a global division of EDS serving the
communications and media industry. 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. Brauneis joined BBN in September 1995 and has served as Vice President
and Controller of the Company since November 1995. Prior to joining BBN, Mr.
Brauneis worked from January 1993 to January 1995 at SoftKey International Inc.
(formerly Spinnaker Software Corporation) as chief financial officer and
financial consultant, and from 1980 to 1992 at M/A-Com, Inc., where he served in
the positions of vice president and comptroller, vice president/finance, and
financial consultant.
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 56.
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.
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<PAGE> 30
ITEM 6. SELECTED FINANCIAL DATA.
FIVE-YEAR FINANCIAL SUMMARY
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER-SHARE DATA)
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Revenue................................. $234,339 $175,603 $160,711 $197,655 $216,588
======== ======== ======== ======== ========
Income (loss) from operations(1)........ $(56,382) $(16,507) $ (9,748) $(33,397) $ 4,035
Interest and other income (expense),
net(2)................................ (120) 97,392 779 242 (2,611)
-------- -------- -------- -------- --------
Income (loss) from continuing operations
before income taxes and extraordinary
item.................................. (56,502) 80,885 (8,969) (33,155) 1,424
Income taxes............................ (6,600) 13,783
-------- -------- -------- -------- --------
Income (loss) from continuing operations
before extraordinary item............. (49,902) 67,102 (8,969) (33,155) 1,424
Income (loss) from discontinued
operations net of applicable income
taxes(3).............................. (6,740) (2,258) 1,145 891 2,729
Extraordinary item(4)................... 3,648
-------- -------- -------- -------- --------
Net income (loss)....................... $(56,642) $ 64,844 $ (7,824) $(32,264) $ 7,801
======== ======== ======== ======== ========
Per-share amounts:
Continuing operations................... $ (2.80) $ 3.73 $ (0.55) $ (2.11) $ 0.09
Discontinued operations(3).............. (0.38) (0.12) 0.07 0.06 0.16
Extraordinary item(4)................... 0.22
-------- -------- -------- -------- --------
Net income (loss)....................... $ (3.18) $ 3.61 $ (0.48) $ (2.05) $ 0.47
======== ======== ======== ======== ========
Cash dividends declared per share....... $ 0.06
========
Shares used in per-share calculations... 17,818,000 17,984,000 16,179,000 15,705,000 16,504,000
FINANCIAL POSITION
Cash, equivalents and temporary
investments(5)........................ $120,275 $107,608 $ 63,115 $ 54,552 $ 43,541
Working capital......................... 120,111 116,003 65,308 66,829 88,132
Property, plant and equipment, net...... 48,069 24,195 16,346 16,922 23,057
Total assets............................ 249,337 203,964 122,712 128,036 147,799
Redeemable convertible preferred stock
of subsidiary......................... 8,000
Capital lease obligations............... 12,733
Convertible debentures.................. 73,170 73,510 73,510 73,775 73,912
Shareholders' equity.................... 79,336 82,552 7,271 10,042 41,887
GENERAL INFORMATION AND RATIOS
Additions to property, plant and
equipment............................. $ 34,407 $ 14,133 $ 5,595 $ 6,703 $ 10,701
Revenue per average number of
employees............................. 132 112 110 120 112
Employees at year-end................... 1,895 1,662 1,466 1,445 1,861
Shareholders of record at year-end...... 2,234 2,080 2,225 2,709 3,108
Current ratio........................... 2.5 3.6 2.6 2.5 3.8
Debt to equity ratio.................... 1.1 0.9 10.1 7.3 1.8
</TABLE>
30
<PAGE> 31
- ---------------
(1) Includes a FY1996 charge of $20.7 million or $1.16 per share related
primarily to the write-off of goodwill and related costs in association
with the Company's reorganization effective April 1, 1996. FY1993 includes
a restructuring charge of $20.5 million, or $1.30 per share, associated
with employee severance and related facilities costs.
(2) Interest and other income (expense), net for the year ended June 30, 1995
includes the gain on the sale of assets of LightStream Corporation,
amounting to 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) In July FY1997 the Company completed the divestiture of a majority interest
in BBN Domain Corporation.
(4) Results for fiscal year 1992 included an extraordinary gain of $3.6 million,
or $.22 per share, from the purchase and early retirement of $9.8 million
of the Company's 6% convertible subordinated debentures.
(5) Includes restricted cash of $4.7 million and $12.1 million at June 30, 1996
and June 30, 1995, respectively.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
FORWARD-LOOKING STATEMENTS
This discussion includes certain forward-looking statements about the
Company's revenue growth, including from its Internet-related activities, the
need for additional investment, expected expenses, operating losses, and
possible capital needs. Any such statements are subject to risk that could cause
the actual results or needs to vary materially. For a further discussion of the
various risks affecting the business, reference is made to the accompanying
information under the caption "Factors Affecting Future Results" on pages 25
through 27 of this Form 10-K.
THE COMPANY
In FY1995, the Company consisted of four operating units: its Systems and
Technologies Division, BBN Domain Corporation, BBN Planet Corporation, and BBN
HARK Systems Corporation. The BBN Systems and Technologies Division ("BBN
Systems and Technologies") included internetworking services and products, and
collaborative systems and acoustic technologies for both the government and
commercial markets. BBN Domain Corporation ("BBN Domain"), then a wholly-owned
subsidiary of the Company, focused its business on data analysis and process
optimization software products for pharmaceutical and manufacturing
applications. BBN Planet Corporation ("BBN Planet"), a majority-owned subsidiary
of the Company, provided managed Internet services to businesses and other
organizations. BBN HARK Systems Corporation ("BBN HARK"), a wholly-owned
subsidiary of the Company, was an early stage business which developed and
marketed commercial speech recognition software products.
During FY1996 the Company refocused its strategy principally on its broad
range of Internet capabilities and on developing new Internet-related offerings
for businesses and other organizations. To achieve this objective, the Company
reorganized into two principal business units, BBN Planet and BBN Systems and
Technologies. The Company's reorganized BBN Planet includes the Company's
managed Internet access and value-added services and related network operations,
the Company's contract with AT&T Corp. ("AT&T"), and the America Online, Inc.
("AOL") network management contract and related Internet dial-up access
capabilities, and is responsible for BBN's Internet offerings to business
customers. The Company's reorganized BBN Systems and Technologies unit is
organized into three principal groups: Internetwork Technologies, Information
Systems and Technologies, and Physical Systems and Technologies, and will
continue to focus on providing networking solutions and contract research and
development, principally for the federal government, as well as creating
next-generation technology for advanced Internet applications. The Company's
commercial speech recognition activities, previously undertaken by BBN HARK,
have been integrated into BBN Systems and Technologies.
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<PAGE> 32
In January 1995, LightStream Corporation ("LightStream"), formerly an 80%
owned subsidiary of the Company which made asynchronous transfer mode ("ATM")
network switches, sold substantially all of its assets. In July 1996, the
Company completed the divestiture of a majority interest in BBN Domain and BBN
Domain has been accounted for as a discontinued operation. With the divestiture
of the LightStream and BBN Domain subsidiaries, a number of products which in
recent years had significant development efforts, including the LightStream ATM
switch, and BBN Domain's Cornerstone, Clintrial, and Starfire software, are no
longer offered for sale by the Company.
The following management's discussion and analysis of financial condition
and results of operations, as well as the financial information presented in the
accompanying footnote disclosure on segment reporting, is presented on an
"as-reorganized" basis.
OVERVIEW
BBN Planet
BBN Planet provides a range of Internet services and solutions to
businesses and other organizations. BBN Planet operates a high-bandwidth digital
data communications network providing dedicated Internet access to its customers
across the United States. BBN Planet's Internet access services include a range
of dedicated leased line connectivity options, bulk private-label business
dial-up services, network design, implementation, management, monitoring, and
problem-resolution services. In addition to Internet access services, BBN Planet
currently offers a range of value-added Internet services, including managed
Internet security, World Wide Web server hosting, commercial transaction and
payment processing services, applications development, and systems integration
services.
BBN Planet's revenue includes monthly connectivity and value-added services
fees, related installation fees, sales of related equipment, and consulting
services. Approximately 40% of FY1996 annual revenues of $73 million are derived
from the development, operations, and maintenance of a dial-up network for
America Online, Inc. ("AOL").
BBN Planet traces its origins back to June 1993, when BBN acquired the
assets of the New England Academic Research Network ("NEARnet"). BBN
subsequently acquired the business and assets of two additional regional
Internet access providers (the Bay Area Regional Research Network ("BARRNet") in
1994, and the Southeastern Universities Research Association Network ("SURAnet")
in 1995), expanding its geographical service area and customer base, and
supplementing the technical expertise of the employees transferred into BBN
Planet from other business units of the Company.
In support of its Internet business strategy, the Company has entered into
strategic alliances. In March 1995, the Company entered into a five-year
agreement with AOL, valued at approximately $11 million per year to build,
maintain, and operate a portion of AOL's nationwide, high-speed, dial-in
network. The agreement includes substantial pass-through costs to BBN for
telecommunications circuits and other services provided by local and
interexchange carriers. As part of BBN's agreement with AOL, the Company has
access to use certain capacity of the portion of the network operated by BBN,
and BBN has the right to resell such capacity. BBN currently uses this network
capacity, the availability of which is currently limited primarily to business
hours, as the basis for its own bulk dial-up service for business users. Revenue
from AOL in FY1996 was $28.8 million. The Company is in negotiation with AOL
regarding an expansion of the original agreement.
In June 1995, BBN and AT&T entered into a strategic relationship under
which BBN 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 in the
United States. 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.
During FY1996 and FY1995, BBN Planet experienced significant revenue growth
and incurred substantial operating losses. The Company expects continued revenue
growth in BBN Planet, and it expects to
32
<PAGE> 33
incur substantial operating losses in FY1997, primarily as a result of its
continued investment in Internet-related activities.
The Company expects that the success of BBN Planet will depend upon a
number of factors, including the development and expansion of the market for
Internet access services and products, and of the networks which comprise the
Internet; the ability of the Company to continue and expand its current
relationships with AOL and AT&T; the capacity, reliability, cost, and security
of its network infrastructure; its ability to finance the expansion of its
network infrastructure; its ability to develop price competitive services that
meet changing customer requirements or acquire rights to such products and
services from other providers; its ability to compete with larger competitors,
including telecommunications companies with greater resources and existing
customer relationships and with installed infrastructure and other compatible
service offerings; its ability on a timely basis to attract and retain
additional highly qualified management, technical, marketing, and sales
personnel; its ability to manage its growth; and its ability to improve its
overall margins through improved operating efficiencies and an increase in the
value-added services portion of its revenues.
BBN Systems and Technologies
The Company, through its BBN Systems and Technologies business unit, has
historically derived the majority of its revenue from contracts and subcontracts
with the U.S. government, and currently approximately one-half of the Company's
revenue is derived from the U.S. government and its agencies, particularly the
Department of Defense. In recent years, the business with the Department of
Defense has been adversely affected by significant changes in defense spending.
Overall defense budgets have been declining, and it is expected that this
general decline and attendant increased competition within the consolidating
defense industry will continue over the next several years. Further, funding
limitations could result in reduction, delay, or cancellation of existing or
emerging programs. Although U.S. government revenue has modestly increased in
FY1996 compared to FY1995, there can be no assurance that such increases will
continue in the future. The Company anticipates that competition in all
defense-related areas will continue to be intense and accordingly, that there
will be continued significant competitive pressure to lower prices, which may
reduce profitability in this area of the Company's business.
For the past several years, BBN has provided network systems and services
to the Department of Defense, including to the Defense Data Network ("DDN"). The
Company's multi-year contract to support the DDN expired in April 1996. The
Company has been awarded a one-year extension of the contract to support the
DDN, valued at approximately $10 million, which would continue the Company's
existing activities for DDN through April 1997. However, this contract is
terminable at the convenience of the U.S. government upon sixty days notice, and
the Company expects that the U.S. government will exercise its right to
terminate this contract prior to April 1997, following the commencement of
operations under a follow-on contract for DDN (which has been awarded to another
contractor), thereby discontinuing BBN's activities related to this contract.
In recent years, BBN Systems and Technologies' traditional commercial
products businesses, consisting principally of X.25 network systems and
products, have reached maturity in their life cycles. BBN Systems and
Technologies has been experiencing substantially lower revenue, and
significantly reduced its development and selling efforts, for such X.25 network
systems and products.
33
<PAGE> 34
RESULTS OF CONTINUING OPERATIONS: FY1996 COMPARED TO FY1995
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------
1996 1995
---------------- ----------------
(DOLLARS IN MILLIONS)
$ % $ %
------ ----- ------ -----
<S> <C> <C> <C> <C>
Revenue................................................... $234.3 100.0% $175.6 100.0%
------ ----- ------ -----
Cost and expenses:
Cost of revenue......................................... 182.0 77.7% 128.6 73.2%
Research and development................................ 12.9 5.5% 13.7 7.8%
Selling, general and administrative..................... 75.1 32.1% 49.8 28.4%
Goodwill write-off and other charges.................... 20.7 8.8%
------ ----- ------ -----
Loss from operations...................................... $(56.4) (24.1%) $(16.5) (9.4%)
------ ----- ------ -----
</TABLE>
For the year ended June 30, 1996, the Company's continuing operations
reported an operating loss of $56.4 million, which includes a $20.7 million
charge to write off goodwill and certain other costs and employee related
expenses in connection with its reorganization during the year. The operating
loss for the year ended June 30, 1995 was $16.5 million. The operating losses
reflect continued investment in BBN Planet, including network infrastructure,
sales and marketing activities, and the development of new value-added Internet
services. The Company is accelerating the expansion of its national backbone
network for its Internet operations in order to meet increasing demand.
The loss from continuing operations, which includes interest and other
income and expense, for FY1996 was $49.9 million compared to income from
continuing operations in FY1995 of $67.1 million. Income from continuing
operations in FY1995 includes a pre-tax gain of $105.0 million from the sale of
LightStream in January 1995. The Company expects that it will incur substantial
operating losses in fiscal 1997 as it continues to invest in BBN Planet's
Internet-related businesses.
REVENUE
Revenue for FY1996 increased $58.7 million or 33% to $234.3 million,
compared to $175.6 million in FY1995. Revenue from LightStream in FY1995 was
$8.4 million. The increase in FY1996 relates primarily to BBN Planet, which
reported FY1996 revenue of $73.0 million compared to $17.8 million for FY1995,
an increase of approximately 300%. Approximately one-half of the increased BBN
Planet revenue relates to the AOL network management contract. Additionally, BBN
Systems and Technologies revenue increased $11.4 million or 7.5% in FY1996
compared to the prior year.
COST OF REVENUE
Cost of revenue increased to 77.7% in FY1996 compared to 73.2% in FY1995.
The increase in the cost of revenue percentage is principally related to lower
margins on increased Internet services revenue. Internet services revenue was
31% of consolidated revenue in FY1996 compared to 10% in FY1995. Cost of revenue
for Internet services consists of telecommunications circuit costs, labor and
expenses of operating the network infrastructure and supporting customers, and
depreciation of network equipment. The increased cost of revenue percentage in
the Company's Internet related business reflects lower margin revenue associated
with the build-out of the dial-up network for AOL, the upgrade and expansion of
the Company's network infrastructure, and resulting lower network utilization.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses for FY1996 were $12.9 million compared to
$13.7 million for FY1995. Research and development expenses in FY1995 included
$3.9 million associated with LightStream. Excluding LightStream, the increase
for FY1996 was primarily associated with the development of Internet-related
products and services at BBN Planet.
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<PAGE> 35
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Selling, general, and administrative expenses for FY1996 increased $25.3
million from FY1995. As a percentage of revenue, selling, general, and
administrative expenses increased to 32.1% of revenues in FY1996 from 28.4% in
FY1995. Selling, general, and administrative expenses in FY1995 included $3.9
million associated with LightStream. Excluding LightStream, the increase for
FY1996 reflects the Company's investment in the sales and marketing
infrastructure including expansion of direct sales channels, advertising costs,
and other promotional activities primarily at BBN Planet.
GOODWILL WRITE-OFF AND OTHER CHARGES
In the third quarter of FY1996, the Company recorded a charge of
approximately $20.7 million to write off goodwill previously recorded in
connection with the acquisitions of BARRNet and SURAnet in August 1994 and March
1995, respectively, and certain other costs and employee related expenses in
connection with its reorganization. The goodwill write-off was precipitated by a
business evaluation, which included a review of the Company's current
Internet-related business in comparison to expectations established at the time
of the acquisitions. The Internet services market has changed significantly and
is continuing to develop rapidly, including the emergence of new competition,
increasing downward pressure on prices, a more capital intensive infrastructure,
rapidly changing technology, and frequent new product and service introductions
(see "Goodwill Write-Off and Other Charges" Footnote to the consolidated
financial statements).
OTHER INCOME
Other income in FY1995 was $108.6 million. In 1995, LightStream sold
substantially all of its assets which resulted in a $105.0 million gain to the
Company before taxes and minority interest. Also in FY1995, the Company
completed the settlement of a claim with the U.S. government which resulted in a
$2.6 million reduction in liabilities and is included in other income for
FY1995.
INCOME TAXES
The income tax benefit recorded in the year ended June 30, 1996 was
approximately 11.7% and represents the effective rate at which the Company can
utilize its FY1996 operating loss, up to the $6.6 million benefit realized, to
recover taxes paid in the prior year. The tax provision in FY1995 related
primarily to the gain on the sale of LightStream.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company's cash, cash equivalents, and short-term
investments which consisted primarily of investment funds, short-term U.S.
government securities, and commercial paper, were $120.3 million, an increase of
$12.7 million from June 30, 1995. The increase is primarily attributable to the
net proceeds from a private placement of common stock of $51.3 million, $6.3
million from the sale and leaseback of certain equipment, and $8.0 million
received as an investment in BBN Planet (see "Preferred Stock of Subsidiary"
footnote to the consolidated financial statements). These increases were
partially offset by $17.8 million used by continuing operations, $26.4 million
used for capital expenditures, excluding $8.0 million of equipment acquired
under a capital lease, and $2.8 million of payments to the minority shareholder
in connection with the LightStream sale. Cash used by discontinued operations in
FY1996 was $6.6 million. Changes in cash balances due to fluctuation in foreign
exchange rates were insignificant.
In July 1996 the Company received an additional $36 million from the
divestiture of a majority interest in its BBN Domain subsidiary (see
"Discontinued Operations" footnote to the consolidated financial statements).
Accrued restructuring costs of $7.4 million relates to the Company's FY1993
downsizing and represents excess facilities costs under long-term leases in
excess of sublease income. These costs are anticipated to be liquidated in
varying amounts through 2005. The Company has sublet or assigned certain of its
excess facilities under agreements with terms expiring between 1998 and 2005.
35
<PAGE> 36
In April 1996, the Company entered into a capital lease agreement to
finance certain equipment acquisitions. The agreement includes proceeds from a
sale and leaseback of assets of $6.3 million, and the lease of certain other
equipment having a value of $8.0 million.
The Company's capital requirements which include the costs for building its
Internet network infrastructure, for further investments in working capital,
other capital equipment, and selling and marketing infrastructure, and for
pursuing potential investments, acquisitions, and other expansion opportunities
are expected to be significant. The Company believes that existing cash balances
are adequate to meet is requirements through FY1997. The Company expects that it
will need to raise additional funds through public or private debt or equity
financings in order to execute its strategy. The Company's ability to raise such
funds, if required, will be dependent on, among other things, its ability to
execute its business plan and the availability of such funds within the capital
markets. There can be no assurance that any such funding will be available, or
of the terms or timing of any such funding. Currently, the Company does not have
any bank lines of credit.
RESULTS OF CONTINUING OPERATIONS: FY1995 COMPARED TO FY1994
For the year ended June 30, 1995, the Company reported income from
continuing operations of $67.1 million, or $3.73 per share, on revenue of $175.6
million, compared with a loss from continuing operations of $9.0 million, or
$.55 per share, on revenue of $160.7 million for the same period a year earlier.
The fiscal year 1995 results included a pretax gain of $105.0 from the sale of
the assets of LightStream in January 1995.
For fiscal year 1995, the Company reported an operating loss from
continuing operations of $16.5 million, compared to a $9.7 million loss for the
same period a year earlier. The fiscal year 1995 results reflected significant
investments in sales, marketing, and new product development.
REVENUE
Revenue for fiscal year 1995 increased $14.9 million to $175.6 million from
fiscal year 1994, reflecting a $9.9 million increase in BBN Planet and a $6.9
million increase at LightStream. LightStream revenue for fiscal year 1995
included up-front technology license fees of $3.6 million. These increases were
partially offset by declines in revenue in BBN Systems and Technologies' defense
communications business and acoustic-related activities.
COST OF SALES
Cost of services and products as a percentage of revenue for fiscal year
1995 was 73% compared to 74% for fiscal year 1994. The decrease in the cost of
sales percentage is principally related to the technology license fees and
higher margin product sales at LightStream, partially offset by higher costs in
the Company's government contracting business.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses for fiscal year 1995 were $13.7 million
compared to $16.1 million for fiscal year 1994. The decrease primarily relates
to lower spending on the ATM switch at LightStream which was $3.9 million in
fiscal year 1995 compared to $8.9 million in fiscal year 1994.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Selling, general, and administrative expenses for fiscal year 1995
increased $14.4 million from fiscal year 1994 reflecting the investment the
Company was making primarily in the sales and marketing of its Internet-related
services.
INTEREST
Interest income increased $2.3 million in fiscal year 1995 from fiscal year
1994 primarily as a result of the increased cash balances resulting from the
sale of LightStream's assets.
36
<PAGE> 37
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
BBN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------
1996 1995 1994
----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER-SHARE
DATA)
<S> <C> <C> <C>
Revenue............................................. $ 234,339 $ 175,603 $ 160,711
----------- ----------- -----------
Costs and expenses:
Cost of revenue................................... 182,010 128,627 118,995
Research and development.......................... 12,929 13,731 16,119
Selling, general, and administrative.............. 75,064 49,752 35,345
Goodwill write-off and other charges.............. 20,718
----------- ----------- -----------
290,721 192,110 170,459
----------- ----------- -----------
Loss from operations................................ (56,382) (16,507) (9,748)
Interest income..................................... 4,649 4,413 2,151
Interest expense.................................... (4,697) (4,434) (4,606)
Minority interests.................................. (110) (11,195) 2,071
Other income, net................................... 38 108,608 1,163
----------- ----------- -----------
Income (loss) from continuing operations before
income taxes...................................... (56,502) 80,885 (8,969)
Provision (benefit) for income taxes................ (6,600) 13,783
----------- ----------- -----------
Income (loss) from continuing operations............ (49,902) 67,102 (8,969)
Income (loss) from discontinued operations, net of
applicable income taxes........................... (6,740) (2,258) 1,145
----------- ----------- -----------
Net income (loss)................................... $ (56,642) $ 64,844 $ (7,824)
=========== =========== ===========
Per share amounts:
Income (loss) from continuing operations.......... $ (2.80) $ 3.73 $ (0.55)
Income (loss) from discontinued operations........ (0.38) (0.12) 0.07
----------- ----------- -----------
Net income (loss)................................. $ (3.18) $ 3.61 $ (0.48)
=========== =========== ===========
Shares used in per-share calculations............... 17,818,000 17,984,000 16,179,000
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
37
<PAGE> 38
BBN CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
---------------------
1996 1995
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents (includes restricted cash of $4,711 at
June 30, 1996 and $12,134 at June 30, 1995)....................... $ 79,533 $107,608
Short-term investments............................................... 40,742
Accounts receivable, net............................................. 60,825 41,025
Other current assets................................................. 10,314 1,282
Net assets of discontinued operations................................ 8,082 10,519
-------- --------
Total current assets......................................... 199,496 160,434
Property, plant and equipment, net..................................... 48,069 24,195
Goodwill, net of accumulated amortization of $737 at June 30, 1995..... 17,927
Other assets........................................................... 1,772 1,408
-------- --------
Total assets................................................. $249,337 $203,964
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable..................................................... $ 27,702 $ 9,482
Accrued compensation and retirement plan contributions............... 8,272 4,825
Accrued restructuring charges........................................ 7,352 9,216
Other accrued costs.................................................. 16,649 13,520
Short-term capital lease obligation.................................. 4,041
Deferred revenue..................................................... 15,369 7,388
-------- --------
Total current liabilities.................................... 79,385 44,431
-------- --------
6% convertible subordinated debentures due 2012........................ 73,170 73,510
-------- --------
Capital lease obligation............................................... 8,692
--------
Minority interest...................................................... 754 3,471
-------- --------
Commitments and contingencies..........................................
Redeemable convertible preferred stock of subsidiary................... 8,000
--------
Shareholders' equity:
Common stock $1.00 par value, authorized: 100,000,000 shares;
issued: 1996, 24,911,529 shares; 1995, 22,050,887 shares.......... 24,912 22,051
Additional paid-in capital........................................... 113,742 62,664
Foreign currency translation adjustment.............................. 794 1,307
Retained earnings (deficit).......................................... (27,925) 28,717
-------- --------
111,523 114,739
Less shares in treasury, at cost: 4,527,464 shares in 1996 and
1995.............................................................. 32,187 32,187
-------- --------
Total shareholders' equity................................... 79,336 82,552
-------- --------
Total liabilities and shareholders' equity................... $249,337 $203,964
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
38
<PAGE> 39
BBN CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON FOREIGN
STOCK ADDITIONAL CURRENCY RETAINED TOTAL
$1.00 PAID-IN TRANSLATION EARNINGS TREASURY SHAREHOLDERS'
PAR VALUE CAPITAL ADJUSTMENT (DEFICIT) SHARES EQUITY
--------- ---------- ---------- -------- -------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
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
Stock option and other activity,
net............................ 408 4,418 4,826
Shares redeemed for stock option
exercises...................... (141) (4,864) (5,005)
Stock issued under employee stock
purchase plan.................. 143 2,764 2,907
Issuance of common stock......... 2,451 48,760 51,211
Foreign currency translation
adjustment..................... (513) (513)
Net loss......................... (56,642) (56,642)
------- -------- ------ -------- -------- -------
June 30, 1996.................... $24,912 $ 113,742 $ 794 $(27,925) $(32,187) $79,336
======= ======== ====== ======== ======== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
39
<PAGE> 40
BBN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------
1996 1995 1994
-------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from continuing operating activities:
Income (loss) from continuing operations.................. $(49,902) $ 67,102 $(8,969)
-------- -------- -------
Adjustments to reconcile income (loss) from continuing
operations to net cash provided (used) by operating
activities:
Depreciation and amortization.......................... 10,855 7,431 7,387
Amortization of goodwill............................... 1,044 737
Contract adjustments................................... (3,546)
Gain from LightStream sale............................. (105,096)
Minority interests..................................... 110 11,195 (2,071)
Goodwill write-off and other charges................... 20,718
Change in assets and liabilities:
Accounts receivable.................................. (19,800) (8,007) 8,887
Other assets......................................... (3,196) 529 1,539
Accounts payable and other liabilities............... 23,929 3,469 1,345
Restructuring expenditures........................... (1,864) (3,350) (5,777)
Deferred revenue..................................... 7,981 4,553 (293)
Refundable income taxes.............................. (6,200)
Other................................................ (1,513) 846 (914)
-------- -------- -------
Total adjustments.................................... 32,064 (91,239) 10,103
-------- -------- -------
Net cash provided (used) by continuing operating
activities...................................... (17,838) (24,137) 1,134
-------- -------- -------
Cash flows from discontinued operating activities........... (4,272) (3,746) 6,150
-------- -------- -------
Cash flows from investing activities:
Purchases of short-term investments, net.................. (40,742)
Additions to property, plant and equipment, excluding
$8,006 acquired under capital lease in 1996............ (26,401) (14,133) (5,595)
Additions to property, plant and equipment from
discontinued operations................................ (2,319) (4,343) (1,343)
Proceeds from LightStream sale............................ 120,000
Payments to minority owner of LightStream and expenses of
sale................................................... (2,827) (18,800)
Payments for businesses acquired.......................... (14,960)
-------- -------- -------
Net cash provided (used) by investing
activities...................................... (72,289) 67,764 (6,938)
-------- -------- -------
Cash flows from financing activities:
Sale of common stock...................................... 51,320
Sale of subsidiary preferred stock........................ 8,000
Equipment sale and leaseback.............................. 6,326
Employee options and stock purchase plans, net............ 678 4,612 3,217
Sale of subsidiary common stock........................... 5,000
-------- -------- -------
Net cash provided by financing activities......... 66,324 4,612 8,217
-------- -------- -------
Net increase (decrease) in cash equivalents................. (28,075) 44,493 8,563
Cash and cash equivalents at beginning of the year.......... 107,608 63,115 54,552
-------- -------- -------
Cash and cash equivalents at end of year.................... $ 79,533 $107,608 $63,115
======== ======== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
40
<PAGE> 41
Notes to Consolidated Financial Statements
ORGANIZATION AND NATURE OF OPERATIONS
BBN Corporation (the "Company") through its BBN Planet business unit is a
provider of Internet and internetworking services and solutions to businesses
and other organizations, primarily throughout the United States, and through its
BBN Systems and Technologies business unit is a provider of contract research,
development, and consulting services, primarily in internetworking and
collaborative systems to governmental and other organizations. Historically, the
Company has derived the majority of its revenue from contracts with the U.S.
government, although currently approximately one-half of revenue is being
derived from commercial sources. The Company's operations are subject to certain
risks and uncertainties, including technological change; dependence upon, and
slowdown in, government defense spending; reliance on strategic relationships;
competition; government regulation; the development of the Internet market; and
the availability of adequate funding.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results may differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany transactions and balances
have been eliminated. Certain amounts reported in prior years have been
reclassified to be consistent with the current year's presentation.
Revenue Recognition
Revenue is generally recognized when services are rendered or products are
shipped. Installation charges are recognized when installation is completed.
Billings made or payments received in advance of providing services are deferred
until the period such services are provided.
Revenue from cost-reimbursement contracts is recognized as costs are
incurred and fees are earned. Revenue from fixed-price contracts 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.
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, 1996 and 1995,
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
In accordance with 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 is based on the specific identification method. The following is a
summary of
41
<PAGE> 42
Notes to Consolidated Financial Statements (continued)
available-for-sale securities, which are reported in the consolidated balance
sheet as "Short-term investments", at June 30, 1996:
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS):
<S> <C>
U.S. government obligations......... $ 30,006
Commercial paper.................... 9,656
Other............................... 1,080
-------
$ 40,742
=======
</TABLE>
Investment maturities range from one to three years.
At June 30, 1996, the estimated fair value of these securities approximated
cost, and the amount of gross unrealized gains and losses was not significant.
In accordance with the Company's Short-Term Investments Policy, specific
securities may have a maximum maturity of three years, and the portfolio may
have an average maturity not to exceed 24 months. Realized gains and losses were
not significant.
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: computer and data communications
equipment, and Point-of-Presence assets which include labor and other direct
costs -- 3 years, furniture and fixtures -- 5 years, buildings -- 15 to 25
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.
Equipment Under Capital Lease
The Company leases certain of the data communications equipment under a
capital lease agreement. The assets and liabilities under the capital lease are
recorded at the present value of minimum lease payments. Assets under the
capital lease are depreciated over the term of the lease, which is generally 3
years.
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. The Company
periodically reviews goodwill to assess recoverability, and impairments are
recognized in operating results if a permanent diminution in value is considered
to have occurred.
Foreign Currency Translation and Transaction Activity
The assets and liabilities of 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.
42
<PAGE> 43
Notes to Consolidated Financial Statements (continued)
Research and Development Costs
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. The Company also performs research and development
under contracts principally with the U.S. government. Costs incurred under these
contracts are charged to "Cost of revenue" in the consolidated statements of
operations as the related revenue is recorded.
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.
Income (Loss) Per Share
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 stock options and are generally
excluded from the calculation when the Company incurs losses and the effect is
antidilutive. The Company's 6% convertible subordinated debentures are not
considered common stock equivalents for per-share calculations.
Recent Pronouncement
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), which is effective for the Company's FY1997
financial statements. SFAS 123 allows companies to either account for
stock-based compensation under the new provisions of SFAS 123 or under the
provisions of APB 25, but requires pro forma disclosure in the footnotes to the
financial statements as if the measurement provisions of SFAS 123 had been
adopted. The Company expects to continue accounting for its stock-based
compensation in accordance with the provisions of APB 25. As such, the adoption
of SFAS 123 will not impact the Company's financial position or the results of
operations.
43
<PAGE> 44
Notes to Consolidated Financial Statements (continued)
DISCONTINUED OPERATIONS
On July 31, 1996 the Company completed the divestiture of a majority
interest in its BBN Domain Corporation subsidiary. Under the terms of the
agreement, Domain has been recapitalized, a significant portion of the Company's
interest has been redeemed, and a majority of the stock interest in Domain has
been purchased by an investment group. The Company received a cash payment of
$36,000,000 and will retain a minority interest in the voting stock of the
renamed Domain Solutions Corporation. Domain has retained substantially all
obligations and liabilities which arose from or in connection with its
operations prior to the divestiture. The transaction will be recorded in the
first quarter of fiscal year 1997 and is expected to result in a gain of
approximately $20,000,000 after considering estimated costs of $8,000,000
including facilities, employee-related, and other costs to be incurred in
connection with the divestiture. The net assets, liabilities, results of
operations, and cash flows of Domain are classified as discontinued operations
in the consolidated financial statements. Domain reported revenue of
$41,322,000, $39,428,000 and $35,393,000 for fiscal years 1996, 1995, and 1994,
respectively. The net assets of discontinued operations at June 30, 1996
consisted of the following:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS):
<S> <C>
Cash and cash equivalents........................ $ 2,334
Accounts receivable, net......................... 12,373
Property, plant, and equipment, net.............. 5,135
Other assets..................................... 2,832
-------
Total assets........................... 22,674
Payables and other liabilities................... 5,943
Deferred revenue................................. 8,649
-------
Total liabilities...................... 14,592
-------
Net assets............................. $ 8,082
=======
</TABLE>
ACCOUNTS RECEIVABLE
Consolidated accounts receivable consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
-------------------
1996 1995
------- -------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
U. S. government: Billed................................................. $11,690 $11,114
Unbilled............................................. 14,100 20,602
------- -------
25,790 31,716
Contract allowances.................................. (4,766) (6,136)
------- -------
21,024 25,580
------- -------
Other customers: Billed.................................................. 40,728 14,931
Unbilled.............................................. 243 1,117
------- -------
40,971 16,048
Allowances for doubtful accounts...................... (1,170) (603)
------- -------
39,801 15,445
------- -------
$60,825 $41,025
======= =======
</TABLE>
Billed amounts include $21,600,000 and $2,400,000 at June 30, 1996 and
1995, respectively, for work performed or services rendered but for which
invoices had not yet been presented to the customers; such amounts are generally
invoiced in the subsequent month under normal payment terms. Unbilled amounts
represent receivables for work performed or services rendered which are not yet
contractually billable. Unbilled receivables, except for retentions, are
generally billed and collected within one year. Retentions
44
<PAGE> 45
Notes to Consolidated Financial Statements (continued)
amounted to $7,500,000 and $4,000,000 at June 30, 1996 and 1995, respectively. A
significant portion of the retentions at June 30, 1996 is anticipated to be
collected after fiscal year 1997.
The Company believes that concentrations of credit risk with respect to
commercial trade accounts receivable are limited due to the large number of
entities comprising the Company's commercial customer base. The Company
routinely assesses the financial strength of its commercial customers. Accounts
receivable at June 30, 1996 includes approximately $16,100,000 in connection
with the Company's network management contract with America Online, Inc.
PROPERTY, PLANT AND EQUIPMENT
Consolidated property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
-------------------
1996 1995
------- -------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Land............................................................. $ 4,304 $ 3,983
Buildings........................................................ 1,947 1,947
Computer and data communications equipment....................... 66,099 58,372
Furniture and fixtures........................................... 4,176 3,742
Leasehold improvements........................................... 14,454 14,157
------- -------
90,980 82,201
Less accumulated depreciation and amortization................... 42,911 58,006
------- -------
$48,069 $24,195
======= =======
</TABLE>
Data communications equipment at June 30, 1996 included assets under
capital lease with a cost of $13,100,000 and accumulated amortization of
$1,100,000.
DEBT
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, 1996 of $1,017,000 is included in "Other assets" in the
consolidated balance sheets. The fair market value of the debentures, which is
based on quoted market prices, was $68,048,000 at June 30, 1996.
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 now begin April 1, 2000.
Equipment Lease
In April 1996, the Company entered into a leasing agreement to finance
certain equipment acquisitions. The underlying assets serve to collateralize the
debt. The borrowing, which represents original cost less residual value, bears
interest at an effective rate of 8.5% and has a term of thirty-six months from
the date of purchase, with principal and interest payable quarterly in advance.
The lease includes purchase and renewal
45
<PAGE> 46
Notes to Consolidated Financial Statements (continued)
options at fair market values. The lease is classified as a capital lease in
accordance with the provisions of Statement of Financial Accounting Standards
No. 13, "Accounting for Leases".
Future minimum lease payments under the equipment lease are as follows:
<TABLE>
<S> <C> <C>
Year Ending June 30, 1997.................................. $ 4,998
1998.................................. 4,998
1999.................................. 4,512
--------
14,508
Less amount representing interest............................ (1,775)
--------
Present value of minimum lease payments...................... $ 12,733
========
</TABLE>
REAL ESTATE LEASES
The Company leases a majority of its facilities under long-term operating
leases. Operating lease commitments for real estate at June 30, 1996 consisted
of the following:
<TABLE>
<CAPTION>
REAL ESTATE
LEASE
COMMITMENTS
----------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Year ending June 30, 1997.................................. $ 13,964
1998.................................. 13,016
1999.................................. 5,803
2000.................................. 5,057
2001.................................. 3,840
Remainder............................. 11,560
--------
Total minimum lease payments................................. $ 53,240
========
</TABLE>
Minimum lease payments have not been reduced by future minimum sublease
rentals of $4,500,000 due under noncancelable subleases. In January 1995, the
Company assigned a lease in the United Kingdom with a remaining term at June 30,
1996 of 17 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 $14,200,000, $13,800,000, and $14,300,000 in
fiscal years 1996, 1995, and 1994, respectively.
COMMON STOCK
In June 1996, the Company realized $51,320,000 from the private placement
of 2,451,209 shares of its common stock. The Company intends to use the net
proceeds for working capital and general corporate purposes. The shares were
restricted and were not registered under the Securities Act of 1933 (the "Act");
of the shares sold, 452,889 were sold to an accredited investor in reliance upon
the exemption provided in Section 4(2) of the Act and 1,998,320 were sold to
non-U.S. persons in reliance upon an exemption provided in Regulation S under
the Act. The shares may not be offered, sold, pledged, or otherwise transferred
before the sooner of the filing of an effective registration statement under the
Act or an exemption from registration is available. The Company could be
required, under certain circumstances, to register the shares under the Act; in
addition, the holders of the shares are entitled to certain rights to sell their
shares in connection with the filing of a registration statement initiated by
the Company.
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
46
<PAGE> 47
Notes to Consolidated Financial Statements (continued)
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.
PREFERRED STOCK OF SUBSIDIARY
In July 1995, AT&T Venture Company, L.P. ("AT&T Venture") purchased
1,000,000 shares of BBN Planet's Series A Redeemable Convertible Preferred Stock
for $8,000,000. On August 6, 1996, AT&T Venture's preferred stock investment was
exchanged for 400,000 common shares of BBN Corporation. The shares, which were
issued from treasury shares, are restricted and were not registered under the
Act and may not be transferred or assigned before the sooner of the filing of an
effective registration statement under the Act or an exemption from registration
is available. The Company could be required, under certain circumstances, to
register the shares under the Act; in addition, the holders of the shares are
entitled to certain rights to sell the shares in connection with the filing of a
registration statement initiated by the Company. During one year following the
exchange, AT&T Venture may require the Company to purchase all or any part of
the common shares at a price of $20.00 per share. Had these shares been issued
as of the beginning of FY96, the loss per share from continuing operations,
discontinued operations, and net loss would have been, $2.74, $.36 and $3.11,
respectively.
INCOME TAXES
The components of income (loss) from continuing operations before income
taxes for the Company's domestic and foreign operations were as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------
1996 1995 1994
-------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Domestic............................................. $(55,889) $81,526 $(9,334)
Foreign.............................................. (613) (641) 365
-------- -------- -------
Income (loss) from continuing operations
before income taxes............................. $(56,502) $80,885 $(8,969)
======== ======== =======
</TABLE>
The provision (benefit) for income taxes consisted of the following:
<TABLE>
<S> <C> <C> <C>
Current:
Federal............................................ $ (7,839) $12,522 $
State.............................................. (400) 2,558 50
Foreign............................................ 44 298 105
-------- ------- -------
(8,195) 15,378 155
Deferred:
Federal............................................ 1,595 (1,595) (155)
State..............................................
-------- ------- -------
1,595 (1,595) (155)
-------- ------- -------
Provision (benefit) for income taxes................. $ (6,600) $13,783 $ 0
======== ======= =======
</TABLE>
There was no provision (benefit) for income taxes on the income (loss) from
discontinued operations.
47
<PAGE> 48
Notes to Consolidated Financial Statements (continued)
The difference between the federal statutory rate and the effective tax
rate on continuing operations follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------
1996 1995 1994
-------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Tax provision at the statutory rate.................. $(19,776) $28,310 $(3,049)
State taxes, net..................................... (260) 1,663 33
Research, investment, and foreign tax credits........ (985) (632)
Change in valuation allowance........................ 12,973 (19,634) 4,506
Minority interest.................................... 39 3,918 (704)
Other................................................ 424 511 (154)
-------- -------- -------
Provision (benefit) for income taxes................. $ (6,600) $13,783 $ 0
======== ======== =======
</TABLE>
No deferred taxes have been recognized in the consolidated balance sheet at
June 30, 1996 and 1994, and a deferred tax benefit of $1,595,000 was recognized
in the consolidated balance sheet at June 30, 1995. The components were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------
1996 1995 1994
-------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Depreciation and amortization........................ $ 7,755 $ 2,891 $ 3,614
Accruals and reserves not deducted for tax
purposes........................................... 9,830 11,192 13,804
Net operating loss carryforwards..................... 8,467 1,801 12,152
Tax credit carryforwards............................. 11,765 4,294 7,237
Deferred revenue..................................... (3,330) (2,357) (3,586)
Other, net........................................... 374 339 622
-------- ------- -------
34,861 18,160 33,843
Valuation allowance.................................. (34,861) (16,565) (33,843)
-------- ------- -------
$ 0 $ 1,595 $ 0
======== ======= =======
</TABLE>
The fiscal year 1996 federal tax benefit reflects the realization of the
Company's net deferred tax assets due to the carryback of the current year's
loss to fiscal year 1995, resulting in the recovery of the maximum amount
refundable for taxes paid in prior years. As a result of the carryback,
approximately $8,000,000 of tax credits previously utilized become available for
utilization in future years. The Company has federal net operating loss and tax
credit carryforwards available to offset future U.S. taxable income of
$26,440,000 and $12,330,000, respectively, expiring in 2002 through 2012.
Approximately $5,100,000 of the valuation allowance at June 30, 1996 is
attributable to stock options, the benefit of which will be credited to
additional paid in capital when realized.
EMPLOYEE BENEFIT PLANS
Stock Compensation Plans
Under the Company's 1986 stock incentive 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 and 1994 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 and one day from the dates of grant. Options which are canceled become
available for future grants.
48
<PAGE> 49
Notes to Consolidated Financial Statements (continued)
The changes in stock options outstanding for the three years ended June 30,
1996 were as follows:
<TABLE>
<CAPTION>
RANGE OF
NUMBER OPTION PRICES
OF SHARES PER SHARE
--------- --------------
(SHARES IN THOUSANDS)
<S> <C> <C>
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
Granted............................................................ 1,944 18.13- 42.00
Exercised.......................................................... (396) 5.00- 18.13
Canceled........................................................... (202) 5.00- 40.50
----- -----------
Outstanding at June 30, 1996 (772 exercisable)..................... 3,646 $ 5.00-$42.00
===== ===========
</TABLE>
Options granted in fiscal year 1996 under the plan, as proposed to be
amended, include 40,000 conditional options which are subject to shareholder
approval at the 1996 Annual Meeting.
At June 30, 1996 and 1995, 296,000 shares and 415,000 shares, respectively,
of authorized but unissued common stock were reserved and available for granting
additional options. The shares reserved at June 30, 1996 do not include the
40,000 conditional options granted in fiscal year 1996.
In addition to the options outstanding and available under the 1986 plan
and the 1983 plan, in fiscal year 1996 the Company granted an aggregate of
767,852 BBN options under a 1996 plan approved by the Company's directors in
connection with a reorganization program to combine the Company's Internet and
internetworking services operations. Included are an aggregate of 160,653 BBN
options granted in exchange for the cancellation of outstanding options to
purchase shares of common stock of BBN Planet and BBN HARK. Of such 160,653
options, an aggregate of 156,670 options (together with an aggregate of 66,250
additional options under the 1986 plan) issued in exchange for BBN Planet
options were issued at a price below market value in an aggregate amount of
$2,400,000 which will be charged to expense over the vesting period; of such
amount, $1,800,000 was recorded in fiscal year 1996. All such BBN Planet
replacement options will vest principally over a twelve-month period and expire
four years from the date of grant. The remaining 611,182 BBN options issued
under the plan other than as BBN Planet replacement options were at fair market
value of the common stock on the date of grant, vest generally over four years,
and expire five years from the date of grant. Options which are canceled are not
intended to become available under the plan for future grants.
Employee Stock Purchase Plan
Under the Company's 1983 Stock Purchase Plan (the "plan"), an aggregate of
3,600,000 shares of common stock were made available for purchase by employees
upon exercise of options granted semi-annually. Those who have been employed by
the Company prior to the beginning of an option period are eligible to enroll in
the plan. 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.
49
<PAGE> 50
Notes to Consolidated Financial Statements (continued)
Options were exercised to purchase 143,000, 194,000, and 185,000 shares for
a total of $2,907,000, $2,154,000, and $1,519,000 in fiscal years 1996, 1995,
and 1994, respectively. At June 30, 1996, 350,000 shares of authorized but
unissued common stock were reserved for future issuance under this plan.
Restricted Stock Plan
In August 1996, the Company adopted a restricted stock plan, permitting
Directors and Officers of the Company to purchase shares from the Company during
a one-month period in August and September 1996. During this time period, 34,729
shares of common stock were purchased under the plan. The shares were purchased
at 75% of their fair market value on the date of the sale. The shares are
restricted as to transfer, and upon termination of service within two years of
the date of acquisition, the holder is required to offer the shares back to the
Company at the price paid.
Retirement Plans
The Company has a defined contribution retirement plan (the "plan")
covering substantially all of its domestic employees. 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 Company's
contribution to the plan is discretionary and provides for matching
contributions as determined annually by the Company's Board of Directors, based
on a percentage of employees' eligible compensation, as defined. The Company's
total cost pursuant to its retirement plan was $5,822,000, $5,348,000, and
$5,002,000 in fiscal years 1996, 1995, and 1994, respectively.
In fiscal year 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 was insignificant for fiscal years 1996 and
1995.
Incentive Compensation Plans
The Company maintains incentive compensation and other performance related
bonus plans for its employees, including its executive management. Awards under
these plans are paid in recognition of individual contribution to business unit
or corporate performance as determined by management and approved by the
Compensation and Stock Option Committee of the Board of Directors. Total costs
pursuant to the Company's incentive compensation plans were $2,634,000,
$448,000, and $1,663,000 in fiscal years 1996, 1995, and 1994, respectively.
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 institution of such proceedings
against the Company could, and suspension or debarment from contracting with the
government would, materially adversely affect the Company's business, financial
condition, and results of operations. The Company's policy has been and
continues to be to conduct its activities in compliance with all applicable
rules and regulations.
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 for the Company have been
established and billings audited for years through fiscal year 1991, except for
the
50
<PAGE> 51
Notes to Consolidated Financial Statements (continued)
Company's former BBN Communications activities, for which final contract
billings rates have been established only through fiscal year 1984. The audit by
DCAA of the Company's former BBN Communications activities for fiscal years 1985
through 1993, which had been delayed, is currently in progress. U.S. government
revenue for BBN Communications activities during the nine-year period under
audit represented approximately 40% of the Company's total U.S. government
revenue during the period. Based upon its interpretations of government contract
regulations, DCAA in August 1996 recommended to the responsible governmental
administrative contracting officer that adjustments to BBN Communications
contract billings be made which, if asserted and sustained upon appeal, would
have a material adverse effect on the Company's financial condition and results
of operations. The amount of any adjustments which may ultimately be asserted by
the administrative contracting officer on the basis of the DCAA recommendations
is not currently determinable. The Company and its counsel believe that DCAA's
recommendations, in substantial part, are based upon incorrect interpretations
of government contract regulations and are inconsistent with decided cases. The
Company expects that any adjustments which may ultimately be asserted and
sustained on appeal as a result of audits of the Company's fiscal years 1985
through 1995 (including the 1985 through 1993 period for BBN Communications)
will not have a material adverse effect on the Company's financial condition and
results of operations.
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.
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid and received for income taxes and interest, and noncash
transactions, were as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------
1996 1995 1994
------ ------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash paid for:
Income taxes.................................................. $ 573 $12,094 $ 215
Interest...................................................... 4,400 4,418 4,438
Cash received for:
Income tax refunds............................................ 2,856 5 309
Noncash transactions:
Equipment acquired under capital lease........................ 8,006
</TABLE>
OTHER INCOME
In December 1994, the Company settled a claim with the U.S. government for
$700,000, resulting in a reduction in liabilities of $2,600,000 which is
included in other income. Other income in fiscal year 1995 also includes
$900,000 resulting from lower than expected costs associated with a previously
divested contract.
Refer to the "Sale of LightStream Corporation" footnote for discussion of
the gain included in other income for fiscal year 1995.
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 and have not been significant. At June 30, 1996 and 1995, the
Company had foreign exchange contracts to sell $1,050,000 and $950,000,
respectively, of foreign currencies. The market values of these outstanding
contracts at June 30, 1996 and 1995 were not significantly different from the
recorded values.
51
<PAGE> 52
Notes to Consolidated Financial Statements (continued)
SALE OF LIGHTSTREAM CORPORATION
The sale of the assets of the Company's majority-owned subsidiary
LightStream for a cash consideration of $120,000,000 was completed on January
11, 1995 and is reflected in the Company's fiscal year 1995 results. The Company
received 83% of the net proceeds and the minority owner of LightStream received
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. As of June 30, 1996, $4,711,000 remains in the Escrow Fund and no
claims have been made. The Company recorded a pre-tax gain from the sale of
$105,000,000 before minority interest of $11,800,000 and income taxes of
$13,500,000.
ACQUISITIONS
In fiscal year 1995, the Company acquired the BARRNet and the SURAnet
Internet services organization, both providers of Internet services, for an
aggregate of $14,960,000 cash, 270,270 shares of BBN common stock, 200,000
shares of BBN Planet common stock, and the assumption of certain operating
liabilities of $5,100,000. The transactions were accounted for using the
purchase method of accounting. Refer to the "Goodwill Write-Off and Other
Charges" footnote for further discussion.
GOODWILL WRITE-OFF AND OTHER CHARGES
In the third quarter of fiscal year 1996, the Company recorded a charge of
$20,718,000 to write off goodwill previously recorded in connection with the
acquisitions of BARRNet and SURAnet in August 1994 and March 1995, respectively,
and certain other costs and employee related expenses in connection with a
reorganization. The goodwill write-off was precipitated by a business
evaluation, which included a review of the Company's current Internet-related
business in comparison to expectations established at the time of the
acquisitions. (See Management's Discussion and Analysis of Financial Condition
and Results of Operations for further information.) The amount of the charge was
determined in accordance with the provisions of Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121") which was
issued by the Financial Accounting Standards Board in March 1995.
52
<PAGE> 53
Notes to Consolidated Financial Statements (continued)
BUSINESS SEGMENTS INFORMATION
The following is a summary of business segments information for continuing
operations for fiscal years June 30, 1996, 1995, and 1994. BBN Systems and
Technologies provides networking solutions and provides contract research and
development services, primarily in internetworking and collaborative systems to
governmental organizations; BBN Planet includes the Internet access and
value-added services business and the America Online, Inc. contract; and, in
FY95 and FY94, LightStream Corporation, which sold substantially all of its
assets on January 11, 1995, developed ATM networking products. Information for
fiscal years 1995 and 1994 has been restated to reflect the change in business
segments.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------
1996 1995 1994
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Revenue:
BBN Systems and Technologies............................. $163,998 $152,620 $152,230
BBN Planet............................................... 73,030 17,820 7,932
LightStream Corporation.................................. 8,445 1,539
Intercompany eliminations................................ (2,689) (3,282) (990)
-------- -------- --------
$234,339 $175,603 $160,711
======== ======== ========
Income (loss) from operations:
BBN Systems and Technologies............................. $ 1,805 $ 2,415 $ 6,897
BBN Planet............................................... (34,746) (11,967) 399
LightStream Corporation.................................. (3,689) (14,843)
Goodwill write-off and other charges..................... (20,718)
Unallocated corporate expenses, net...................... (2,723) (3,266) (2,201)
-------- -------- --------
$(56,382) $(16,507) $ (9,748)
======== ======== ========
Depreciation and amortization:
BBN Systems and Technologies............................. $ 4,907 $ 4,786 $ 5,891
BBN Planet............................................... 6,992 2,812 825
LightStream Corporation.................................. 570 671
-------- -------- --------
$ 11,899 $ 8,168 $ 7,387
======== ======== ========
Identifiable assets:
BBN Systems and Technologies............................. $ 39,113 $ 40,716 $ 36,559
BBN Planet............................................... 71,143 38,548 3,757
LightStream Corporation.................................. 13,968
Corporate................................................ 130,999 114,181 63,321
-------- -------- --------
$241,255 $193,445 $117,605
======== ======== ========
Capital expenditures:
BBN Systems and Technologies............................. $ 4,522 $ 5,336 $ 1,946
BBN Planet............................................... 26,225 6,669 1,013
LightStream Corporation.................................. 820 1,175
Corporate................................................ 3,660 1,308 1,461
-------- -------- --------
$ 34,407 $ 14,133 $ 5,595
======== ======== ========
</TABLE>
Revenue includes sales to the U.S. government and its agencies of
$129,000,000, $124,000,000, and $129,000,000 in fiscal years 1996, 1995, and
1994, respectively. The Company operates primarily in the United States; U.S.
export sales were $19,820,000, $9,296,000, and $11,650,000 in fiscal 1996, 1995,
and 1994, respectively. Foreign operations are not significant.
53
<PAGE> 54
Notes to Consolidated Financial Statements (continued)
The following information presents the results of operations of BBN Systems
and Technologies and BBN Planet for FY1996, FY1995 and FY1994, respectively.
This information is presented on an as-reorganized basis.
BBN Systems and Technologies
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------
1996 1995 1994
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Revenue.................................................... $163,998 $152,620 $152,230
Costs and expenses:
Cost of revenue.......................................... 118,386 113,213 112,465
Research and development................................. 7,974 7,802 7,030
Selling, general and administrative...................... 35,833 29,190 25,838
-------- -------- --------
Income from Operations..................................... $ 1,805 $ 2,415 $ 6,897
======== ======== ========
</TABLE>
BBN Planet
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------
1996 1995 1994
-------- -------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Revenue...................................................... $ 73,030 $ 17,820 $7,932
Costs and expenses:
Cost of revenue............................................ 68,286 14,754 5,390
Research and development................................... 4,743 1,533 54
Selling, general and administrative........................ 34,747 13,500 2,089
-------- -------- ------
Income (loss) from Operations................................ $(34,746) $(11,967) $ 399
======== ======== ======
</TABLE>
SUBSEQUENT EVENTS
On August 14, 1996, the Company and Andersen Consulting LLP entered into a
joint venture aimed at exploring and developing opportunities in the Internet
market. The Company contributed $5,000,000 in exchange for an approximately
12.5% ownership stake in the venture entity; Andersen Consulting retains the
remaining 87.5% interest. The Company has entered into an agreement with
Andersen Consulting to provide the joint venture with technical and engineering
services, the value of which is expected to be approximately $4,000,000 in
fiscal 1997.
As of September 9, 1996, the minority shareholders' common stock
investments in BBN Planet were converted into an aggregate of 92,000 common
shares of BBN Corporation. The shares, which were issued from treasury shares,
are restricted and were not registered under the Act and may not be offered or
sold before the sooner of the filing of an effective registration statement
under the Act or an exemption from registration is available. The Company could
be required, under certain circumstances, to register 80,000 of the shares under
the Act; in addition, the holder of such 80,000 shares is entitled to certain
rights to sell the shares in connection with the filing of a registration
statement initiated by the Company. Refer to the "Preferred Stock of Subsidiary"
footnote for discussions of the conversion of BBN Planet's preferred
shareholder's investment into common shares of BBN Corporation.
54
<PAGE> 55
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
BBN Corporation
Cambridge, Massachusetts
We have audited the consolidated balance sheets of BBN Corporation at June
30, 1996 and 1995, and the related consolidated statements of operations,
shareholders' equity, and cash flows for each of the three years in the period
ended June 30, 1996. 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 BBN Corporation
at June 30, 1996 and 1995, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended June 30, 1996, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
August 8, 1996, except as to the
information presented in the first and
second paragraphs of the Subsequent
Events note for which the dates are
August 14, 1996 and September 9, 1996,
respectively.
55
<PAGE> 56
QUARTERLY FINANCIAL DATA
(UNAUDITED)
Quarterly financial data for the years ended June 30, 1996 and 1995 was as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------- YEAR ENDED
SEPT. 30, DEC. 31, MARCH 31, JUNE 30, JUNE 30,
1996 1995 1995 1996 1996 1996
- ------------------------------------------ --------- -------- --------- -------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER-SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenue................................... $ 50,181 $ 54,608 $ 60,818 $ 68,732 $234,339
------- ------- -------- -------- --------
Gross margin.............................. $ 13,094 $ 13,911 $ 12,537 $ 12,787 $ 52,329
------- ------- -------- -------- --------
Loss from operations...................... $ (6,870) $ (7,364) $ (29,790) $(12,358) $(56,382)
------- ------- -------- -------- --------
Loss from continuing operations........... $ (4,430) $ (5,545) $ (28,678) $(11,249) $(49,902)
Income (loss) from discontinued operations
net of applicable income taxes.......... (4,221) (2,345) (463) 289 (6,740)
------- ------- -------- -------- --------
Net loss.................................. $ (8,651) $ (7,890) $ (29,141) $(10,960) $(56,642)
------- ------- -------- -------- --------
Loss per share:
Continuing operations................... $ (0.25) $ (0.32) $ (1.61) $ (0.62) $ (2.80)
Discontinued operations................. (0.24) (0.13) (0.03) 0.02 (0.38)
------- ------- -------- -------- --------
Net loss per share...................... $ (0.49) $ (0.45) $ (1.64) $ (0.60) $ (3.18)
------- ------- -------- -------- --------
Sales price of common stock: High......... 39 3/8 48 3/4 40 7/8 29 5/8
Low....... 27 1/4 28 1/4 24 1/8 20 1/4
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------- YEAR ENDED
SEPT. 30, DEC. 31, MARCH 31, JUNE 30, JUNE 30,
1995 1994 1994 1995 1995 1995
- ------------------------------------------ --------- -------- --------- -------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER-SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenue................................... $ 43,696 $ 42,842 $ 41,727 $ 47,338 $175,603
------- ------- -------- -------- --------
Gross margin.............................. $ 14,040 $ 12,571 $ 10,200 $ 10,165 $ 46,976
------- ------- -------- -------- --------
Loss from operations...................... $ (1,423) $ (3,490) $ (4,490) $ (7,104) $(16,507)
------- ------- -------- -------- --------
Income (loss) from continuing
operations.............................. $ (1,747) $ (345) $ 75,568 $ (6,374) $ 67,102
Income (loss) from discontinued operations
net of applicable income taxes.......... (61) (1,580) (1,102) 485 (2,258)
------- ------- -------- -------- --------
Net income (loss)......................... $ (1,808) $ (1,925) $ 74,466 $ (5,889) $ 64,844
------- ------- -------- -------- --------
Income (loss) per share:
Continuing operations................... $ (0.11) $ (0.02) $ 4.17 $ (0.37) $ 3.73
Discontinued operations................. (0.00) (0.09) (0.06) 0.03 (0.12)
------- ------- -------- -------- --------
Net income (loss) per share............. $ (0.11) $ (0.11) $ 4.11 $ (0.34) $ 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>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information in response to this item may be found in the section entitled
"1. Election of Directors" in the Company's definitive Proxy Statement dated
October 2, 1996 for the Registrant's Annual Meeting to be held on November 6,
1996, and such information is incorporated herein by reference.
56
<PAGE> 57
Information in response to executive officers of the registrant appears in
Item 4A entitled "Executive Officers of the Registrant" on pages 28 and 29 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 Certain Other
Transactions Involving Executive Officers", "Summary Compensation Table",
"Option Grants in Last Fiscal Year", and "Option Exercises in Fiscal Year 1996
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 October 2, 1996 for the Registrant's Annual Meeting to be held
on November 6, 1996, 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 October 2, 1996 for the Registrant's
Annual Meeting to be held on November 6, 1996, 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 October 2, 1996 for the
Registrant's Annual Meeting to be held on November 6, 1996, and such information
is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) List of Financial Statements, Financial Statement Schedules, and
Exhibits.
1. FINANCIAL STATEMENTS
Consolidated Statements of Operations (page 37)
Consolidated Balance Sheets (page 38)
Consolidated Statements of Shareholders' Equity (page 39)
Consolidated Statements of Cash Flows (page 40)
Notes to Consolidated Financial Statements (pages 41-54)
Report of Independent Accountants (page 55)
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, 1996, 1995, and
1994 (page 63)
57
<PAGE> 58
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).
4.1 Form of Indenture of Trust dated as of April 1, 1987 between the Registrant and
The First National Bank of Boston relating to the Registrant's 6% Convertible
Subordinated Debentures due 2012 (filed with the Securities and Exchange
Commission as Exhibit 4.1 of Registration Statement No. 33-12975 on Form S-3,
and incorporated herein by reference).
4.2 Form of Right Certificate to purchase shares of Common Stock of the Registrant
(filed with the Securities and Exchange Commission as Exhibit 2 of Registrant's
Current Report on Form 8-K dated June 23, 1988, and incorporated herein by
reference).
4.3 Common Stock Rights Agreement dated as of June 23, 1988 between the Registrant
and The First National Bank of Boston relating to the Registrant's Common Stock
Purchase Rights (filed with the Securities and Exchange Commission as Exhibit 1
of Registrant's Current Report on Form 8-K dated June 23, 1988, and
incorporated herein by reference).
4.4 Registration Rights Agreement dated August 24, 1994 between the Registrant and
the Board of Trustees of the Leland Stanford Junior University (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 Exchange and Registration Rights Agreement dated as of August 6, 1996 among the
Registrant, BBN Planet Corporation, and AT&T Venture Company, L.P.
4.6 Exchange and Registration Rights Agreement dated as of August 23, 1996 among
the Registrant, BBN Planet Corporation, and The Board of Trustees of the Leland
Stanford Junior University.
4.7 Stock Purchase Agreement dated as of June 17, 1996 between the Registrant and
General Electric Capital Corporation relating to the purchase of an aggregate
of 452,899 shares of the Common Stock of the Registrant.
4.8 Form of Stock Purchase Agreement dated as of June 17, 1996 between the
Registrant and certain non-U.S. persons relating to the purchase of an
aggregate of 1,998,320 shares of the Common Stock of the Registrant.
4.9 (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 4.1 to Registration Statement No. 333-03819
on Form S-8, and incorporated herein by reference).
10.3 Registrant's 1983 Employee Stock Purchase Plan, as amended (filed with the
Securities and Exchange Commission as Exhibit 10.3 of Registrant's Annual
Report on Form 10-K for the fiscal year ended June 30, 1995, and incorporated
herein by reference).
</TABLE>
58
<PAGE> 59
<TABLE>
<S> <C>
10.4 BBN Domain Corporation 1993 Stock Option Plan, as amended (filed with the
Securities and Exchange Commission as Exhibit 10.6 of Registrant's Annual
Report on Form 10-K for the fiscal year ended June 30, 1995, and incorporated
herein by reference).
10.5 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).
10.6 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).
10.7 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).
10.8 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).
10.9 Registrant's 1996 Stock Incentive Plan (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, 1996, and incorporated herein by reference).
10.10 Registrant's 1996 Restricted Stock Plan.
10.11 Memorandum of Agreement Re: Early Retirement Arrangement dated September 28,
1995 between the Registrant and Stephen R. Levy.
10.12 Memorandum of Agreement Re: Early Retirement Arrangement dated July 25, 1996
between the Registrant and John T. Kish, Jr.
10.13 Deferred Compensation Agreement dated as of February 8, 1996 between the
Registrant and John M. Albertine.
10.14 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).
10.15 Internet Services Agreement dated June 19, 1995 among Registrant, BBN Planet
Corporation, and AT&T Corp. (filed with the Securities and Exchange Commission
as Exhibit 10.13 of Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30, 1995, and incorporated herein by reference).
10.16 Stock Purchase Agreement dated as of June 29, 1996 among Registrant, BBN Domain
Corporation, ABS Capital Partners, L.P., ABS Capital Partners II, L.P., St.
Paul Fire and Marine Insurance Company, and FSC Corporation (filed with the
Securities and Exchange Commission as Exhibit 1 of Registrant's Current Report
on Form 8-K dated July 31, 1996, and incorporated herein by reference).
10.17 Registrant's Lease, Collateral Pledge Agreement, and Financing, Construction,
and Agency Agreement, with Fawcett Street Associates, each date 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).
10.18 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).
</TABLE>
59
<PAGE> 60
<TABLE>
<S> <C>
10.19 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).
10.20 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 Computation of per share earnings.
21.1 Subsidiaries of Registrant.
23.1 Consent of Coopers & Lybrand L.L.P.
27.1 Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K for the quarter ended June 30, 1996 filed by the
Registrant were as follows:
1. The Registrant filed a Current Report on Form 8-K dated May 15,
1996 with the Securities and Exchange Commission on May 15, 1996 reporting
on cautionary statements for the purpose of the "Safe Harbor" Provisions of
the Private Securities Litigation Reform Act of 1995.
60
<PAGE> 61
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 27th day of
September, 1996.
BBN CORPORATION
By: /s/ GEORGE H. CONRADES
George H. Conrades
(Chairman of the Board of Directors,
President, and Chief Executive
Officer)
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 27th day of September,
1996.
<TABLE>
<S> <C>
/s/ GEORGE H. CONRADES Chairman of the Board of Directors,
George H. Conrades President, and Chief Executive Officer
(Principal Executive 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/ MAX D. HOPPER Director
Max D. Hopper
/s/ STEPHEN R. LEVY Director
Stephen R. Levy
/s/ REGIS MCKENNA Director
Regis McKenna
/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
Ralph A. Goldwasser Officer, and Treasurer (Principal Financial
Officer)
/s/ PAUL F. BRAUNEIS Vice President and Controller (Principal
Paul F. Brauneis Accounting Officer)
</TABLE>
61
<PAGE> 62
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Shareholders and Board of Directors
BBN Corporation
Cambridge, Massachusetts
Our report on the consolidated financial statements of BBN Corporation is
included on page 55 of this Form 10-K. In connection with our audits of such
financial statements, we have also audited the related financial statement
schedule listed in the index on page 57 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
August 8, 1996, except as to the
information presented in the first and
second paragraphs of the Subsequent Events
note for which the dates are August 14, 1996
and September 9, 1996, respectively.
62
<PAGE> 63
BBN CORPORATION
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JUNE 30, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ---------------------------------------------------------------------------------------------------------
BALANCE AT CHARGED TO OTHER BALANCE
BEGINNING COSTS AND CHANGES AT END
DESCRIPTION OF YEAR EXPENSES ADD (DEDUCT) OF YEAR (D)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Allowances for Accounts Receivable:
1996................................... $6,739 $972 $ (1,775)(a)(c) $ 5,936
1995................................... 8,039 220 (1,520)(a) 6,739
1994................................... 8,606 372 (939)(a)(c) 8,039
Inventory Reserves:
1996................................... $ $(77) $ 97(a)(c) $ 20
1995................................... 3,296 (3,296)(b) 0
1994................................... 2,795 501(c) 3,296
</TABLE>
- ---------------
(a) Represents write-offs and recoveries.
(b) Represents write-offs and disposals.
(c) Includes amounts transferred from allowances for accounts receivable to
inventory reserves.
(d) Represents amounts deducted in the consolidated balance sheets from the
accounts to which they apply.
63
<PAGE> 64
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
4.5 Exchange and Registration Rights Agreement dated as of August 6, 1996 --
among the Registrant, BBN Planet Corporation, and AT&T Venture Company,
L.P.
4.6 Exchange and Registration Rights Agreement dated as of August 23, 1996 --
among the Registrant, BBN Planet Corporation, and The Board of Trustees
of the Leland Stanford Junior University.
4.7 Stock Purchase Agreement dated as of June 17, 1996 between the --
Registrant and General Electric Capital Corporation relating to the
purchase of an aggregate of 452,899 shares of the Common Stock of the
Registrant.
4.8 Form of Stock Purchase Agreement dated as of June 17, 1996 between the --
Registrant and certain non-U.S. persons relating to the purchase of an
aggregate of 1,998,320 shares of the Common Stock of the Registrant.
10.10 Registrant's 1996 Restricted Stock Plan. --
10.11 Memorandum of Agreement Re: Early Retirement Arrangement dated September --
28, 1995 between the Registrant and Stephen R. Levy.
10.12 Memorandum of Agreement Re: Early Retirement Arrangement dated July 25, --
1996 between the Registrant and John T. Kish, Jr.
10.13 Deferred Compensation Agreement dated as of February 8, 1996 between the --
Registrant and John M. Albertine.
11.1 Computation of per share earnings. --
21.1 Subsidiaries of Registrant. --
23.1 Consent of Coopers & Lybrand L.L.P. --
27.1 Financial Data Schedule. --
</TABLE>
<PAGE> 1
Exhibit 4.5
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
THIS AGREEMENT (the "Agreement") is made as of August 6, 1996 by and
among BBN CORPORATION, a Massachusetts corporation (the "Company"), BBN PLANET
CORPORATION, a Massachusetts corporation ("Planet"), and AT&T VENTURE COMPANY,
L.P., a Delaware limited partnership ("AT&T" or the "Holder").
WHEREAS, the Company owns 23,800,000 of the issued and outstanding
shares of Planet common stock, The Board of Trustees of the Leland Stanford
Junior University owns 200,000 of the issued and outstanding shares of Planet
common stock, Harvard University owns 10,000 of the issued and outstanding
shares of Planet common stock, Boston University owns 10,000 of the issued and
outstanding shares of Planet common stock, and Massachusetts Institute of
Technology owns 10,000 of the issued and outstanding shares of Planet common
stock, together constituting all of the issued and outstanding shares of Planet
common stock;
WHEREAS, the Holder owns 1,000,000 of the issued and outstanding shares
of Planet Series A Convertible Preferred Stock, $.01 par value, constituting all
of the issued and outstanding shares of Planet preferred stock and together with
the Planet common stock, constituting all of the capital stock of Planet; and
WHEREAS, the Company wishes to acquire and the Holder wishes to
transfer all of the issued and outstanding shares of Planet's Series A
Convertible Preferred Stock, $.01 par value in a transaction intended to be
treated as a taxable transaction and not as a reorganization within the meaning
of IRC Section 368(a), as amended.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties to this Agreement agree as follows:
1. Exchange of the Series A Preferred Stock. Subject to the terms and
conditions hereof, the Company agrees to assign, transfer, and deliver to AT&T
(i) 400,000 shares (the "Shares") of the Company's Common Stock, $1.00 par value
(the "Common Stock"), (ii) the Put Option (as defined in Section 6 hereof), and
(iii) $1,000 in cash, all in exchange for, and AT&T agrees to accept such
consideration in complete exchange for and to transfer to the Company 1,000,000
shares of Planet's Series A Convertible Preferred Stock, $.01 par value (the
"Series A Preferred Stock") and for the cancellation of the rights of AT&T
relating to such shares of Series A Preferred Stock under the agreements
canceled hereunder as provided in Section 7.3 of this Agreement. This exchange
of Series A Preferred Stock for Common
<PAGE> 2
Stock shall occur at a closing (the "Closing") to be held at the offices of
Ropes & Gray, Boston, Massachusetts on the date of this Agreement (the "Closing
Date") at 5:00 p.m.
At the Closing, AT&T will deliver to the Company certificate(s)
representing the Series A Preferred Stock, duly endorsed in blank or accompanied
by separate stock powers, in each case in proper form for transfer and with
signature guaranteed, with any necessary stock transfer tax stamps affixed. At
the Closing, the Company will deliver to AT&T, in exchange, certificate(s)
representing the Shares, duly registered in the name of AT&T.
2. Registration Rights.
(a) Demand Registration Rights. If following October 1, 1996 and prior
to the first date that all of the Shares may be sold immediately in accordance
with the provisions of Rule 144 promulgated under the Securities Act of 1933
(the "Demand Period"), Holder requests the Company to file a registration
statement under the Securities Act of 1933 (hereinafter, the "Securities Act")
for a public offering of Registrable Securities (as defined in Section 2(c)
hereof) equal to at least the lesser of (i) 50% of the Shares, or (ii) the
number of Registrable Securities the proposed aggregate offering price of which
is at least $3,000,000, the Company shall use its best efforts to register under
the Securities Act such Registrable Securities so requested. Notwithstanding the
foregoing, (i) the Company shall not be obligated to effect the filing of a
registration statement pursuant to this Section 2(a) during the 180 days
following the effective date of a registration statement pertaining to a public
offering of securities for the account of the Company, and (ii) if the Company
shall furnish to Holder requesting such registration a certificate signed by the
President of the Company stating that, in the good faith judgment of the Board
of Directors of the Company, it would not be in the best interests of the
Company and its stockholders generally for such registration statement to be
filed, the Company shall have the right to defer such filing for a period of not
more than 120 days after receipt of the request of Holder; provided, however,
that the Company may not utilize the right set forth in this subsection (ii) for
more than one (1) such 120-day period with respect to each such request. The
Company is obligated to effect no more than two (2) registrations pursuant to
this Section 2(a), provided that no such registration which shall not have
become and remained effective for a period of at least 120 days (or such shorter
period during which Holder shall have sold all Registrable Securities which were
so registered) shall be deemed to be a registration for any purpose of this
Section 2(a).
(b) Piggyback Registration Rights. Whenever the Company proposes to
register any Common Stock for its own or others' account under the Securities
Act for a public offering for cash, other than a registration relating to
employee benefit plans, the Company shall give Holder, if holding Registrable
Securities, prompt written notice of its intent to do so. Upon the written
request of Holder given within fifteen days of such notice, the Company will use
its best efforts to cause to be included in such registration all of the
Registrable Securities which Holder requests. If the Company is advised in
writing in good faith by any managing underwriter of the securities being
offered pursuant to any registration statement
-2-
<PAGE> 3
under this Section 2(b) that the number of shares to be sold pursuant to such
registration statement is greater than the number of such shares which can be
offered without adversely affecting the offering, the Company shall first reduce
pro rata the number of shares offered for the accounts of holders of the
Company's Common Stock that do not hold registration rights similar to the
rights granted to Holder pursuant to this Section 2(b), and then may reduce pro
rata the number of shares offered for the account of Holder and for the accounts
of holders of the Company's Common Stock that have registration rights similar
to the rights granted to Holder pursuant to this Section 2(b) (based upon the
number of shares of Common Stock proposed to be sold pursuant to such
registration statement by Holder and such other holders of the Company's Common
Stock) to a number deemed satisfactory by such managing underwriter. In the
event of such a limitation, shares of persons not having registration rights
will not be included in the registration unless all Registrable Securities
requested to be included in the registration have been included. No piggyback
registration right in this Section 2(b) shall be construed to limit the demand
registration right contained in Section 2(a) hereof. The Company shall not after
the date hereof grant piggyback registration rights to any third party which
provide such third party seniority over Holder with respect to the inclusion of
securities held by such third party over Registrable Securities under this
Section 2(b), provided that the foregoing provisions of this sentence shall not
apply to a registration statement filed by the Company pursuant to the exercise
by such third party of "demand" registration rights.
(c) Definition of Registrable Securities. "Registrable Securities"
means (i) the Shares and (ii) shares of Common Stock or other securities
convertible into Common Stock received as a stock dividend or other distribution
in respect of the Shares; provided, however, that Registrable Securities shall
not include any such shares of Common Stock that as of the date of the
determination may be sold without limitation pursuant to Rule 144(k) under the
Securities Act.
(d) Registration Procedures. All expenses incurred in connection with
the registrations under this Section 2 (including all registration, filing,
qualification, printer's, and accounting fees and the reasonable fees of one
counsel for the holders, but excluding underwriting commissions and discounts)
shall be borne by the Company. In connection with registrations under this
Section 2, the Company shall (i) use its best efforts to prepare and file with
the Commission as soon as reasonably practicable, a registration statement with
respect to the subject Registrable Securities and use its best efforts to cause
such registration to promptly become and remain effective for a period of at
least 120 days (or such shorter period during which Holder shall have sold all
Registrable Securities which were so registered); (ii) use its best efforts to
register and qualify the Registrable Securities covered by such registration
statement under applicable state securities laws as Holder shall reasonably
request for the distribution of the Registrable Securities; and (iii) take such
other actions as are reasonable and necessary to comply with the requirements of
the Securities Act and the regulations thereunder, or the reasonable request of
Holder, with respect to the registration and distribution of the Registrable
Securities. The Company is not obligated to effect registration or qualification
under this Section 2 in any jurisdiction requiring it to qualify to do business
-3-
<PAGE> 4
(unless the Company is otherwise required to be so qualified) or to execute a
general consent to service of process.
(e) Underwriting Arrangement. In connection with each registration
pursuant to Sections 2(a) and (b) above covering an underwritten public
offering, the Company and Holder agree to enter into a written agreement with
the managing underwriter in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
underwriter and companies of the Company's size and investment stature;
provided, that Holder shall not be required to agree to any provision making
Holder jointly liable or jointly and severally liable with any other party
including the Company.
(f) Notification. The Company shall promptly notify Holder if
participating in a registration statement covering Registrable Securities of any
event which results in the prospectus included in such registration statement,
as then in effect, containing an untrue statement of a material fact or omitting
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing. The Company shall use its best efforts to make appropriate changes to
such prospectus and provide copies of such revised prospectus to Holder.
(g) Furnishing of Documents. At the request of Holder, if participating
in a registration statement, the Company will furnish to each underwriter, if
any, and Holder, a legal opinion of its counsel and a letter from its
independent certified public accountants, each in customary form and substance,
at such time or times as such documents are customarily provided in the type of
offering involved.
(h) Prospectuses. From time to time the Company shall amend or
supplement any registration statement pursuant to which any of the Registrable
Securities are being offered pursuant to a registration under this Agreement and
the prospectus contained therein to the extent necessary to comply with the
Securities Act and any applicable state securities or Blue Sky laws. The Company
shall also provide Holder with as many copies of the prospectus contained in any
such registration statement in which Registrable Securities are included as it
may reasonably request.
(i) Indemnification by the Company. The Company will indemnify and hold
harmless Holder and each underwriter of the Registrable Securities being sold by
Holder, and each controlling person of Holder and underwriter, against all
claims, losses, damages, and liabilities (or actions in respect thereof) arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any registration statement relating to such
Registrable Securities (or in any related registration statement, notification,
or the like) or any omission (or alleged omission) to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, or any violation by the Company of any rule or regulation
promulgated under the Securities Act applicable to the Company and relating to
action or inaction required of the Company in connection with any such
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<PAGE> 5
registration, qualification, or compliance, and will reimburse Holder and each
such underwriter and controlling person for any legal or any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability, or action and will enter into an indemnification
agreement with Holder and such underwriter containing customary provisions,
including provisions for contribution, as Holder or any underwriter shall
reasonably request; provided, however, that the Company will not be liable in
any such case to the extent that any such claim, loss, damage, or liability
arises out of or is based on any untrue statement or omission based upon written
information furnished to the Company by Holder or underwriter and stated to be
specifically for use therein.
(j) Indemnification by Holder. Holder, if so participating in a
registration statement, will indemnify and hold harmless the Company, each of
its directors, each of its officers who has signed the registration statement
and each person, if any, who controls the Company within the meaning of Section
15 of the Securities Act, against all claims, losses, damages and liabilities
(or actions in respect thereof) arising out of or based on any untrue statement
(or alleged untrue statement) of a material fact contained in any registration
statement relating to the Registrable Securities (or in any related registration
statement, notification or the like) or any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse the Company and each
such director, officer or controlling person for any legal or any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability, or action and will enter into an indemnification
agreement with the Company containing customary provisions, including provisions
for contribution, as the Company or each such person shall reasonably request;
provided, however, that Holder will not be liable in any such case except to the
extent that any such claim, loss, damage, or liability arises out of or is based
on any untrue statement or omission based upon written information furnished to
the Company by Holder and stated to be specifically for use therein.
Notwithstanding any of the foregoing to the contrary, in no event shall the
liability of Holder for indemnification under this Section 2(j) exceed the
lesser of (i) that percentage of the total amount of such losses, claims,
damages or liabilities indemnified against which equals the percentage obtained
by dividing the total number of Registrable Securities sold by Holder pursuant
to the registration statement by the total number of securities of the Company
sold pursuant to the registration statement, and (ii) the net proceeds received
by Holder in the offering.
(k) Indemnification Procedures.
(i) Promptly after receipt by any person entitled to
indemnification under Sections 2(i) or 2(j) (and "Indemnified Party") of notice
of the commencement of any action in respect of which indemnity may be sought
against any person under Sections 2(i) or 2(j) (and "Indemnifying Party"), such
Indemnified Party shall notify all Indemnifying Parties in writing of the
commencement thereof (provided, however, that failure to so notify an
Indemnifying Party shall not relieve any Indemnifying Party from any liability
it may have hereunder except
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<PAGE> 6
to the extent that the Indemnifying Party who did not receive such notice shall
have been materially prejudiced by such failure) and, subject to the provisions
hereinafter stated, the Indemnifying Party shall be entitled to assume the
defense of such action (including the employment of counsel, who shall be
counsel reasonably satisfactory to such Indemnified Party), and the payment of
expenses insofar as such action shall relate to any alleged liability in respect
of which indemnity may be sought against the Indemnifying Party.
(ii) The Indemnified Party shall have the right to employ
separate counsel and assume its own legal defense in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
subsequent to any assumption of the defense by the Indemnifying Party shall not
be at the expense of the Indemnifying Party unless the employment of such
counsel has been specifically authorized in writing by the Indemnifying Party.
The Indemnifying Party shall not be liable to indemnify any Indemnified Party
for any settlement of any such action effected without the Indemnifying Party's
written consent. The Company shall not, except with the approval of each party
being indemnified under this Agreement, consent to entry of any judgment or
enter into any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to the parties being so
indemnified of a release from all liability in respect to such claim or
litigation.
(l) Contribution. In order to provide for just and equitable
contribution to joint liability under the Securities Act in any case in which
any Indemnified Party exercising rights under this Agreement, or any controlling
person of any such Indemnified Party, makes a claim for indemnification pursuant
to Section 2(i) or 2(j) but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Agreement provides for indemnification in such case, then the Indemnifying
Party and such Indemnified Party will contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (after contribution
from others) in such proportion as is appropriate to reflect the relative fault
of the Indemnifying Party on the one hand and of the Indemnified Party on the
other in connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party on the one hand and
of the Indemnified Party on the other shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates to information
supplied by the Indemnifying Party on the one hand or by the Indemnified Party
on the other, and each party's relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission; provided,
however, that, in any such case, no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
will be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
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<PAGE> 7
(m) Exchange Act Registration. As long as the Company is subject to the
reporting requirements of either Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 (the "Exchange Act"), the Company will use its reasonable
efforts to timely file with the Commission such information as the Commission
may require under either Section 13 or Section 15(d) of the Exchange Act; and in
such event, the Company shall use its reasonable efforts to take all action as
may be required as a condition of the availability of Rule 144 under the
Securities Act (or any successor exemptive rule hereafter in effect) with
respect to the Registrable Securities. The Company shall furnish to Holder
forthwith upon request (i) a written statement by the Company as to the
compliance with the reporting requirements of Rule 144, (ii) a copy of the most
recent annual or quarterly report of the Company as filed with the Commission,
and (iii) such other reports and documents as the Holder may reasonably request
in availing itself of any rule or regulation of the Commission allowing the
Holder to sell any such Registrable Securities pursuant to Rule 144 without
registration. The Company shall use its reasonable efforts to facilitate and
expedite transfers of the Registrable Securities pursuant to Rule 144 under the
Securities Act, which efforts shall include prompt notice to its transfer agent
to expedite such transfers of Registrable Securities.
(n) Transfer or Assignment of Registration Rights. The rights to cause
the Company to register securities issued to Holder under this Section 2 may be
transferred or assigned by Holder (i) to AT&T Corp. or to any affiliate of AT&T
Corp., or (ii) to any other entity with the prior written consent of the Company
(which consent shall be given in the sole discretion of the Company). In either
case, Holder shall give written notice at the time of or within a reasonable
time after said permitted transfer or assignment, stating the name and address
of said transferee or assignee and identifying the securities with respect to
which such registration rights are being transferred or assigned, and the
transferee or assignee of such rights shall agree in writing to be bound by the
obligations of a holder of Registerable Securities under this Section 2.
3. Purchase for Investment. AT&T acknowledges that the Shares will be
sold and exchanged without registration under the Securities Act on the basis
that the transactions contemplated by this Agreement do not involve any public
offering of securities. AT&T hereby confirms to the Company that it is acquiring
such securities for its own account, for investment only and without a view
toward the distribution thereof. AT&T hereby confirms that it is able to bear
the economic risk of an investment in the Shares acquired by it pursuant to this
Agreement and can afford to sustain a total loss on such investment and has such
knowledge and experience in financial and business matters that it is capable of
evaluating the merits and risks of the proposed investment and therefore has the
capacity to protect its own interests in connection with the purchase of the
Shares. AT&T acknowledges that it has been fully informed of the limitations
that are implicit in the fact that the Shares are not registered under the
Securities Act for sale to it, and may not be transferred absent registration or
an exemption therefrom, that the Company has no obligation to register any of
the Shares sold to AT&T other than as specifically provided in this Agreement,
and that the exemptions from the
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<PAGE> 8
registration requirements of the Securities Act are limited, and agrees that
such securities shall be legended to note such restrictions on their transfer in
substantially the following form:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE
OFFERED OR SOLD ABSENT AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE ISSUER THEREOF THAT SUCH REGISTRATION HAS
BEEN EFFECTED OR AN EXEMPTION THEREFROM IS AVAILABLE. TRANSFER
MAY BE REFUSED IN THE ABSENCE OF SUCH OPINION."
AT&T acknowledges receipt of financial and other information concerning
the Company (including copies of its annual report to shareholders for fiscal
year 1995, its 10-K filing for the year ended June 30, 1995, its 10-Q filings
for the periods ended September 30, 1995, December 31, 1995, and March 31, 1996
and its proxy statement for the 1995 annual meeting), and that it has had the
opportunity to obtain additional information concerning the Company. AT&T
represents and agrees that it has not taken prior to the date of this Agreement,
and will not take after the date of this Agreement, any action that would make
unavailable the exemption provided in Section 4(2) of the Securities Act with
respect to the receipt by it of the Shares.
Neither AT&T nor the Company has relied upon any agreement,
representation, or warranty of the other which is not contained in this
Agreement or in the schedules hereto (including the publicly filed documents of
the Company listed in the second paragraph of this Section 3), in connection
with the consummation of the transactions contemplated hereby.
4. Representation and Warranties of AT&T. As of the Closing, AT&T
represents and warrants to the Company and Planet that:
(a) Ownership. AT&T owns the Series A Preferred Stock, free and clear
of all liens, claims, charges, encumbrances, and restrictions (other than
restriction imposed by applicable securities laws), and the transfer of the
shares of Series A Preferred Stock to the Company will not constitute a breach
or violation of or default under any agreement or other instrument by which AT&T
may be bound.
(b) Authority. AT&T has all requisite power and authority to enter into
this Agreement and perform its obligations hereunder, and this Agreement
constitutes a valid and binding obligation of AT&T enforceable against AT&T in
accordance with its terms subject to bankruptcy, insolvency, reorganization, and
similar laws of general application affecting the rights and relief of creditors
and secured parties and to the further extent that the availability
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<PAGE> 9
of the remedies of specific enforcement, of injunctive relief, or of other
equitable remedies is subject to the discretion of the court before which any
proceeding therefor may be brought.
(c) Accredited Investor. AT&T is an "accredited investor" as that term
is defined in Regulation D under the Securities Act, and is domiciled in the
state of New Jersey.
(d) State Securities Laws. AT&T is a "financial institution or
institutional buyer" as that term is defined in Section 49:3-50(b)(8) of the New
Jersey Uniform Securities Law.
5. Representations and Warranties of the Company. As of the Closing,
the Company represents and warrants to AT&T that:
(a) Corporate Status. Each of the Company and Planet is a corporation
duly organized, validly existing, and in good standing under the laws of the
Commonwealth of Massachusetts and has full corporate power and authority to
carry on its business as now conducted and is registered or qualified to do
business as a foreign corporation in each jurisdiction in which the nature of
the Company's operations and the Company's ownership of property requires the
Company to be so qualified and where the failure so to qualify would have a
material adverse effect upon the business of the Company as currently conducted.
It is intended that following the Closing, Planet will be merged with and into
the Company.
(b) Capitalization of the Company. The authorized capital stock of the
Company currently consists of 100,000,000 shares of Common Stock, par value
$1.00 per share. At the close of business on July 31, 1996, there were
20,402,365 shares of Common Stock of the Company validly issued and outstanding,
and approximately 6,380,000 shares of Common Stock were subject to authorized
options, convertible securities, and other rights to acquire Common Stock of the
Company. Except for the Common Stock Purchase Rights of the Company and except
as set forth in the preceding sentence, at the close of business on July 31,
1996 there were no commitments, agreements, understandings, or arrangements of
the Company of any kind relating to the issuance of capital stock of the
Company, any securities convertible or exchangeable into capital stock of the
Company, or any such rights, warrants, or options. The shares of Common Stock of
the Company being acquired by AT&T pursuant to this Agreement will, when
delivered to AT&T in accordance with this Agreement, be duly authorized, validly
issued, fully paid, and nonassessable, free and clear of all liens, claims,
charges, encumbrances, and restrictions (other than restrictions imposed by
applicable securities laws).
(c) SEC Documents. The Company has furnished to AT&T a true and
complete copy of the Company's Form 10-K for the year ended June 30, 1995 and
Form 10-Q's for the periods ended September 30, 1995, December 31, 1995, and
March 31, 1996, and proxy statement for the 1995 annual meeting (the "Company's
SEC Documents"). As of their respective filing dates, the Company's SEC
Documents complied in all material respects with the requirements of the federal
securities laws, and none of the Company's SEC Documents
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<PAGE> 10
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading.
(d) Authority for Agreement. The Company has all necessary corporate
power and authority to execute and deliver this Agreement and to carry out its
obligations hereunder. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by the Board of Directors of the Company and no other corporate action
(including but not limited to stockholder approval) is legally required to be
taken or obtained by the Company to duly authorize the execution, delivery, and
performance of this Agreement and the transactions contemplated hereby. This
Agreement constitutes the valid and legally binding obligation of the Company
and is enforceable against the Company in accordance with its terms subject to
bankruptcy, insolvency, reorganization, and similar laws of general application
affecting the rights and relief of creditors and secured parties and to the
further extent that the availability of the remedies of specific enforcement, of
injunctive relief, or of other equitable remedies is subject to the discretion
of the court before which any proceeding therefor may be brought. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby will not conflict with or result in any material violation
of or material defaults under any provision of the Articles of Organization or
By-laws of the Company or in any violation of or default with respect to any
mortgage, indenture, lease, agreement, or other instrument, permit, concession,
grant, franchise, license, judgment, order, decree, statute, law, ordinance,
rule, or regulation applicable to the Company. Such execution, delivery, and
consummation will not accelerate the maturity of or otherwise modify the
material terms of any indebtedness of the Company, or, result in the creation of
any lien, charge, encumbrance, or security interest upon any of the property or
assets of the Company.
No consent, approval, order, or authorization of, or registration,
declaration, or filing with, any governmental authority and no consent or other
agreement of any person other than the Company is required in connection with
the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby by the Company. No consent or other agreement
of any person other than the Company is required for the sale of the Shares by
the Company or for the acceptance by the Company of the Series A Preferred Stock
to be transferred or assigned under this Agreement.
(e) Brokers, Finders, etc. All negotiations relating to this Agreement
and the transactions contemplated hereby and thereby have been carried on
without the intervention of any person acting on behalf of the Company or in
such manner as to give rise to any valid claim against AT&T for any brokerage or
finder's commission, fee, or similar compensation on behalf of the Company.
(f) Litigation. To the Company's knowledge, there are no judicial or
administrative actions, suits, proceedings, or investigations pending, or
threatened, which question the
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<PAGE> 11
validity of this Agreement or of any action taken or to be taken pursuant to or
in connection with the provisions of this Agreement, or which could reasonably
be expected to result in any material adverse change in the business or
financial condition of the Company and which have not been publicly disclosed by
the Company.
(g) Financial Statements. The Company has delivered to AT&T the
consolidated balance sheets of the Company as of June 30, 1995 and 1994 and
related consolidated statements of operations and shareholders' equity and cash
flow for the three years ended June 30, 1995 as stated in a copy of its annual
report to shareholders for the fiscal year ended June 30, 1995 and reported upon
therein by Coopers & Lybrand, independent public accountants. The foregoing
financial statements, including the accompanying notes, have been prepared in
accordance in all material respects with the requirements of the SEC with
respect to preparation of such annual report and fairly present the financial
position of the Company as of the dates of the respective balance sheets and the
results of its operations for the respective periods then ended.
6. Put Option. The Company hereby grants to AT&T an option (the "Put
Option") to require the Company to purchase all or any part of the Shares then
held by AT&T at a per share price of $20.00 (appropriately adjusted for any
stock splits, reverse stock splits, subdivisions, combinations, and other
reclassifications of the Company's Common Stock), exercisable by AT&T at any
time after the Closing and prior to the 365th day following the Closing (the
"Put Option Exercise Period").
The Put Option may be exercised by delivery of written notice thereof
(the "Put Notice") to the Company stating that AT&T has elected to exercise the
Put Option and the number of Shares with respect to which the Put Option is
being exercised.
The closing of the purchase of Shares pursuant to an exercise of the
Put Option shall take place 20 business days from the date the Put Notice was
given, at 10:00 a.m. (local time) at the principal office of the Company, or at
such other time and location as the parties may mutually determine. At the
closing the Company shall pay to AT&T the aggregate purchase price for the
Shares to be purchased pursuant to the Put Option by certified or bank check. At
such time, AT&T shall deliver to the Company the certificate or certificates
representing the Shares so repurchased, duly endorsed for transfer and with
signature guaranteed, free and clear of any liens or encumbrances (other than
restriction imposed by applicable securities laws) with any necessary stock
transfer tax stamps affixed.
Upon and following the first closing of the purchase of Shares pursuant
to the exercise of the Put Option, all rights of Holder to Demand Registration
of Registrable Securities under Section 2(a) of this Agreement shall cease and
terminate. Notwithstanding any termination of Demand Registration rights under
the provisions of the preceding sentence, the rights of Holder to Piggyback
Registration of Registrable Securities shall continue pursuant to the terms of
Section 2 of this Agreement.
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<PAGE> 12
AT&T's rights under this Section 6 may be assigned or transferred to
the same extent, but together with and not separate from, as the rights to cause
the Company to register securities may be transferred pursuant to Section 2(n).
7. Miscellaneous.
7.1. Expenses. The Company agrees to reimburse AT&T for 50% of the
aggregate amount of outside fees and disbursements of AT&T's legal and financial
advisors in connection with this Agreement; provided, however, that the
aggregate payment(s) by the Company pursuant to this Section 7.1 may in no event
exceed $60,000.
7.2. Notices. All notices, requests, consents, and demands shall be in
writing and shall be personally delivered, mailed, postage prepaid; or
telecopied, to the Company at:
BBN Corporation
150 CambridgePark Drive
Cambridge, Massachusetts 02140
Attn: President
to Holder at:
295 North Maple Avenue
Basking Ridge, N.J. 07920
Attn: Dominick Turiano
Chief Financial Officer
Room 3360A2
Tel: 908-221-6610
Fax: 908-630-1455
to Planet at:
150 CambridgePark Drive
Cambridge, MA 02140
Attn: President
or such other address as may be furnished in writing to the other parties
hereto.
All such notices, requests, demands, and other communication shall,
when mailed (registered or certified mail, return receipt requested, postage
prepaid) be effective four days after deposit in the mails, or when personally
delivered or when telecopied, shall be effective upon actual receipt.
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<PAGE> 13
7.3. Entire Agreement. This Agreement constitutes the entire agreement
of the parties with respect to the matters contemplated herein. It supersedes
any and all prior understandings or agreements as to the subject matter of this
Agreement. Upon the effectiveness of this Agreement, the Series A Preferred
Stock Purchase Agreement dated as of July 5, 1995 between Planet and AT&T, and
the related Co-Sale Agreement dated as of July 5, 1995 among the parties hereto,
are each canceled and terminated in whole, without liability or claims to any
party thereto.
7.4. Amendments, Waivers, and Consents. Any provision in this Agreement
to the contrary notwithstanding, changes in or additions to this Agreement may
be made, and compliance with any covenant or provision herein set forth may be
omitted or waived, upon the consent thereto in writing of the Company and
Holder.
7.5. Binding Effect; Assignment. This Agreement shall be binding upon
and inure to the benefit of the personal representatives, successors, and
permitted assigns, if any, of the respective parties hereto. Holder shall not
have the right to assign its rights or obligations hereunder or any interest
therein without the written consent of the Company or except as provided in
Section 2(n) and the last paragraph of Section 6. The Company shall not have the
right to assign its obligations hereunder or any interest therein without
obtaining the prior written consent of the Holder.
7.6. General. The headings contained in this Agreement are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement. In this Agreement the singular includes the
plural, the plural, the singular, the masculine gender includes the neuter,
masculine and feminine genders.
7.7. Severability. If any provisions of this Agreement shall be found
by any court of competent jurisdiction to be invalid or unenforceable, the
parties hereby waive such provision to the extent that it is found to be invalid
or unenforceable. Such provision shall, to the maximum extent allowable by law,
be modified by such court so that it becomes enforceable, and, as modified,
shall be enforced as any other provision hereof, all the other provisions hereof
continuing in full force and effect.
7.8. Counterparts. This Agreement may be executed in counterparts, all
of which together shall constitute one and the same instrument.
7.9. Specific Performance. The Company recognizes that the rights of
Holder under this Agreement are unique, and, accordingly, Holder shall, in
addition to such other remedies as may be available to it at law or in equity,
have the right to enforce its rights hereunder by actions for injunctive relief
and specific performance to the extent permitted by law. This Agreement is not
intended to limit or abridge any rights of Holder which may exist apart from
this Agreement.
7.10. Other.
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<PAGE> 14
(a) The Company will cooperate with all reasonable requests by Holder
for such publicly-available information relating to the Company as may be called
for by an information- reporting form currently or hereafter required by the SEC
as a condition to the availability of an exemption from the Securities Act for
the sale of any Restricted Securities, including any publicly-available
information relating to the Company that may be required to be delivered by
Holder in connection with any sales to accredited investors (as defined in
Regulation D promulgated under the Securities Act or any successor regulation)
in a resale pursuant to the so-called "4(1 1/2) exemption" or to any qualified
institutional buyer in a resale pursuant to Rule 144A promulgated under the
Securities Act or any successor regulation. In this connection, the Company will
furnish to Holder, promptly upon request by Holder, copies of all financial
statements, reports, notices and proxy statements, sent or made available
generally by the Company to its stockholders, and copies of all regular and
periodic reports and all registration statements and prospectuses filed by the
Company with any securities exchange or with the SEC.
(b) Until the date on which Holder no longer owns any Shares, the
Company will cause to be delivered promptly to Holder copies of annual and
quarterly reports and all other final documents, reports, and information
publicly filed by the Company with the Securities and Exchange Commission
pursuant to the Securities Act or the Exchange Act. In addition, until such date
the Company shall (a) fax to Holder, at the fax number provided in or pursuant
to Section 7.2, copies of all Company press releases and other announcements
promptly following the time such releases or announcements are publicly made,
and (b) shall provide to Holder an opportunity to participate in all
conferences, whether by telephone or in person, generally made with security
analysts, including any such conferences held in respect of quarterly earnings
announcements (in respect of any of which the Company shall provide Holder with
reasonable notice in advance of such conference).
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IN WITNESS WHEREOF, the parties have caused this Exchange and
Registration Rights Agreement to be duly executed as of the date first above
written.
BBN CORPORATION
By /s/ John Montjoy
-----------------------------
Title: Senior V.P.
BBN PLANET CORPORATION
By /s/ R. Goldwasser
------------------------------
Title: V.P.
AT&T VENTURE COMPANY, L.P.
By: Venture Management I, G.P.
By /s/ William H. Eliot
-------------------------
William H. Elliott
General Partner
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<PAGE> 1
Exhibit 4.6
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
THIS AGREEMENT (the "Agreement") is made as of August 23, 1996 by and
among BBN CORPORATION, a Massachusetts corporation (the "Company"), BBN PLANET
CORPORATION, a Massachusetts corporation ("Planet"), and THE BOARD OF TRUSTEES
OF THE LELAND STANFORD JUNIOR UNIVERSITY, a body having corporate power under
the laws of the State of California ("Stanford" or the "Holder").
WHEREAS, the Company owns 23,800,000 of the issued and outstanding
shares of Planet common stock, Stanford owns 200,000 of the issued and
outstanding shares of Planet common stock, Harvard University owns 10,000 of the
issued and outstanding shares of Planet common stock, Boston University owns
10,000 of the issued and outstanding shares of Planet common stock, and
Massachusetts Institute of Technology owns 10,000 of the issued and outstanding
shares of Planet common stock, together constituting all of the issued and
outstanding shares of Planet common stock;
WHEREAS, AT&T Venture Company, L.P. owned 1,000,000 of the issued and
outstanding shares of Planet Series A Convertible Preferred Stock, $.01 par
value, constituting all of the issued and outstanding shares of Planet preferred
stock and together with the Planet common stock, constituting all of the capital
stock of Planet;
WHEREAS, AT&T Venture Company L.P., the Company, and Planet have
recently entered into an exchange agreement, pursuant to which AT&T Venture
Company, L.P. transferred to the Company all of the shares of Planet Series A
Convertible Preferred Stock owned by it, in exchange for 400,000 shares of the
Company's Common Stock; and
WHEREAS, the Company wishes to acquire, and Stanford wishes to
transfer, all of the issued and outstanding shares of Planet's common stock
owned by Stanford.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties to this Agreement agree as follows:
1. Exchange of Holder's Planet Common Stock. Subject to the terms and
conditions hereof, the Company agrees to assign, transfer, and deliver to
Stanford 80,000 shares (the "Shares") of the Company's Common Stock, $1.00 par
value (the "Common Stock") in exchange for, and Stanford agrees to accept the
Shares in complete exchange for and to transfer to the Company 200,000 shares of
Planet's Common Stock, $1.00 par value (the "Planet Common Stock") and for the
cancellation of the rights of Stanford relating to such shares of Planet Common
Stock under the agreement canceled hereunder as provided in Section 6.2 of this
Agreement. This exchange of Planet Common Stock for the Shares shall
<PAGE> 2
occur at a closing (the "Closing") to be held at the offices of Ropes & Gray,
Boston, Massachusetts on August , 1996 (the "Closing Date") at 10:00 a.m., or on
such other date and at such other place as the parties may agree.
At the Closing, Stanford will cause to be delivered to the Company
certificate(s) representing the Planet Common Stock, duly endorsed in blank or
accompanied by separate stock powers, in each case in proper form for transfer
and with signature guaranteed. At the Closing, the Company will deliver to
Stanford, in exchange, certificate(s) representing the Shares, duly registered
in the name of Stanford.
2. Registration Rights.
(a) Demand Registration Rights. If following October 1, 1996 and prior
to the first date that all of the Shares may be sold immediately in accordance
with the provisions of Rule 144 promulgated under the Securities Act of 1933
(the "Demand Period"), Holder requests the Company to file a registration
statement under the Securities Act of 1933 (hereinafter, the "Securities Act")
for a public offering of Registrable Securities (as defined in Section 2(c)
hereof) equal to at least the lesser of (i) 50% of the Shares, or (ii) the
number of Registrable Securities the proposed aggregate offering price of which
is at least $3,000,000, the Company shall use its best efforts to register under
the Securities Act such Registrable Securities so requested. Notwithstanding the
foregoing, (i) the Company shall not be obligated to effect the filing of a
registration statement pursuant to this Section 2(a) during the 180 days
following the effective date of a registration statement pertaining to a public
offering of securities for the account of the Company, and (ii) if the Company
shall furnish to Holder requesting such registration a certificate signed by the
President of the Company stating that, in the good faith judgment of the Board
of Directors of the Company, it would not be in the best interests of the
Company and its stockholders generally for such registration statement to be
filed, the Company shall have the right to defer such filing for a period of not
more than 120 days after receipt of the request of Holder; provided, however,
that the Company may not utilize the right set forth in this subsection (ii) for
more than one (1) such 120-day period with respect to each such request. The
Company is obligated to effect no more than two (2) registrations pursuant to
this Section 2(a), provided that no such registration which shall not have
become and remained effective for a period of at least 120 days (or such shorter
period during which Holder shall have sold all Registrable Securities which were
so registered) shall be deemed to be a registration for any purpose of this
Section 2(a).
(b) Piggyback Registration Rights. Whenever the Company proposes to
register any Common Stock for its own or others' account under the Securities
Act for a public offering for cash, other than a registration relating to
employee benefit plans, the Company shall give Holder, if holding Registrable
Securities, prompt written notice of its intent to do so. Upon the written
request of Holder given within fifteen days of such notice, the Company will use
its best efforts to cause to be included in such registration all of the
Registrable Securities which Holder requests. If the Company is advised in
writing in good faith by any
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<PAGE> 3
managing underwriter of the securities being offered pursuant to any
registration statement under this Section 2(b) that the number of shares to be
sold pursuant to such registration statement is greater than the number of such
shares which can be offered without adversely affecting the offering, the
Company shall first reduce pro rata the number of shares offered for the
accounts of holders of the Company's Common Stock that do not hold registration
rights similar to the rights granted to Holder pursuant to this Section 2(b),
and then may reduce pro rata the number of shares offered for the account of
Holder and for the accounts of holders of the Company's Common Stock that have
registration rights similar to the rights granted to Holder pursuant to this
Section 2(b) (based upon the number of shares of Common Stock proposed to be
sold pursuant to such registration statement by Holder and such other holders of
the Company's Common Stock) to a number deemed satisfactory by such managing
underwriter. In the event of such a limitation, shares of persons not having
registration rights will not be included in the registration unless all
Registrable Securities requested to be included in the registration have been
included. No piggyback registration right in this Section 2(b) shall be
construed to limit the demand registration right contained in Section 2(a)
hereof. The Company shall not after the date hereof grant piggyback registration
rights to any third party which provide such third party seniority over Holder
with respect to the inclusion of securities held by such third party over
Registrable Securities under this Section 2(b).
(c) Definition of Registrable Securities. "Registrable Securities"
means (i) the Shares and (ii) shares of Common Stock or other securities
convertible into Common Stock received as a stock dividend or other distribution
in respect of the Shares; provided, however, that Registrable Securities shall
not include any such shares of Common Stock that as of the date of the
determination may be sold without limitation pursuant to Rule 144(k) under the
Securities Act.
(d) Registration Procedures. All expenses incurred in connection with
the registrations under this Section 2 (including all registration, filing,
qualification, printer's, and accounting fees and the reasonable fees of one
counsel for the holders, but excluding underwriting commissions and discounts)
shall be borne by the Company. In connection with registrations under this
Section 2, the Company shall (i) use its best efforts to prepare and file with
the Commission as soon as reasonably practicable, a registration statement with
respect to the subject Registrable Securities and use its best efforts to cause
such registration to promptly become and remain effective for a period of at
least 120 days (or such shorter period during which Holder shall have sold all
Registrable Securities which were so registered); (ii) use its best efforts to
register and qualify the Registrable Securities covered by such registration
statement under applicable state securities laws as Holder shall reasonably
request for the distribution of the Registrable Securities; and (iii) take such
other actions as are reasonable and necessary to comply with the requirements of
the Securities Act and the regulations thereunder, or the reasonable request of
Holder, with respect to the registration and distribution of the Registrable
Securities. The Company is not obligated to effect registration or qualification
under this Section 2 in any jurisdiction requiring it to qualify to do business
(unless the Company is otherwise required to be so qualified) or to execute a
general consent
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<PAGE> 4
to service of process.
(e) Underwriting Arrangement. In connection with each registration
pursuant to Sections 2(a) and (b) above covering an underwritten public
offering, the Company and Holder agree to enter into a written agreement with
the managing underwriter in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
underwriter and companies of the Company's size and investment stature;
provided, that Holder shall not be required to agree to any provision making
Holder jointly liable or jointly and severally liable with any other party
including the Company or make any representation about the Company.
(f) Notification. The Company shall promptly notify Holder if
participating in a registration statement covering Registrable Securities of any
event which results in the prospectus included in such registration statement,
as then in effect, containing an untrue statement of a material fact or omitting
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing. The Company shall use its best efforts to make appropriate changes to
such prospectus and provide copies of such revised prospectus to Holder.
(g) Furnishing of Documents. At the request of Holder, if participating
in a registration statement, the Company will furnish to each underwriter, if
any, and Holder, a legal opinion of its counsel and a letter from its
independent certified public accountants, each in customary form and substance,
at such time or times as such documents are customarily provided in the type of
offering involved.
(h) Prospectuses. From time to time the Company shall amend or
supplement any registration statement pursuant to which any of the Registrable
Securities are being offered pursuant to a registration under this Agreement and
the prospectus contained therein to the extent necessary to comply with the
Securities Act and any applicable state securities or Blue Sky laws. The Company
shall also provide Holder with as many copies of the prospectus contained in any
such registration statement in which Registrable Securities are included as it
may reasonably request.
(i) Indemnification by the Company. The Company will indemnify and hold
harmless Holder and each underwriter of the Registrable Securities being sold by
Holder, and each controlling person of Holder and underwriter, against all
claims, losses, damages, and liabilities (or actions in respect thereof) arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any registration statement relating to such
Registrable Securities (or in any related registration statement, notification,
or the like) or any omission (or alleged omission) to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, or any violation or alleged violation by the Company of any rule
or regulation promulgated under the Securities Act, the Securities Exchange Act
of 1934, or other federal or state law applicable to the Company and
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<PAGE> 5
relating to action or inaction required of the Company in connection with any
such registration, qualification, or compliance, and will reimburse Holder and
each such underwriter and controlling person for any legal or any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability, or action and will enter into an indemnification
agreement with Holder and such underwriter containing customary provisions,
including provisions for contribution, as Holder or any underwriter shall
reasonably request; provided, however, that the Company will not be liable in
any such case to the extent that any such claim, loss, damage, or liability
arises out of or is based on any untrue statement or omission based upon written
information furnished to the Company by Holder or underwriter and stated to be
specifically for use therein.
(j) Indemnification by Holder. Holder, if so participating in a
registration statement, will indemnify and hold harmless the Company, each of
its directors, each of its officers who has signed the registration statement
and each person, if any, who controls the Company within the meaning of Section
15 of the Securities Act, against all claims, losses, damages and liabilities
(or actions in respect thereof) arising out of or based on any untrue statement
(or alleged untrue statement) of a material fact contained in any registration
statement relating to the Registrable Securities (or in any related registration
statement, notification or the like) or any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse the Company and each
such director, officer or controlling person for any legal or any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability, or action and will enter into an indemnification
agreement with the Company containing customary provisions, including provisions
for contribution, as the Company or each such person shall reasonably request;
provided, however, that Holder will not be liable in any such case except to the
extent that any such claim, loss, damage, or liability arises out of or is based
on any untrue statement or omission based upon, and such indemnity shall be
expressly limited to cover only, written information furnished to the Company by
Holder and stated to be specifically for use therein. Notwithstanding any of the
foregoing to the contrary, in no event shall the liability of Holder for
indemnification under this Section 2(j) exceed the lesser of (i) that percentage
of the total amount of such losses, claims, damages or liabilities indemnified
against which equals the percentage obtained by dividing the total number of
Registrable Securities sold by Holder pursuant to the registration statement by
the total number of securities of the Company sold pursuant to the registration
statement, and (ii) the net proceeds received by Holder in the offering.
(k) Indemnification Procedures.
(i) Promptly after receipt by any person entitled to
indemnification under Sections 2(i) or 2(j) (and "Indemnified Party") of notice
of the commencement of any action in respect of which indemnity may be sought
against any person under Sections 2(i) or 2(j) (and "Indemnifying Party"), such
Indemnified Party shall notify all Indemnifying Parties in writing of the
commencement thereof (provided, however, that failure to so notify an
Indemnifying
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<PAGE> 6
Party shall not relieve any Indemnifying Party from any liability it may have
hereunder except to the extent that the Indemnifying Party who did not receive
such notice shall have been materially prejudiced by such failure) and, subject
to the provisions hereinafter stated, the Indemnifying Party shall be entitled
to assume the defense of such action (including the employment of counsel, who
shall be counsel reasonably satisfactory to such Indemnified Party), and the
payment of expenses insofar as such action shall relate to any alleged liability
in respect of which indemnity may be sought against the Indemnifying Party.
(ii) The Indemnified Party shall have the right to employ
separate counsel and assume its own legal defense in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
subsequent to any assumption of the defense by the Indemnifying Party shall not
be at the expense of the Indemnifying Party unless the employment of such
counsel has been specifically authorized in writing by the Indemnifying Party.
The Indemnifying Party shall not be liable to indemnify any Indemnified Party
for any settlement of any such action effected without the Indemnifying Party's
written consent. The Company shall not, except with the approval of each party
being indemnified under this Agreement, consent to entry of any judgment or
enter into any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to the parties being so
indemnified of a release from all liability in respect to such claim or
litigation.
(l) Contribution. In order to provide for just and equitable
contribution to joint liability under the Securities Act in any case in which
any Indemnified Party exercising rights under this Agreement, or any controlling
person of any such Indemnified Party, makes a claim for indemnification pursuant
to Section 2(i) or 2(j) but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Agreement provides for indemnification in such case, then the Indemnifying
Party and such Indemnified Party will contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (after contribution
from others) in such proportion as is appropriate to reflect the relative fault
of the Indemnifying Party on the one hand and of the Indemnified Party on the
other in connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party on the one hand and
of the Indemnified Party on the other shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates to information
supplied by the Indemnifying Party on the one hand or by the Indemnified Party
on the other, and each party's relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission; provided,
however, that, in any such case, no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
will be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
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<PAGE> 7
(m) Exchange Act Registration. As long as the Company is subject to the
reporting requirements of either Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 (the "Exchange Act"), the Company will use its reasonable
efforts to timely file with the Commission such information as the Commission
may require under either Section 13 or Section 15(d) of the Exchange Act; and in
such event, the Company shall use its reasonable efforts to take all action as
may be required as a condition of the availability of Rule 144 under the
Securities Act (or any successor exemptive rule hereafter in effect) with
respect to the Registrable Securities. The Company shall furnish to Holder
forthwith upon request (i) a written statement by the Company as to the
compliance with the reporting requirements of Rule 144, (ii) a copy of the most
recent annual or quarterly report of the Company as filed with the Commission,
and (iii) such other reports and documents as Holder may reasonably request in
availing itself of any rule or regulation of the Commission allowing Holder to
sell any such Registrable Securities pursuant to Rule 144 without registration.
The Company shall use its reasonable efforts to facilitate and expedite
transfers of the Registrable Securities pursuant to Rule 144 under the
Securities Act, which efforts shall include prompt notice to its transfer agent
to expedite such transfers of Registrable Securities.
3. Purchase for Investment. Stanford acknowledges that the Shares will
be sold and exchanged without registration under the Securities Act on the basis
that the transactions contemplated by this Agreement do not involve any public
offering of securities. Stanford hereby confirms to the Company that it is
acquiring such securities for its own account, for investment only and without a
view toward the distribution thereof. Stanford hereby confirms that it is able
to bear the economic risk of an investment in the Shares acquired by it pursuant
to this Agreement and can afford to sustain a total loss on such investment and
has such knowledge and experience in financial and business matters that it is
capable of evaluating the merits and risks of the proposed investment and
therefore has the capacity to protect its own interests in connection with the
purchase of the Shares. Stanford acknowledges that it has been fully informed of
the limitations that are implicit in the fact that the Shares are not registered
under the Securities Act for sale to it, and may not be transferred absent
registration or an exemption therefrom, that the Company has no obligation to
register any of the Shares sold to Stanford other than as specifically provided
in this Agreement, and that the exemptions from the registration requirements of
the Securities Act are limited, and agrees that such securities shall be
legended to note such restrictions on their transfer in substantially the
following form:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE
OFFERED OR SOLD ABSENT AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE ISSUER THEREOF THAT SUCH REGISTRATION HAS
BEEN EFFECTED OR AN EXEMPTION THEREFROM IS AVAILABLE. TRANSFER
MAY BE REFUSED IN THE ABSENCE OF SUCH OPINION."
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<PAGE> 8
Stanford acknowledges receipt of financial and other information
concerning the Company (including copies of its annual report to shareholders
for fiscal year 1995, its 10-K filing for the year ended June 30, 1995, its 10-Q
filings for the periods ended September 30, 1995, December 31, 1995, and March
31, 1996 and its proxy statement for the 1995 annual meeting), and that it has
had the opportunity to obtain additional information concerning the Company.
Stanford represents and agrees that it has not taken prior to the date of this
Agreement, and will not take after the date of this Agreement, any action that
would make unavailable the exemption provided in Section 4(2) of the Securities
Act with respect to the receipt by it of the Shares.
Neither Stanford nor the Company has relied upon any agreement,
representation, or warranty of the other which is not contained in this
Agreement or in the schedules hereto (including the publicly filed documents of
the Company listed in the second paragraph of this Section 3), in connection
with the consummation of the transactions contemplated hereby.
4. Representation and Warranties of Stanford. As of the Closing,
Stanford represents and warrants to the Company and Planet that:
(a) Ownership. Stanford owns the Planet Common Stock, free and clear of
all liens, claims, charges, encumbrances, and restrictions (other than
restriction imposed by applicable securities laws), and the transfer of the
shares of Planet Common Stock to the Company will not constitute a breach or
violation of or default under any agreement or other instrument by which
Stanford may be bound.
(b) Authority. Stanford has all requisite power and authority to enter
into this Agreement and perform its obligations hereunder, and this Agreement
constitutes a valid and binding obligation of Stanford enforceable against
Stanford in accordance with its terms subject to bankruptcy, insolvency,
reorganization, and similar laws of general application affecting the rights and
relief of creditors and secured parties and to the further extent that the
availability of the remedies of specific enforcement, of injunctive relief, or
of other equitable remedies is subject to the discretion of the court before
which any proceeding therefor may be brought.
(c) Investor. Stanford is an organization described in Section
501(c)(3) of the Internal Revenue Code with total assets (including endowment,
annuity, and life income funds) of at least $5 million according to its most
recent audited financial, and is domiciled in the state of California.
5. Representations and Warranties of the Company. As of the Closing,
the Company represents and warrants to Stanford that:
(a) Corporate Status. Each of the Company and Planet is a corporation
duly organized, validly existing, and in good standing under the laws of the
Commonwealth of
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<PAGE> 9
Massachusetts and has full corporate power and authority to carry on its
business as now conducted and is registered or qualified to do business as a
foreign corporation in each jurisdiction in which the nature of the Company's
operations and the Company's ownership of property requires the Company to be so
qualified and where the failure so to qualify would have a material adverse
effect upon the business of the Company as currently conducted. It is intended
that following the Closing, Planet will be merged with and into the Company.
(b) Capitalization of the Company. The authorized capital stock of the
Company currently consists of 100,000,000 shares of Common Stock, par value
$1.00 per share. At the close of business on July 31, 1996, there were
20,402,365 shares of Common Stock of the Company validly issued and outstanding,
and approximately 6,380,000 shares of Common Stock were subject to authorized
options, convertible securities, and other outstanding rights to acquire Common
Stock of the Company. Except for the Common Stock Purchase Rights of the Company
and except as set forth in the preceding sentence, at the close of business on
July 31, 1996 there were no commitments, agreements, understandings, or
arrangements of the Company of any kind relating to the issuance of capital
stock of the Company, any securities convertible or exchangeable into capital
stock of the Company, or any such rights, warrants, or options. The shares of
Common Stock of the Company being acquired by Stanford pursuant to this
Agreement will, when delivered to Stanford in accordance with this Agreement, be
duly authorized, validly issued, fully paid, and nonassessable, free and clear
of all liens, claims, charges, encumbrances, and restrictions (other than
restrictions imposed by applicable securities laws).
(c) SEC Documents. The Company has furnished to Stanford a true and
complete copy of the Company's Form 10-K for the year ended June 30, 1995 and
Form 10-Q's for the periods ended September 30, 1995, December 31, 1995, and
March 31, 1996, and proxy statement for the 1995 annual meeting (the "Company's
SEC Documents"). As of their respective filing dates, the Company's SEC
Documents complied in all material respects with the requirements of the federal
securities laws, and none of the Company's SEC Documents contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements made therein, in
light of the circumstances under which they were made, not misleading.
(d) Authority for Agreement. The Company has all necessary corporate
power and authority to execute and deliver this Agreement and to carry out its
obligations hereunder. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by the Board of Directors of the Company and no other corporate action
(including but not limited to stockholder approval) is legally required to be
taken or obtained by the Company to duly authorize the execution, delivery, and
performance of this Agreement and the transactions contemplated hereby. This
Agreement constitutes the valid and legally binding obligation of the Company
and is enforceable against the Company in accordance with its terms subject to
bankruptcy, insolvency, reorganization, and similar laws of general application
affecting the rights and relief of creditors and secured
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<PAGE> 10
parties and to the further extent that the availability of the remedies of
specific enforcement, of injunctive relief, or of other equitable remedies is
subject to the discretion of the court before which any proceeding therefor may
be brought. The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby will not conflict with or result in any
material violation of or material defaults under any provision of the Articles
of Organization or By-laws of the Company or in any violation of or default with
respect to any mortgage, indenture, lease, agreement, or other instrument,
permit, concession, grant, franchise, license, judgment, order, decree, statute,
law, ordinance, rule, or regulation applicable to the Company. Such execution,
delivery, and consummation will not accelerate the maturity of or otherwise
modify the material terms of any indebtedness of the Company, or, result in the
creation of any lien, charge, encumbrance, or security interest upon any of the
property or assets of the Company.
No consent, approval, order, or authorization of, or registration,
declaration, or filing with, any governmental authority and no consent or other
agreement of any person other than the Company is required in connection with
the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby by the Company. No consent or other agreement
of any person other than the Company is required for the sale of the Shares by
the Company or for the acceptance by the Company of the Planet Common Stock to
be transferred or assigned under this Agreement.
(e) Brokers, Finders, etc. All negotiations relating to this Agreement
and the transactions contemplated hereby and thereby have been carried on
without the intervention of any person acting on behalf of the Company or in
such manner as to give rise to any valid claim against Stanford for any
brokerage or finder's commission, fee, or similar compensation on behalf of the
Company.
(f) Litigation. To the Company's knowledge, there are no judicial or
administrative actions, suits, proceedings, or investigations pending, or
threatened, which question the validity of this Agreement or of any action taken
or to be taken pursuant to or in connection with the provisions of this
Agreement, or which could reasonably be expected to result in any material
adverse change in the business or financial condition of the Company and which
have not been publicly disclosed by the Company.
(g) Financial Statements. The Company has delivered to Stanford the
consolidated balance sheets of the Company as of June 30, 1995 and 1994 and
related consolidated statements of operations and shareholders' equity and cash
flow for the three years ended June 30, 1995 as stated in a copy of its annual
report to shareholders for the fiscal year ended June 30, 1995 and reported upon
therein by Coopers & Lybrand, independent public accountants. The foregoing
financial statements, including the accompanying notes, have been prepared in
accordance in all material respects with the requirements of the SEC with
respect to preparation of such annual report and fairly present the financial
position of the Company as of the dates of the respective balance sheets and the
results of its operations for the respective
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<PAGE> 11
periods then ended.
6. Miscellaneous.
6.1. Notices. All notices, requests, consents, and demands shall be in
writing and shall be personally delivered, mailed, postage prepaid; or
telecopied, to the Company at:
BBN Corporation
150 CambridgePark Drive
Cambridge, Massachusetts 02140
Attn: President
to Holder at:
Stanford Management Company
2770 Sand Hill Road
Menlo Park, California 94025
Attn: Daniel Kingston
to Planet at:
150 CambridgePark Drive
Cambridge, MA 02140
Attn: President
or such other address as may be furnished in writing to the other parties
hereto.
All such notices, requests, demands, and other communication shall,
when mailed (registered or certified mail, return receipt requested, postage
prepaid) be effective four days after deposit in the mails, or when personally
delivered or when telecopied, shall be effective upon actual receipt.
6.2. Entire Agreement. This Agreement constitutes the entire agreement
of the parties with respect to the matters contemplated herein. It supersedes
any and all prior understandings or agreements as to the subject matter of this
Agreement. Upon the effectiveness of this Agreement, the BBN Internet Services
Inc. Registration Rights Agreement dated as of August 19, 1994 between Planet
and Stanford is canceled and terminated in whole, without liability or claims to
any party thereto.
6.3. Amendments, Waivers, and Consents. Any provision in this Agreement
to the contrary notwithstanding, changes in or additions to this Agreement may
be made, and compliance with any covenant or provision herein set forth may be
omitted or waived, upon the consent thereto in writing of the Company and
Holder.
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<PAGE> 12
6.4. Binding Effect; Assignment. This Agreement shall be binding upon
and inure to the benefit of the personal representatives, successors, and
permitted assigns, if any, of the respective parties hereto. Holder shall not
have the right to assign its rights or obligations hereunder or any interest
therein. The Company shall not have the right to assign its obligations
hereunder or any interest therein without obtaining the prior written consent of
Holder.
6.5. General. The headings contained in this Agreement are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement. In this Agreement the singular includes the
plural, the plural, the singular, the masculine gender includes the neuter,
masculine and feminine genders.
6.6. Severability. If any provisions of this Agreement shall be found
by any court of competent jurisdiction to be invalid or unenforceable, the
parties hereby waive such provision to the extent that it is found to be invalid
or unenforceable. Such provision shall, to the maximum extent allowable by law,
be modified by such court so that it becomes enforceable, and, as modified,
shall be enforced as any other provision hereof, all the other provisions hereof
continuing in full force and effect.
6.7. Counterparts. This Agreement may be executed in counterparts, all
of which together shall constitute one and the same instrument.
6.8. Specific Performance. The Company recognizes that the rights of
Holder under this Agreement are unique, and, accordingly, Holder shall, in
addition to such other remedies as may be available to it at law or in equity,
have the right to enforce its rights hereunder by actions for injunctive relief
and specific performance to the extent permitted by law. This Agreement is not
intended to limit or abridge any rights of Holder which may exist apart from
this Agreement.
The Company will cooperate with all reasonable requests by Holder for
such publicly- available information relating to the Company as may be called
for by an information- reporting form currently or hereafter required by the SEC
as a condition to the availability of an exemption from the Securities Act for
the sale of any Restricted Securities, including any publicly-available
information relating to the Company that may be required to be delivered by
Holder in connection with any sales to accredited investors (as defined in
Regulation D promulgated under the Securities Act or any successor regulation)
in a resale pursuant to the so-called "4(1 1/2) exemption" or to any qualified
institutional buyer in a resale pursuant to Rule 144A promulgated under the
Securities Act or any successor regulation. In this connection, the Company will
furnish to Holder, promptly upon request by Holder, copies of all financial
statements, reports, notices and proxy statements, sent or made available
generally by the Company to its stockholders, and copies of all regular and
periodic reports and all registration statements and prospectuses filed by the
Company with any securities exchange or with the SEC.
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<PAGE> 13
IN WITNESS WHEREOF, the parties have caused this Exchange and
Registration Rights Agreement to be duly executed as of the date first above
written.
BBN CORPORATION
By /s/ Paul R. Gudonis
-------------------------------
Title: Vice President
BBN PLANET CORPORATION
By /s/ Paul R. Gudonis
--------------------------------
Title: President
THE BOARD OF TRUSTEES OF THE LELAND
STANFORD JUNIOR UNIVERSITY
By /s/ L. Hoagland, Jr.
---------------------------------
Title: CEO, Stanford Management Co.
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<PAGE> 1
Exhibit 4.7
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (the "Agreement") dated as of the 17th day of
June, 1996, between BBN Corporation (the "Company"), a Massachusetts
corporation, with its principal offices at 150 CambridgePark Drive, Cambridge,
Massachusetts 02140, and the purchaser whose name and address is set forth on
the signature page hereof (the "Purchaser").
W I T N E S S E T H:
The Company is offering in the United States to certain accredited
investors (as defined in Rule 501(a) under the Securities Act of 1933, as
amended (the "Act" or "Securities Act")) and, concurrently, outside of the
United States to non-U.S. persons (as such terms are defined in Regulation S
under the Act) shares of its Common Stock, par value $1.00 per share (the
"Common Stock") and has provided to prospective investors a Confidential
Offering Memorandum dated May 1996 (including the documents incorporated by
reference therein and any amendments or supplements thereto, the "Offering
Memorandum"). The Purchaser wishes to purchase a portion of the Shares (as
defined in Section 1 below) being offered by the Company.
Accordingly, in consideration of the mutual covenants contained in this
Agreement, the Company and the Purchaser agree as follows:
1. Authorization of Sale of the Common Stock. Subject to the terms and
conditions of the Agreements, the Company has authorized the sale of up to
2,422,950 of its Common Stock, of which 452,899 shares (the "Shares") are being
offered in the United States to certain accredited investors (as defined in Rule
501(a) under the Act).
2. Agreement to Sell and Purchase the Common Stock. At the Closing (as
defined in Section 3), the Company will sell to the Purchaser, and the Purchaser
will buy from the Company, upon the terms and conditions hereinafter set forth,
the number of Shares (at the purchase price) shown below:
<TABLE>
<CAPTION>
Number of Shares to Price Per Aggregate
Be Purchased Share Price
------------ ----- -----
<S> <C> <C>
452,899 $22.08 $10,000,009.92
</TABLE>
The term "Placement Agent" shall mean Alex. Brown & Sons Incorporated.
<PAGE> 2
3. Delivery of the Common Stock at the Closing. The completion of the
purchase and sale of the Shares (the "Closing") shall occur at a place and time
(the "Closing Date") agreed upon by the Placement Agent and the Company and of
which the Purchaser will be notified by telex, cable or otherwise. At the
Closing, the Company shall deliver to the Purchaser one or more stock
certificates registered in the name of the Purchaser, or in such name(s) as
designated by the Purchaser, representing the number of Shares set forth in
Section 2 above. The name(s) in which the stock certificates are to be
registered are set forth in the Stock Certificate Questionnaire attached hereto
as part of Appendix I. The Company's obligation to deliver such stock
certificate(s) to the Purchaser at the Closing shall be subject to the following
conditions, any one or more of which may be waived by the Company: (a) receipt
by the Company of the full amount of the purchase price for the Shares being
purchased hereunder paid by wire transfer or by certified or official bank check
in New York Clearinghouse funds; (b) completion of the purchases and sales under
the Agreements with Other Purchasers; and (c) the accuracy of the
representations and warranties made by the Purchasers and the fulfillment of the
undertakings of the Purchaser to be fulfilled prior to the Closing. The
Purchaser's obligation to accept delivery of such stock certificate(s) and to
pay for the Shares evidenced thereby shall be subject to the following
conditions: (a) the accuracy of the representations and warranties made by the
Company herein and the fulfillment of those undertakings of the Company to be
fulfilled prior to the Closing; (b) the receipt of a legal opinion dated the
Closing Date from Ropes & Gray, counsel to the Company, substantially in the
form of Appendix II hereto; and (c) the receipt of a signed letter dated the
Closing Date from Coopers & Lybrand LLP, substantially in the form heretofore
approved by the Placement Agent, containing statements and information with
respect to certain financial information contained in the Offering Memorandum.
The Purchaser's obligations hereunder are expressly not conditioned upon the
purchase by any other purchasers of any additional shares of Common Stock from
the Company.
4. Representations, Warranties and Covenants of the Company. The
Company hereby represents and warrants to, and covenants with, the Purchaser as
follows:
(a) Organization and Standing. Each of the Company, and BBN
Planet Corporation and BBN Domain Corporation (the "Subsidiaries"), has been
duly organized and is validly existing as a corporation in good standing under
the laws of the Commonwealth of Massachusetts. Each of the Company and its
Subsidiaries has full power and authority to own, operate and occupy its
properties and to conduct its business as presently conducted and as described
in the Offering Memorandum and is registered or qualified to do business and in
good standing in each jurisdiction in which it owns or leases property to
transact business and where the failure to be so qualified would have a material
adverse effect upon the business or financial condition of the Company and its
Subsidiaries, taken as a whole.
(b) Corporate Power; Authorization; Non-Contravention. The
Company has all requisite legal and corporate power and has taken all requisite
corporate action to execute
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<PAGE> 3
and deliver this Agreement, to sell the Shares and to perform all of its
obligations under this Agreement. This Agreement constitutes a legal, valid and
binding obligation of the Company, enforceable in accordance with its terms,
except as limited by (i) applicable bankruptcy, insolvency, reorganization or
similar laws relating to or affecting the enforcement of creditors' rights
generally and (ii) equitable principles generally. The execution and delivery of
this Agreement and the consummation of the transactions contemplated herein do
not and will not materially conflict with or result in a material breach of or a
material default under (i) any of the terms or provisions of the Articles of
Organization or By-laws of the Company or any Subsidiary or (ii) any material
agreement or instrument to which the Company or any Subsidiary is a party or is
bound.
(c) Authorized and Outstanding Stock. The authorized capital
stock of the Company consists of 100,000,000 shares of Common Stock, $1.00 par
value, of which 17,824,643 shares were issued and outstanding as of March 31,
1996. The outstanding shares of Common Stock of the Company have been duly
authorized and validly issued and are fully paid and non-assessable; the Shares
to be sold by the Company have been duly authorized and validly issued and, when
paid for as contemplated herein, will be fully-paid and non-assessable; no
preemptive or other similar rights of stockholders or liens or encumbrances
exist with respect to the sale and delivery of the Shares.
(d) The Shares. The Shares conform to the description thereof
in the Offering Memorandum. Except as set forth in or contemplated by the
Offering Memorandum, and other than compensatory stock options, there are no
outstanding (i) rights, warrants or options to acquire, or instruments
convertible into or exchangeable for, shares of capital stock or other equity
interest in the Company or any Subsidiary, or (ii) commitments, agreements,
understandings or arrangements of any kind relating to the issuance of capital
stock of the Company or any Subsidiary, any such convertible or exchangeable
securities or any such rights, warrants or options. The Shares are listed on the
New York Stock Exchange.
(e) Offering Memorandum. Each of the annual and quarterly
reports and the proxy statement (the "Incorporated Documents") incorporated by
reference in, and attached as appendices to, the Offering Memorandum, at the
time they were filed with the Securities and Exchange Commission (the
"Commission"), conformed in all material respects to the requirements of the
Securities Exchange Act of 1934, as amended (the "1934 Act") and the Rules and
Regulations of the Commission hereunder. The Company has filed all documents
that the Company was required to file with the Commission under Section 13,
14(a) and 15(d) of the 1934 Act since the date on which its last report on Form
10-K was filed. Neither the Offering Memorandum nor any amendment thereto, nor
any of the Incorporated Documents, as of their respective dates contained any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
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<PAGE> 4
(f) Financial Statements. The consolidated financial
statements of the Company, together with related notes and schedules, as set
forth or incorporated by reference in the Offering Memorandum, present fairly
the financial position, the results of operations and the cash flows of the
Company and its subsidiaries, at the indicated dates and for the indicated
periods (subject, in the case of unaudited statements, to normal year-end
adjustments). Such financial statements have been prepared in accordance with
generally accepted principles of accounting, consistently applied throughout the
periods involved, and all adjustments necessary for a fair presentation of
results for such periods have been made. The summary financial and statistical
data included or incorporated by reference in the Offering Memorandum present
fairly the information shown therein and have been compiled on a basis
consistent with the financial statements presented therein.
(g) Litigation. There is no action or proceeding pending or,
to the knowledge of the Company, threatened against the Company or any
Subsidiary before any court or administrative agency which might result in any
material adverse change in the business or financial condition of the Company,
except as set forth in the Offering Memorandum.
(h) No Material Adverse Change. Since the respective dates as
of which information is given in the Offering Memorandum as it may be amended or
supplemented, (i) there has not been any material adverse change in the business
or financial condition of the Company and (ii) neither the Company nor any
Subsidiary has incurred any material liabilities or obligations, other than in
the ordinary course of business.
(i) Governmental Approval. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any Federal, state, or local governmental authority on the part of
the Company is required in connection with the consummation of the transactions
contemplated by this Agreement except for compliance with the blue sky or
securities laws in the states in which Shares are offered or sold, which
compliance will be effected in accordance with such laws.
5. Representations, Warranties and Covenants of the Purchaser.
(a) The Purchaser represents and warrants to, and covenants
with, the Company that: (i) the Purchaser acknowledges that the Shares are being
offered and sold without registration under the Securities Act of 1933, as
amended (the "Securities Act"), in reliance, in part, upon the exemption
provided in Section 4(2) of the Securities Act; (ii) the Purchaser is an
"accredited investor" within the meaning of Regulation D promulgated under the
Securities Act; (iii) the Purchaser has made, and is solely responsible for
making, its own independent evaluation of the economic, credit and other risks
involved in its investment in the Shares and its own independent decision to
make such investment; the Purchaser has been given the opportunity to ask
questions of, and receive answers from, the Company with respect to the business
to be conducted by the Company, the financial condition and capital of
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<PAGE> 5
the Company and the terms and conditions of the offering of the Shares, and has
been given the opportunity to obtain such additional information necessary to
verify the accuracy of the information contained in the Offering Memorandum or
the accuracy of the information that was otherwise provided in order for it to
evaluate the merits and risks of investments in the Shares to the extent that
the Company possesses such information or can acquire it without unreasonable
effort or expense; (iv) the Purchaser is acquiring the number of Shares set
forth in Section 2 above solely for its own account or as a trustee for a
commingled pension trust and with no intention of distributing or reselling the
Shares or any part thereof, or interest therein, in any transaction which would
be in violation of Federal or state securities laws;(v) the Purchaser has
completed or caused to be completed the Stock Certificate Questionnaire,
attached hereto as Appendix I; (vi) the Purchaser has been furnished with a copy
of the Offering Memorandum of the Company and any documents that it has deemed
necessary and requested in connection with its evaluation of the offering of the
Shares; (vii) the Shares to be purchased by the Purchaser are not being acquired
with the assets of any "employee benefit plan" within the meaning of Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") ("Benefit Plan") or, if the assets of a Benefit Plan are being used,
directly or indirectly for such acquisition, neither the acquisition nor the
holding of such Shares will result in a non-exempt prohibited transaction under
ERISA or the Internal Revenue Code of 1986, as amended; and (viii) the Purchaser
understands that the Company is relying upon the truth and accuracy of the
representations and warranties made by the Purchaser herein.
(b) The Purchaser will not, directly or indirectly, offer,
sell, pledge, transfer or otherwise dispose of (or solicit any offers to buy,
purchase or otherwise acquire or take a pledge of any of the Shares except in
compliance with the Securities Act, and the rules and regulations promulgated
thereunder.
(c) The Purchaser represents and warrants to, and covenants
with, the Company that the Purchaser has not engaged and will not engage in any
short sales of the Company's Common Stock, except to the extent that any such
short sale is fully covered by shares of Common Stock of the Company other than
the Shares.
(d) The Purchaser further represents and warrants to, and
covenants with, the Company that (i) the Purchaser has full right, power,
authority and capacity to enter into this Agreement and to consummate the
transactions contemplated hereby and has taken all necessary action to authorize
the execution, delivery and performance of this Agreement, and (ii) upon the
execution and delivery of this Agreement, this Agreement shall constitute a
valid and binding obligation of the Purchaser enforceable in accordance with its
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors' and
contracting parties' rights generally and except as enforceability may be
subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law) and except as
the
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<PAGE> 6
indemnification agreements of the Purchaser in Section 8(j) hereof may be
legally unenforceable.
6. Survival of Representations, Warranties and Agreements.
Notwithstanding any investigation made by any party to this Agreement or by the
Placement Agent, all covenants, agreements, representations and warranties made
by the Company and the Purchaser herein and in the certificates for the Shares
delivered pursuant hereto shall survive the execution of this Agreement, the
delivery to the Purchaser of the Shares being purchased and the payment
therefor.
7. Restrictive Legend. Each certificate representing Shares shall bear
substantially the following legend (in addition to any legends required under
applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THE SHARES MAY NOT BE
SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM.
8. Registration Rights.
(a) Demand Registration Rights. If following October 1, 1996
and prior to the first date that any of the Shares may be sold immediately in
accordance with the provisions of Rule 144 promulgated under the Securities Act
(the "Demand Period"), holders of more than 50% of the Registrable Securities
(as defined in Section 8(c) hereof) request the Company to file a registration
statement under the Securities Act for a public offering of at least the lesser
of (i) 50% of the Shares and 50% of the other securities convertible into Common
Stock received as a stock dividend or other distribution in respect of the
Shares, or (ii) the number of Registrable Securities the proposed aggregate
offering price of which is at least $3,000,000, the Company shall within twenty
days notify all holders of Registrable Securities of such request and shall use
its best efforts to register under the Securities Act the Registrable Securities
of all holders who so request promptly after receiving the Company's notice.
Notwithstanding the foregoing, (i) the Company shall not be obligated to effect
the filing of a registration statement pursuant to this Section 8(a) during the
180 days following the effective date of a registration statement pertaining to
a public offering of securities for the account of the Company, and (ii) if the
Company shall furnish to the holders of Registrable Securities requesting such
registration a certificate signed by the President of the Company stating that,
in the good faith judgment of the Board of Directors of the Company, it would
not be in the best interests of the Company and its stockholders generally for
such registration statement to be filed, the Company shall have the right to
defer such filing for a period of not more than 120 days after receipt of the
request of such holders; provided, however, that the Company may not utilize the
right set forth in this subsection (ii) for more than one (1) such 120-day
period with respect to each such request. The Company is obligated to effect no
more than
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<PAGE> 7
two (2) registrations pursuant to this Section 8(a), provided that no such
registration which shall not have become and remained effective for a period of
at least 120 days (or such shorter period during which holders shall have sold
all Registrable Securities which were so registered) shall be deemed to be a
registration for any purpose of this Section 8(a).
(b) Piggyback Registration Rights. Whenever the Company
proposes to register any Common Stock for its own or others' account under the
Securities Act for a public offering for cash, other than a registration
relating to employee benefit plans, the Company shall give each holder of
Registrable Securities prompt written notice of its intent to do so. Upon the
written request of any such holder given within fifteen days of such notice, the
Company will use its best efforts to cause to be included in such registration
all of the Registrable Securities which such holder requests. If the Company is
advised in writing in good faith by any managing underwriter of the securities
being offered pursuant to any registration statement under this Section 8(b)
that the number of shares to be sold pursuant to such registration statement is
greater than the number of such shares which can be offered without adversely
affecting the offering, the Company shall first reduce pro rata the number of
shares offered for the accounts of holders of the Company's Common Stock that do
not hold registration rights similar to the rights granted to the holders of
Registrable Securities pursuant to this Section 8(b), and then may reduce pro
rata the number of shares offered for the accounts of holders of Registrable
Securities and for the accounts of holders of the Company's Common Stock that
have registration rights similar to the rights granted to the holders of
Registrable Securities pursuant to this Section 8(b) (based upon the number of
shares of Common Stock proposed to be sold pursuant to such registration
statement by the holders of Registrable Securities and such other holders of the
Company's Common Stock) to a number deemed satisfactory by such managing
underwriter. In the event of such a limitation, shares of persons not having
registration rights will not be included in the registration unless all
Registrable Securities requested to be included in the registration have been
included. No piggyback registration right in this Section 8(b) shall be
construed to limit the demand registration right contained in Section 8(a)
hereof. The Company shall not after the date hereof grant piggyback registration
rights to any third party which provide such third party seniority over the
holders of Registrable Securities with respect to the inclusion of securities
held by such third party over Registrable Securities under this Section 8(b),
provided that the foregoing provisions of this sentence shall not apply to a
registration statement filed by the Company pursuant to the exercise by such
third party of "demand" registration rights.
(c) Definition of Registrable Securities. "Registrable
Securities" means (i) the Shares and (ii) shares of Common Stock or other
securities convertible into Common Stock received as a stock dividend or other
distribution in respect of the Shares; provided, however, that Registrable
Securities shall not include any such shares of Common Stock that as of the date
of the determination may be sold without limitation pursuant to Rule 144(k)
under the Securities Act.
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<PAGE> 8
(d) Registration Procedures. All expenses incurred in
connection with the registrations under this Section 8 (including all
registration, filing, qualification, printer's, and accounting fees and the
reasonable fees of one counsel for the holders, but excluding underwriting
commissions and discounts) shall be borne by the Company. In connection with
registrations under this Section 8, the Company shall (i) use its best efforts
to prepare and file with the Commission as soon as reasonably practicable, a
registration statement with respect to the Registrable Securities and use its
best efforts to cause such registration to promptly become and remain effective
for a period of at least 120 days (or such shorter period during which holders
shall have sold all Registrable Securities which were so registered); (ii) use
its best efforts to register and qualify the Registrable Securities covered by
such registration statement under applicable state securities laws as the
holders shall reasonably request for the distribution of the Registrable
Securities; and (iii) take such other actions as are reasonable and necessary to
comply with the requirements of the Securities Act and the regulations
thereunder, or the reasonable request of any holder, with respect to the
registration and distribution of the Registrable Securities. The Company is not
obligated to effect registration or qualification under this Section 8 in any
jurisdiction requiring it to qualify to do business (unless the Company is
otherwise required to be so qualified) or to execute a general consent to
service of process.
(e) Underwriting Arrangement. In connection with each
registration pursuant to Sections 8(a) and (b) above covering an underwritten
public offering, the Company and each participating holder agree to enter into a
written agreement with the managing underwriter in such form and containing such
provisions as are customary in the securities business for such an arrangement
between such underwriter and companies of the Company's size and investment
stature.
(f) Notification. The Company shall promptly notify each
holder of Registrable Securities covered by any registration statement of any
event which results in the prospectus included in such registration statement,
as then in effect, containing an untrue statement of a material fact or omitting
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing. The Company shall use its best efforts to make appropriate changes to
such prospectus and provide copies of such revised prospectus to each holder of
Registrable Securities covered by the Registration Statement.
(g) Furnishing of Documents. At the request of any
participating holder, the Company will furnish to each underwriter, if any, and
participating holders, a legal opinion of its counsel and a letter from its
independent certified public accountants, each in customary form and substance,
at such time or times as such documents are customarily provided in the type of
offering involved.
(h) Prospectuses. From time to time the Company shall amend or
supplement any registration statement pursuant to which any of the Registrable
Securities are
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<PAGE> 9
being offered pursuant to a registration under this Agreement and the prospectus
contained therein to the extent necessary to comply with the Securities Act and
any applicable state securities or Blue Sky laws. The Company shall also provide
the holders with as many copies of the prospectus contained in any such
registration statement in which such holder's Registrable Securities are
included as it may reasonably request.
(i) Indemnification by the Company. The Company will indemnify
and hold harmless each participating holder and each underwriter of the
Registrable Securities being sold by such holder, and each controlling person of
such holder and underwriter, against all claims, losses, damages and liabilities
(or actions in respect thereof) arising out of or based on any untrue statement
(or alleged untrue statement) of a material fact contained in any registration
statement relating to such Registrable Securities (or in any related
registration statement, notification or the like) or any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation by the
Company of any rule or regulation promulgated under the Securities Act
applicable to the Company and relating to action or inaction required of the
Company in connection with any such registration, qualification or compliance,
and will reimburse each such holder and each such underwriter and controlling
person for any legal or any other expenses reasonably incurred in connection
with investigating or defending any such claim, loss, damage, liability or
action and will enter into an indemnification agreement with each such holder
and underwriter containing customary provisions, including provisions for
contribution, as any holder or underwriter shall reasonably request; provided,
however, that the Company will not be liable in any such case to the extent that
any such claim, loss, damage or liability arises out of or is based on any
untrue statement or omission based upon written information furnished to the
Company by such holder or underwriter and stated to be specifically for use
therein.
(j) Indemnification by Holders. Each participating holder of
Registrable Securities will indemnify and hold harmless the Company, each of its
directors, each of its officers who has signed the registration statement and
each person, if any, who controls the Company within the meaning of Section 15
of the Securities Act, against all claims, losses, damages and liabilities (or
actions in respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any registration
statement relating to the Registrable Securities (or in any related registration
statement, notification or the like) or any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse the Company and each
such director, officer or controlling person for any legal or any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action and will enter into an indemnification
agreement with the Company containing customary provisions, including provisions
for contribution, as the Company or each such person shall reasonably request;
provided, however, that no holder of Registrable Securities will be liable in
any such case except to the extent that any such claim, loss, damage or
liability arises out of or is based on any untrue statement or omission
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<PAGE> 10
based upon written information furnished to the Company by such holder and
stated to be specifically for use therein. Notwithstanding any of the foregoing
to the contrary, in no event shall the liability of any holder for
indemnification under this Section 8(j) exceed the lesser of (i) that percentage
of the total amount of such losses, claims, damages or liabilities indemnified
against which equals the percentage obtained by dividing the total number of
Registrable Securities sold by such Stockholder pursuant to the registration
statement by the total number of Registrable Securities sold pursuant to the
registration statement, or (ii) the net proceeds received by such holder in the
offering.
(k) Indemnification Procedures.
(i) Promptly after receipt by any person entitled to
indemnification under Sections 8(i) or 8(j) (and "Indemnified Party") of notice
of the commencement of any action in respect of which indemnity may be sought
against any person under Sections 8(i) or 8(j) (and "Indemnifying Party"), such
Indemnified Party shall notify all Indemnifying Parties in writing of the
commencement thereof (provided, however, that failure to so notify an
Indemnifying Party shall not relieve any Indemnifying Party from any liability
it may have hereunder except to the extent that the Indemnifying Party who did
not receive such notice shall have been materially prejudiced by such failure)
and, subject to the provisions hereinafter stated, the Indemnifying Party shall
be entitled to assume the defense of such action (including the employment of
counsel, who shall be counsel reasonably satisfactory to such Indemnified
Party), and the payment of expenses insofar as such action shall relate to any
alleged liability in respect of which indemnity may be sought against the
Indemnify Party.
(ii) The Indemnified Party shall have the right to
employ separate counsel and assume its own legal defense in any such action and
to participate in the defense thereof, but the fees and expenses of such counsel
subsequent to any assumption of the defense by the Indemnifying Party shall not
be at the expense of the Indemnifying Party unless the employment of such
counsel has been specifically authorized in writing by the Indemnifying Party.
The Indemnifying Party shall not be liable to indemnify any Indemnified Party
for any settlement of any such action effected without the Indemnifying Party's
written consent. The Company shall not, except with the approval of each party
being indemnified under this Agreement, consent to entry of any judgment or
enter into any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to the parties being so
indemnified of a release from all liability in respect to such claim or
litigation.
(l) Contribution. In order to provide for just and equitable
contribution to joint liability under the Securities Act in any case in which
any Indemnified Party exercising rights under this Agreement, or any controlling
person of any such Indemnified Party, makes a claim for indemnification pursuant
to Section 8(i) or 8(j) but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Agreement provides for
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<PAGE> 11
indemnification in such case, then the Indemnifying Party and such Indemnified
Party will contribute to the aggregate losses, claims, damages or liabilities to
which they may be subject (after contribution from others) in such proportion as
is appropriate to reflect the relative fault of the Indemnifying Party on the
one hand and of the Indemnified Party on the other in connection with the
statements or omissions which resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations. The
relative fault of the Indemnifying Party on the one hand and of the Indemnified
Party on the other shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by the
Indemnifying Party on the one hand or by the Indemnified Party on the other, and
each party's relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission; provided, however, that, in
any such case, no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) will be entitled to contribution
from any person who was not guilty of such fraudulent misrepresentation.
(m) Exchange Act Registration. As long as the Company is
subject to the reporting requirements of either Section 13 or Section 15(d) of
the Exchange Act, the Company will use its reasonable efforts to timely file
with the Commission such information as the Commission may require under either
Section 13 or Section 15(d) of the Exchange Act; and in such event, the Company
shall use its reasonable efforts to take all action as may be required as a
condition of the availability of Rule 144 under the Securities Act (or any
successor exemptive rule hereafter in effect) with respect to the Registrable
Securities. The Company shall furnish to the holders forthwith upon request (i)
a written statement by the Company as to the compliance with the reporting
requirements of Rule 144, (ii) a copy of the most recent annual or quarterly
report of the Company as filed with the Commission, and (iii) such other reports
and documents as a holder may reasonably request in availing itself of any rule
or regulation of the Commission allowing such holder to sell any such
Registrable Securities pursuant to Rule 144 without registration. The Company
shall use its reasonable efforts to facilitate and expedite transfers of the
Registrable Securities pursuant to Rule 144 under the Securities Act, which
efforts shall include prompt notice to its transfer agent to expedite such
transfers of Registrable Securities.
9. Waivers and Amendments. The terms of this Agreement may be waived or
amended upon the written consent of the Company and the Purchaser. Section 8 of
this Agreement may be waived or amended upon the written consent of the Company
and the record holders of more than fifty percent (50%) of the outstanding
Shares purchased by the Purchasers pursuant to the Agreements, and any such
amendment or waiver shall be binding upon the Purchaser.
10. Agent's Fee. The Purchaser acknowledges that the Company intends to
pay to the Placement Agent a fee in respect of this transaction. The parties
hereto hereby represent that
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<PAGE> 12
there are no other brokers or finders entitled to compensation in connection
with the transactions contemplated hereby.
11. Notices. All notices, requests, consents and other communications
hereunder shall be in writing, shall be mailed by first-class registered or
certified airmail or sent by nationwide overnight delivery service, postage or
delivering charge prepaid, or shall be sent by facsimile and shall be deemed
given when so mailed or sent:
(a) if to the Company, to
BBN Corporation
150 CambridgePark Drive
Cambridge, MA 02140
Facsimile No. (617) 873-3408
Attention: General Counsel
or to such other person at such other place as the Company
shall designate to the Purchaser in writing; and
(b) if to the Purchaser, at the applicable address or
facsimile for notices set forth on Appendix I of this Agreement, or at such
other address or addresses as may have been furnished to the Company in writing.
12. Changes. This Agreement may not be modified or amended except
pursuant to an instrument in writing signed by the Company and the Purchaser.
13. Headings. The headings of the various sections of this Agreement
have been inserted for convenience of reference only and shall not be deemed to
be part of this Agreement.
14. Severability. In case any provision contained in this Agreement
shall be invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein shall
not in any way be affected or impaired thereby.
15. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts and Federal law.
16. Termination. The Company or the Purchaser may terminate this
Agreement in the event that any of their respective conditions for Closing set
forth in Section 3 of this Agreement are not satisfied on or before sixty (60)
days after the date of this Agreement.
17. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original, but all of which, when
taken together, shall constitute but
-12-
<PAGE> 13
one instrument, and shall become effective when one or more counterparts have
been signed by each party hereto and delivered to the other parties.
-13-
<PAGE> 14
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives as of the day and year first
above written.
BBN CORPORATION
By:/s/ Ralph A. Goldwasser
-----------------------------------
Title: Senior Vice President
GENERAL ELECTRIC CAPITAL CORPORATION
By:/s/ Patrick J. McNeela
----------------------------------
Title: Department Operations Manager
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<PAGE> 1
Exhibit 4.8
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (the "Agreement") dated as of the 17th day of
June, 1996, between BBN Corporation (the "Company"), a Massachusetts
corporation, with its principal offices at 150 CambridgePark Drive, Cambridge,
Massachusetts 02140, and the purchaser whose name and address is set forth on
the signature page hereof (the "Purchaser").
WITNESSETH:
The Company is offering outside of the United States to non-U.S.
persons (as such terms are defined in Regulation S under the Securities Act of
1933, as amended (the "Act" or "Securities Act")) and, concurrently, in the
United States to certain accredited investors (as defined in Rule 501(a) under
the Act) shares of its Common Stock, par value $1.00 per share (the "Common
Stock") and has provided to prospective investors a Confidential Offering
Memorandum dated May 1996 (including the documents incorporated by reference
therein and any supplements or amendments thereto, the "Offering Memorandum").
The Purchaser wishes to purchase a portion of the Shares (as defined in Section
1 below) being offered by the Company.
Accordingly, in consideration of the mutual covenants contained in this
Agreement, the Company and the Purchaser agree as follows:
1. Authorization of Sale of the Common Stock. Subject to the terms and
conditions of the Agreements, the Company has authorized the sale of up to
2,451,209 shares of its Common Stock, of which 1,998,310 shares (the "Shares")
are being offered outside of the United States to non-U.S. persons (as such
terms are defined in Regulation S under the Act).
2. Agreement to Sell and Purchase the Common Stock. At the Closing (as
defined in Section 3), the Company will sell to the Purchaser, and the Purchaser
will buy from the Company, upon the terms and conditions hereinafter set forth,
the number of Shares (at the purchase price) shown below:
Number of Shares to Price Per Aggregate
Be Purchased Share Price
<PAGE> 2
The Company proposes to enter into purchase agreements with certain other
investors (the "Other Purchasers") and expects to complete sales of Shares to
them. The Purchaser and the Other Purchasers are hereinafter sometimes
collectively referred to as the "Purchasers," and this Agreement and the
agreements executed by the Other Purchasers are hereinafter sometimes
collectively referred to as the "Agreements." The term "Placement Agent" shall
mean Alex. Brown & Sons Incorporated.
3. Delivery of the Common Stock at the Closing. The completion of the
purchase and sale of the Shares (the "Closing") shall occur at a place and time
(the "Closing Date") agreed upon by the Placement Agent and the Company and of
which the Purchaser will be notified by telex, cable or otherwise. At the
Closing, the Company shall deliver to the Purchaser one or more stock
certificates registered in the name of the Purchaser, or in such name(s) as
designated by the Purchaser, representing the number of Shares set forth in
Section 2 above. The name(s) in which the stock certificates are to be
registered are set forth in the Stock Certificate Questionnaire attached hereto
as part of Appendix I. The Company's obligation to deliver such stock
certificate(s) to the Purchaser at the Closing shall be subject to the following
conditions, any one or more of which may be waived by the Company: (a) receipt
by the Company of the full amount of the purchase price for the Shares being
purchased hereunder paid by wire transfer or by certified or official bank check
in New York Clearinghouse funds in United States dollars; (b) completion of the
purchases and sales under the Agreements with the Other Purchasers; and (c) the
accuracy of the representations and warranties made by the Purchaser and the
fulfillment of the undertakings of the Purchaser to be fulfilled prior to the
Closing. The Purchaser's obligation to accept delivery of such stock
certificate(s) and to pay for the Shares evidenced thereby shall be subject to
the following conditions: (a) the accuracy of the representations and warranties
made by the Company herein and the fulfillment of those undertakings of the
Company to be fulfilled prior to the Closing; (b) the receipt of a legal opinion
dated the Closing Date from Ropes & Gray, counsel to the Company, substantially
in the form of Appendix II hereto; and (c) the receipt of a signed letter dated
the Closing Date from Coopers & Lybrand LLP, substantially in the form
heretofore approved by the Placement Agent, containing statements and
information with respect to certain financial information contained in the
Offering Memorandum. The Purchaser's obligations hereunder are expressly not
conditioned upon the purchase by any or all of the Other Purchasers of the
shares that they have agreed to purchase from the Company.
4. Representations, Warranties and Covenants of the Company. The
Company hereby represents and warrants to, and covenants with, the Purchaser as
follows:
(a) Organization and Standing. Each of the Company, and BBN
Planet Corporation and BBN Domain Corporation (the "Subsidiaries"), has been
duly organized and is validly existing as a corporation in good standing under
the laws of the Commonwealth of Massachusetts. Each of the Company and its
Subsidiaries has full power and authority to own, operate and occupy its
properties and to conduct its business as presently conducted and as described
in the Offering Memorandum and is registered or qualified to do business and in
<PAGE> 3
good standing in each jurisdiction in which it owns or leases property to
transact business and where the failure to be so qualified would have a material
adverse effect upon the business or financial condition of the Company and its
Subsidiaries, taken as a whole.
(b) Corporate Power; Authorization; Non-Contravention. The
Company has all requisite legal and corporate power and has taken all requisite
corporate action to execute and deliver this Agreement, to sell the Shares and
to perform all of its obligations under this Agreement. This Agreement
constitutes a legal, valid and binding obligation of the Company, enforceable in
accordance with its terms, except as limited by (i) applicable bankruptcy,
insolvency, reorganization or similar laws relating to or affecting the
enforcement of creditors' rights generally and (ii) equitable principles
generally. The execution and delivery of this Agreement and the consummation of
the transactions contemplated herein do not and will not materially conflict
with or result in a material breach of or a material default under (i) any of
the terms or provisions of the Articles of Organization or By-laws of the
Company or any Subsidiary or (ii) any material agreement or instrument to which
the Company or any Subsidiary is a party or is bound.
(c) Authorized and Outstanding Stock. The authorized capital
stock of the Company consists of 100,000,000 shares of Common Stock, $1.00 par
value, of which 17,824,643 shares were issued and outstanding as of March 31,
1996. The outstanding shares of Common Stock of the Company have been duly
authorized and validly issued and are fully paid and non-assessable; the Shares
to be sold by the Company have been duly authorized and validly issued and, when
paid for as contemplated herein, will be fully-paid and non-assessable; no
preemptive or other similar rights of stockholders or liens or encumbrances
exist with respect to the sale and delivery of the Shares.
(d) The Shares. The Shares conform to the description thereof in
the Offering Memorandum. Except as set forth in or contemplated by the Offering
Memorandum, and other than compensatory stock options, there are no outstanding
(i) rights, warrants or options to acquire, or instruments convertible into or
exchangeable for, shares of capital stock or other equity interest in the
Company or any Subsidiary, or (ii) commitments, agreements, understandings or
arrangements of any kind relating to the issuance of capital stock of the
Company or any Subsidiary, any such convertible or exchangeable securities or
any such rights, warrants or options. The Shares are listed on the New York
Stock Exchange.
(e) Offering Memorandum. Each of the annual and quarterly reports
and the proxy statement (the "Incorporated Documents") incorporated by reference
in, and attached as appendices to, the Offering Memorandum, at the time they
were filed with the Securities and Exchange Commission (the "Commission"),
conformed in all material respects to the requirements of the Securities
Exchange Act of 1934, as amended (the "1934 Act") and the Rules and Regulations
of the Commission hereunder. The Company has filed all documents that the
Company was required to file with the Commission under Section 13, 14(a) and
15(d) of the 1934 Act since the date on which its last report on Form 10-K was
filed. Neither the
<PAGE> 4
Offering Memorandum nor any amendment thereto, nor any of the Incorporated
Documents, as of their respective dates contained any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(f) Financial Statements. The consolidated financial statements
of the Company, together with related notes and schedules, as set forth or
incorporated by reference in the Offering Memorandum, present fairly the
financial position, the results of operations and the cash flows of the Company
and its subsidiaries, at the indicated dates and for the indicated periods
(subject, in the case of unaudited statements, to normal year-end adjustments).
Such financial statements have been prepared in accordance with generally
accepted principles of accounting, consistently applied throughout the periods
involved, and all adjustments necessary for a fair presentation of results for
such periods have been made. The summary financial and statistical data included
or incorporated by reference in the Offering Memorandum present fairly the
information shown therein and have been compiled on a basis consistent with the
financial statements presented therein.
(g) Litigation. There is no action or proceeding pending or, to
the knowledge of the Company, threatened against the Company or any Subsidiary
before any court or administrative agency which might result in any material
adverse change in the business or financial condition of the Company, except as
set forth in the Offering Memorandum.
(h) No Material Adverse Change. Since the respective dates as of
which information is given in the Offering Memorandum as it may be amended or
supplemented, (i) there has not been any material adverse change in the business
or financial condition of the Company and (ii) neither the Company nor any
Subsidiary has incurred any material liabilities or obligations, other than in
the ordinary course of business.
(i) Governmental Approval. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any Federal, state, or local U.S. governmental authority on the
part of the Company is required in connection with the consummation of the
transactions contemplated by this Agreement.
5. Representations, Warranties and Covenants of the Purchaser.
(a) The Purchaser represents and warrants to, and covenants with,
the Company that: (i) the Purchaser acknowledges that the Shares are being
offered and sold without registration under the Securities Act, in reliance, in
part, upon an exemption provided in Regulation S under the Securities Act; (ii)
the Purchaser is neither a U.S. person nor located in the United States, and is
not purchasing the Shares for the account or benefit of a U.S. person (as such
terms are defined in Regulation S under the Securities Act); (iii) the Purchaser
was outside the United States at the time the purchase order originated, or the
transaction
<PAGE> 5
shall be executed in, on or through a physical trading floor of an established
foreign securities exchange located outside of the United States; (iv) the
Purchaser has made, and is solely responsible for making, its own independent
evaluation of the economic, credit and other risks involved in its investment in
the Shares and its own independent decision to make such investment; the
Purchaser has been given the opportunity to ask questions of, and receive
answers from, the Company with respect to the business to be conducted by the
Company, the financial condition and capital of the Company and the terms and
conditions of the offering of the Shares, and has been given the opportunity to
obtain such additional information necessary to verify the accuracy of the
information contained in the Offering Memorandum or the accuracy of the
information that was otherwise provided in order for it to evaluate the merits
and risks of investments in the Shares to the extent that the Company possesses
such information or can acquire it without unreasonable effort or expense; (v)
the Purchaser is acquiring the number of Shares set forth in Section 2 above
solely for its own account or as a trustee for a commingled pension trust and
with no intention of distributing or reselling the Shares or any part thereof,
or interest therein, in any transaction which would be in violation of Federal
or state securities laws; (vi) the Purchaser has completed or caused to be
completed the Stock Certificate Questionnaire, attached hereto as Appendix I;
(vii) the Purchaser has been furnished with a copy of the Offering Memorandum of
the Company and any documents that it has deemed necessary and requested in
connection with its evaluation of the offering of the Shares; (viii) the Shares
to be purchased by the Purchaser are not being acquired with the assets of any
"employee benefit plan" within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") ("Benefit Plan")
or, if the assets of a Benefit Plan are being used, directly or indirectly for
such acquisition, neither the acquisition nor the holding of such Shares will
result in a non-exempt prohibited transaction under ERISA or the Internal
Revenue Code of 1986, as amended; and (ix) the Purchaser understands that the
Company is relying upon the truth and accuracy of the representations and
warranties made by the Purchaser herein.
(b) The Purchaser is aware that the Shares are not registered
under the Securities Act or any state or foreign securities laws and that
transfer thereof is restricted by the Securities Act, applicable stock or
foreign securities laws, and the Purchaser agrees to comply with all applicable
laws and regulations in each jurisdiction in which it purchases, offers, sells
or delivers the Common Stock or possesses or distributes any offering materials,
in all cases at the Purchaser's expense. The Purchaser will not, directly or
indirectly, offer, sell, pledge, transfer or otherwise dispose of (or solicit
any offers to buy, purchase or otherwise acquire or take a pledge of) any of the
Shares except in compliance with the Securities Act, and the rules and
regulations promulgated thereunder. In particular, but without limiting the
foregoing sentence, the Purchaser agrees that, prior to the expiration of a
40-day period beginning on the Closing Date of the Offering, it will not offer,
sell or deliver any shares of Common Stock of the Company (including the Shares)
in the United States or to, or for the account or benefit of, U.S. persons, and
that any such purported sale or other transfer during such period shall be void
and without effect unless such sale or transfer is in accordance with the
Securities Act (including Regulation S thereunder). The Purchaser
<PAGE> 6
understands and agrees that the Company shall instruct the registrar and
transfer agent of the Common Stock not to register transfers of any of the
Shares during this period unless the transferor provides the Company with an
opinion of counsel stating that such transfer shall be made in compliance with
the Securities Act (including Regulation S thereunder). The Purchaser
acknowledges that the representations and covenants made in this Agreement shall
be binding upon its transferees until the expiration of the 40-day period
referred to above, and that no transfer of the Shares will be effective unless
and until such transferee agrees to be bound by the terms of this Agreement.
(c) To the Purchaser's knowledge, no activity has been undertaken
by the Company or any person acting on behalf of the Company for the purpose of,
or that could reasonably be expected to have the effect of, conditioning the
market for the Shares in the United States.
(d) The Purchaser represents and warrants to, and covenants with,
the Company that the Purchaser has not engaged and will not engage in any short
sales of the Company's Common Stock, except to the extent that any such short
sale is fully covered by shares of Common Stock of the Company other than the
Shares.
(e) The Purchaser further represents and warrants to, and
covenants with, the Company that (i) the Purchaser has full right, power,
authority and capacity to enter into this Agreement and to consummate the
transactions contemplated hereby and has taken all necessary action to authorize
the execution, delivery and performance of this Agreement, and (ii) upon the
execution and delivery of this Agreement, this Agreement shall constitute a
valid and binding obligation of the Purchaser enforceable in accordance with its
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors' and
contracting parties' rights generally and except as enforceability may be
subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law) and except as
the indemnification agreements of the Purchaser in Section 8(j) hereof may be
legally unenforceable.
6. Indemnification. The Purchaser agrees to indemnify and hold
harmless the Company and its officers, directors, employees, agents and
representatives from and against any and all claims, losses, damages, expenses
and liabilities arising out of a misrepresentation or a breach of any of the
warranties or agreements of the Purchaser contained in this Agreement.
7. Survival of Representations, Warranties and Agreements.
Notwithstanding any investigation made by any party to this Agreement or by the
Placement Agent, all covenants, agreements, representations and warranties made
by the Company and the Purchaser herein and in the certificates for the Shares
delivered pursuant hereto shall survive the execution of
<PAGE> 7
this Agreement, the delivery to the Purchaser of the Shares being purchased and
the payment therefor.
8. Registration Rights.
(a) Demand Registration Rights. If following October 1, 1996 and
prior to the date that is the second anniversary of the Closing Date (the
"Demand Period"), holders of more than 50% of the Registrable Securities (as
defined in Section 8(c) hereof) request the Company to file a registration
statement under the Securities Act for a public offering the proposed aggregate
offering price of which is at least $10,000,000, the Company shall within twenty
days notify all holders of Registrable Securities of such request and shall use
its best efforts to register under the Securities Act the Registrable Securities
of all holders who so request promptly after receiving the Company's notice.
Notwithstanding the foregoing, (i) the Company shall not be obligated to effect
the filing of a registration statement pursuant to this Section 8(a) during the
180 days following the effective date of a registration statement pertaining to
a public offering of securities for the account of the Company, and (ii) if the
Company shall furnish to the holders of Registrable Securities requesting such
registration a certificate signed by the President of the Company stating that,
in the good faith judgment of the Board of Directors of the Company, it would
not be in the best interests of the Company and its stockholders generally for
such registration statement to be filed, the Company shall have the right to
defer such filing for a period or periods of not more than 180 days each after
receipt of the request of such holders; provided, however, that the Company may
not utilize the right set forth in this subsection (ii) for more than two such
180-day periods. The Company is obligated to effect only one registration
pursuant to this Section 8(a), provided that no such registration which shall
not have become and remained effective for a period of at least 120 days (or
such shorter period during which holders shall have sold all Registrable
Securities which were so registered) shall be deemed to be a registration for
any purpose of this Section 8(a).
(b) Piggyback Registration Rights. Whenever the Company proposes
to register any Common Stock for its own or others' account under the Securities
Act for a public offering for cash, other than a registration relating to
employee benefit plans, the Company shall give each holder of Registrable
Securities prompt written notice of its intent to do so. Upon the written
request of any such holder given within fifteen days of such notice, the Company
will use its best efforts to cause to be included in such registration all of
the Registrable Securities which such holder requests. If the Company is advised
in writing in good faith by any managing underwriter of the securities being
offered pursuant to any registration statement under this Section 8(b) that the
number of shares to be sold pursuant to such registration statement is greater
than the number of such shares which can be offered without adversely affecting
the offering, the Company shall first reduce pro rata the number of shares
offered for the accounts of holders of the Company's Common Stock that do not
hold registration rights similar to the rights granted to the holders of
Registrable Securities pursuant to this Section 8(b), and then may reduce pro
rata the number of shares offered for the
<PAGE> 8
accounts of holders of Registrable Securities and for the accounts of holders of
the Company's Common Stock that have registration rights similar to the rights
granted to the holders of Registrable Securities pursuant to this Section 8(b)
(based upon the number of shares of Common Stock proposed to be sold pursuant to
such registration statement by the holders of Registrable Securities and such
other holders of the Company's Common Stock) to a number deemed satisfactory by
such managing underwriter. In the event of such a limitation, shares of persons
not having registration rights will not be included in the registration unless
all Registrable Securities requested to be included in the registration have
been included. No piggyback registration right in this Section 8(b) shall be
construed to limit the demand registration right contained in Section 8(a)
hereof.
(c) Definition of Registrable Securities. "Registrable
Securities" means (i) the Shares and (ii) shares of Common Stock or other
securities convertible into Common Stock received as a stock dividend or other
distribution in respect of the Shares; provided that the holders of such Shares
or securities have delivered to the Company an opinion of counsel, acceptable to
the Company and its counsel, which states that the holders may not transfer the
Shares or such other securities without registration under the Act in reliance
upon Regulation S under the Act, as a result of an amendment, change in
interpretation or other action after the Closing Date by the Securities and
Exchange Commission with respect to any provision of Regulation S; and provided,
further, that the Registrable Securities shall not include any shares of Common
Stock or such other securities (i) during the restricted period (as defined in
Regulation S under the Securities Act) or (ii) that as of the date of the
determination may be traded on the New York Stock Exchange without registration
under the Securities Act.
(d) Registration Procedures. All expenses incurred in connection
with the registrations under this Section 8 (including all registration, filing,
qualification, printer's, and accounting fees and the reasonable fees of one
counsel for the holders, but excluding underwriting commissions and discounts)
shall be borne by the Company. In connection with registrations under this
Section 8, the Company shall (i) use its best efforts to prepare and file with
the Commission as soon as reasonably practicable, a registration statement with
respect to the Registrable Securities and use its best efforts to cause such
registration to promptly become and remain effective for a period of at least
120 days (or such shorter period during which holders shall have sold all
Registrable Securities which were so registered); (ii) use its best efforts to
register and qualify the Registrable Securities covered by such registration
statement under applicable state securities laws as the holders shall reasonably
request for the distribution of the Registrable Securities; and (iii) take such
other actions as are reasonable and necessary to comply with the requirements of
the Securities Act and the regulations thereunder, or the reasonable request of
any holder, with respect to the registration and distribution of the Registrable
Securities. The Company is not obligated to effect registration or qualification
under this Section 8 in any jurisdiction requiring it to qualify to do business
(unless the Company is otherwise required to be so qualified) or to execute a
general consent to service of process.
<PAGE> 9
(e) Underwriting Arrangement. In connection with each
registration pursuant to Sections 8(a) and (b) above covering an underwritten
public offering, the Company and each participating holder agree to enter into a
written agreement with the managing underwriter in such form and containing such
provisions as are customary in the securities business for such an arrangement
between such underwriter and companies of the Company's size and investment
stature.
(f) Notification. The Company shall promptly notify each holder
of Registrable Securities covered by any registration statement of any event
which results in the prospectus included in such registration statement, as then
in effect, containing an untrue statement of a material fact or omitting to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing. The Company shall use its best efforts to make appropriate changes to
such prospectus and provide copies of such revised prospectus to each holder of
Registrable Securities covered by the Registration Statement.
(g) Furnishing of Documents. At the request of any participating
holder, the Company will furnish to each underwriter, if any, and participating
holders, a legal opinion of its counsel and a letter from its independent
certified public accountants, each in customary form and substance, at such time
or times as such documents are customarily provided in the type of offering
involved.
(h) Prospectuses. From time to time the Company shall amend or
supplement any registration statement pursuant to which any of the Registrable
Securities are being offered pursuant to a registration under this Agreement and
the prospectus contained therein to the extent necessary to comply with the
Securities Act and any applicable state securities or Blue Sky laws. The Company
shall also provide the holders with as many copies of the prospectus contained
in any such registration statement in which such holder's Registrable Securities
are included as it may reasonably request.
(i) Indemnification by the Company. The Company will indemnify
and hold harmless each participating holder and each underwriter of the
Registrable Securities being sold by such holder, and each controlling person of
such holder and underwriter, against all claims, losses, damages and liabilities
(or actions in respect thereof) arising out of or based on any untrue statement
(or alleged untrue statement) of a material fact contained in any registration
statement relating to such Registrable Securities (or in any related
registration statement, notification or the like) or any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation by the
Company of any rule or regulation promulgated under the Securities Act
applicable to the Company and relating to action or inaction required of the
Company in connection with any such registration, qualification or compliance,
and will reimburse each such holder and each such underwriter and controlling
person for any legal or any other expenses reasonably incurred in connection
with investigating or defending any such
<PAGE> 10
claim, loss, damage, liability or action and will enter into an indemnification
agreement with each such holder and underwriter containing customary provisions,
including provisions for contribution, as any holder or underwriter shall
reasonably request; provided, however, that the Company will not be liable in
any such case to the extent that any such claim, loss, damage or liability
arises out of or is based on any untrue statement or omission based upon written
information furnished to the Company by such holder or underwriter and stated to
be specifically for use therein.
(j) Indemnification by Holders. Each participating holder of
Registrable Securities will indemnify and hold harmless the Company, each of its
directors, each of its officers who has signed the registration statement and
each person, if any, who controls the Company within the meaning of Section 15
of the Securities Act, against all claims, losses, damages and liabilities (or
actions in respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any registration
statement relating to the Registrable Securities (or in any related registration
statement, notification or the like) or any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse the Company and each
such director, officer or controlling person for any legal or any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action and will enter into an indemnification
agreement with the Company containing customary provisions, including provisions
for contribution, as the Company or each such person shall reasonably request;
provided, however, that no holder of Registrable Securities will be liable in
any such case except to the extent that any such claim, loss, damage or
liability arises out of or is based on any untrue statement or omission based
upon written information furnished to the Company by such holder and stated to
be specifically for use therein. Notwithstanding any of the foregoing to the
contrary, in no event shall the liability of any holder for indemnification
under this Section 8(j) exceed the lesser of (i) that percentage of the total
amount of such losses, claims, damages or liabilities indemnified against which
equals the percentage obtained by dividing the total number of Registrable
Securities sold by such Stockholder pursuant to the registration statement by
the total number of Registrable Securities sold pursuant to the registration
statement, or (ii) the net proceeds received by such holder in the offering.
(k) Indemnification Procedures.
(i) Promptly after receipt by any person entitled to
indemnification under Sections 8(i) or 8(j) (and "Indemnified Party") of notice
of the commencement of any action in respect of which indemnity may be sought
against any person under Sections 8(i) or 8(j) (and "Indemnifying Party"), such
Indemnified Party shall notify all Indemnifying Parties in writing of the
commencement thereof (provided, however, that failure to so notify an
Indemnifying Party shall not relieve any Indemnifying Party from any liability
it may have hereunder except to the extent that the Indemnifying Party who did
not receive such notice shall have been materially prejudiced by such failure)
and, subject to the provisions hereinafter
<PAGE> 11
stated, the Indemnifying Party shall be entitled to assume the defense of such
action (including the employment of counsel, who shall be counsel reasonably
satisfactory to such Indemnified Party), and the payment of expenses insofar as
such action shall relate to any alleged liability in respect of which indemnity
may be sought against the Indemnify Party.
(ii) The Indemnified Party shall have the right to employ
separate counsel and assume its own legal defense in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
subsequent to any assumption of the defense by the Indemnifying Party shall not
be at the expense of the Indemnifying Party unless the employment of such
counsel has been specifically authorized in writing by the Indemnifying Party.
The Indemnifying Party shall not be liable to indemnify any Indemnified Party
for any settlement of any such action effected without the Indemnifying Party's
written consent. The Company shall not, except with the approval of each party
being indemnified under this Agreement, consent to entry of any judgment or
enter into any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to the parties being so
indemnified of a release from all liability in respect to such claim or
litigation.
(l) Contribution. In order to provide for just and equitable
contribution to joint liability under the Securities Act in any case in which
any Indemnified Party exercising rights under this Agreement, or any controlling
person of any such Indemnified Party, makes a claim for indemnification pursuant
to Section 8(i) or 8(j) but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Agreement provides for indemnification in such case, then the Indemnifying
Party and such Indemnified Party will contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (after contribution
from others) in such proportion as is appropriate to reflect the relative fault
of the Indemnifying Party on the one hand and of the Indemnified Party on the
other in connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party on the one hand and
of the Indemnified Party on the other shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates to information
supplied by the Indemnifying Party on the one hand or by the Indemnified Party
on the other, and each party's relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission; provided,
however, that, in any such case, no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
will be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
(m) Exchange Act Registration. As long as the Company is subject
to the reporting requirements of either Section 13 or Section 15(d) of the
Exchange Act, the Company will use its reasonable efforts to timely file with
the Commission such information as
<PAGE> 12
the Commission may require under either Section 13 or Section 15(d) of the
Exchange Act; and in such event, the Company shall use its reasonable efforts to
take all action as may be required as a condition of the availability of Rule
144 under the Securities Act (or any successor exemptive rule hereafter in
effect) with respect to the Registrable Securities. The Company shall furnish to
the holders forthwith upon request (i) a written statement by the Company as to
the compliance with the reporting requirements of Rule 144, (ii) a copy of the
most recent annual or quarterly report of the Company as filed with the
Commission, and (iii) such other reports and documents as a holder may
reasonably request in availing itself of any rule or regulation of the
Commission allowing such holder to sell any such Registrable Securities pursuant
to Rule 144 without registration. The Company shall use its reasonable efforts
to facilitate and expedite transfers of the Registrable Securities pursuant to
Rule 144 under the Securities Act, which efforts shall include prompt notice to
its transfer agent to expedite such transfers of Registrable Securities.
9. Restrictive Legend. Each certificate representing Shares shall
bear a restrictive legend in substantially the following form (in addition to
any legends required under applicable state securities laws):
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD WITHIN THE
UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS (AS
SUCH TERMS ARE DEFINED IN REGULATION S UNDER THE ACT) UNTIL THE
EXPIRATION OF A 40-DAY PERIOD COMMENCING ON _______, 1996, EXCEPT IN
ACCORDANCE WITH REGULATION S UNDER THE ACT.
10. Waivers and Amendments. The terms of this Agreement may be waived
or amended upon the written consent of the Company and the Purchaser. Section 8
of this Agreement may be waived or amended upon the written consent of the
Company and the record holders of more than fifty percent (50%) of the
outstanding Shares purchased by the Purchasers pursuant to the Agreements, and
any such amendment or waiver shall be binding upon the Purchaser.
11. Agent's Fee. The Purchaser acknowledges that the Company intends
to pay to the Placement Agent a fee in respect of this transaction. The parties
hereto hereby represent that there are no other brokers or finders entitled to
compensation in connection with the transactions contemplated hereby.
12. Notices. All notices, requests, consents and other communications
hereunder shall be in writing, shall be mailed by first-class registered or
certified airmail or sent by nationwide overnight delivery service, postage or
delivering charge prepaid, or shall be sent by facsimile and shall be deemed
given when so mailed or sent:
<PAGE> 13
(a) if to the Company, to
BBN Corporation
150 CambridgePark Drive
Cambridge, MA 02140
Facsimile No. (617) 873-3408
Attention: General Counsel
or to such other person at such other place as the Company shall
designate to the Purchaser in writing; and
(b) if to the Purchaser, at the applicable address or facsimile
for notices set forth on Appendix I of this Agreement, or at such other address
or addresses as may have been furnished to the Company in writing.
13. Headings. The headings of the various sections of this Agreement
have been inserted for convenience of reference only and shall not be deemed to
be part of this Agreement.
14. Severability. In case any provision contained in this Agreement
shall be invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein shall
not in any way be affected or impaired thereby.
15. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts and Federal law of
the United States. Any claim, action, proceeding or lawsuit relating to this
Agreement or the transactions contemplated hereby shall be brought in the United
States District Court for the District of Massachusetts. The Purchaser hereby
consents to and agrees to submit to the jurisdiction of the United States
District Court for the District of Massachusetts for any such claim, action,
proceeding or lawsuit and to the venue of such claim, action, proceeding or law
in such court.
16. Termination. The Company or the Purchaser may terminate this
Agreement in the event that any of their respective conditions for Closing set
forth in Section 3 of this Agreement are not satisfied on or before sixty (60)
days after the date of this Agreement.
17. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original, but all of which, when
taken together, shall constitute but one instrument, and shall become effective
when one or more counterparts have been signed by each party hereto and
delivered to the other parties.
<PAGE> 14
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives as of the day and year first
above written.
BBN CORPORATION
By:_________________________________
Title: Senior Vice President
PURCHASER:
Name of Purchaser (Type or Print):
____________________________________
By:_________________________________
Title:______________________________
<PAGE> 1
Exhibit 10.10
BBN CORPORATION
1996 RESTRICTED STOCK PLAN
I. Purpose. The purpose of this 1996 Restricted Stock Plan (the "Plan")
is to advance the interests of BBN Corporation (the "Company") and its
subsidiaries by enhancing the Company's ability to reward officers and directors
for their contributions to the success of the Company and its subsidiaries, and
to create an incentive for their efforts to increase the profitability of the
Company and its subsidiaries.
II. Effective Date. This Plan shall become effective on the later of
(i) August 15, 1996 or (ii) the date on which it is approved by the Board of
Directors of the Company. Awards may thereafter be made pursuant to the terms of
this Plan until September 15, 1996.
III. Administration of the Plan. The Plan shall be administered by the
Compensation and Stock Option Committee of the Board of Directors of the Company
(the "Board") or by such other committee as the Board shall appoint from among
its members and designate to administer the Plan (the "Committee"). The
Committee shall be authorized, subject to the express provisions of this Plan,
to adopt, amend, and rescind rules for the administration of the Plan and its
own proceedings, and to take all action necessary or appropriate to administer
the Plan, to interpret its provisions, and to decide all questions and resolve
all disputes which may arise in connection therewith. Such determinations of the
Committee shall be conclusive and shall bind all parties. The Committee shall
consist of not fewer than two members of the Board, all of whom shall be
"non-employee directors" within the meaning of Rule 16b-3 under the Securities
Exchange Act of 1934 (the "Exchange Act").
IV. Eligibility. Officers and directors of the Company or its
subsidiaries shall be eligible to receive awards pursuant to the Plan
("Awards"). Receipt of an Award shall not preclude an individual from receiving
additional awards under any other plan of the Company.
V. Shares Subject to Plan. Awards made pursuant to the Plan shall
consist of shares of the Company's Common Stock, par value $1.00 per share (the
"Shares"). Shares awarded pursuant to the Plan shall in the discretion of the
Committee be authorized but unissued Shares or Shares held in treasury. The
aggregate number of Shares which may be issued under this Plan shall not exceed
50,000, subject to adjustment by the Committee in the event of a stock dividend,
stock split, combination of Shares, recapitalization, or other change in the
Company's Common Stock.
<PAGE> 2
VI. Terms and Conditions of the Plan.
A. Grant of Awards.
Subject to the express provisions of this Plan, the Committee
shall have the sole authority and discretion (i) to make Awards to such eligible
employees and directors as the Committee shall select at such times prior to
August 31, 1996 as the Committee shall determine; and (ii) to determine the size
of each such Award and the terms and conditions thereof (including any
provisions relating to forfeiture in addition to those required herein). In
making an Award, the Committee may require a cash or other payment from the
person to whom an Award is made (the "Recipient"), unless it shall determine
that the consideration from the Recipient to the Company for services rendered
in excess of the compensation otherwise paid to the Recipient prior to or at the
time of the Award is at least equal to the par value of the authorized but
unissued Shares being issued. Each Recipient shall, as a condition of receiving
any Award hereunder, enter into a Restricted Stock Agreement with the Company
setting forth the terms and conditions of the Award, including the requirement
that the Shares are to be offered back to the Company if the Recipient's
employment or position is terminated, in such form as the Committee shall
determine, and a stock certificate registered in the name of the Recipient shall
be issued under the conditions set forth in Section VI.C. below.
B. Terms of Awards.
An Award shall consist of a specified number of Shares, and
shall be subject to such terms and conditions as are set forth in the Restricted
Stock Agreement.
C. Stock Certificates.
Prior to the time at which a portion of an Award ceases to be
subject to the requirement of resale to the Company ("vests"), the stock
certificates representing Shares constituting that portion of the Award shall be
held for the Recipient by the Committee or by a custodian designated by the
Committee. Recipients shall receive all dividends, stockholder communications,
and proxy materials with regard to the Shares constituting Awards. A certificate
or certificates for Shares resold to the Company shall be returned to the
Company, together with an executed stock power. A Recipient shall be entitled to
any dividends or other distributions attributable to resold Shares paid after
resale of such Shares with respect to a record date prior to resale.
Following the time at which an Award vests, a Recipient shall
be entitled to delivery of the certificates representing Shares which have
vested, and the Shares represented thereby shall cease to be subject to the
requirement that they be resold to the Company.
-2-
<PAGE> 3
VII. Nontransferability of Awards. No Shares, nor any interest therein,
shall be transferable by the Recipient (by sale, pledge, gift, or otherwise)
prior to vesting, otherwise than by will or by the laws of descent and
distribution, and Shares shall be delivered only to the Recipient or, in the
case of his or her death, to his or her estate.
VIII. Tax Matters. The Committee shall require a Recipient receiving an
Award hereunder to reimburse the Company for any taxes required by any
government to be withheld or otherwise deducted and paid by the Company or any
of its subsidiaries in respect of the transfer or vesting of Shares pursuant to
the Award. In lieu thereof, the Company shall have the right to withhold the
amount of such taxes from any other sums due or to become due from the Company
to the Recipient upon such terms and conditions as the Committee shall
prescribe.
IX. Delivery of Shares. Recipients of Shares shall cooperate to effect
delivery thereof in accordance with the terms of all federal and state laws and
regulations as interpreted by counsel for the Company. Without in any way
limiting the generality of the foregoing, the Company may require that the
certificates representing Shares bear a legend restricting the transfer thereof
except upon compliance with the conditions of the Award, as stated herein and in
the Restricted Stock Agreement relating thereto, and the federal and state
securities laws; and that each Recipient, as a condition of such delivery, make
such representations or agreements, if any, as may be required in the opinion of
such counsel to avoid violation of any laws or regulations, including without
limitation the registration or other provisions of the Securities Act of 1933.
X. Employment Rights. Neither the adoption of the Plan nor the granting
of Awards shall confer upon any Recipient the right to continued employment or
to continue as a director with the Company or its subsidiaries, nor affect in
any way the right of the Company or its subsidiaries to terminate the employment
or position of any Recipient at any time.
XI. Adjustment, Amendment and Termination.
A. The Committee may adjust the number of Shares awarded to
Recipients and otherwise adjust the Plan to take into consideration material
changes in accounting practices or principles, recapitalizations, mergers,
consolidations, stock splits, acquisitions or dispositions of stock or property,
changes in fiscal year, or other events, if it is determined by the Committee
that such adjustment is appropriate to avoid distortion in the operation of the
Plan.
B. The Committee may cease making awards hereunder at any
time, but in no event shall an Award be made after September 15, 1996. The Plan
may be terminated, amended, or modified at any time by the Board.
-3-
<PAGE> 1
Exhibit 10.11
MEMORANDUM OF AGREEMENT
- -----------------------
TO: Stephen R. Levy
FROM: George H. Conrades
SUBJECT: Early Retirement Arrangement
DATE: September 28, 1995
- --------------------------------------------------------------------------------
Consistent with our recent discussions, we understand that you would like to
effect early retirement from Bolt Beranek and Newman Inc. and its subsidiaries
(Bolt Beranek and Newman Inc. and its subsidiaries are collectively referred to
herein as "BBN"), but at the same time continue to serve as a director of Bolt
Beranek and Newman Inc. and of BBN HARK Systems Corporation, BBN Planet
Corporation, and BBN Domain Corporation.
The arrangements that you have requested in connection with your retirement are
acceptable to BBN, and this Memorandum of Agreement is intended to set forth the
understanding reached between you and BBN concerning your retirement as an
officer and employee. Both this Agreement and your retirement would be effective
as of the date of the upcoming Annual Meeting on November 6, 1995.
Through these arrangements, we would like to recognize the many valuable
contributions and dedicated service you have provided to BBN for the past 29
years.
1. Termination of Employment Status
Effective as of November 6, 1995, you hereby: (i) resign as Chairman of the
Board of Bolt Beranek and Newman Inc. and all other offices and positions (other
than as director of Bolt Beranek and Newman Inc., BBN HARK Systems Corporation,
BBN Planet Corporation, and BBN Domain Corporation) held with BBN, and (ii)
retire as an employee of BBN.
2. Retirement Payments
For the ten-year period commencing November 6, 1995, Bolt Beranek and Newman
Inc. will pay to you (or to your estate in the event of your death during the
period), but subject to the conditions stated in Section 6 below, as deferred
compensation, an amount equal to $200,000 annually for the first five years of
the period, and $100,000 annually for years six through ten in the period. Each
annual payment shall be made on a quarterly basis, with 1/4 of the annual
payment being payable on the first business day following each of January 1,
April 1, July 1, and October 1 in a calendar
<PAGE> 2
year, with payments beginning on January 2, 1996. Bolt Beranek and Newman Inc.
shall deduct from such payments any withholding taxes and other amounts which it
is from time to time required to deduct under applicable law.
3. Consulting Services
For the period during which Bolt Beranek and Newman Inc. is making payments to
you as provided under Section 2 above, but without further payments by BBN or
other consideration to you, you agree to make yourself available to me and to
other members of senior management of BBN to provide, upon request but
consistent with your availability in light of your other responsibilities and
commitments, your advice and counsel on business matters. Your advice shall only
be requested during regular business hours, and you shall not be required to
provide such services for more than a total of 15 days in any calendar year. BBN
shall reimburse you for all reasonable business expenses actually incurred by
you in the performance of such requested consulting, consistent with the BBN's
policies as from time to time in effect. As required in connection with your
consulting services, you will be provided with office space at Bolt Beranek and
Newman Inc. and with office support and electronic mail capabilities.
4. Vesting and Exercisability of Stock Options/Termination of Employment
Reference is made to a certain Stock Option Certificate between you and Bolt
Beranek and Newman Inc., namely the Stock Option Certificate dated June 13, 1995
under the 1986 Stock Incentive Plan for 25,000 shares (the "Stock Options").
The Stock Options (together with options for 48,000 shares remaining under a
certain Stock Option Certificate dated October 24, 1991) are the only
outstanding Bolt Beranek and Newman Inc. stock options you currently hold. The
Stock Options are unvested, are at an exercise price of $18.125 per share, and
run (subject to certain exceptions) for an option period ending on the earlier
of 60 days following termination of your employment or June 13, 2002.
With the approval of the Compensation and Stock Option Committee, which approval
was received today at a Committee meeting, the Stock Options will become fully
vested and exercisable on November 3, 1995, to remain exercisable by you (or by
your executor) through the period 60 days following November 6, 1995.
All terms and conditions of the Stock Options, as well as the terms and
conditions of the other outstanding options held by you, shall remain in full
force and effect, and shall apply, except as specifically modified herein.
You agree to and do hereby waive any rights you may have under Section 6(m) of
the Bolt Beranek and Newman Inc. 1986 Stock Incentive Plan to stock options
provided for non-employee directors, such waiver to be effective for the
succeeding
<PAGE> 3
twelve months from November 6, 1995. You also agree to and do hereby waive any
rights you may have for such twelve months period under similar provisions of
the option plans of BBN subsidiaries, providing for options for non-employee
directors of the respective subsidiaries.
You also hold 50,000 unvested stock options in BBN HARK Systems Corporation
pursuant to a Stock Option Certificate dated January 20, 1995; 50,000 unvested
stock options in BBN Planet Corporation pursuant to a Stock Option Certificate
dated January 25, 1995; and 50,000 stock options in BBN Domain Corporation
pursuant to a Stock Option Certificate dated December 30, 1993 (of which 12,500
are currently vested, but are not yet exercisable). In that you are not
resigning from the Boards of BBN HARK, BBN Planet, and BBN Domain, such options
will continue pursuant to their terms and the terms of the respective
subsidiary's option plans until such time as you no longer provide services to
the respective company, at which time any then-unvested options would terminate
pursuant to their terms.
5. Waiver of Claims:
In consideration of the agreements, covenants, and conditions contained herein:
(a) You hereby forever release and discharge BBN, its or their past, present, or
future divisions, subsidiaries, owners, shareholders, officers, directors,
employees, agents, successors, and assigns, and all others connected with any of
them (referred to collectively herein as the "Company"), both individually and
in their official capacities, from any and all suits, claims, debts, agreements,
damages, attorney's fees, expenses, liabilities, actions, and any and all claims
in law or in equity which you (including your heirs, representatives, and
assigns) have had, now have, or might now have under any federal, state, or
common law, or any agreements or otherwise, whether now known or unknown, which
you ever had, now have, or might now have against the Company, including without
limitation those arising directly or indirectly out of your employment with
and/or separation from BBN; provided however, that nothing herein shall
constitute a waiver of any of your rights or relieve BBN of any of its or their
obligations pursuant to this Agreement or pursuant to indemnification and
exculpation rights provided to you pursuant to the articles of organization or
by-laws of BBN or any of them or the Directors and Officers liability insurance
policy referred to in Section 8 below. You acknowledge that the foregoing
release includes, without limitation, a waiver of all rights and claims arising
under any and all state and federal employment laws, regulations, or other
requirements prohibiting employment discrimination, including, but not limited
to, claims for age discrimination under the Age Discrimination in Employment Act
of 1967, 29 U.S.C. Sec. 621 et seq., or other similar laws, except that you are
not releasing or waiving any rights or claims for age discrimination or
employment discrimination which may arise after the date this Agreement is
signed. You promise and agree that neither you nor any of your heirs,
representatives, or assigns will ever assert in any forum any cause of action,
right, or
<PAGE> 4
claim as to which this release of claims may lawfully be applied.
(b) You hereby acknowledge that you have been afforded the opportunity to study
and consider this Agreement in full for a period of at least twenty-one days and
have been encouraged by BBN to consult with an attorney of your own choosing;
that you fully understand the terms and contents of this Agreement, have
executed this Agreement freely and voluntarily, without duress, coercion, or
undue influence; and that you were advised and understand that you may revoke
this Agreement within seven days of its execution and that this Agreement does
not become effective or enforceable until expiration of the seven day revocation
period.
(c) You agree that payment by Bolt Beranek and Newman Inc. in accordance with
the terms of this Agreement shall constitute payment in full of any and all sums
that are now or might hereafter have become owing to you for services performed
during your employment with BBN.
6. Non-Competition Restrictions
During the period from November 6, 1995 through November 1, 2005, (the
"Non-competition period"), you shall not, without first obtaining BBN's prior
written consent, be employed by, consult with, provide services or assistance
to, own any interest in or engage in any business, activity, or enterprise
(whether as a shareholder, employee, officer, director, partner, joint venturer,
or otherwise and whether individually or with others), or be connected in any
manner with the management, operation, ownership or control of any business or
venture that is in direct and material competition with any business that is
conducted by BBN or any of them (as those businesses are described in the Form
10-K (or any replacement form) applicable to BBN), both now and in the future
and regardless of place, provided, however, that if you should become so
associated or engaged in a business or venture prior to such business being so
described as a business being conducted by BBN, continued association or
engagement by you therein would not be deemed a violation of this provision.
Notwithstanding the foregoing, you may invest in securities of an issuer engaged
in such business which are listed on a recognized securities exchange, or
actively traded over-the-counter, so long as at the time you make such an
investment in any such issues, your investments in all such issues are in
amounts not significant as compared to your total investments and your
investment in such issues is not significant to the aggregate of the outstanding
securities of that issuer of the same class or issue.
You further agree that during the Non-competition period you will not directly
or indirectly solicit the employment of, or hire, any individual who is a
then-current employee of BBN (or was an employee within 6 months prior to such
date), or engage in similar activities intended to cause any BBN personnel (or
any consultant
<PAGE> 5
to BBN) to discontinue his, her, or its relationship with BBN.
You agree that immediately prior to any knowing violation by you of the
foregoing non-competition or non-solicitation provisions, you will notify BBN of
such prospective violation ("Prospective Violation Notice"). If, absent such
notification from you, BBN believes you are in violation of the foregoing
non-competition or non-solicitation provisions, BBN will notify you of such
alleged violation (detailing the alleged violation) and you will have 30 days
from receipt of the notice to remedy the breach alleged (whether by ceasing to
engage in the activities complained of, divesting any ownership interest
complained of, convincing BBN that no breach has occurred (and you and BBN agree
that you and the Chief Executive Officer of BBN will make a good faith effort to
resolve the alleged violation within such 30 days), or otherwise). In the event
of a Prospective Violation Notice or an otherwise unremedied violation by you
(subject to your right to contest that a violation by you did not occur), you
will immediately resign from any directorship positions you then hold with BBN
or any of them and, in addition to BBN's entitlement to such resignations, BBN's
sole remedy under this Agreement for such violation of the non-competition or
non-solicitation provisions hereof shall be BBN's right to terminate payment of,
and to be relieved of its obligation to pay, any payments under Section 2 above
remaining unpaid as of the time of violation or, if more than 30 days has
elapsed from the first actual knowledge by BBN of the alleged violation (other
than pursuant to a Prospective Violation Notice) to the time of BBN's notice to
you, then remaining unpaid as of the time of BBN's notice to you. For purposes
of the preceding sentence, "actual knowledge of BBN" shall mean actual knowledge
of an executive officer or of the Board of Bolt Beranek and Newman Inc.
7. Confidentiality Agreement
You acknowledge that in the course of your employment with BBN, you have had
access to confidential and proprietary information about BBN, its or their
operations, future plans, current or prospective technologies, and other
matters, disclosure and/or use of which information to a competitor or in
competition with BBN would cause BBN to suffer serious and potentially
irremediable loss.
You agree to hold in confidence and not to use or disclose to any person or
entity not first approved in writing by BBN any Proprietary Information (as
herein defined). Proprietary Information shall mean all ideas, knowledge, or
information, which is not public knowledge, of any nature whatsoever concerning
BBN's business, operations, future plans, current or prospective technologies,
contracts, clients, and personnel information. Proprietary Information also
includes any and all information that BBN receives or has received belonging to
customers or others who do business with BBN under an understanding, express or
implied, that it would not be disclosed.
<PAGE> 6
You further agree that, since a violation by you at any time of the foregoing
confidentiality provisions would cause BBN to suffer severe and irreparable
loss, without limiting other remedies, those provisions shall be specifically
enforceable against you in any court in Massachusetts.
You further agree that the terms of a certain agreement between you and Bolt
Beranek and Newman Inc. entitled "Patent Policy", dated as of December 1966,
shall continue to survive in full force and effect from and after the date
hereof.
8. Benefits
From and after November 6, 1995, you will no longer be working at BBN as an
employee. As you are aware, as a result your benefits will be modified in
accordance with BBN personnel policy, the terms of BBN's benefit plans, and any
applicable laws and regulations.
Health Insurance
- ----------------
Under the federal law known as COBRA, you may elect to continue your health
and/or dental coverage and that of your eligible dependents under BBN's group
plan for up to 18 months after a qualifying event (e.g. the date of termination
of your employment) by paying required premiums. You will be receiving future
information on health benefits, including COBRA. Please remember that, in
general, any change in BBN's health benefits during your period of COBRA
continuation which is applicable to BBN's employees will also be applicable to
you.
Life and Long Term Disability Insurance
- ---------------------------------------
Sun Life Assurance currently allows individuals to convert to whole life
insurance without evidence of insurability at the time of termination of
employment. Similarly, UNUM permits individuals to convert Long Term Disability
coverage to a non-group plan without evidence of insurability upon termination
of employment. You will be offered both options, at your own expense, on
November 6, 1995 if the options are then being offered under the relevant
provisions of the then-existing policies.
Directors and Officers Indemnification
- --------------------------------------
Your coverage as a former officer under the current BBN Directors and Officers
liability insurance policy is not affected by your termination of employment
with BBN. So long as the policy covers past officers and directors, this
coverage will continue for you. Further, to the extent allowed by law, you shall
be entitled to indemnification and exculpation rights currently provided under
the articles of organization or by-laws of BBN or any of them to which you are
entitled. Since you anticipate continuing as a director of Bolt Beranek and
Newman Inc. and of operating subsidiaries of Bolt Beranek and Newman Inc.,
rights and coverage provided to the respective directors as a group will
continue to apply to you.
<PAGE> 7
BBN Retirement Trust.
- ---------------------
Your payments under Section 2 above will not be includable as Credited
Compensation under the Bolt Beranek and Newman Inc. Retirement Trust, and
accordingly you will be eligible for a Retirement Trust contribution only on the
regular compensation actually paid to you in fiscal 1996, subject to the
relevant provisions of the Retirement Trust Agreement. Following termination of
your employment with BBN, you will be entitled to a distribution from the
Retirement Trust in accordance with its terms. You will also be entitled to a
distribution of your balance, if any, in the Bolt Beranek and Newman Inc.
Deferred Compensation Plan in accordance with the terms of that plan.
Change of Control Arrangement
- -----------------------------
You acknowledge that the change of control severance arrangement between you and
Bolt Beranek and Newman Inc. dated August 1, 1988 has terminated as a result of
your retirement from the employ of BBN.
9. Other
On November 6, 1995 you will have the option either to return any BBN equipment
you may have at your home, or to purchase it for its book value. At the same
time you will also have the option to purchase the office equipment and
furnishings currently in your office at 150 CambridgePark Drive for its book
value. After November 6, you will no longer be entitled to your computer account
on Labs-n, access to BBN dial-in lines, use of electronic mail, or access to the
Internet via BBN, in each case except as required in connection with your
performance of consulting services for BBN.
You acknowledge that you will have no accrued but unused vacation as of November
6, 1995.
It is hereby expressly agreed that the amounts, benefits, and obligations
described herein (including the BBN benefits referenced under Section 8 above)
constitute the whole and total amount owing or to be paid to you by BBN and
there are no further amounts, benefits, or obligations owing to you other than
those described herein.
If any part of this Agreement shall be held to be unenforceable by any court of
competent jurisdiction, the unenforceable provision shall be deemed amended to
the least extent possible in order to render it enforceable and the remainder
of the Agreement shall remain in full force and effect.
It is specifically understood by you that BBN will make public this Agreement
and its terms consist with or as required by law, including filing a statement
of the terms hereof with the U.S. Department of Labor, and disclosing the
Agreement and its terms in public filings under the Securities Exchange Act of
1934.
<PAGE> 8
This Agreement shall be governed by Massachusetts law, without regard to choice
of law principles.
You hereby acknowledge that this Agreement is your own free, voluntary, and
knowing act and deed. Please indicate your agreement and acceptance of the terms
of this Memorandum of Agreement by signing below.
BOLT BERANEK AND NEWMAN INC.
By: /s/ George H. Conrades
--------------------------
George H. Conrades
Accepted and Agreed:
/s/ Stephen R. Levy
- -----------------------------
Stephen R. Levy
<PAGE> 1
Exhibit 10.12
MEMORANDUM OF AGREEMENT
TO: John T. Kish, Jr.
FROM: George H. Conrades
SUBJECT: Severance Arrangement
DATE: July 25, 1996
Consistent with the proposed recapitalization of BBN Domain Corporation
("Domain") and the redemption by BBN Corporation ("BBN") of a significant
portion of its ownership interest in Domain, you and I have discussed the
termination of your position as an officer and employee of BBN in connection
with your expanded responsibilities in leading Domain as an independent company.
This Memorandum of Agreement is intended to set forth the understanding reached
between you and BBN concerning your termination as an officer and employee of
BBN. Both this Agreement and your termination would be effective as of the date
of closing (the "Closing Date") under the Stock Purchase Agreement dated as of
June 29, 1996 among Domain, BBN, and the ABS Investor Group (the "Stock Purchase
Agreement"). In the event that the Closing Date has not occurred prior to
September 30, 1996 this Agreement shall be void and of no legal effect.
Through these arrangements, we would like to recognize the valuable
contributions and dedicated service you have provided to BBN for the past 2
years.
1. Termination of Employment Status
Effective as of the Closing Date, you hereby irrevocably (i) resign as Vice
President of BBN and all other offices and positions held with BBN or any of its
subsidiaries (not including Domain), and (ii) terminate your status as an
employee of BBN.
2. Termination Payments
BBN agrees that in the event your employment with Domain (or any successor in
interest, as the case may be) is involuntarily terminated for any reason other
than cause within one year following the Closing Date, and if the total
severance package paid to you in connection with such termination has a value of
less than $270,000, then BBN will pay to you at the time of
<PAGE> 2
such termination the difference between the value of the severance package paid
in connection with such termination, and $270,000.
In addition to any amounts paid under the next preceding paragraph, BBN also
agrees to pay you a bonus equal to $135,000 upon and subject to the Closing if
we receive the written consent of the ABS Investor Group to the payment to you
of such bonus.
As used herein, "involuntary termination" includes voluntary termination by you
if and only if (a) you are required to relocate from the Boston Metropolitan
Area, (b) you are not provided terms and conditions of employment by Domain (or
its successor in interest) which in the aggregate are comparable to your current
terms and conditions of employment, or (c) your position with Domain (or its
successor in interest) is other than as President or Chief Executive Officer. As
used herein, "cause" means your failure to perform (other than by reason of
disability) or your material negligence in the performance of your duties and
responsibilities for Domain (or its successor in interest), material breach by
you of any provision of any agreement between you and Domain (or its successor
in interest), or other conduct by you that is materially harmful to the
business, interests, or reputation of Domain (or its successor in interest).
Any transfer of employment from Domain to a successor in interest shall not, in
and of itself, be deemed to be involuntary termination.
BBN shall deduct from any such payments or any other payments to you hereunder
any withholding taxes and other amounts which it is from time to time required
to deduct under applicable law.
3. Forgiveness of Indebtedness
Effective following the Closing Date, the balance due (including principal of
$75,000 and accrued but unpaid interest to the date of forgiveness) under your
term promissory note to BBN in the original principal amount of $150,000, said
note dated August 4, 1994, will be forgiven by BBN, and the note will be marked
"canceled" and returned to you.
4. Relocation Expenses
It is agreed that notwithstanding your voluntary termination of employment with
BBN, you are not responsible to return to BBN any relocation expenses (or
related tax expenses) paid to you upon joining BBN in 1994.
5. Vesting and Exercisability of Stock Options/Termination of Employment
-2-
<PAGE> 3
Reference is made to certain Stock Option Certificates between you and BBN,
namely, the Stock Option Certificates dated August 17, 1994 for 50,000 shares
(the "1994 Stock Options), the Stock Option Certificates dated June 13, 1995 for
15,000 shares (the "1995 Stock Options"), and the Stock Option Certificates
dated January 17, 1996 for 675 shares (the "1996 Stock Options"), each under the
BBN 1986 Stock Incentive Plan, for an aggregate of 65,675 shares (together, the
"Stock Options").
The Stock Options are the only outstanding BBN stock options you currently hold.
The 1994 Stock Options are unvested, are at an exercise price of $14.125 per
share, and run (subject to certain exceptions) for an option period ending on
the earlier of 60 days following termination of your employment or August 17,
2001. The 1995 Stock Options are 25% vested (3,750 shares), are at an exercise
price of $18.125 per share, and run (subject to certain exceptions) for an
option period ending on the earlier of 60 days following termination of your
employment or June 13, 2002. The 1996 Stock Options are vested as to 313 shares,
are at an exercise price of $18.125 per share for 625 shares (including the 313
vested shares) and $28.875 for 50 shares, and run (subject to certain
exceptions) for an option period ending on the earlier of 60 days following
termination of your employment or January 17, 2000 for the 625 shares and
January 17, 2001 for the 50 shares.
With the approval of the Compensation and Stock Option Committee, which approval
will be sought on July 23, 1996 at a special Committee meeting, vesting of a
portion of the 1994 Stock Options will be accelerated such that the 1994 Stock
Options will become vested as to 15,000 shares and be exercisable to that extent
on the Closing Date, to remain exercisable to that extent by you (or by your
executor) through the period 60 days following the Closing Date. The portion of
the 1995 Stock Options and of the 1996 Stock Options vested on the Closing Date
likewise will remain exercisable to that extent by you (or by your executor)
through the period 60 days following the Closing Date.
The portions of the Stock Options which are unvested on the Closing Date will
terminate on the Closing Date, without regard to any "severance period"
extension. All terms and conditions of the Stock Options shall remain in full
force and effect, and shall apply, except as specifically modified herein. BBN
also agrees to assist you in the "cashless" exercise of all of your vested BBN
stock options, consistent with the terms and conditions of the stock options and
applicable rules and regulations.
You also hold 300,000 stock options in Domain pursuant to a Stock Option
Certificate dated June 29, 1994. In that you are not resigning from Domain, such
options will continue pursuant to their terms and the terms of the Domain option
plan. BBN also agrees to arrange with Domain for BBN to fund a supplemental
grant by Domain of 25,000 additional stock options in Domain, at an exercise
price of $0.61 per share, and otherwise on terms and conditions standard to
Domain. BBN will reserve and hold, to offer for redemption to Domain at a price
of $0.61 per share, 25,000 shares of the common stock of Domain to permit Domain
to fund your exercise of such options.
-3-
<PAGE> 4
6. Waiver of Claims
In conditions of the agreements, covenants, and conditions contained herein:
(a) You hereby forever release and discharge BBN, its past, current, and future
subsidiaries and other affiliates and all of their respective owners,
shareholders, officers, directors, employees, agents, successors, and assigns,
and all others connected with any of them (referred to collectively herein as
the "Company"), both individually and in their official capacities, from any and
all suits, claims, debts, agreements, damages, attorney's fees, expenses,
liabilities, actions, and any and all claims in law or in equity which you
(including your heirs, representatives, and assigns) have had, now have, or
might now have under any federal, state, or common law, or any agreements or
otherwise, whether now known or unknown, which you ever had, now have, or might
now have against the Company, including without limitation those arising
directly or indirectly out of your employment with and/or separation from BBN;
provided however, that nothing herein shall constitute a waiver of any of your
rights or relieve BBN of any of its obligations pursuant to this Agreement or
pursuant to indemnification and exculpation rights provided to you pursuant to
the articles of organization or by-laws of BBN or any of them or the Directors
and Officers liability insurance policy referred to in Section 8 below. You
acknowledge that the foregoing release includes, without limitation, a waiver of
all rights and claims arising under any and all state and federal employment
laws, regulations, or other requirements prohibiting employment discrimination,
including, but not limited to, claims for age discrimination under the Age
Discrimination in Employment Act of 1967, 29 U.S.C. Sec. 621 et seq., as
amended, and/or other similar laws, except that you are not releasing or waiving
any rights or claims for age discrimination or employment discrimination which
may arise after the date this Agreement is signed. You promise and agree that
neither you nor any of your heirs, representatives, or assigns will ever assert
in any forum any cause of action, right, or claim as to which this release of
claims may lawfully be applied.
(b) You hereby acknowledge that you have been afforded the opportunity to study
and consider this Agreement in full for a period of at least twenty-one days and
have been encouraged by BBN to consult with an attorney of your own choosing;
that you fully understand the terms and contents of this Agreement, have
executed this Agreement freely and voluntarily, without duress, coercion, or
undue influence; and that you were advised and understand that you may revoke
this Agreement within seven days of its execution and that this Agreement does
not become effective or enforceable until expiration of the seven day revocation
period.
(c) You agree that payment by BBN in accordance with the terms of this Agreement
shall constitute payment in full of any and all sums that are now or might
hereafter have become owing to you for services performed during your employment
with BBN.
7. Confidentiality Agreement
-4-
<PAGE> 5
You acknowledge that in the course of your employment with BBN, you have had
access to confidential and proprietary information about BBN, its operations,
future plans, current or prospective technologies, and other matters, disclosure
and/or use of which information to a competitor or in competition with BBN would
cause BBN to suffer serious and potentially irremediable loss.
You agree to hold in confidence and not to use or disclose to any person or
entity, unless first approved in writing by BBN, any Proprietary Information (as
herein defined). "Proprietary Information" shall mean all ideas, knowledge, or
information, which is not public knowledge, of any nature whatsoever concerning
BBN's business, operations, future plans, current or prospective technologies,
contracts, clients, and personnel information. "Proprietary Information" also
includes any and all information that BBN receives or has received belonging to
customers or others who do business with BBN under an understanding, express or
implied, that it would not be disclosed.
You further agree that, since a violation by you at any time of the foregoing
confidentiality provisions would cause BBN to suffer severe and irreparable
loss, without limiting other remedies, those provisions shall be specifically
enforceable against you in any court in Massachusetts.
You further agree that the terms of a certain agreement between you and Bolt
Beranek and Newman Inc. entitled "Proprietary Information and Confidentiality
Agreement", dated June 20, 1994, shall continue to survive in full force and
effect from and after the date hereof.
8. Benefits
From and after the Closing Date you will no longer be working at BBN as an
employee. As you are aware, as a result your benefits will be modified in
accordance with BBN personnel policy, the terms of BBN's benefit plans, and any
applicable laws and regulations. Except as otherwise expressly provided in this
Section 8 or as otherwise provided in Section 3.8 of the Stock Purchase
Agreement, your participation in all BBN benefit plans will cease as of the
Closing Date.
Health Insurance
Under the federal law known as COBRA, you may elect to continue your health
and/or dental coverage and that of your eligible dependents under BBN's group
plan for up to 18 months after a qualifying event (e.g. the date of termination
of your employment) by paying required premiums. You will be receiving future
information on health benefits, including COBRA. Please remember that, in
general, any change in BBN's health benefits during your period of COBRA
continuation which is applicable to BBN's employees will also be applicable to
you.
-5-
<PAGE> 6
Life and Long Term Disability Insurance
Sun Life Assurance currently allows individuals to convert to whole life
insurance without evidence of insurability at the time of termination of
employment. Similarly, UNUM permits individuals to convert Long Term Disability
coverage to a non-group plan without evidence of insurability upon termination
of employment. You will be offered both options, at your own expense, on the
Closing Date if the options are then being offered under the relevant provisions
of the then-existing policies.
Directors and Officers Indemnification
Your coverage as a former officer under the current BBN Directors and Officers
liability insurance policy is not affected by your termination of employment
with BBN. So long as the policy covers past officers and directors, this
coverage will continue for you. Further, to the extent allowed by law, you shall
be entitled to indemnification and exculpation rights currently provided under
the articles of organization or by-laws of BBN or any of them to which you are
entitled.
BBN Retirement Trust
Your payments under Section 2 above will not be includable as Credited
Compensation under the BBN Corporation Retirement Trust, and accordingly you
will be eligible for a Retirement Trust contribution only on the regular
compensation actually paid to you in fiscal 1996, subject to the relevant
provisions of the Retirement Trust Agreement. Following termination of your
employment with BBN, you will be entitled to a distribution from the Retirement
Trust in accordance with its terms.
Change of Control Arrangement
You acknowledge that the change of control severance arrangement between you and
Bolt Beranek and Newman Inc. dated April 27, 1995 has terminated without
obligation to BBN as a result of your termination of employment with BBN.
9. Other
On the Closing Date, you will return to BBN all confidential information and
documents, in or on whatever form or media, of BBN or of any of its subsidiaries
(not including Domain). After the Closing Date, you will also no longer be
entitled to your computer account on Labs-n, access to BBN dial-in lines, use
of electronic mail, or access to the Internet via BBN except as may be provided
through a transitional services agreement between BBN and Domain entered into on
the Closing Date.
-6-
<PAGE> 7
You acknowledge that you will have no accrued but unused vacation due from BBN
as of the Closing Date.
It is hereby expressly agreed that the amounts, benefits, and obligations
described herein (including the BBN benefits referenced under Section 8 above)
constitute the whole and total amount owing or to be paid to you by BBN and
there are no further amounts, benefits, or obligations owing to you other than
those described herein.
If any part of this Agreement shall be held to be unenforceable by any court of
competent jurisdiction, the unenforceable provision shall be deemed amended to
the least extent possible in order to render it enforceable and the remainder of
the Agreement shall remain in full force and effect.
It is specifically understood by you that BBN will make public this Agreement
and its terms consist with or as required by law, including filing a statement
of the terms hereof with the U.S. Department of Labor, and disclosing the
Agreement and its terms in public filings under the Securities Exchange Act of
1934.
This Agreement constitutes the entire agreement between you and BBN, and
replaces all prior agreements, communications, and understandings (including,
without limitation, the April 17, 1996 letter agreement between BBN and you)
concerning your employment and its termination and all matters relating thereto,
excluding only the Stock Option Certificates as modified by this Agreement, the
Proprietary Information and Confidentiality Agreement referred to herein, and
the Stock Purchase Agreement and related agreements. This Agreement may only be
amended by a writing, signed by you and an authorized representative of BBN.
This Agreement shall be governed by Massachusetts law, without regard to choice
of law principles.
You hereby acknowledge that this Agreement is your own free, voluntary, and
knowing act and deed. Please indicate your agreement and acceptance of the terms
of this Memorandum of Agreement by signing below.
BBN CORPORATION
By: /s/ George H. Conrades
-------------------------------
George H. Conrades
Accepted and Agreed:
-7-
<PAGE> 8
/s/ John T. Kish, Jr.
---------------------------------
John T. Kish, Jr.
Dated: July 25, 1996
-8-
<PAGE> 1
Exhibit 10.13
February 8, 1996
Dr. John M. Albertine .
Chairman
Albertine Enterprises, Inc.
1156 15th Street N.W.
Suite 505
Washington, DC 20005
Dear Jack:
As you know, the Board of Directors of BBN agreed in November to issue BBN stock
options to the members of BBN's Board of Visitors as compensation for the
members' services. However, because of your role as a director of the Company,
it was agreed that options would not be appropriate for you, and you agreed to
participate without compensation until we settled on a suitable arrangement.
At this time we would like to propose that compensation for your services on the
Board of Visitors be paid as follows. For each Board of Visitors meeting that
you attend, commencing upon your agreeing to this arrangement, $2,000 will be
credited to an unfunded deferred compensation account maintained on the books of
the Company, except that for the first meeting attended after this arrangement
is in place you will be credited with $4,000. At the beginning of each quarter
- --i.e., starting April 1, 1996, assuming this arrangement has previously been
put in place -- the total amount credited to your account during the quarter
just ended will be converted to BBN "stock units" based upon the closing price
of the stock at the immediately preceding quarter end. All units credited to
your account will be distributed to you in the form of BBN stock in a lump sum
simultaneous with the distribution to you of stock from the Company's Deferred
Compensation Plan for directors in which you participate. As you know, this
distribution will occur as soon as practicable after the close of the quarter in
which you cease to serve on the BBN Board of Directors.
The compensation arrangement described above is very similar to the terms of the
Deferred Compensation Plan for directors. Your rights under the arrangement
described above would be those of an unsecured creditor of the Company. You
would not have rights as a shareholder until actual shares were distributed to
you, although, as is currently the case with the Deferred Compensation Plan,
under current rules you would have reporting obligations under Section 16(a) of
the Securities Exchange Act of 1934 and would be restricted under Section 16(b)
of the Exchange Act with respect to "stock units" credited to your account.
<PAGE> 2
Dr. John M. Albertine
Page 2
February 8, 1996
If you are in agreement with the foregoing, please sign below and return this
letter.
Sincerely,
/s/George H. Conrades
Agreed and Accepted:
/s/John M. Albertine
Date: 2/8/96
<PAGE> 1
<TABLE>
EXHIBIT 11.1
BBN CORPORATION
COMPUTATION OF PER SHARE EARNINGS
Years Ended June 30, 1996, 1995 and 1994
(Dollars in thousands, except per-share data)
<CAPTION>
Year Ended June 30,
- ------------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
------------------------------ ------------------------------ -------------------------------
Fully Fully Fully
Primary Diluted Primary Diluted Primary Diluted
--------- --------- --------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Calculation of shares:
Weighted average of shares
outstanding 17,818,000 17,818,000 16,984,000 16,984,000 16,179,000 16,179,000
Incremental shares from use
of treasury stock method
for stock options (a) (a) 1,000,000 1,490,000 (a) (a)
----------- ----------- ----------- ----------- ----------- -----------
Shares used in per-share
calculations 17,818,000 17,818,000 17,984,000 18,474,000 16,179,000 16,179,000
=========== =========== =========== =========== =========== ===========
Income (loss) from
continuing operations $(49,902) $67,102 $(8,969)
Income (loss) from
discontinued opearations (6,740) (2,258) 1,145
-------- ------- -------
Net income (loss) $(56,642) $64,844 $(7,824)
======== ======= =======
Per-share amounts:
Income (loss) from
continuing operations $ (2.80) $ (2.80) $ 3.73 $ 3.63 $ (.55) $ (.55)
Income (loss) from
discontinued operations (.38) (.38) (.12) (.12) .07 .07
----------- ----------- ----------- ----------- ----------- -----------
Net income (loss) per share $ (3.18) $ (3.18) $ 3.61 $ 3.51 $ (.48) $ (.48)
=========== =========== =========== =========== =========== ===========
<FN>
(a) 1996 and 1994 incremental shares were antidilutive and, as a result, were
not included in the calculation of net loss per share.
</TABLE>
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES
<TABLE>
<S> <C>
DOMESTIC SUBSIDIARIES
BBN Advanced Computers Inc................. (a Massachusetts corporation)
BBN Certificate Services Inc............... (a Massachusetts corporation)
BBN Instruments Corporation................ (a Delaware corporation)
BBN International Corporation.............. (a Massachusetts corporation)
BBN Securities Corporation................. (a Massachusetts corporation)
Bolt Beranek and Newman Corporation........ (a Maine corporation)
LightStream Corporation.................... (a Massachusetts corporation, 85% owned by BBN)
Parlance Corporation....................... (a Massachusetts corporation)
Realtech Corporation....................... (a Massachusetts corporation)
FOREIGN SUBSIDIARIES
BBN Canada Limited......................... (a Canadian corporation)
BBN International Sales Corporation........ (a U.S. Virgin Islands foreign sales corporation)
BBN Manufacturing H.K. Limited............. (a Hong Kong corporation)
BBN U.K. Limited........................... (a United Kingdom corporation)
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements
of BBN Corporation on Form S-8 (File Nos. 333-03819, 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, 1996, except as to the information presented in the
first and second paragraphs of the Subsequent Events note for which the dates
are August 14, 1996 and September 9, 1996, respectively, on our audits of the
consolidated financial statements and financial statement schedule of BBN
Corporation as of June 30, 1996, 1995, and 1994, which reports are included in
this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
September 27, 1996
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
Exhibit 27.1
------------
<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>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 79,533
<SECURITIES> 40,742
<RECEIVABLES> 60,825<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 199,496
<PP&E> 48,069<F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 249,337
<CURRENT-LIABILITIES> 79,385
<BONDS> 73,170
<COMMON> 24,912
0
8,000
<OTHER-SE> 54,424
<TOTAL-LIABILITY-AND-EQUITY> 249,337
<SALES> 234,339
<TOTAL-REVENUES> 234,339
<CGS> 182,010
<TOTAL-COSTS> 182,010
<OTHER-EXPENSES> 108,711
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,697
<INCOME-PRETAX> (56,502)
<INCOME-TAX> (6,600)
<INCOME-CONTINUING> (49,902)
<DISCONTINUED> (6,740)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (56,642)
<EPS-PRIMARY> (3.18)
<EPS-DILUTED> 0
<FN>
<F1>THE RECEIVABLES AMOUNT IS SHOWN NET OF CONTRACT ALLOWANCES AND ALLOWANCES FOR
DOUBTFUL ACCOUNTS
<F2>THE PP&E AMOUNT IS SHOWN NET OF ACCUMULATED DEPRECIATION AND AMORTIZATION.
</FN>
</TABLE>
