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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM _______ TO _______
COMMISSION FILE NO. 0-21766
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BROADBAND TECHNOLOGIES, INC.
(Exact name of registrant as specified in its Charter)
DELAWARE 56-1615990
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4024 STIRRUP CREEK DR.
DURHAM, NORTH CAROLINA 27703
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including
area code:
(919) 544-0015
Securities registered pursuant to Section
12(b) of the Act:
NONE
Securities registered pursuant to Section
12(g) of the Act:
COMMON STOCK,
$.01 PAR VALUE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X__ No ____
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of voting stock held by nonaffiliates of the
registrant, as of March 13, 1997, was approximately $133,207,437 (based on the
last sale price of such stock as reported by the NASDAQ National Market System).
The number of shares outstanding of the registrant's common stock, $.01
par value, as of March 13, 1997, was 13,255,779.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the Proxy Statement to be filed by the registrant with the
Securities and Exchange Commission within 120 days after the end of the fiscal
year are incorporated by reference in Part III of this Form 10-K.
<PAGE>
BROADBAND TECHNOLOGIES, INC.
ANNUAL REPORT
ON
FORM 10-K
YEAR ENDED DECEMBER 31, 1996
PART I
ITEM 1. BUSINESS
GENERAL
BroadBand Technologies, Inc. was organized in the state of North Carolina in
July, 1988 and reincorporated in the state of Delaware in December, 1988. As
used herein, the term "Company" refers to BroadBand Technologies, Inc. The
Company's executive offices are located at 4024 Stirrup Creek Drive, Durham, NC
27703. Its telephone number is (919) 544-0015.
The Company designs, manufactures, markets and supports a sophisticated
electronics and software platform for the telecommunications industry, focusing
primarily on operators of local exchange telephone networks in the United
States. During the past several years, however, the Company expanded its
marketing efforts in Canada, Europe, Asia/Pacific and the Middle East markets.
Its platform, which involves patented technology, provides operators of fiber
based distribution networks with the capability to transmit voice, video and
data in a wide array of advanced, interactive entertainment, information,
communications, transaction and other services ("Advanced Interactive Services")
to residential and business subscribers.
RECENT DEVELOPMENTS
MANAGEMENT CHANGES
The Company recently reorganized its management team. Effective April 1, 1997,
David E. Orr will become the new President, Chief Executive Officer and a
Director of the Company. Salim A.L. Bhatia, a founder of the Company, will
continue to play an active management role as Chairman of the Board of
Directors. John R. Hutchins, III, will become Chairman Emeritus, and will remain
as a Director of the Company. Until joining the Company, David Orr was President
and Chief Executive Officer of Alcatel Network Systems and President of Alcatel
NAFTA, where he had general management responsibility for more than 6,000
employees and more than $1.5 billion in annual revenue. See "Executive Officers
of Registrant" following Item 4 for a description of the foregoing and other
recent management changes.
PATENT INFRINGEMENT SUIT
On March 18, 1997, the Company filed a legal action against General Instrument
Corporation alleging infringement of the Company's U.S. Patent No. 5,457,560 for
its switched digital broadband technology. On March 19, 1997 Next Level
Communications, a subsidiary of General Instrument Corporation, commenced a
legal action against the Company seeking to have the Company's U.S. Patent No
5,457,560 declared invalid and alleging that the Company is infringing two
patents of General Instrument Corporation. See Item 3 Legal Proceedings for a
description of these legal actions.
<PAGE>
BroadBand Technologies, Inc.
Annual Report
ITEM 1. BUSINESS (CONTINUED)
RECENT DEVELOPMENTS (CONTINUED)
SOUTHWESTERN BELL COMMUNICATIONS (SBC) TURNS UP TELEPHONY SERVICE ON FLX-2500
SYSTEM
In 1997 SBC began turning up initial customers for telephony service from the
Company's second generation platform, the FLX-2500. The turnup is in conjunction
with a 42,000 home field trial to provide residents in Richardson, Texas with
voice, data, video, and interactive services.
BOSCH TELECOM GMBH MEMORANDUM OF UNDERSTANDING
On March 17, 1997, the Company and Bosch Telecom GmbH announced their intent to
provide a full-service network solution to the German market and other selected
areas around the globe. The Company will provide switching, as well as transport
technology, with its second generation FLX-2500 product to deliver interactive
television, telephone and high-speed data. Bosch Telecom GmbH will provide
engineering and marketing support for the FLX-2500, as well as sales and
installation support. It is planned that Bosch Telecom GmbH will provide
telephony interfaces for the integrated, full-service network to network
operators. The relationship will allow the Company and Bosch Telecom GmbH to
combine efforts to develop an integrated system and market the system to
operators of local distribution networks. Both companies will develop their
respective products to interface with one another under a set of jointly-agreed
specifications. There can be no assurance that the Bosch Telecom GmbH Memorandum
of Understanding will result in a definitive agreement or orders for the
Company's products.
BELL ATLANTIC
Bell Atlantic is currently testing the Company's telephony capabilities of the
FLX-2500 system in the laboratory. Upon successful completion of the laboratory
tests, it is expected that Bell Atlantic will begin to turnup telephony
customers during the summer of 1997.
INTERNATIONAL
During the first quarter of 1997, the Company continued to expand its
international presence by shipping lab systems for technology evaluation and
system integration testing to BEZEQ (Israeli Telecom) and CSELT (Centro Studi e
Laboratori Telecomunicazioni), the Italian telecommunications research
establishment. The FLX-2500 System for the CSELT laboratories was purchased by
Telecom Italia. Samsung Electronics Company Ltd. Corporation and Samwoo
Telecommunications Company Ltd. have turned up 100 users in Korea for a video
trial, using the FLX switched digital broadband platform. Additional systems
have been ordered for laboratory evaluation by Korea Telecom.
PRODUCTS
The mission of the Company is to provide products and services for network and
service providers to implement a robust and economical electronic connection
enabling consumers to communicate and access on-line information, entertainment
and other interactive voice, video, data and multi-media services.
<PAGE>
BroadBand Technologies, Inc.
Annual Report
ITEM 1. BUSINESS (CONTINUED)
PRODUCTS (CONTINUED)
The Company's second generation product is a "global core" platform that enables
a Digital Loop Carrier (DLC) system providing the telephony interfaces to easily
interface with the Company's FLX-2500 System, which provides broadband video and
data interfaces and switching, as well as transport technology. The FLX-2500 is
a second generation modular platform which leverages its patented technology to
enable network operators to deploy the platform in a variety of configurations.
Telephony, data, video, and interactive services can be deployed simultaneously
or incrementally at the network operators choice. The Company believes the
platform provides the flexibility to partner with some of the world's most
experienced telecommunication providers. In North America, the DLC Access System
partner is Lucent Technologies' SLC-2000. The Company has agreements with SAT,
(Groupe SAGEM) to provide in France a DLC Access System, and Samsung Electronics
Company Ltd. and Samwoo Telecommunications Company Ltd. a DLC Access System in
Korea. In addition, Bosch Telecom GmbH has signed a Memorandum of Understanding
to provide a DLC Access System in Germany and other selected areas around the
globe.
Although the Company's first generation product included the telephony
interfaces, the Company believes the flexibility of its second generation
product, worldclass suppliers as partners providing the telephony interfaces and
a more cost competitive platform, make the FLX-2500 an attractive single,
integrated end-to-end access solution to the network operators.
FLX(R)-2500
The Company is completing development of the FLX-2500, a second generation Fiber
Loop Access (FLX) System. Units have been delivered for system integration,
testing, and are being trialed at SBC for telephony services. The base platform
and telephony capability of the product is expected to be available for
deployment in the first half of 1997 with broadband elements expected to become
available late in the fourth quarter of 1997 or early 1998, although there can
be no assurance that development will be completed on schedule. The FLX-2500
product consists of the switched digital architecture which supports both
broadband and telephony elements of a local access system that have been
designed to be integrated with the telephony and analog video elements of other
telecommunications systems suppliers. The resulting single, integrated full
service system is expected to allow customers to build fiber-to-the-curb local
distribution networks that combine the improved switched digital broadband
features of the Company's platform with the telephony and analog video features
of established telecommunications systems suppliers.
The FLX-2500 consists of a Host Digital Terminal (HDT) and an Optical Network
Unit (ONU) that are installed at different points in a fiber-to-the-curb local
distribution network and that are operated by a sophisticated software program.
These elements combine to deliver a full range of switched telephony services as
well as broadcast and interactive video services and high speed Internet access.
To provide these services, the system interfaces to a digital headend, an analog
headend, a telephony system and an Internet service interface provided by other
suppliers. Interfaces to other broadband services can be provided.
<PAGE>
BroadBand Technologies, Inc.
Annual Report
ITEM 1. BUSINESS (CONTINUED)
PRODUCTS (CONTINUED)
The FLX-2500's HDT receives digital telephony signals from the telephony access
system (via fiber optics) and digital broadband signals (via fiber optics)
containing video and Internet signals from the broadband feeder system and
multiplexes these signals into a single high-speed data stream for transmission
over a pair of optical fibers to the ONU located near the end user. The HDT also
provides switching functions for the broadband signals.
The ONU converts the optical signals received from the HDT back into standard
electrical signals and connects directly with residences using copper wire for
both the telephony and digital broadband connections. Inside the residence, the
telephony signal is connected to a telephone or other appropriate telephony
equipment and the digital broadband signal connects to a set-top, PC, or other
home terminal device which will be provided by other suppliers. The architecture
also transports an analog video signal directly from the analog headend over a
coax cable to the ONU and from the ONU directly to a television set without
requiring a set-top. The Company is developing an interface capability for
connecting broadband signals to computers. The product is being jointly
developed with Intel.
The FLX-2500 provides software programs that operate call processing, service
provisioning, network monitoring and testing functions needed for broadband
services and transport of narrowband services. The Company also provides a
network management capability called the Video Administration Module (VAM) which
interfaces between the FLX System and video billing and event provisioning
systems for digital video service. The VAM can be combined with the network
management systems of other suppliers. The VAM also provides the "video gateway"
that enables both independent programmers to access the network, and the network
operator to act as a common carrier for numerous providers of video services.
FLX(R)-1100
The Company's first generation product, the FLX-1100 System, consists of
software and multiple electronic modules installed at different points in a
fiber-to-the-curb local distribution network, which includes switched digital
video and telephony features. The Company continues to make the first generation
product, the FLX-1100, available to customers to maintain and support existing
projects. The Company expects this product will not represent a material portion
of revenues as customers migrate to the second generation of its product.
The FLX-1100 System allows fiber optic cables to be used to extend the public
telecommunications network from the local telephone company's central office
switch to the individual home or business (the "Local Loop"). The FLX-1100
System consists of a HDT, an ONU, a Video Headend and sophisticated software
programs. The FLX-1100 System connects to set-tops and telephones which will be
provided by other suppliers. The Company's HDT can be installed either at the
local central office or at a remote terminal location. The HDT connects with the
switch at the local central office to provide telephony service.
<PAGE>
BroadBand Technologies, Inc.
Annual Report
ITEM 1. BUSINESS (CONTINUED)
PRODUCTS (CONTINUED)
The HDT also contains the broadband switching capability to implement
interactive video services for subscribers served via the FLX-1100 System. The
Company's ONU is installed at the curb-side location and converts optical
signals received from the HDT back into standard electrical signals. The ONU
connects directly with residences using copper wire for the telephony
connections and coaxial cable for the video connection. The Company's Video
Headend, located at either the source of the video signals or at the telephone
company's central office, converts analog television signals to 45 Mb/s digital
signals or multiplexes existing digital video signals into the 45 Mb/s signals.
The Video Headend multiplexes the signals together for transmission by fiber to
the Company's HDT.
The Company's software operates call processing, service provisioning, network
monitoring and testing functions that run in the HDT. In addition, the Company
provides a network management capability called the Video Administration Module
(VAM) which interfaces between the FLX-1100 System and video billing and event
provisioning systems. The Video Administration Module also provides the "video
gateway" that both enables independent programmers to access the network, and
the network operator to act as a common carrier for numerous providers of video
services.
MARKET
GENERAL
The Company's primary market is companies that operate, or have plans to
operate, local fiber optics to the curb or building distribution networks to
provide transmission services for both narrowband and broadband services,
including a broad range of Advanced Interactive Digital Services, to residential
and business customers. Most local exchange telephone companies and cable
television companies are currently included in this market or are potentially in
this market. The Company initially devoted substantially all its resources to
configuring its products for, and marketing to, the seven Regional Bell
Operating Companies, GTE and the other independent operators of local exchange
telephone networks in the United States. Starting in 1994, the Company began
development of its second generation product, the FLX-2500 System that will be
deployed as a global core platform. The open design of the FLX-2500 enables the
flexibility to partner with some of the world's most experienced
telecommunications providers. The Company has partnered with Lucent Technologies
in North America to integrate the FLX-2500 as part of Lucent Technologies'
SLC(R)-2000 Access System. The Company's global core platform is also intended
to be integrated with SAT (Groupe SAGEM) Access Systems in France, Samsung
Electronics Company Ltd. and Samwoo Telecommunications Company Ltd. in Korea,
and with Bosch Telecom GmbH in Germany and other selected areas around the
globe. In 1996 the Company also began to market its platform to the emerging
Competitive Local Exchange Carriers(CLECs), which will compete directly with
Regional Bell Operating Companies (RBOCs) in the United States.
<PAGE>
BroadBand Technologies, Inc.
Annual Report
ITEM 1. BUSINESS (CONTINUED)
MARKET (CONTINUED)
TELEPHONE INDUSTRY EVALUATION AND PURCHASING PROCEDURES
The telephone industry generally evaluates new equipment and software through a
lengthy and multitiered process. Evaluation can take as little as a few months
for products that are only a small change from existing products in the
telephone network and can take as long as several years for complex products
based on completely new technologies. Products that facilitate the deployment of
fiber optic cable in the local distribution network, including the Company's FLX
System, are in the latter category. The process may vary to some extent
depending on the telephone company and the product being evaluated, the
priorities of the telephone companies, budgets and the efficiency with which
decisions are made about priorities and new products.
CUSTOMER STATUS
In July 1996, the Company signed a six and one half year, multi-million dollar
contract addendum to supply Lucent Technologies with broadband components in
support of a contract between Lucent & Bell Atlantic for the deployment of the
SLC-2000 Access System with FLX SDB (Switched Digital Broadband), platform that
will be used to modernize Bell Atlantic's network. The Company also signed a
general purchase agreement with Bell Atlantic for certain elements of the
FLX-2500. Prior to this contract award, the Company operated under its first
volume purchase agreement with Bell Atlantic Network Services, Inc. for its
first generation system, the FLX-1100. The supply agreement for the FLX-1100
covered sales to affiliates of Bell Atlantic Services. The current supply
agreement for the FLX-2500 with Lucent to provide SLC-2000 with FLX SDB to Bell
Atlantic is an exclusive commitment with Lucent to provide volume SDB purchases
from the Company over a six and one half year period. There can be no assurances
as to the timing of the purchases over the six and one half year period. The
Company must also meet specific product performance criteria to receive orders
from Lucent in support of the Bell Atlantic agreement. The Company's second
generation product, the FLX-2500, is also being field trialed in Richardson,
Texas as part of a 42,000 home evaluation. The FLX-2500 is also being tested and
evaluated in other Regional Bell Operating Companies (RBOCs), Competitive Local
Exchange Carriers (CLECs), and overseas telephone companies.
Prior to delivery of the FLX-2500, the Company also delivered its first
generation FLX-1100 System to SBC, Inc. for the initial trial in Richardson,
Texas and has sold its FLX-1100 system and related products to other Regional
Bell Operating Companies, some independent companies, and overseas telephone
companies for field trial evaluation.
COMPETITION
The segment of the telecommunications industry in which the Company competes is
intensely competitive. Many of the Company's competitors have more extensive
engineering, manufacturing, and marketing capabilities and greater financial and
personnel resources than those of the Company. The Company's ability to compete
is dependent upon several factors, including partners' capabilities, product
features, innovation, quality, reliability, service, support and price.
<PAGE>
BroadBand Technologies, Inc.
Annual Report
ITEM 1. BUSINESS (CONTINUED)
COMPETITION (CONTINUED)
The Company believes its competition may come from companies that have or are
developing products for a number of different types of technology. Included are
technologies that can be described as Switched Digital Broadband (SDB) with
fiber-to-the-curb, Hybrid-Fiber-Coax (HFC), Asynchronous Digital Subscriber Line
(ADSL), a Very High Speed Digital Subscriber Line (VDSL), Plain Old Telephone
Service (POTS) over fiber-to-the-curb and wireless broadband.
Companies that have announced plans to develop these technologies are Lucent
Technologies, ADC Communications, Alcatel, DSC, Fujitsu, Next Level
Communications (wholly owned by General Instrument), Northern Telecom, Raynet,
Reliance (RelTec), Scientific Atlanta, Pairgain and Westell. Some competitors
are developing systems that combine two or more of these different technologies
to transmit different types of services.
The Company expects price competition to be an important competitive factor,
together with other factors, including experience, product performance,
features, reliability and supplier strength. In a Request for Proposal (RFP)
decision during the fourth quarter of 1996, the Company believes a new or
alternative supplier of switched digital broadband had underbid the Company.
Failure of the Company to meet its development goals could have a material
adverse effect on the Company. The Company believes that the other key criteria
for competition in the market for electronics and software for local
distribution networks will be cost competitiveness, flexibility, revenue
generation capability, compatibility with the existing telephone or cable
television networks and upgradeability, as well as customer support. The Company
believes that it competes favorably on these factors for those telephone
companies that consider the capability to transmit high performance Advanced
Interactive Services important, but there can be no assurance the Company will
continue to compete favorably on these factors.
REGULATIONS
On February 8, 1996, President Clinton signed into law the Telecommunications
Reform Act which liberalizes the regulations that govern the telephone
companies, which constitute the Company's primary market. In addition, this law
permits the entry of other network operators into the telecommunications
marketplace.
Telephone companies are subject to extensive regulation. Both the federal and
state governments regulate the provision of basic and other telecommunications
services. Prior to using the Company's network technology to provide video
programming in their service territories, telephone companies are required
either to obtain cable television franchises from the relevant local
governments, or comply with federal statutory and regulatory requirements
governing "open video system" operators. Telephone companies offer data services
today and require no special government approval to deliver such services other
than the normal state and federal regulations for basic and other
telecommunications services.
<PAGE>
BroadBand Technologies, Inc.
Annual Report
ITEM 1. BUSINESS (CONTINUED)
RESEARCH AND PRODUCT DEVELOPMENT
The Company's development of its second generation product, the FLX-2500 made
significant progress during 1996. The FLX-2500 is a second generation modular
platform which enables network operators to deploy the platform in a variety of
configurations. Telephony, data, video, and interactive services can be deployed
simultaneously or incrementally at the network operators choice. The base
platform and telephony capability of the FLX-2500 platform is in field trials
and is expected to be available for general deployment in Canada and the United
States in the first half of 1997. Prior to customers testing the FLX-2500
broadband service capabilities, the Company is engaging in further development
work on broadband video and data modules that enable the use of longer and older
drop cables in the customer's installed base, as well as additional software
features. The broadband capabilities are expected to be available for deployment
in late fourth quarter of 1997 or early 1998, although there can be no assurance
that development can be completed on schedule. Both the telephony and broadband
modules of the FLX-2500 platform are available for lab testing, evaluation, and
field trials. The Company's products are expected to continue to evolve because,
(1) advances in technology and applications of its technology will result in
cost and reliability improvements, (2) constant evaluation and implementation of
customer application requirements in the form of new features and feature
enhancements and (3) development of spin-off products to support the SDB
deployment that could provide additional sources of revenue. To further
penetrate the market and expand into other areas of telecommunications, the
Company engages in a continuing program of research and product development. The
success of future development efforts will depend on, among other factors, the
Company's ability to attract and retain qualified design and development
personnel who are in great demand and limited supply. There can be no assurance
as to the success of the Company's research and development effort, or the
timing of such effort leading to products being available for customer
shipments.
The Company's research and product development costs charged to expense were
approximately $22,785,000, $19,434,000, and $15,422,000, for the years ended
December 31, 1996, 1995, and 1994, respectively. No software development costs
were capitalized in 1996, 1995, or 1994.
SALES, MARKETING AND CUSTOMER SUPPORT
The Company currently markets its products through its own sales force and
expects to continue to market its products through its own sales force both
domestically and internationally. In addition, the Company's products are
jointly marketed, sold and serviced in the United States and Canada by Lucent
Technologies (formerly AT&T Network Systems) and BroadBand Technologies. The
Company does not anticipate a reduction of resources for its sales and marketing
activities because of its alliance with Lucent Technologies. Also,
internationally the Company has agreements in place for its products to be
marketed, sold, and serviced by SAT in France and Samsung Electronics Company
Ltd. and Samwoo Telecommunications Company Ltd. in Korea. Bosch Telecom GmbH has
signed a Memorandum of Understanding to provide DLC Access System in Germany and
other markets. The Company's sales force maintains
<PAGE>
BroadBand Technologies, Inc.
Annual Report
ITEM 1. BUSINESS (CONTINUED)
SALES, MARKETING AND CUSTOMER SUPPORT (CONTINUED)
contact with the telephone company personnel who have responsibility for making
and implementing the business, technical and operational decisions relating to
purchasing, evaluating and deploying fiber optic systems for the local loop. The
Company's sales personnel typically have substantial prior experience marketing
products to the Regional Bell Operating Companies (RBOC), GTE and other major
independent telephone companies. The Company also selectively utilizes local
sales representatives in the international market and marketing personnel
maintain contact with telephone companies in these markets. The Company believes
that the knowledge of its sales personnel about both the personnel and the
operating procedures of the telephone companies for which they have
responsibility are important factors in the Company's sales efforts.
The primary function of the Company's customer support personnel is to provide
assistance to telephone company personnel in engineering, installing,
maintaining and operating the FLX System. This involves close coordination with
technical and operational personnel of the telephone companies. Customer support
personnel also assist the Company's marketing and research and development
groups by conveying to both groups the needs of the telephone companies that
have been communicated by telephone company personnel. In addition, customer
support personnel provide documentation, training and technical assistance to
the Company's customers.
MANUFACTURING AND SUPPLIES
The Company depends on outside suppliers for the continued availability of
components and materials, including printed circuit board assemblies. In large
part, final assembly and testing are performed by the Company's personnel at the
Company's manufacturing facility. The Company tests its products extensively
prior to shipment to the customer using an automated testing system that
incorporates proprietary procedures. Testing may include both environmental
testing to ensure products can withstand severe weather variations and the
electronic simulation of signal problems to test the effectiveness of devices in
the Company's products designed to alert telephone companies of equipment
malfunctions.
Many of the components used in the Company's FLX System are standard parts
available from many sources. However, certain ASICs and electro-optic components
used in the Company's FLX System are currently available only from single
sources, and other components are available from only a limited number of
sources. Some of the Company's sole-source and limited-source suppliers are new
companies which may prove to be unreliable sources of supply.
To date, the Company has experienced minimal supply problems, all of which have
been managed positively. The Company expects to continue for the foreseeable
future its policy of having the FLX System's subsystems and components
manufactured by third parties.
<PAGE>
BroadBand Technologies, Inc.
Annual Report
ITEM 1. BUSINESS (CONTINUED)
BACKLOG
The Company's backlog includes sales orders received by the Company that have a
scheduled delivery date prior to December 31, 1997. The aggregate sales price of
orders received and included in backlog was approximately $5.6 million and $11.6
million on December 31, 1996 and December 31, 1995, respectively. The change in
backlog is due to the timing of the testing and evaluation process as customers
transition to the Company's second generation product, the FLX-2500. The Company
believes that the orders included in the backlog are firm orders and will be
shipped prior to December 31, 1997. However, some orders may be canceled by the
customer without penalty where management believes it is in the Company's best
interest to do so.
PATENTS AND PROTECTION OF OTHER PROPRIETARY INFORMATION
The Company has been awarded patents in the United States. Additional patent
applications are pending in the United States and certain foreign countries.
There can be no assurance that any of these applications will result in the
award of a patent or that the Company would be successful in defending its
patent rights in any subsequent infringement actions.
In 1996 as competitors have announced competing products, the Company began to
focus greater attention on assessing its intellectual property. The Company is
continuing such efforts and intends to protect its intellectual property in a
manner that maximizes its business opportunity. The Company believes that its
patents provide a competitive advantage over other providers of switched digital
broadband products. There can be no assurance, however, that the patents of the
Company will be enforceable or that competitors will not be able to develop
products that do not infringe upon the patents of the Company. The Company has
recently brought an infringement action against General Instrument. See Item 3,
Legal Proceedings. On March 19, 1997, Next Level Communications, a subsidiary of
General Instrument Corporation, commenced a legal action against the Company in
the U.S. District Court for the Northern District of California (Next Level
Communications v. BroadBand Technologies, Inc., Civil Action No. C-97-0960),
among other things, seeking to have the Company's U.S. Patent No. 5,457,560
declared invalid, alleging that the Company is infringing two patents of General
Instrument Corporation relating to the transmission of digital video and seeking
an injunction against further infringement. See Item 3 Legal Proceedings.
BBT's patent portfolio covers the basic technology for implementing switched
digital broadband systems in the context of a fiber to the curb architecture.
The issued patents cover systems using a main site (HDT) and a remote site (ONU)
interconnected by fiber, providing downstream digital broadband and video
information to subscriber locations in response to upstream signals requesting a
given channel. An approach for multicasting one channel to multiple subscribers
is also covered by a patent that the Company has been notified will be issued as
U.S. Patent No. 5,619,498.
<PAGE>
BroadBand Technologies, Inc.
Annual Report
ITEM 1. BUSINESS (CONTINUED)
PATENTS AND PROTECTION OF OTHER PROPRIETARY INFORMATION (CONTINUED)
Because of the existence of a large number of patents in the telecommunications
field and the rapid rate of issuance of new patents, some components of the
Company's products may be covered by existing patents, without the Company's
knowledge. If so, the Company believes that, based upon industry practices,
necessary licenses or rights under such patents may be obtained on terms which
would not have a materially adverse financial effect on the Company.
The Company has received Notice of Publication for registration for "BBT", "FLX"
and "BroadBand Technologies" as trademarks for use in the United States.
In addition to the patent protection described above, the Company protects its
software through contractual arrangements with its customers and through
copyright protection procedures.
The Company acquired ownership rights to a significant amount of its technology
from Siecor Corporation in July 1988. Under that agreement, Siecor Corporation
transferred exclusive ownership of the technology to the Company in return for
the right to receive royalties from the sale of products, incorporating the
transferred technology. Until 1998, the Company cannot transfer or license the
technology acquired from Siecor Corporation on an exclusive basis without prior
consent of Siecor Corporation. Siecor Corporation may not unreasonably deny its
consent. In 1996 the Company renegotiated the terms of the royalty agreement
which in effect reduced the royalty percentage.
EMPLOYEES
As of December 31, 1996, the Company had a total of 333 employees. The
Company is not a party to any collective bargaining agreement.
ENVIRONMENTAL AFFAIRS
The Company's manufacturing operations are subject to numerous federal, state,
and local laws and regulations designed to protect the environment. There are no
administrative or judicial proceedings pending, or threatened against the
Company alleging violations of such environmental laws or regulations.
Compliance with these laws and regulations has not had, and is not expected to
have, a material effect upon the capital expenditures, earnings, and competitive
position of the Company.
RISK FACTORS
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, readers of this document are advised that this
document contains both statements of historical facts and forward looking
statements, which include statements about the Company's Second Generation
Product, the expected action of customers,corporate partners, and competitors
and future financial requirements. Forward looking statements
<PAGE>
BroadBand Technologies, Inc.
Annual Report
ITEM 1. BUSINESS (CONTINUED)
RISK FACTORS (CONTINUED)
herein, are subject to certain risks and uncertainties that could cause actual
results to differ materially from those indicated by the forward looking
statements. To remain competitive, the Company must continue to invest
substantial resources in research and development and to achieve development
results in its Second Generation product and future products that meet the
specific needs of customers, including product performance, features,
reliability and price competitiveness. There can be no assurance the Company
will be successful in such efforts. In a fourth quarter 1996 RFP decision, the
Company believes an alternative or new supplier of switched digital broadband
had underbid the Company and expects price competition to be an important
competitive factor, together with other factors, including experience, product
performance, features, reliability and supplier strength. Failure of the Company
to meet its development goals could have a material adverse effect on the
Company. Notwithstanding such investment, competitors may develop competing
technology and products that are more attractive to customers than are the
technologies and products of the Company and may offer such products at
materially lower prices.
Other risk factors include the possibility that telephone companies may not
widely deploy the Company's products in their local distribution networks. The
Company must complete the development of the new products that will be
integrated with Lucent Technologies' SLC(R)-2000 Access System and the joint
product must meet the industry standards established by Bell Communications
Research and must be compatible with the products of other telephone company
suppliers, including competitors of the Company. The provisions of the Company's
agreement with Lucent Technologies makes sales of the Company's new products in
the United States and Canada substantially dependent on the marketing efforts of
Lucent Technologies, which will continue to market alternative technology in
competition with the joint Lucent Technologies/BroadBand Technologies product.
In recent years, the purchasing behavior of the Company's large customers has
increasingly been characterized by the use of fewer, larger contracts. This
trend is expected to intensify, and contributes to the variability of the
Company's results. Such larger purchase contracts typically involve longer
negotiating cycles, require the dedication of substantial amounts of working
capital and other Company resources and in general, require investments which
may substantially precede recognition of associated revenues. Moreover, in
return for larger, longer-term purchase commitments, customers often demand more
stringent acceptance criteria, which can also cause revenue recognition delays.
For example, customers have requested that products be priced based on volume
estimates of customers' future requirements, but the failure of such customers
to take delivery of product comparable to volume anticipated, could result in
negative margins on product sales. Certain multi-year contracts may relate to
new technologies which may not have been previously deployed on a large-scale
commercial basis. The Company may incur significant initial cost overruns and
losses on such contracts which would be recognized in the quarter in which they
became ascertainable. Future estimates on such contracts are revised
periodically over the lives of the contracts, and such revisions can have a
significant impact on reported earnings in any one quarter.
<PAGE>
BroadBand Technologies, Inc.
Annual Report
ITEM 1. BUSINESS (CONTINUED)
RISK FACTORS (CONTINUED)
As the Company announces succeeding generations of its products to better meet
the changing requirements of customers, customers may delay orders of existing
products until the next generation product is available for shipment, or until
small volumes of next generation products are adequately field tested.
The Company competes against many larger companies that have significantly
greater resources than the Company. The Company, which has an accumulated
deficit of approximately $133 million as of December 31, 1996, has never been
profitable and may never achieve profitability. The Company may require
additional capital and may not be able to raise such capital or may be able to
raise such capital only on unfavorable terms. In May 1996, the Company sold $115
million of 5% convertible five-year notes. Failure to pay principal and interest
when due would have a material adverse effect on the Company.
Currently, the Company is dependent upon a two primary customers in North
America, which if lost would deprive the Company of substantially all its
revenue. As the Company's market is dominated by a few large potential
customers, the Company may not have sufficient bargaining power to sell its
products on favorable terms. If the Company is successful in expanding its
sales, growth will place significant strain on its operational resources and
systems. In some cases, the Company depends on single source suppliers or parts
which are available only from a limited number of sources. Delays in filling
orders of the Company's customers resulting from supplier delays may cause
customer dissatisfaction. The customers of the Company are subject to
substantial government regulation which could affect their ability to utilize
the products of the Company. To remain competitive, the Company must continue to
invest substantial resources in research and development. Notwithstanding such
investment, competitors may develop competing technology and products that are
more attractive to customers than is the technologies and products of the
Company and may offer such products at materially lower prices. The ability of
the Company to complete development projects on schedule and to otherwise
compete effectively depends upon its ability to attract and retain
highly-skilled engineering, manufacturing, marketing and managerial personnel,
which in the current environment are becoming increasingly difficult to recruit
and retain. The patent and other proprietary rights of the Company may not
prevent the competitors of the Company from developing non infringing technology
and products that are more attractive to customers than the technology and
products of the Company. The technology and products of the Company could be
determined to infringe the patents or other proprietary rights of others. The
market price of the Company's securities has been very volatile as a result of
many factors, some of which are outside the control of the Company, including,
but not limited to, quarterly variations in financial results, announcements by
the Company, its competitors, customers, potential customers or government
agencies and predictions by industry analysts, as well as general economic
conditions. Sales by the Company's existing stockholders, trading by
short-sellers and other market factors may adversely affect the market price of
the Company's securities. Any or all these risks could have a material adverse
affect on the market price of the securities of the Company. Continued pursuit
of international markets exposes the Company to increased risks of currency
fluctuations and controls, political and social risks, trade barriers, new
competitors and other risks associated with international markets.
<PAGE>
BroadBand Technologies, Inc.
Annual Report
ITEM 2. PROPERTIES
The Company leases approximately 96,000 square feet in an office park located
outside of Research Triangle Park, North Carolina. Substantially all the
operations of the Company are conducted at this facility. The lease has a term
which commenced in April 1993 and terminates in June 1998, with two three-year
renewal options. The Company also leases a sales and marketing facility in The
Surrey Research Park located in Surrey, England. The lease commenced in June
1994. The Company believes that the above described facilities are suitable and
adequate to meet the Company's requirements.
ITEM 3. LEGAL PROCEEDINGS
On March 18, 1997, the Company commenced a legal action against General
Instrument, Inc. in the U.S. District Court for the Eastern District of North
Carolina (BroadBand Technologies, Inc. vs. General Instrument Corp. Civil
Action No. 5.97-CB-173BR(2) for infringement of the Company's United States
Patent No. 5,457,560 (the "560 Patent") titled "Fiber Optic Telecommunication
System Employing Continuous Downlink, Burst Uplink Transmission Format and
Preset Uplink Guardband." The Complaint alleges, among other things, that
General Instrument, has made, tested and used for a broadband access system
that infringes the 560 Patent (the "Infringing System"), has offered the
Infringing System for sale, has contracted to sell the Infringing System to
NYNEX, and has induced others to infringe the 560 patent. The Company is seeking
to enjoin General Instrument from further acts infringing the 560 Patent and
to recover compensatory damages and treble damages. On March 19, 1997, Next
Level Communications, a subsidiary of General Instrument Corporation
commenced a legal action against the Company in the U.S. District Court for the
Northern District of California. (Next Level Communications v. BroadBand
Technologies, Inc., Civil Action No. C-97-0960), among other things, seeking
to have the Company's U.S. Patent No. 5,457,560 declared invalid, alleging that
the Company is infringing two patents of General Instrument Corporation relating
to the transmission of digital video and seeking an injunction against further
infringement.
There can be no assurance as to success of the Company's infringement action or
the amount of damages recovered if the Company is successful. Nevertheless, the
company has invested substantial amounts in developing its technology and
intends to protect its intellectual property in a manner that maximizes its
business opportunity.
The Company's operations are subject to numerous federal, state and local laws
and regulations, including those regarding employment discrimination, safety,
wages and environmental matters. The Company may also be subject to product
liability and breach of contract claims in civil actions. There are no material
administrative or judicial proceedings pending or threatened against the
Company. Compliance with applicable laws and regulations has not had, and is not
expected to have, a material effect upon the operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1996.
<PAGE>
BroadBand Technologies, Inc.
Annual Report
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (CONTINUED)
EXECUTIVE OFFICERS OF THE REGISTRANT
Executive Officers are elected annually and serve at the pleasure of the Board
of Directors. The current executive officers of the Company are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
NAME OFFICE OFFICER SINCE AGE
Salim A.L. Bhatia President, Chief Executive Officer and Director 1988 46
John R. Hutchins, III Chairman of the Board and Director 1988 62
J. Richard Jones Executive Vice President, Assistant Secretary and 1988 49
Director
Timothy K. Oakley Vice President, Chief Financial Officer, Treasurer 1996 35
and Secretary
</TABLE>
As of the end of 1996, the following people held these positions:
NAME OFFICE OFFICER SINCE AGE
Richard L. Popp Executive Vice President 1993 58
Robert W. Henry Vice President 1990 44
Wayne C. Machon Vice President 1989 51
Mr. James Chitkowski is assuming the responsibilities of Mr. Henry, and Mr.
Leonard D. Hayes is assuming the responsibilities of Mr. Machon; however, they
have not been elected officers of the Company.
Mr. Bhatia is a founder of the Company and has served as President and Chief
Executive Officer and as a director of the Company since its formation in July
1988. Mr. Bhatia was a Vice President at Siecor Corporation, a supplier of fiber
optic products to the telecommunications industry, from November 1984 to July
1988. Between February 1981 and July 1988, Mr. Bhatia held various sales,
marketing, strategy and business development positions at Siecor. Prior to 1981,
Mr. Bhatia held various sales, engineering, operations and consulting positions
at Corning, Inc., Arthur D. Little, and Esso Petroleum Co. Ltd . (UK).
Dr. Hutchins is a founder of the Company and has served as Chairman of the Board
and as a director of the Company since its formation in July 1988. Except for a
period during 1990 and 1991, he also served as the Company's Treasurer and
Secretary until November 1992. Prior to July 1988, Dr. Hutchins was Executive
Vice President at Siecor Corporation, which he joined in September 1985. Prior
to joining Siecor, Dr. Hutchins served as Senior Vice President, Vice President
and Director of Research and Development at Corning Incorporated for 12 of his
25 years there. Since March 1, 1991, Dr. Hutchins has been employed by the
Company on a part-time basis.
<PAGE>
BroadBand Technologies, Inc.
Annual Report
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (CONTINUED)
EXECUTIVE OFFICERS OF THE REGISTRANT (CONTINUED)
Dr. Jones is a founder of the Company and has served as Executive Vice President
and as a director of the Company since its formation in July 1988. He is the
chief technical officer of the Company and is responsible for advanced
technology development. From February 1987 until July 1988, he worked for Siecor
Corporation where he held the position of Director of Broadband Development.
Prior to February 1987, Dr. Jones held management and development-oriented
positions at FiberLAN, Inc. (a Siecor-BellSouth joint venture), Siecor
Corporation, Harris Corp., a manufacturer of communications systems for military
and industrial markets, and Bell Laboratories.
Mr. Orr has served as President, Chief Executive Officer, and Director since he
joined the Company in April 1997. Prior to joining the Company, he was employed
at Alcatel Network Systems, Inc. as President and Chief Executive Officer since
August 1991. At Alcatel Network Systems, which designs, manufactures and markets
a full line of telecommunications systems products for the transport and
management of voice, data, and image traffic, he was responsible for operations
in Raleigh and Clinton, North Carolina; Longview, Texas; Nogales, Mexico;
Georgetown, Canada; and San Jose, California. Prior to joining Alcatel, he was
Vice President and General Manager of Rockwell Internationals' Network
Transmission Systems Division. He held various other management positions at
Rockwell since joining the company in 1985. Prior to joining Rockwell, he held
various positions with GTE including Network Director for General Telephone
Company of Wisconsin.
Mr. Oakley has served as Vice President and Chief Financial Officer since he
joined the Company in April 1996. Prior to joining the Company, he was employed
at MCI Telecommunications as the Director of Finance, Management Reporting,
Control and Analysis for the consumer/small business marketing segment; and
Chief Financial Officer of the MCI-ASYNC Voice Messaging subsidiary. For the
years prior to joining MCI in 1990, he was employed _by _the auditing group of
Coopers and Lybrand; for Domino's Pizza as Director of Finance for a franchise
with 46 stores; and for Bell South Advertising and Publishing as Manager, Market
Planning and Analysis.
Mr. Popp had served as Executive Vice President of the Company from September
1993 to March 1997. Prior to joining the Company, he was the President and Chief
Executive Officer of FiberCom, a local area networking company, from 1987 until
September of 1993. Between 1982 and 1987, he was employed by Paradyne
Corporation as Vice President of Marketing and Vice President of Development.
For the seventeen years prior to joining Paradyne, he held various management
positions at IBM.
Mr. Henry served as Vice President of the Company from May 1990 to March 1997.
He joined the Company in April 1990 and since that time has been responsible for
sales of the FLX System to telephone companies. From January 1987 until March
1990, he served as Bell Group Manager of Teradyne, Inc., a manufacturer of
automated test equipment for electronic and telecommunications companies, where
he was responsible for marketing and sales of test systems to the Bell telephone
operating companies.
<PAGE>
BroadBand Technologies, Inc.
Annual Report
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (CONTINUED)
EXECUTIVE OFFICERS OF THE REGISTRANT (CONTINUED)
Mr. Machon had served as Vice President of the Company from May 1989 to February
1997. He joined the Company in December 1988 and since that time has been
responsible for manufacturing and procurement. From June 1978 until he joined
the Company, he held various manufacturing positions for Data General
Corporation. From July 1987 to November 1988, he was the Plant Manager for Data
General Corporation's largest production facility.
Mr. Chitkowski joined the Company in September 1996 as Vice President of Sales.
From March 1997, Mr. Chitkowski has served as Vice President of Sales and
Marketing of the FLX system to companies in North America and Puerto Rico. From
June 1992 to June 1993 he was Vice President of Marketing and Sales for
Telesciences Transmission Systems. From 1993 June to November 1995 he held the
position of Regional Vice President with DSC Communications Corp. From November
1995 to July 1996 he was Vice President Sales for Tekelec. In July and August of
1996 he consulted with Manchester International.
Mr. Hayes joined the Company in March 1992 as Director of Materials. From March
1997, Mr. Hayes has served as Vice President of Manufacturing and Quality and is
responsible for all manufacturing and procurement functions inclusive of all
contract construction and administration. In his twenty three years in materials
and manufacturing operations, he has held executive materials, logistics, and
manufacturing positions at Commodore International Ltd., where he was
responsible for worldwide materials and logistics functions in support of a $1.1
billion revenue stream and senior management positions in materials and
operations at Data General Corporation.
PART II
ITEM5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS
MATTERS
The Company's Common Stock, $.01 par value, is traded in the over-the-counter
market and is quoted on the NASDAQ National Market System under the symbol
"BBTK". The following tables set forth the high and low daily bid prices for
each quarter during the past two fiscal years as reported by NASDAQ. Such
quotations reflect inter-dealer prices without markup, markdown or commissions
and may not necessarily represent actual transactions.
1996 LOW HIGH
First Quarter $15.75 $28.25
Second Quarter 23.50 34.62
Third Quarter 20.00 35.00
Fourth Quarter 15.25 23.00
1995 LOW HIGH
First Quarter $21.25 $31.50
Second Quarter 22.63 28.88
Third Quarter 19.50 27.00
Fourth Quarter 15.75 22.00
<PAGE>
BroadBand Technologies, Inc.
Annual Report
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS
MATTERS (CONTINUED)
No cash dividends have been declared or paid by the Company and the Company has
no present intention of declaring a cash dividend.
As of March 18, 1997, there were approximately 9,000 holders of record and
beneficiary shareholders of the Company's Common Stock.
ITEM 6. SELECTED FINANCIAL DATA
The following is a summary of certain condensed statement of income and balance
sheet information of the Company for the five years ended December 31, 1996.
This summary should be read in conjunction with the financial statements and
notes thereto appearing elsewhere in this report. All share and per share
amounts have been restated for a one-for-two reverse stock split effected in
November 1992, and all amounts except per share amounts are presented in
thousands. No cash dividends have been declared or paid in any of the years
presented.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------
STATEMENT OF INCOME DATA
<S> <C> <C> <C> <C> <C>
Net Sales $23,144 $22,705 $27,012 $15,136 $5,343
Cost of Products Sold 21,744 23,917 27,908 19,453 5,879
Gross Profit 1,400 (1,212) (896) (4,317) (536)
Expenses:
Research and Development 22,785 19,434 15,422 8,907 5,325
Selling and Administration 11,647 11,627 11,284 6,965 5,717
------ ------ ------ ------ -----
Total expenses 34,432 31,061 26,706 15,872 11,042
------ ------ ------ ------ ------
Operating Loss (33,032) (32,273) (27,602) (20,189) (11,578)
Other Income(Expense), Net: 2,014 4,371 3,432 1,199 (243)
----- ----- ----- ----- -----
Net Loss ($31,018) ($27,902) ($24,170) ($18,990) ($11,821)
========== ========== ========== ========= =========
Average Common Outstanding Shares
Supplemental* 13,200 13,092 13,030 9,968 7,515
====== ====== ====== ===== =====
Historical 13,200 13,092 13,030 7,284 2,617
====== ====== ====== ===== =====
Loss Per Share:
Supplemental * ($2.35) ($2.13) ($1.85) ($1.89) ($1.54)
======= ======= ======= ======= =======
Historical ($2.35) ($2.13) ($1.85) ($2.59) ($4.42)
======= ======= ======= ======= ======
BALANCE SHEET DATA (DEC. 31)
Cash, Cash Equivalents &
Investments $148,758 $65,351 $80,290 $107,400 $16,715
Total Assets 171,347 85,958 96,371 125,298 22,086
Long-term debt 115,000 43 331 802 6,188
Total Stockholders' Equity $28,901 $58,868 $79,379 $103,273 $11,724
======= ======= ======= ======== =======
</TABLE>
* Supplemental disclosure is provided for periods presented in the
Company's initial S-1 Registration Statement.
<PAGE>
BroadBand Technologies, Inc.
Annual Report
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
Net sales in 1996 were $23.1 million compared to $22.7 million in 1995 and $27.0
million in 1994. The slightly higher sales volume in 1996 as compared to 1995
occurred as customers transitioned to the Company's second generation product.
Net loss for 1996 was $31.0 million compared to a net loss of $27.9 million in
1995 and a net loss of $24.2 million in 1994. Net losses continue to reflect the
long evaluation and implementation process that is typical of customers for
major communications infrastructure changes, as well as investment in the second
generation product and market development of the FLX-2500 platform. Net losses
also reflect the impact of higher net interest expense and the expenses
associated with the $115 million convertible note offering in May 1996. The
Company expects to continue to incur losses in future periods.
GROSS MARGIN:
Cost of sales for 1996 was $21.7 million compared to $23.9 million in 1995 and
$27.9 million in 1994. Gross margin as a percent of net sales was a positive 6%
in 1996, a negative 5% in 1995 and a negative 3% in 1994. The improved gross
margin for 1996 is a result of a change in product mix compared to the prior
years.
In a recent RFP decision, the Company believes an alternative or new supplier
had underbid the Company and expects price competition to be an important
competitive factor, together with other factors, including experience, product
performance, features, reliability and supplier strength. Consequently, the
Company expects that price competition could have an adverse impact on the
Company's margins. The Company's ability to continue to meet its cost reduction
goals could have a material effect on the Company's profitability.
RESEARCH AND DEVELOPMENT EXPENSES:
Research and development expenses for 1996 were $22.8 million compared to $19.4
million in 1995 and $15.4 million in 1994. The increases in research and
development expenditures were primarily the result of additional personnel
engaged in the development of the hardware and software for the Company's Second
Generation platform and enhancements and supports for its First Generation
products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
Selling, general and administrative expenses for 1996 were $11.6 million
compared to $11.6 million for 1995 and $11.3 million for 1994. These expenses
are a result of the Company's investment in resources that enable the Company to
support field service, sales and marketing as well as administrative
requirements.
<PAGE>
BroadBand Technologies, Inc.
Annual Report
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
OTHER INCOME (EXPENSE), NET:
Other income (expense) consists primarily of interest income and interest
expense. The interest income (expense) category reflects net interest income
earned on cash, cash equivalents and both short and long-term investment
balances during 1996 of $2.0 million compared to net interest income of $4.4
million and $3.4 million in 1995 and 1994 respectively. The increase in interest
expense for 1996 as compared to 1995 and 1994 was the result of interest expense
on the convertible note offering. The increases in interest income was
principally the result of a higher rate of return for 1995 by Company's
investments compared to the rate of return for 1994.
LIQUIDITY AND CAPITAL RESOURCES:
Cash and cash equivalents, which consists of investments in demand deposits,
commercial paper and U.S. Treasury Obligations with maturities of less than 90
days when purchased; short-term investments, which consists of commercial paper
and U.S. Treasury Obligations with maturities of less than 360 days; and long-
term investments with maturities greater than 360 days increased $85 million
during 1996 to $148 million at the end of 1996, compared to $63 million at the
end of 1995, and $80 million at the end of 1994.
The Company issued on May 17, 1996, $115 million of 5% Convertible Subordinated
notes due May 15, 2001 that entitles Holders of Convertible Notes to convert
into shares of the Company's common stock. Interest is payable on May 15th and
November 15th of each year, commencing on November 15, 1996. Each $1,000 note is
convertible into 24.1080 shares of common stock of the Company at a conversion
price $41.48 per share. The notes are not redeemable by the Company prior to May
15, 1999. Thereafter, the Company may redeem the notes initially at 102%, and at
decreasing prices thereafter to 100% at maturity, in each case together with
accrued interest. Costs associated with this financing have been deferred and
are being amortized on a straight-line basis over the term of the debt.
During 1995, the Company received $7.0 million from Bell Atlantic for Warrants
that entitle Bell Atlantic to purchase one million shares of BroadBand
Technologies' Common Stock at an exercise price of $41.75 per share. Property
and equipment additions during 1995 and 1994, plus cash required for research
and development and other operating activities represented the majority of the
decrease in the cash balance during 1995 and 1994. The increase during 1993 was
primarily a result of the Company's two public offerings which raised total net
proceeds of $105 million, offset by cash required for operating activities and
property and equipment additions.
The Company had long-term debt associated with various lease arrangements for
the purpose of financing the acquisition of general furnishings and office,
computer and manufacturing equipment. The unpaid long term balance of these
obligations was $.0 million, $.1 million and $.3 million at December 31, 1996,
1995 and 1994, respectively.
<PAGE>
BroadBand Technologies, Inc.
Annual Report
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Management expects that cash on hand and cash equivalents at December 31, 1996
and cash generated from the sale of the Company's products will be adequate to
fund operating requirements and property and equipment expenditures in 1997
based on current projections of operations. However, management recognizes the
dynamic nature of the telecommunications industry and the possibility that the
Company's product initiatives might increase working capital requirements. In
such event, the Company would consider appropriate financing alternatives.
<PAGE>
BroadBand Technologies, Inc.
Annual Report
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
BroadBand Technologies, Inc. -- Index to Financial Statements
A. Financial Statements
Report of Independent Auditors..........................22
Statements of operations for the years ended
December 31, 1996, 1995 and 1994........................23
Balance Sheets as of December 31, 1996 and 1995......24-25
Statements of Stockholders' Equity for the years
ended December 31, 1996, 1995 and 1994..................26
Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994........................27
Notes to Financial Statements........................28-39
B. Supplemental Financial Information -- Unaudited.........40
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders
BroadBand Technologies, Inc.
We have audited the accompanying balance sheets of BroadBand Technologies, Inc.
as of December 31, 1996 and 1995, and the related statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 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 financial position of BroadBand Technologies, Inc. at
December 31, 1996 and 1995 and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1996 in conformity
with generally accepted accounting principles.
January 31, 1997
Raleigh, North Carolina
<PAGE>
BroadBand Technologies, Inc.
Statements of Operations
YEAR ENDED DECEMBER 31
1996 1995 1994
--------------------------------------------
Net sales (NOTES 1 AND 15) $ 23,144,003 $22,705,311 $27,012,219
Costs and expenses:
Cost of sales 21,744,255 23,917,118 27,908,535
Research and development 22,784,948 19,433,536 15,421,558
Selling, general and
administrative 11,647,386 11,627,305 11,284,207
--------------------------------------------
56,176,589 54,977,959 54,614,300
--------------------------------------------
--------------------------------------------
Loss from operations (33,032,586) (32,272,648) (27,602,081)
Other income (expense):
Interest expense (4,063,372) (65,417) (123,475)
Interest income 6,077,545 4,436,016 3,555,353
===============================================
Net loss $(31,018,413) $(27,902,049) $ (24,170,203)
===============================================
===============================================
Net loss per share $ (2.35) $ (2.13) $ (1.85)
===============================================
Average number of shares used in per share
calculations 13,200,312 13,091,958 13,030,318
===============================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
BroadBand Technologies, Inc.
Balance Sheets
DECEMBER 31
1996 1995
--------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 107,221,929 $ 44,542,417
Restricted cash 451,042 2,706,348
Short-term investments (NOTE 3) 22,359,232 18,102,178
Accounts receivable, trade 6,284,217 4,313,465
Inventories (NOTE 4) 1,532,907 2,007,362
Prepaids and other current assets 954,288 692,171
--------------------------------------
Total current assets 138,803,615 72,363,941
Long-term investments (NOTE 3) 18,725,698 -
Furniture, fixtures and equipment:
Equipment and software 21,779,766 21,947,247
Furniture and fixtures 655,487 583,739
Leasehold improvements 1,296,647 1,296,647
--------------------------------------
23,731,900 23,827,633
Accumulated depreciation and
amortization (13,186,825) (10,233,135)
-------------------------------------
Net furniture, fixtures and equipment 10,545,075 13,594,498
Deferred debt issuance costs, (net of
accumulated amortization of
$464,713) (NOTE 6) 3,272,787 -
-------------------------------------
Total assets $ 171,347,175 $ 85,958,439
=====================================
<PAGE>
BroadBand Technologies, Inc.
Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995
------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
<S> <C> <C>
Accounts payable $ 3,564,317 $ 4,528,790
Accrued expenses 6,789,232 5,882,013
Deposits 3,258,316 5,418,776
Accrued warranty reserve 5,934,027 2,758,743
Deferred revenue 4,875,000 8,193,970
Current portion of capital lease obligations (NOTE 5) 25,044 264,447
------------------------------------------
Total current liabilities 24,445,936 27,046,739
Long-term:
Deposits 3,000,000 -
Debt (NOTE 6) 115,000,000 -
Capital lease obligations, less current portion (NOTE 5) - 43,420
Stockholders' equity (NOTES 8, 9, AND 12):
Series A preferred stock, $ .01 par value; 100,000 shares authorized;
no shares issued and outstanding - -
Convertible preferred stock, $.01 par value; 7,500,000 shares
authorized; no shares issued and outstanding - -
Common stock, $.01 par value; 30,000,000 shares authorized;
13,249,480 and 13,151,167 shares outstanding 132,495 131,512
Additional paid-in capital 161,977,629 160,927,240
Accumulated deficit (133,208,885) (102,190,472)
------------------------------------------
------------------------------------------
Total stockholders' equity 28,901,239 58,868,280
==========================================
Total liabilities and stockholders' equity $ 171,347,175 $ 85,958,439
==========================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
BroadBand Technologies, Inc.
Statements of Stockholders' Equity
<TABLE>
<CAPTION>
COMMON ADDITIONAL
STOCK PAID-IN ACCUMULATED
PAR VALUE CAPITAL DEFICIT TOTAL
----------------------------------------------------------------------
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1993 $130,091 $ 153,260,870 $ (50,118,220) $ 103,272,741
Exercise of stock options for 34,019 shares 340 258,529 - 258,869
Issuance of 7,013 shares under 401(k) plan 70 146,527 - 146,597
Stock issuance costs - (128,856) - (128,856)
Net loss for the year - - (24,170,203) (24,170,203)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Balance at December 31, 1994 130,501 153,537,070 (74,288,423) 79,379,148
Exercise of stock options for 94,564 shares 946 234,855 - 235,801
Issuance of 6,425 shares under 401(k) plan 65 155,315 - 155,380
Issuance of stock warrants - 7,000,000 - 7,000,000
Net loss for the year - - (27,902,049) (27,902,049)
----------------------------------------------------------------------
----------------------------------------------------------------------
Balance at December 31, 1995 131,512 160,927,240 (102,190,472) 58,868,280
Exercise of stock options for 89,225 shares 892 846,929 - 847,821
Issuance of 9,119 shares under 401(k) plan 91 203,460 - 203,551
Net loss for the year - - (31,018,413) (31,018,413)
======================================================================
Balance at December 31, 1996 $ 132,495 $ 161,977,629 $ (133,208,885) $ 28,901,239
======================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
BroadBand Technologies, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
-----------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (31,018,413) $ (27,902,049) $ (24,170,203)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation 5,490,625 3,997,416 3,174,448
Amortization 464,713 - -
Increase in inventory reserve 1,416,848 420,451 382,533
Gain on Disposal of equipment (377,918) -- --
Changes in operating assets and liabilities:
Decrease (Increase) in restricted cash 2,255,306 (2,706,348) --
Accounts receivable, trade (1,970,752) (216,793) 2,615,253
Inventories (942,393) 871,278 495,734
Prepaids and other current assets (262,117) 30,200 (415,906)
Accounts payable and accrued expenses (57,254) 4,877,770 (2,072,395)
Deposits 839,540 1,043,215 (5,445,025)
Accrued warranty reserve 3,175,284 419,412 1,210,087
Deferred revenue (3,318,970) 4,243,970 1,792,800
------------------------------------------------------------
------------------------------------------------------------
Net cash used in operating activities (24,305,501) (14,921,478) (22,432,674)
INVESTING ACTIVITIES
Acquisition of furniture, fixtures & equipment (4,388,284) (9,628,687) (4,626,348)
Disposals of furniture, fixtures & equipment 2,325,000 - 191,078
(Increase) decrease in investments (22,982,752) (5,976,519) 6,869,274
------------------------------------------------------------
Net cash (used in) provided by investing activities (25,046,036) (15,605,206) 2,434,004
FINANCING ACTIVITIES
Issuance of common stock 1,051,372 391,181 276,610
Issuance of stock warrants - 7,000,000 --
Issuance of long-term debt 111,262,500
Principal repayments of capital lease obligations (282,823) (486,381) (518,802)
--------------------------------------------------------------
--------------------------------------------------------------
Net cash provided by (used in) financing activities 112,031,049 6,904,800 (242,192)
--------------------------------------------------------------
--------------------------------------------------------------
Increase (decrease) in cash & cash equivalents 62,679,512 (23,621,884) (20,240,862)
Cash & cash equivalents at beginning of year 44,542,417 68,164,301 88,405,163
--------------------------------------------------------------
==============================================================
Cash & cash equivalents at end of year $ 107,221,929 $ 44,542,417 $ 68,164,301
==============================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest $ 3,598,659 $ 65,417 $ 123,475
==============================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
BroadBand Technologies, Inc.
Notes to Financial Statements
December 31, 1996
1. SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies is presented to assist the
reader in understanding and evaluating the financial statements. These policies
are in conformity with generally accepted accounting principles and have been
applied consistently in all material respects. The Company is engaged
principally in the design, engineering, manufacturing and marketing of a
sophisticated electronics and software platform for operators of local exchange
telephone networks in the United States and, in recent years, has expanded its
marketing effort to include international markets. The Company's platform
enables operators of these local exchange telephone networks the capability to
transmit voice, video and data over fiber optics to provide a wide array of
interactive services, including entertainment, communications, information and
other interactive services. The Company's products are still in the early stages
of commercial deployment.
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 amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
<PAGE>
BroadBand Technologies, Inc.
Notes to Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. Cash equivalents consist
principally of funds in demand deposit accounts, U. S. Treasury Obligations, and
commercial paper.
INVESTMENTS IN DEBT SECURITIES
The Company adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" (FAS 115), in
1995. There was no cumulative effect as a result of adopting FAS 115.
Management determines the appropriate classification of its investments in debt
securities at the time of purchase. Debt securities for which the Company has
both the intent and ability to hold to maturity are classified as held to
maturity. These securities are carried at amortized cost. At December 31, 1996,
the Company had no investments that qualified as trading or available for sale.
<PAGE>
BroadBand Technologies, Inc.
Notes to Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ACCOUNTS RECEIVABLE
The Company's principal financial instrument subject to potential concentration
of credit risk is accounts receivable which are unsecured. The Company's
exposure to credit loss in the event that payment from a customer is not
received for revenue recognized equals the net outstanding accounts receivable
balance from that customer.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined using
the first-in, first-out (FIFO) cost flow assumption.
FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures and equipment are stated at cost. Depreciation is determined
for financial reporting purposes using the straight-line method over the
estimated useful lives of the individual assets or, for leasehold improvements,
over the terms of the related leases if shorter. Straight-line and accelerated
methods of depreciation have been used for income tax purposes.
DEFERRED DEBT ISSUANCE COSTS
The Company capitalized certain costs relating to the issuance of debt. The
costs are amortized on a straight-line basis over the term of the debt.
REVENUE RECOGNITION
Generally, revenue is recognized when products are shipped. Deferred revenue
results from product licensing fees and also results from specific contractual
terms for certain sales agreements. Prepaid product (software) license fees are
recognized as deferred revenue when collected from customers and are recognized
as revenue in accordance with the terms of the related contract.
<PAGE>
BroadBand Technologies, Inc.
Notes to Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
Income taxes are accounted for using the liability method in accordance with
FASB Statement No. 109, Accounting for Income Taxes (see Note 13).
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to operations when incurred, except
for capitalized software development costs.
CAPITALIZED SOFTWARE DEVELOPMENT COSTS
The Company capitalizes software development costs at the lower of cost or net
realizable value after a product's technological feasibility has been
established.
Amortization commences when a product is ready for general release to customers.
There was no amortization expense during 1996 and 1995, since all capitalized
costs became fully amortized during 1994. Amortization expense totaled $348,877
for the year ended December 31, 1994.
STOCK OPTIONS
The Company accounts for its employee stock option plans in accordance with
Accounting Principle Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES ("APB 25"). Under APB 25, no compensation expense has been recognized
since the number of shares granted is fixed and the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant.
2. RESTRICTED CASH
The Company has outstanding stand-by letters of credit in the amount of $451,042
and $2,706,348 at December 31, 1996 and 1995, respectively. These letters of
credit are collateralized by restricted cash of the same amount.
<PAGE>
BroadBand Technologies, Inc.
Notes to Financial Statements (continued)
3. INVESTMENT IN DEBT SECURITIES
At December 31, 1996, the Company's investments in debt securities were
classified as cash and cash equivalents and both short and long-term
investments. The Company maintains these balances principally in demand deposit
accounts, U. S. Treasury Obligations, and commercial paper with various
financial institutions. These financial institutions are located in different
areas of the U.S. and Company policy is designed to limit exposure to any one
institution. The Company performs periodic evaluations of the relative standing
of those financial institutions that participate in the Company's investment
strategy.
The following is a summary of cash and cash equivalents and short and long-term
investments by balance sheet classification at :
DECEMBER 31
1996 1995
------------------------------------------------
Cash and cash equivalents:
Demand deposit accounts $ 78,899,020 $14,838,053
Commercial paper 25,332,655 17,678,067
U.S. Treasury Obligations 2,990,254 12,026,297
------------------------------------------------
================================================
$ 107,221,929 $44,542,417
================================================
Short-term investments:
Commercial paper $ 20,293,691 $ 5,425,895
U.S. Treasury Obligations 2,065,541 12,676,283
------------------------------------------------
================================================
$ 22,359,232 $18,102,178
================================================
Long-term investments:
Commercial paper $ 13,669,688 $ -
U.S. Treasury Obligations 5,056,010 -
------------------------------------------------
================================================
$ 18,725,698 $ -
================================================
The estimated fair value of each investment approximates the amortized cost and,
therefore, there are no unrealized gains or losses as of December 31, 1996 and
1995.
<PAGE>
BroadBand Technologies, Inc.
Notes to Financial Statements (continued)
4. INVENTORIES
Inventories consist of the following:
DECEMBER 31
1996 1995
-------------------------------------
Electronic parts and other components $ 2,583,074 $2,629,801
Work-in-process 603,601 479,914
Finished goods 1,681,971 816,538
-------------------------------------
-------------------------------------
4,868,646 3,926,253
Inventory valuation reserve (3,335,739) (1,918,891)
-------------------------------------
=====================================
$ 1,532,907 $2,007,362
=====================================
The Company has entered into a contract with a supplier for the production of
certain subassemblies used in the Company's products. Under the terms of the
contract, the Company had firm purchase commitments to purchase from the
supplier approximately $1,455,000 and $970,000 of these subassemblies at
December 31, 1996 and 1995, respectively.
5. LEASES
In prior years, the Company had entered into various capital lease arrangements
which have expired as of December 31, 1996. Remaining future minimum lease
payments under these capital leases total $25,044 at December 31, 1996.
Amortization of assets under capital leases is included with depreciation and
amortization expense.
In February 1993, the Company entered into a non-cancelable operating lease for
the rental of new office facilities. The lease has a term which commenced in
April 1993 and terminates in June 1998 with an option for renewal. During
September 1993, the Company exercised an option to lease additional space. The
amended lease term commenced in January 1994 and terminates in June 1998 with an
option for renewal. The total monthly commitment for the entire lease
approximates $70,000. The Company has also entered into various year to year
operating leases related to certain equipment.
<PAGE>
BroadBand Technologies, Inc.
Notes to Financial Statements (continued)
5. LEASES (CONTINUED)
Future minimum lease payments under the non-cancelable leases at December 31,
1996 are as follows:
1997 $ 877,151
1998 418,838
======================
Total $ 1,295,989
======================
Rent expense was approximately $1,205,000, $1,351,000, and $1,233,000 for the
years ended December 31, 1996, 1995, and 1994, respectively.
6. LONG-TERM DEBT
The Company issued on May 17, 1996, $115 million of 5% convertible subordinated
notes due May 15, 2001, that entitles the holder to convert the notes into
shares of the Company's common stock. Interest is payable on May 15 and November
15 of each year, commencing on November 15, 1996. Each $1,000 note is
convertible into 24.1080 shares of common stock of the Company at a conversion
price $41.48 per share. The notes are not redeemable by the Company prior to May
15, 1999. Thereafter, the Company may redeem the notes initially at 102%, and at
decreasing prices thereafter to 100% at maturity, in each case together with
accrued interest. Costs associated with this financing have been deferred and
are being amortized on a straight-line basis over the term of the notes. The
estimated fair value of the long-term notes approximated its recorded value at
December 31, 1996.
7. COMMITMENTS
The Company is party to a technology transfer agreement that obligates the
Company to pay a royalty of two percent (2%) of the selling price of any goods
or services provided by the Company that include intellectual property
transferred by the other party to the agreement after such sales exceed, in the
aggregate from inception, $50 million. The royalty will be reduced to one
percent (1%) after such sales, in the aggregate from inception, exceed $200
million. The Company recorded royalty expense under this agreement in 1996 and
1995 which is included in accrued expenses. There was no royalty expense in
1994. No royalties will be due and payable after 1998. Under the agreement,
prior to the end of 1998, the Company may not transfer, assign, license or sell,
on an exclusive basis, the technology without written consent of the other party
(the agreement includes terms which state that such consent is not to be
unreasonably withheld). In 1996 the Company renegotiated the terms of the
royalty agreement, which in effect reduced the royalty percentage.
<PAGE>
BroadBand Technologies, Inc.
Notes to Financial Statements (continued)
8. STOCK OPTION PLANS
The Company has adopted an incentive stock option plan for employees, and a
non-qualified stock option plan for consultants and others, and a directors
stock option plan for Directors. Common shares available under the three plans
are 2,150,000, 650,000, and 100,000 shares, respectively. Information concerning
outstanding stock options to purchase common stock pursuant to the plans as of
December 31, 1996 is summarized as follows:
PER SHARE EXERCISE NUMBER AGGREGATE
PRICE OF SHARES EXERCISE
PRICE
----------------------------------------------------
Incentive stock options
outstanding:
Vested $ .10 - $ 35.75 718,600 $ 10,136,142
Unvested $ 3.16 - $ 35.75 731,178 $ 15,281,796
-----------------------------------------------------
Totals 1,449,778 $ 25,417,938
=====================================================
Options are granted at not less than fair market value at the date of grant as
determined by the Board of Directors and may be exercised upon terms approved by
the Board. During 1996, 256,670 options were granted under the incentive stock
option plan and 314,758 non-qualified options were granted. Certain
non-qualified grants include provisions which prohibit exercise, until near the
option expiration date or until the end of the full vesting period or prior to
the Company attaining profitability. Vested options are exercisable at dates
ranging from six months to nine years and nine months from date of grant. Shares
not yet vested are not exercisable. All options granted expire between five and
one half and ten years from the grant date.
<PAGE>
BroadBand Technologies, Inc.
Notes to Financial Statements (Continued)
8. STOCK OPTION PLANS (CONTINUED)
The following table summarizes stock option activity from January 1, 1994
through December 31, 1996:
<TABLE>
<CAPTION>
RANGE OF OPTION
NUMBER OF EXERCISE PRICES PRICE
DESCRIPTION SHARES PER SHARES TOTAL
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Options outstanding at December 31, 1993 804,098 $0.10 to $35.75 $8,812,324
Options exercisable at December 31, 1993 91,073 $0.10 to $18.00 $500,845
Options granted during 1994 227,190 $15.25 to $27.25 $4,185,185
Options canceled during 1994 25,021 $2.70 to $26.63 $ 360,446
Options exercised during 1994 34,019 $0.10 to $18.00 $ 170,940
Options outstanding at December 31, 1994 972,248 $0.10 to $35.75 $12,466,123
Options exercisable at December 31, 1994. 147,811 $0.10 to $26.63 $751,877
Options granted during 1995 210,840 $17.25 to $28.00 $4,916,025
Options canceled during 1995 55,670 $2.70 to $35.75 $1,022,317
Options exercised during 1995 93,651 $0.10 to $10.00 $207,954
Options outstanding at December 31, 1995 1,033,767 $0.10 to $35.75 $16,151,877
Options exercisable at December 31, 1995 535,153 $0.10 to $35.75 $6,407,088
Options granted during 1996 571,428 $16.50 to $32.50 $11,440,944
Options canceled during 1996 66,192 $2.70 to $35.75 $1,327,063
Options exercised during 1996 89,225 $0.80 to $27.25 $847,821
Options outstanding at December 31, 1996 1,449,778 $0.10 to $35.75 $25,417,958
Options exercisable at December 31, 1996 731,231 $0.10 to $35.75 $10,489,122
</TABLE>
<PAGE>
BroadBand Technologies, Inc.
Notes to Financial Statements (continued)
8. STOCK OPTION PLANS (CONTINUED)
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) due to the fact that the
alternative fair value accounting provided for under Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation", (SFAS
123) requires the use of option valuation models that were not developed for use
in valuing employee stock options.
Pro forma information regarding net loss and loss per share is required by SFAS
123, and has been determined as if the Company accounted for its employee stock
options granted subsequent to December 31, 1994, under the fair value method of
SFAS 123. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted average
assumptions for 1996 and 1995:
1996 1995
---------------------------------------
Risk free interest rate 5.69% 5.69%
Dividends - -
Volatility factor .6784 .6448
The Black-Scholes option valuation model was developed for use in estimating in
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
changes in the subjective input assumption can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows:
DECEMBER 31
1996 1995
--------------------------------------
Pro forma net loss $32,753,117 $28,204,628
Pro forma loss per share $2.48 $2.15
Because SFAS 123 is applicable only to options granted subsequent to December
31, 1994, its proforma effect will not be fully reflected until 1997.
Exercise prices for options outstanding as of December 31, 1996 ranged from
$0.10 to $35.75. The weighted average remaining contractual life of those
options is 7.63 years. The weighted average exercisable price of outstanding
options at December 31, 1996 is $11.63.
<PAGE>
BroadBand Technologies, Inc.
Notes to Financial Statements (continued)
9. COMMON STOCK RESERVED FOR FUTURE ISSUANCE
At December 31, 1996, the Company had reserved a total of 3,356,223 of its
authorized 30,000,000 shares of common stock for future issuance as follows:
Outstanding stock options 1,449,778
Outstanding warrants related to a lease line 7,813
Outstanding warrants 1,225,000
Possible future issuance under stock option plans 598,630
Possible future issuance under 401(k) plan 75,002
---------
=========
Total shares reserved 3,356,223
=========
10. NET LOSS PER SHARE OF COMMON STOCK
Net loss per share is computed in accordance with APB 15. Under this guidance,
options, warrants, convertible debt and securities and other common stock
equivalents are considered as outstanding only if their effect is dilutive (i.e.
increasing the net loss per share).
11. WARRANTS
During 1995, the Company received $7 million for six-year Warrants that entitle
the purchaser of the warrants to acquire 1,000,000 shares of the Company's
Common Stock for $41.75 per share.
12. CAPITAL STOCK
On November 19, 1996, the Board of Directors declared a dividend distribution of
one preferred share purchase right (Right) for each share of Common Stock
outstanding on December 23, 1996. The Rights becomes exercisable only if a
person or group acquires, or obtains the right to acquire, 15% or more of the
Company's Common Stock or commences a tender offer or exchange offer which, if
consummated, would result in that person or group owning at least 15% of the
Company's outstanding Common Stock.
In connection with the November 19, 1996 preferred share dividend distribution,
the Company restated its articles of incorporation, thereby creating a series of
Series A Preferred Stock. 100,000 shares of this series have been authorized,
which have a dividend rate of the greater of $10.00 per share or 1,000 times the
aggregate per share amount of Common Stock dividends. Each share is entitled to
one vote and shall have a liquidation preference of $1,000 per share, plus
accrued and unpaid dividends.
<PAGE>
BroadBand Technologies, Inc.
Notes to Financial Statements (continued)
13. INCOME TAXES
At December 31, 1996, the Company has net operating loss carryforwards and
research and development credits of $129.1 million and $2.8 million,
respectively, for income tax purposes that expire in years 2003 through 2011.
For financial reporting purposes, a valuation allowance of $58.6 million ($46.7
million in 1995) has been recognized to offset the deferred tax assets related
to those carryforwards at December 31, 1996. When, and if, realized, the tax
benefit for those items will be reflected in current operations as a reduction
of income tax expense. Significant components of the Company's deferred tax
liabilities and assets at December 31, 1996 are as follows:
DECEMBER 31
1996 1995
----------------------------
----------------------------
Deferred tax liabilities:
Tax over-book depreciation $ 281,000 $ 506,000
Deferred tax assets:
Net operating loss carryforwards 51,641,000 41,029,000
Research and experimental credit carryforwards 2,852,000 2,303,000
Deferred revenue 909,000 2,000,000
Inventory reserve 1,151,000 768,000
Warranty reserve 2,274,000 1,162,000
------------------------------
Total deferred tax assets 58,827,000 47,262,000
Valuation allowance for deferred tax assets (58,546,000) (46,756,000)
Net deferred tax assets 281,000 506,000
==============================
Net deferred taxes $ - $ -
==============================
Based on the number of shares of common and preferred stock issued in 1992 and
1993, the Company exceeded the limits allowable under the Tax Reform Act of 1986
related to changes in ownership percentage governing future utilization of net
operating loss carryforwards. The effect of this occurrence limits the annual
utilization of the net operating loss carryforwards to an amount determined by
multiplying the fair market value of the Company immediately prior to the change
in ownership percentage by the federal long-term tax exempt interest rate at the
time of the change. As of December 31, 1996, future use of a portion of the net
operating loss carryforwards are limited to approximately $27 million of taxable
income per year. This limitation applies to all losses incurred through November
12, 1993 in the amount of $50.2 million, the remaining loss of $78.9 million is
not currently limited.
<PAGE>
BroadBand Technologies, Inc.
Notes to Financial Statements (continued)
14. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) Plan and Trust covering substantially all employees.
Employees at least 21 years of age who have completed three months of service
are eligible for the Plan. The Company will provide a matching contribution of
cash or common stock of the Company, at the election of the employee, totaling
50% of employee contributions to a maximum employee contribution of 6% of the
employee's wages. The Company determines the number of shares to be contributed
by the most recent closing market price of the Company's common stock. The
Company pays the Plan expenses which totaled approximately $24,000, $32,000, and
$28,000 in the years 1996, 1995 and 1994. Company contributions to the plan for
1996, 1995 and 1994 in stock and cash totaled approximately $412,000, $350,000,
and $251,000, respectively.
15. BUSINESS SEGMENT INFORMATION
The Company is engaged in a single business segment consisting the development,
manufacture, marketing and service of electronic equipment for the
telecommunications industry. Regional Bell Operating Companies ("RBOC's") and
independent telephone companies are the primary users of the Company's products.
During 1996, the Company entered into an agreement with a third party which was
granted the exclusive right to sell the Company's primary products in the United
States and Canada to RBOC's and other users. Prior to 1996, the Company's sales
were made directly to RBOC's. Company sales to the third party during 1996 were
29% of total sales and 65% of the Company's accounts receivable at December 31,
1996, were due from this customer. Direct RBOC sales a percentage of the
Company's total revenues were 51%, 76%, and 95% for the years ended December 31,
1996, 1995 and 1994 respectively. Of the 51% of sales to the RBOC's in 1996, 50%
were transacted with one Regional Bell Operation Company and 17% of the
Company's accounts receivables are due from this customer.
<PAGE>
BroadBand Technologies, Inc.
Quarterly Results
(In thousands, except per share data)
SUPPLEMENTAL FINANCIAL INFORMATION (UNAUDITED)
1996
-----------------------------------------------------------
FOURTH THIRD SECOND FIRST
Revenue $7,926 $5,706 $5,515 $3,997
Gross Margin 977 393 290 (260)
Net Loss ($8,470) ($8,498) ($6,509) ($7,541)
======== ========= ======== ========
Net Loss per share ($0.64) ($0.64) ($0.49) ($0.57)
======= ======== ======= =======
1995
-----------------------------------------------------------
FOURTH THIRD SECOND FIRST
Revenue $6,965 $7,065 $5,455 $3,221
Gross Margin (181) (100) (297) (996)
Net Loss ($6,988) ($6,385) ($6,546) ($7,983)
======== ======== ======== ========
Net Loss per share ($0.53) ($0.49) ($0.50) ($0.61)
======= ======= ======= =======
1994
-----------------------------------------------------------
FOURTH THIRD SECOND FIRST
Revenue $4,642 $5,130 $8,464 $8,776
Gross Margin (655) (426) (90) (95)
Net Loss ($7,634) ($5,870) ($5,565) ($5,101)
======== ======== ======== ========
Net Loss per share ($0.58) ($0.45) ($0.43) ($0.39)
======= ======= ======= =======
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
BroadBand Technologies, Inc.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
See Part I of this Report for information with respect to executive officers of
the Company. Pursuant to General Instruction G(3), reference is made to the
information contained under the captions "Election of Directors" and "Section
16(a) Reporting" in the Company's definitive proxy statement for its 1997 Annual
Meeting of Shareholders to be filed with the Securities and Exchange Commission
on or before April 30, 1997, which information is incorporated herein.
ITEM 11. EXECUTIVE COMPENSATION
Pursuant to General Instruction G(3), reference is made to the information
contained under the caption "Executive Compensation" (except for the information
set forth under the sub caption "Report of Compensation Committee" which is not
incorporated herein) in the Company's definitive proxy statement for its 1997
Annual Meeting of Shareholders to be filed with the Securities and Exchange
Commission on or before April 30, 1997, which information is incorporated
herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Pursuant to General Instruction G(3), reference is made to the information
contained under the caption "Security Ownership of Certain Beneficial Owners and
Management" in the Company's definitive proxy statement for its 1997 Annual
Meeting of Shareholders to be filed with the Securities and Exchange Commission
on or before April 30, 1997, which information is incorporated herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to General Instruction G(3), reference is made to the information
contained in the last paragraph under the caption "Election of
Directors--Compensation of Directors" in the Company's definitive proxy
statement for its 1997 Annual Meeting of Shareholders to be filed with the
Securities and Exchange Commission on or before April 30, 1997, which
information is incorporated herein.
<PAGE>
BroadBand Technologies, Inc.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) The following financial statements are included in Part II, Item 8 of this
Form 10-K.
1. FINANCIAL STATEMENTS
Report of Independent Auditors.
Statements of Operations for the years ended December 31, 1996, 1995
and 1994.
Balance Sheets as of December 31, 1996 and 1995.
Statements of Stockholders' Equity for the years ended December 31,
1996, 1995 and 1994.
Statements of Cash Flows for the years ended December 31, 1996, 1995 and
1994.
Notes to Financial Statements.
2. FINANCIAL STATEMENT SCHEDULES
All financial statement schedules have been omitted because they are
not applicable, or the required information is included in the
financial statements or notes thereto.
(B) Reports on Form 8-K
The Company filed a current report on Form 8-K, Commission File No.
0-21766, dated November 19, 1996, to report the execution of the Rights
Agreement, dated as of November 19, 1996, by and between the Company and First
Union National Bank, as Rights Agent.
(C) See Exhibit Index and Exhibits attached to this report.
(D) Financial Statement Schedules.
<PAGE>
BroadBand Technologies, Inc.
EXHIBIT INDEX AND EXHIBITS
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
3.1 Amended and Restated Certificate of Incorporation. (1)
3.2 Amended and Restated Bylaws (2)
4.1 Amended and Restated Certificate of Incorporation
(Included as exhibit 3.1 to this Annual Report on Form 10-K)
4.2 Amended and Restated Bylaws (Included as Exhibit 3.2 to this
Annual Report on Form 10-K)
4.3 Form of Common Stock Certificate (1)
4.4 Warrant Agreement, dated as of March 30, 1995, by and between the
Registrant and Bell Atlantic Corporation (4)
4.5 Form of Warrant Certificate (Included as exhibit to Exhibit 4.4 to
this Annual Report on Form 10-K) 4.6 Rights Agreement, dated as of
November 19, 1996, by and between the Registrant and First Union
National Bank, as Rights Agent, including the form of
Certificate of Designations, Preferences and Rights of Series
A Preferred Stock as Exhibit A, the form of Rights Certificate
as Exhibit B, and the Summary of Rights as Exhibit C (6)
4.7 Form of 5% Subordinated Convertible Notes, due May 15, 2001 (8)
4.8 Form of 5% Subordinated Convertible Notes, due May 15, 2001 (8)
10.1 Technology Purchase Agreement dated as July 16, 1988, between
and among the Registrant, Siecor Corporation and FiberLAN,
Inc. (1)
10.2 Equipment Lease Schedule VL-2 dated as of October 2, 1990,
between the Registrant and Comdisco, Inc. (1)
10.3 Master Equipment Lease Agreement between the Registrant and
MMC/GATX Partnership No. 1 dated September 30, 1992. (1)
10.4 Equipment Lease Schedule No. 1 dated as of September 30, 1992,
between the Registrant and MMC/GATX Partnership No. 1. (1)
10.5 Warrant Agreement dated as of September 30, 1992, between the
Registrant and MMC/GATX Partnership No. 1. (1)
10.6 Form of Investors' Rights Agreement dated as of November 13,
1992, between the Registrant and certain investors. (1)
10.7 Standstill Agreement dated December 4, 1991, between the
Registrant and AMP Incorporated. (1)
10.8 Volume Purchase Agreement executed February 25, 1993,
between the Registrant and Bell Atlantic Network Services, Inc.,
as amended by a Further Agreement and Amendment No. 1 dated as
of May 3, 1993. (3)
10.9 Further Agreement and Amendment No. 2, dated November 15, 1993 to
Volume Purchase Agreement executed February 25, 1993 between the
Registrant and Bell Atlantic Network Services, Inc.(4)
<PAGE>
BroadBand Technologies, Inc.
EXHIBIT INDEX AND EXHIBITS (CONTINUED)
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
10.10 Office Lease dated February 25, 1993, between the Registrant
and The Wachovia Real Estate Fund. (1)
10.11 Amended and Restated 1988 Incentive Stock Option Plan (2)
10.12 Amended and Restated 1992 Nonqualified Stock Option Plan (2)
10.13 Directors' Stock Option Plan (2)
10.14 1993 Flexible Benefits Plan (1)
10.15 Amended 401 (k) Plan dated December 31, 1994 (4)
10.16 Warrant Agreement, dated as of March 30, 1995, by and between
the Registrant and Bell Atlantic Corporation (4)
10.17 Agreement Between BroadBand Technologies, Inc. and Lucent
Technologies Executed November 15, 1995. (4) (9)
10.18 Indenture, dated as of May 22, 1996, by and between the
Registrant and Marine Midland Bank, as Trustee (5)
10.18A Cross Reference Sheet (8)
10.19 Purchase Agreement, dated as of May 17, 1996, by and between
the Registrant and Goldman, Sachs & Co., and Bear, Stearns &
Co., Inc. (5)
10.20 Registration Rights Agreement, dated as of May 17, 1996,
by and between the Registrant and Goldman, Sachs & Co., and
Bear, Stearns & Co., Inc. (5)
10.21 Bell Atlantic Network Services, Inc. and BroadBand
Technologies, Inc. Procurement Agreement, Contract No. BA
14494, dated July 1, 1996 (7) (10)
10.22 First Amendment to Agreement LGC-A65-D executed July 12, 1996,
between the Registrant and Lucent Technologies, Inc. (7) (10)
10.23 Rights Agreement, dated as of November 19, 1996, by and
between the Registrant and First Union National Bank, as
Rights Agent, including the form of Certificate of
Designations, Preferences and Rights of Series A Preferred
Stock as Exhibit A, the form of Rights Certificate as Exhibit
B, and the Summary of Rights as Exhibit C (6)
10.24 Employment Agreement between the Registrant and Salim A.L.
Bhatia, dated as of March 5, 1997 (11) 47
10.25 Employment Agreement between the Registrant and David E. Orr,
dated as of March 10, 1997 (11) 64
24.1 Consent of Ernst & Young LLP. (11) 89
27.0 Financial Data Schedule (This exhibit is required to be
submitted electronically pursuant to the rules
and regulations of the Securities and Exchange Commission
and shall not be deemed filed for purposes of Section 11
of the Securities Act of 1933 or Section 18 of the Securities
Exchange Act of 1934.
(1) (Incorporated by reference to exhibits filed with the Company's
Registration Statement on Form S-1, No. 33-62754 declared effective on
June 30, 1993.)
(2) (Incorporated by reference to exhibit filed with the Company's Form 10-Q
for the period ended June 30, 1994.)
(3) (Confidential treatment was granted by the Securities and Exchange
Commission on June 30, 1993.)
(4) (Incorporated by reference to exhibit filed with Registrant's Current
Report on Form 8-K, Commission File No. 0-21766, dated March 30, 1995.)
<PAGE>
BroadBand Technologies, Inc.
EXHIBIT INDEX AND EXHIBITS (CONTINUED)
(5) (Incorporated by reference to exhibit filed with Registrant's Current
Report on Form 8-K, Commission File No. 0-21766, dated May 22, 1996)
(6) (Incorporated by reference to exhibit filed with Registrant's Current
Report on Form 8-K, Commission File No. 0-21766, dated November 19, 1996)
(7) (Incorporated by reference to exhibit filed with Registrant's Quarterly
Report, dated August 14, 1996, as amended by Amendment No. 1, dated
November 26, 1996)
(8) (Incorporated by reference to exhibit filed with Amendment No. 1 to the
Registrant's Registration Statement on Form S-3, No. 333-09661, dated
September 17, 1996)
(9) (Confidential treatment was granted by the Securities and Exchange
Commission on May 10, 1996)
(10) (Confidential treatment was granted by the Securities and Exchange
Commission on December 12, 1996)
(11) Attached exhibits.
<PAGE>
BroadBand Technologies, Inc.
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.
BroadBand Technologies, Inc.
Dated March 18, 1997 By: /s/ Timothy K. Oakley
___________________________
Timothy K. Oakley
Title: Vice President, Chief Financial Officer,
Secretary Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Salim A.L. Bhatia
________________ President, (Principal Executive March 18, 1997
Salim A.L. Bhatia Officer), and Director
/s/ Timothy K. Oakley
- ----------------- Vice President, (Principal Financial March 18, 1997
Timothy K. Oakley Officer and Principal Accounting
Officer)
/s/ Dr. John R. Hutchins, III
- ----------------- Chairman of the Board March 18, 1997
Dr. John R. Hutchins, III
/s/ Dr. J. Richard Jones
- ----------------- Director March 18, 1997
Dr. J. Richard Jones
/s/ Fredric R. Boswell
- ----------------- Director March 18, 1997
Fredric R. Boswell
/s/ Richard P. Clark
- ----------------- Director March 18, 1997
Richard P. Clark
/s/ Dr. Charles T. Lee
- ----------------- Director March 18, 1997
Dr. Charles T. Lee
/s/ Lawrence A. McLernon
- ----------------- Director March 18, 1997
Lawrence A. McLernon
<PAGE>
EXHIBIT 10.24
EMPLOYMENT AGREEMENT
This Agreement is made and entered this the 5th day of March, 1997,
effective as stated herein, by and between BroadBand Technologies, Inc., a
Delaware corporation (the "Corporation") and Salim A. L. Bhatia
(the "Executive").
WHEREAS, the Corporation is engaged in the research, development,
manufacture and sale of broadband and narrowband fiber optic loop systems and
related equipment for marketing and sale to customers throughout the world; and
WHEREAS, the Executive acknowledges that the success of the
Corporation's venture into the development, manufacturing, marketing and sale of
fiber optic loop systems is dependent in large part upon its ability to attract
capital, which in turn is dependent on the ability of the Corporation to assure
investors that the technologies and other proprietary information developed and
obtained by the Corporation, as well as the skills and know-how developed by the
Executive by reason of employment with the Corporation, will not become
available to a business which competes with the Corporation; and
WHEREAS, when the Corporation hired the Executive, the Corporation
informed the Executive it would seek venture capital to finance its operations
and growth and that venture capital investors may, as a condition to such
investment, require the Executive and others to enter into a noncompetition
agreement satisfactory to the investors, and, as an inducement to the
Corporation's agreement to hire the Executive, the Executive agreed to enter
into such a noncompetition agreement; and
WHEREAS, certain venture capital investors conditioned their investment
on the Executive and others executing a noncompetition agreement; and
WHEREAS, the Executive and the Corporation entered into a
noncompetition agreement dated as of December 16, 1988 (the "Original
Agreement"), in exchange for a cash payment and certain severance benefits to
which the Executive was not otherwise entitled; and
WHEREAS, the Executive is currently employed by the Corporation as its
Chief Executive Officer and President (hereinafter referred to as "CEO"); and
WHEREAS, the Executive and the Corporation desire the Corporation to
select a new CEO to replace the Executive as CEO; and
WHEREAS, the Executive and the Corporation desire the Executive to
focus on other executive duties as set forth herein; and
WHEREAS, the Executive desires to be employed by the Corporation on a
full-time basis upon such terms and conditions as are provided herein; and
<PAGE>
WHEREAS, the Executive desires to receive from the Corporation certain
enhancements in the severance benefits and certain other benefits in the event
of a change in control of the Corporation, as set forth herein; and
WHEREAS, the Executive acknowledges that this employment contract and
these enhancements and benefits are valuable consideration to which he is not
otherwise entitled; and
WHEREAS, the Corporation desires to receive from the Executive certain
promises contained herein and certain modifications to his noncompetition
agreement as set forth herein.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree to amend and restate the Original
Agreement to read as follows:
EMPLOYMENT. SUBJECT TO AND UPON THE TERMS AND CONDITIONS
HEREIN PROVIDED, THE CORPORATION HEREBY AGREES TO EMPLOY THE EXECUTIVE AND THE
EXECUTIVE HEREBY AGREES TO BE EMPLOYED BY THE CORPORATION DURING THE TERM OF
AGREEMENT AS DEFINED IN SECTION 2 HEREOF.
2. Term of Agreement and Duties. The term of this Agreement shall
commence as of March 5, 1997 (the "Effective Date") and shall terminate on the
first to occur of (i) the termination of this Agreement as provided herein, or
(ii) February 28, 1998 (the "Expiration Date"); provided, however, that on each
anniversary of the Effective Date (a "Renewal Date"), the Expiration Date shall
automatically be extended for a period of one (1) additional consecutive year
unless either the Corporation or the Executive provides written notice to the
other party at least ninety (90) days prior to the applicable Renewal Date that
the Agreement and the Executive's employment with the Corporation shall
terminate on the Expiration Date or anniversary of the Expiration Date, as
applicable. The period during which this Agreement is in effect is referred to
herein as the "Term of Agreement".
3. Position and Responsibilities. During the Term of Agreement, the
Executive shall initially be employed as CEO of the Corporation until such time
as the Corporation shall select another CEO. Upon being advised of the selection
of a new CEO, the Executive shall immediately resign as CEO and continue to be
employed with the Corporation as a Corporation Executive (which position shall
be a member of Senior Management) as such position may be established from time
to time by the Board of Directors of the Corporation (the "Board"). While so
employed, the Executive agrees to devote his full time and attention to carrying
out his duties and responsibilities under this Agreement and all duties and
responsibilities directed by the Board, and the Executive shall use his best
efforts, skills and abilities to further the interests of the Corporation. The
Executive shall serve under the direction and supervision of the Board. Except
as specifically provided herein, the Executive may not serve on the board of
directors of any other business entity unless (i) such entity is not engaged,
directly or indirectly, in competition with the business of the Corporation, as
determined by the Board in its discretion, (ii) such service would not interfere
with the Executive's obligations to the Corporation, (iii) the Executive obtains
the prior express written consent of the Board, which consent shall not be
unreasonably withheld, and (iv) the Executive adheres to such limitations as may
imposed by the Board in granting such consent. It is acknowledged that the
Executive is currently
<PAGE>
serving on the boards of directors of certain business and not for
profit/community entities listed in Exhibit A attached hereto and that the
Executive may continue to serve as a member of the boards of directors specified
in Exhibit A unless the Board shall provide him with advance written notice to
resign from one or more of such boards at the expiration of his current term. As
to any business or not for profit/community boards the Executive joins subject
to the terms of this Agreement after execution of the Agreement, Executive
agrees to resign from such board within 90 days after receiving notice from the
Board for Executive to resign.
4. Chairman of Board. The Corporation and the Board currently intend to
cause the election of the Executive as Chairman of the Board at or around such
time as is reasonable in the normal course of operations after the Executive
ceases to be CEO of the Corporation, and, the Executive agrees to accept such
election, and to serve in such capacity during all or any part of the Term of
Agreement, without any additional compensation therefor. Failure to cause the
election of the Executive as Chairman of the Board will not constitute a breach
of this Agreement but will entitle the Executive to treat his employment as
terminated without Cause (as defined in Section 8.6(a) below) as provided in
Section 8.5 below.
5. Compensation. For all services rendered by the Executive during the
Term of Agreement, the Corporation shall pay the Executive as compensation a
base salary, in periodic installments in accordance with the Corporation's usual
payroll practice for senior management-level employees of the Corporation, at an
annual rate of $252,000, which amount may be increased by the Board in its
discretion as part of its annual compensation review process. However, at any
time during the Term of Agreement, in the event of a salary reduction for other
senior management-level employees of the Corporation other than the CEO, such
group to be determined by the Corporation in its discretion from time to time
(such group is referred to herein as "Senior Management"), the Corporation shall
be entitled to decrease the Executive's Base Salary to any amount it deems
appropriate consistent with the adjustments made to the compensation of other
members of Senior Management. In addition, during the period beginning on March
5, 1997 and ending on February 28, 1998, the Executive shall be entitled to
participate in the Corporation's incentive compensation program in accordance
with its terms, as determined by the Board in its discretion. During the Term of
Agreement, the Corporation shall allow the Executive to participate in all
incentive compensation programs in which any other member of Senior Management
participates, if any, in accordance with their terms.
6. Employee Benefits, Perquisites and Expenses.
6.1 Benefit Plans. Except as specifically provided herein, the
Executive shall be entitled to participate in all of the Corporation's
health, retirement, stock option, disability and other benefit plans,
programs or practices from time to time in effect for members of Senior
Management in accordance with their terms. However, Executive shall not
be entitled to participate in any severance plan or program that may be
established by the Corporation from time to time.
6.2 Vacation. The Executive shall be entitled to participate
in the Corporation's holiday, sick leave and vacation policies in
effect for full-time members of Senior Management, as may be
<PAGE>
established from time to time; provided, however, that in no event
shall the Executive's annual vacation entitlement be less than the
maximum amount of vacation to which any full-time member of Senior
Management is entitled under such policies. The Executive shall
receive, within thirty (30) days after his employment terminates, a
payment (based on his base salary in effect at the time of termination)
for any accrued but unused vacation at the termination of the
employment of the Executive in accordance with the Corporation's
vacation policy in effect at the time of termination, which shall
comply with applicable law.
6.3 Expenses. The Corporation shall reimburse the Executive
for all reasonable and documented expenses incurred in connection with
the performance of his duties hereunder and incurred in accordance with
policies and procedures established from time to time by the
Corporation. The Executive shall keep reasonably detailed and accurate
records of expenses incurred in connection with the performance of his
duties hereunder, and reimbursement therefor shall be made in
accordance with policies and procedures to be established from time to
time by the Corporation.
6.4 Office. The Executive shall be entitled to reasonable
office space within the Corporation's executive office facility, as
determined by the Board. In the event the Corporation terminates the
Executive's employment with the Corporation without Cause (as defined
in Section 8.6(a) below), the Corporation shall furnish the Executive
with outplacement services or shall provide off-premises office space
and related support for the Executive for up to two years at a total
cost for either option not to exceed each year 15% of Executive's base
salary in effect at the time of termination. The Corporation shall make
any payments required by this Section 6.4 on a pro-rata, monthly basis
unless the Corporation determines, in its discretion, to accelerate
such payments. In the event Executive obtains other permanent full-time
gainful employment prior to the expiration of the two year period,
whether as an
<PAGE>
employee, consultant, contractor or in any other gainful capacity, the
Corporation's obligations under this Section 6.4 will immediately
cease.
7. Noncompetition and Nonsolicitation Covenants.
7.1 Need for Covenants. The Executive acknowledges that the
Corporation has expended, and is expected to expend, large amounts of
time, money and effort in researching, developing, designing and
testing its products, developing and keeping a committed management
team, and manufacturing and marketing its products. The Executive
further acknowledges that crucial to the success of the Corporation
will be its ability to continuously develop superior design and
manufacturing technologies for broadband and narrowband fiber optic
loop systems which are trade secrets of the Corporation and which are
not known to others engaged in similar businesses or ventures. The
Executive further acknowledges that he has learned, and will continue
to learn, a great deal of information about the business of the
Corporation, including its trade secrets and confidential information,
including, but not limited to, customer and supplier lists, know-how,
processes, and methods of doing business, and the Executive agrees that
the Corporation is entitled to be protected from the possibility, both
during and after the Executive's employment terminates, of the
Executive becoming associated with a business which competes with the
Corporation. The Executive further acknowledges that if he did become
associated with such a business, such business would compete unfairly
with the business of the Corporation in view of the trade secrets and
confidential, proprietary information which has and will become known
to the Executive by reason of being employed by the Corporation. The
Executive further acknowledges that the nature of the Corporation's
products are such that its natural market will be worldwide because
fiber optic loop systems can be used worldwide wherever fiber optic
cable and equipment can be used, and the Corporation's competition in
fiber optic loop systems research and development is located throughout
the world and competes in a worldwide market. Accordingly, the
Executive hereby agrees that the time, geographic and other
restrictions contained in this Agreement are reasonable to protect the
legitimate interests of the Corporation and do not unfairly restrict or
penalize the Executive.
7.2 Noncompetition Covenant. During the Restricted Period (as
defined in Section 7.4 below) the Executive shall not Compete (as
defined in Section 7.4 below), directly or indirectly, with the
Corporation or any Affiliate (as defined in Section 7.4 below) of the
Corporation by engaging in any line of business (as defined in Section
7.4 below) in which on the Termination Date (as defined in Section 7.4
below) the Corporation or any Affiliate of the Corporation is engaged
(or is planning to engage) in any Prohibited Location (as defined in
Section 7.4 below).
7.3 Nonsolicitation Covenant. During the entire Restricted
Period (as defined in Section 7.4 below), the Executive: (i) shall not
interfere with, or seek to interfere with, the relationship between the
Corporation or any Affiliate, and any of the employees of such
entities, (ii) shall not interfere with, or seek to interfere with, the
relationship between the Corporation or any Affiliate, and any of the
suppliers of such entities, (iii) shall not solicit or otherwise
encourage any employee of the Corporation or of any Affiliate to leave
the employ of the Corporation or of any Affiliate, (iv) shall not
interfere with, or seek to interfere with, the relationship between the
<PAGE>
Corporation or any Affiliate, and any customers of such entities, and
(v) shall not utilize or disclose any personnel information about any
employee of the Corporation or of any Affiliate, including but not
limited to information regarding the employee's performance, abilities,
responsibilities or functions.
7.4 Definitions.
(a). The terms "Compete" and "Competition," as used
herein, shall be deemed to include, without limitation,
becoming or being an employee, owner, partner, consultant,
agent, stockholder, director, officer of any person,
partnership, firm, corporation or other entity (other than the
Corporation or any Affiliate) which engages directly in (i)
the business of broadband or narrowband fiber optic
residential or small business access systems, or any systems
that perform substantially similar functions, but does not
include parts, software, components, or subsystems of said
systems that the Corporation purchases from third party
vendors for inclusion in the Corporation's systems without
modification by the Corporation and/or (ii) any other business
conducted by the Corporation or any Affiliate immediately
prior to the date of termination of Executive's employment or
in which the Corporation or any Affiliate shall at the time of
termination of the Executive's employment with the Corporation
be actively preparing to enter.
Notwithstanding the foregoing, the following shall
not constitute competition with the Corporation (i) ownership
of five (5%) percent or less of any class of securities of any
entity whose securities are publicly traded, or (ii)
employment by a person or entity engaged in the business
described above if all the following conditions are met: (1)
the business described above constitutes less than five (5%)
percent of the gross sales of the new employer on a
consolidated basis, (2) the employer's stock or the stock of a
parent company is publicly traded, (3) Executive shows to the
satisfaction of the Corporation that Executive is employed in
a division or department not engaged in the business described
above and the duties of Executive do not require contact with
the division or department engaged in the business described
above, and (4) prior to the date of such employment Executive
and Executive's new employer execute and deliver to the
Corporation an agreement in form and substance reasonably
satisfactory to the Corporation in which (x) Executive and his
new employer represent that the conditions set forth in
clauses (1), (2), and (3) above have been satisfied, (y) the
new employer agrees not to obtain from Executive any
proprietary information of the Corporation or to use, retain
or disclose any such proprietary information of the
Corporation which Executive may willfully or inadvertently
disclose to such new employer in violation of any agreement
between Executive and the Corporation, and (z) Executive
reaffirms to the Corporation all obligations of Executive with
respect to proprietary information of the Corporation
contained in any agreement between the Corporation and
Executive.
(b). The phrases "engage in a business" or "engage in
a line of business" and similar phrases shall be deemed to
include marketing or otherwise selling products or
researching, developing, designing, testing or manufacturing
products or services or otherwise preparing to market or sell
products or services.
<PAGE>
(c). The term "Affiliate" shall mean any corporation,
partnership or other entity (i) which owns more than 50% of
the voting securities of the Corporation, or (ii) in which the
Corporation owns more than 50% of its voting securities, or
(iii) more than 50% of the voting securities of which are
owned by a person or entity that owns more than 50% of the
voting securities of the Corporation.
(d). The term "Prohibited Location" means the
following:
(i). Any location within the United
States;
(ii). Any location within Canada;
(iii). Any location within England;
(iv). Any location within France;
(v). Any location within Italy;
(vi). Any location within Germany;
(vii). Any location within Taiwan; and
(viii). Any location within Korea.
A competitor located outside a Prohibited Location shall be
deemed to be competing in a Prohibited Location if the
competitor either (i) Competes in the Prohibited Location by
selling products in Competition in the Prohibited Location, or
(ii) is actively preparing to Compete in the Prohibited
Location.
With respect to the covenant contained in Section 7.2 above,
it is acknowledged by the Executive that the Corporation's
competition in fiber optic loop systems research, development,
marketing and sales is located throughout the world and
competes in a worldwide market, and that unfair competition
can only be prevented by enforcing this specific covenant in
these prohibited locations specifically set forth in Section
7.4(d) above.
(e). The term "Restricted Period" shall mean the
period commencing on the date of the Original Agreement and
ending upon the second anniversary of the Termination Date.
(f). The term "Termination Date" means the date on
which the Executive's employment with the Corporation and its
Affiliates terminates for any reason or no reason.
7.5 Benefits Conditioned upon Enforceability. Notwithstanding
anything to the contrary contained in this Agreement, in the event that
Sections 7.2 and/or 7.3 of this Agreement are determined to be
unenforceable, to any extent, by a court or arbitration panel, whether
by
<PAGE>
preliminary or final adjudication, the Corporation shall not be
liable for any payments or benefits under Sections 8.1(a)(iii),
8.1(a)(iv), 8.4 or 10 and the stock option described in Section 9 shall
terminate to the extent not already exercised.
8. Payment to the Executive Upon Termination of Employment.
8.1 Termination With and Without Cause.
(a). The Corporation shall have the right to
terminate the Executive's employment at any time with Cause
(as defined in Section 8.6(a) below) or upon ninety (90) days
advance written notice without Cause (as defined in Section
8.6(a) below). If the Corporation terminates the employment of
the Executive without Cause (as defined in Section 8.6(a)
below), the Term of Agreement shall terminate immediately
thereafter and:
(i). the Corporation shall pay the
Executive the portion of his base salary in effect at
the time of termination as he may be entitled to
receive for services rendered prior to the date of
such termination;
(ii). the Corporation shall pay the
Executive for any accrued but unused vacation as set
forth in Section 6.2;
(iii). subject to the restrictions set forth
in Sections 7.5 and 11, the Corporation shall pay the
Executive, at the end of each month for the first
twenty-four (24) months following the date on which
the Executive executes the release described in
Section 11 below (the "Release Date"), an amount
equal to one twelfth (1/12) of the sum of (x) his
base salary in effect at the time of termination,
plus (y) his target bonus for the year in which the
termination occurs (as determined by the Board in its
discretion).
If the Executive has foregone receiving all or a
portion of his regular salary as authorized by the
Board, any committee thereof or any officer
authorized to determine salaries, payment to the
Executive under this subsection (iii) shall
constitute full payment of all such amounts.
(iv). subject to the restrictions set forth
in Sections 7.5 and 11, the Corporation shall provide
one of the following two benefits to the Executive
until the end of the twenty-four (24) month period
commencing on the Release Date:
(A). continued coverage under the
Corporation's health, life, and disability
insurance plans for the Executive and his
dependents; or
(B). in lieu of any one or more of
the coverages specified in clause (A) above,
a lump sum payment to the Executive of an
amount equal to (x) the cost to the
Executive of obtaining equivalent coverage
for such period, plus (y) an amount that
will compensate the Executive for the
differences
<PAGE>
in the tax treatment of the benefit
specified in this clause (B) and the
benefit specified in clause (A) above.
The Corporation shall determine which benefit
described in this subsection (iv) shall be provided
to the Executive in its sole discretion. The
provision of benefits under this subsection (iv) is
in no way intended to increase or expand or reduce or
limit any continuation coverage under the
Corporation's health plan to which the Executive and
any of his qualified beneficiaries may become
entitled under the provisions of the Consolidated
Omnibus Budget Reconciliation Act of 1985, as
amended.
8.2 Release from Executive's Obligations. Notwithstanding any
other provision of this Agreement, if at the time of the termination of
the Executive's employment the Corporation releases the Executive in
writing from his obligations under Section 7 of this Agreement, the
Corporation shall have no obligation to pay any severance benefits to
the Executive under Section 8.1(a)(iii) - (iv) above. Subject to the
restrictions set forth in Section 11, the Corporation, however, should
it release Executive as provided in this Section 8.2, shall pay
Executive, within one month after Executive executes the release
described in Section 11 below, an amount equal to the Executive's
annual base salary and target bonus for the year in which the
termination occurs (as determined by the Board in its discretion).
8.3 Termination with Cause, Death or Disability. If the
Corporation terminates the employment of the Executive with Cause (as
defined in Section 8.6(a) below), or upon the death or Disability (as
hereinafter defined) of the Executive, the Term of Agreement shall
terminate immediately thereafter and the Corporation shall pay the
Executive or his beneficiary such compensation as is set forth in
Sections 8.1(a)(i) and 8.1(a)(ii) herein.
8.4 Voluntary Termination. If the Executive voluntarily
terminates this Agreement and his employment as provided in Section 2
above or at any other time upon ninety (90) days advance written
notice, the Term of Agreement shall terminate immediately thereafter
and the Corporation shall pay the Executive or his beneficiary such
compensation as is set forth in Sections 8.1(a)(i) and 8.1(a)(ii)
herein as well as an amount equal to one-twelfth (1/12th) of his base
salary in effect at the time of termination.
8.5 Change in Position. Any change in the basis of the
Executive's employment with the Corporation, except any breach by the
Corporation of Section 5 hereof, or any enlargement of or diminution in
his duties or responsibilities to the Corporation, including a change
from his current position as CEO to another executive position with the
Corporation, shall not constitute a termination of the Executive's
employment with the Corporation for purposes of this Agreement or the
Original Agreement. The Executive's employment with the Corporation
shall be viewed as terminated for purposes of this Agreement only if he
is no longer employed by the Corporation in any executive capacity.
Notwithstanding the foregoing, should the Executive not be chosen as
Chairman of the Board following his ceasing to be CEO of the
Corporation as contemplated by the parties at the time of entering into
this Agreement, or should the Executive not be reelected as Chairman of
the Board at subsequent organizational meetings of the Board after
being chosen as such, then he shall be entitled to elect to be
<PAGE>
treated as though his employment with the Corporation was terminated
without Cause (as defined in Section 8.6(a) below) for purposes of
receiving payments and benefits under Section 8.1(a) above unless the
Executive were to accept continued employment with the Corporation in
another capacity.
8.6 Definitions.
(a). For purposes of the Agreement, the term "Cause"
shall be limited to the following events: (i) drug abuse by
the Executive; (ii) alcohol abuse by the Executive if it
interferes with the efficient conduct of business by the
Executive; (iii) theft, embezzlement or other similar act by
the Executive of any tangible or intangible asset of the
Corporation or any customer, supplier or investor of the
Corporation; (iv) commission of any other criminal act by the
Executive (whether or not the Executive is prosecuted and
convicted) if such act causes or is likely to cause damage to
the business of the Corporation; (v) a material breach by the
Executive of any written agreement between the Corporation and
the Executive, including, without limitation, this Agreement,
the Proprietary Information and Inventions Agreement, or any
written policy of the Corporation known by and applicable to
all its employees, if the Executive fails to cure his breach
within ten (10) days after notice of breach is given to the
Executive by the Corporation; (vi) gross negligence or willful
misconduct by the Executive in his conduct of the business of
the Corporation, but a mere mistake in business judgment shall
not constitute cause unless it is part of a continuing pattern
of bad judgment that has caused actual damage to the
Corporation or its business, and (vii) willful failure by the
Executive to follow the instructions of the Board, or an
officer for other supervisory employee of the Corporation duly
authorized by the Board, the Bylaws of the Corporation or an
officer of the Corporation to give instructions to the
Executive, to the extent such instructions are reasonably
related to the business of the Corporation, are given in good
faith to promote the interest of the Corporation, would not
require the Executive to commit any illegal act and are not
given to provide the Corporation with cause for terminating
the Executive. This definition of cause shall not create in
the Executive any right to employment or cause of action on
account of termination of the Executive's employment with the
Corporation without Cause.
(b). For purposes of this Agreement, the Executive's
employment with the Corporation shall be deemed to have
terminated on account of "Disability" on the date on which the
Executive is eligible to receive, and commences receipt of,
benefits under the Corporation's program of long-term
disability insurance.
9. Incentive Stock Option. The Corporation shall grant the Executive an
incentive stock option within the meaning of section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"), to purchase 45,000 shares of the common
stock of the Corporation (the "ISO"). Subject to the restrictions set forth in
Sections 7.5 and 11 herein, the ISO shall become fully vested and exercisable on
September 30, 2005, provided the Executive is employed with the Corporation on
such date, and shall contain the following additional provisions:
<PAGE>
9.1. Corporation Survives Change in Control. If a Change in
Control shall occur during the Term of Agreement, and the Corporation
shall be the surviving entity following such Change in Control, the ISO
shall become vested and exercisable as follows: (i) with respect to
15,000 shares of the common stock of the Corporation on the effective
date of the Change in Control (the "Vesting Date"), (ii) with respect
to an additional 15,000 shares of the common stock of the Corporation
on the first anniversary of the Vesting Date, provided that the
Executive is employed with the Corporation on such date, and (iii) with
respect to an additional 15,000 shares of the common stock of the
Corporation on the second anniversary of the Vesting Date, provided
that the Executive is employed with the Corporation on such date.
9.2. Corporation does not Survive Change in Control. If a
Change in Control shall occur during the Term of Agreement, and the
Corporation shall not be the surviving entity following such Change in
Control, the Corporation shall either:
(a). arrange for the surviving entity to assume the
ISO, with appropriate adjustments in the terms of the ISO to
reflect the Change in Control which adjustments shall preserve
the intended treatment of the ISO as an incentive stock option
within the meaning of Code section 422; or
(b). make a payment to the Executive in an amount
that would place the Executive in the same position as if the
ISO were assumed by the surviving entity as provided in
subsection (a) above and the Executive were to exercise the
ISO, as assumed, in accordance with its terms and immediately
sell the underlying shares of stock at its fair market value
on the deemed exercise date. The amount of the payment
described in this subsection (b) shall be determined by the
Corporation in its discretion and such payment shall be made
to the Executive as of the date on which the Executive
notifies the Corporation that he desires that the ISO to be
deemed exercised for purposes of this subsection (b). An
example of this subsection (b) follows:
Assume the exercise price under the ISO is $20 per share and
that this exercise price and the number of shares covered by
the ISO remain unchanged following the deemed assumption of
the ISO following a Change in Control in which the Corporation
is not the surviving entity. Pursuant to its terms, the ISO
will become fully vested and exercisable on the second
anniversary of the date on which the Change in Control occurs.
Assume that the Executive does not exercise any portion of the
ISO that became exercisable upon the Change in Control. The
Executive then notifies the Corporation that he desires for
the ISO to be deemed exercised in its entirety as of the
second anniversary of the date on which the Change in Control
occurred, on which date the fair market value of the stock of
the surviving entity is $50 per share. The Corporation shall
make a payment to the Executive of an amount equal to
$1,350,000 (45,000 shares multiplied by ($50-$20)).
9.3. Conditions. Sections 9.1 or 9.2 above, as applicable,
shall apply upon a Change in Control only if the Executive receives and
accepts an offer of full-time employment with the Corporation or the
surviving entity, as applicable, following the Change in Control for
the period of at least two (2) years following the Change in Control in
a
<PAGE>
position of equal pay and substantially equal status as his position
with the Corporation immediately preceding the Change in Control, as
determined by the Corporation in it discretion.
If the Executive's employment terminates voluntarily or with Cause (as
defined in Section 8.6(a) above) during such two (2) year period, (i)
he shall forfeit the remaining portion of the benefit specified in
Section 9.1, if applicable, or (ii) he shall forfeit a pro-rata share
(calculated with respect to the portion of the two (2) year period of
employment that he has completed as of the date of termination) of
sixty-six and two-thirds percent (66-2/3%) of the benefit specified in
Section 9.2 above, if applicable.
9.4. Executive does not Accept Employment. If a Change in
Control shall occur during the Term of Agreement, and the Executive is
offered but does not accept an offer of full-time employment with the
Corporation or the surviving entity, as applicable, following the
Change in Control in the same position or in a position of equal pay
and substantially equal status as his position with the Corporation
immediately preceding the Change in Control, as determined by the
Corporation in its discretion, the ISO, to the extent not otherwise
vested and exercisable, shall become fully vested and exercisable with
respect to 15,000 shares of the common stock of the Corporation on the
effective date of the Change in Control.
9.5 Executive not Offered Employment. If a Change in Control
shall occur during the Term of Agreement, and the Executive is not
offered full-time employment with the Corporation or the surviving
entity, as applicable, following the Change in Control for the period
of at least two (2) years following the Change in Control in the same
position or in a position of equal pay and substantially equal status
as his position with the Corporation immediately preceding the Change
in Control, as determined by the Corporation in its discretion, the
ISO, to the extent not otherwise vested and exercisable, shall become
fully vested and exercisable with respect to 45,000 shares of the
common stock of the Corporation on the effective date of the Change in
Control; provided, however, that the Executive shall be entitled to
benefits under this Section 9.5 only if he agrees to be available to
consult with the entity that survives the Change in Control for a
reasonable amount of time during the period of two (2) years following
the effective date of the Change in Control given reasonable notice and
reasonable consulting fees.
9.6 Offer and Acceptance of Employment. An offer and
acceptance of employment for purposes of Section 9.3 above shall
include employment that continues by operation of law following a
Change in Control. If the Executive voluntarily terminates his
employment at the time of a Change in Control, he will be deemed to
have received an offer of employment for purposes of Section 9.4 above.
10. Change in Control. The Corporation shall provide the
Executive with the following benefits upon a Change in Control that
occurs while the Executive is serving as CEO of the Corporation:
10.1 Stock Options. The Corporation shall provide one of the
following two benefits to the Executive with respect to each stock
option, other than the ISO, that is held by the Executive on the
effective date of the Change in Control and that is not already fully
vested and exercisable on the effective date of the Change in Control
(an "Option"):
<PAGE>
(a). the Corporation shall take all action
necessary to provide that the Option shall become fully
vested and exercisable as of the effective date of the Change
in Control; or
(b). the Corporation shall make a lump sum payment to
the Executive in an amount equal to the value lost under the
Option, payable as soon as administratively possible after the
effective date of the Change in Control.
The Corporation shall determine which benefit described in this Section
10.1 shall be provided to the Executive in its sole discretion. For
purposes of subsection (b) above, the value lost under an Option shall
be determined by calculating the net benefit lost by the Executive
under the Option, exclusive of taxes, assuming that the Option was
fully vested and exercisable on the effective date of the Change in
Control, that the Executive exercised the Option as of the effective
date of the Change in Control, and that Executive sold the shares of
Corporation stock acquired by exercise of the Option on the effective
date of the Change in Control.
10.2 Lump Sum Payments. If the Executive receives and accepts
an offer of full-time employment with the Corporation or the surviving
entity, as applicable, following a Change in Control in the same
position or in a position of equal pay and substantially equal status
as his position with the Corporation immediately preceding the Change
in Control, as determined by the Corporation in its discretion, the
Executive shall be entitled to three lump sum payments by the
Corporation, each in an amount equal to his base salary in effect at
the time of the Change in Control and his target bonus for the year in
which the Change in Control occurs. The first such payment shall be
made as of the effective date of the Change in Control, the second such
payment shall be made as of the first anniversary of the effective date
of the Change in Control, and the third such payment shall be made as
of the second anniversary of the Change in Control. Notwithstanding the
foregoing, if the Executive's employment terminates voluntarily or with
Cause (as defined in Section 8.6(a) above) during such two (2) year
period following the Change in Control, the Executive shall forfeit a
pro-rata share (calculated with respect to the portion of the two (2)
year period of employment that he has completed as of the date of
termination) of sixty-six and two-thirds percent (66-2/3%) of the
benefit specified in this Section 10.2.
10.3 Executive does not Accept Employment. If the Executive is
offered but does not accept employment with the Corporation or the
surviving entity, as applicable, following the Change in Control in the
same position or in a position of equal pay and substantially equal
status as his position with the Corporation immediately preceding the
Change in Control, as determined by the Corporation in its discretion,
the Executive shall be entitled to a lump sum payments by the
Corporation of an amount equal to the sum of his base salary in effect
at the time of the Change in Control and his target bonus for the year
in which the Change in Control occurs. Such payment shall be made as of
the effective date of the Change in Control.
10.4 Executive not Offered Employment. If the Executive does
not receive an offer of full-time employment following the Change in
Control with the Corporation or the surviving entity, as applicable, in
the same position or in a position of equal pay and substantially equal
status as his position with the Corporation immediately preceding the
Change in Control, as determined
<PAGE>
by the Corporation in its discretion,
the Executive shall be entitled to (i) the severance benefits described
in Section 8 above on account of his termination of employment without
Cause, and (ii) the payments described in Section 10.2 above on account
of the Change in Control; provided, however, that the Executive shall
be entitled to benefits under this Section 10.4 only if he agrees to be
available to consult with the entity that survives the Change in
Control for a reasonable amount of time during the period of two (2)
years following the effective date of the Change in Control given
reasonable notice and reasonable consulting fees.
10.5 Offer and Acceptance of Employment. An offer and
acceptance of employment for purposes of Section 10.2 above shall
include employment that continues by operation of law following a
Change in Control. If the Executive voluntarily terminates his
employment at the time of a Change in Control, he will be deemed to
have received an offer of employment for purposes of Section 10.3
above.
11. Condition on Payment of Benefits: The Executive agrees that he
shall be entitled to payments and benefits under the terms of Sections
8.1(a)(iii), 8.1(a)(iv), 8.2, 9.2, 9.4, 9.5, 10.1, 10.2, 10.3 and/or 10.4 above,
as applicable, only if he executes a complete and general release in a form
substantially comparable to the release set forth in Exhibit B hereto and
incorporated herein by reference or in such other form as is determined to be
necessary or desirable by the Corporation in its discretion, which release shall
at least contain a release by the Executive and any beneficiary of the Executive
entitled to receive all or any portion of the benefits specified in such
Sections of any claims arising from the Executive's employment or associations
with the Corporation or otherwise existing against the Corporation and its
officers, directors, agents, employees, shareholders, and representatives at the
time of execution of the release. Notwithstanding any other provision set forth
herein, if the Executive elects not to execute such a general release, then the
Executive's benefits under Section 8.1(a)(iii), 8.1(a)(iv), 8.2, 9.2, 9.4, 9.5,
10.1, 10.2, 10.3 and/or 10.4 above, as applicable, shall consist solely of an
amount equal to one-half (1/2) of the Executive's base salary in effect at the
time of the termination.
12. Change in Control: For purposes of this Agreement, "Change in
Control" shall be deemed to have occurred if:
12.1 Tender Offer or Acquisition. Any "person" as defined in
section 3(a)(9) of the Securities Exchange Act of 1934 (the "Act"),
including a "group" (as that term is used in sections 13(d)(3) and
14(d)(2) of the Act), but excluding the Corporation and any employee
benefit plan sponsored or maintained by the Corporation, including any
trustee of such plan acting as trustee, who:
(a). makes a tender or exchange offer for any
shares of the Corporation's stock pursuant to which at
least fifty percent (50%) of the Corporation's stock is
purchased; or
(b). together with its "affiliates" and "associates"
(as those terms are defined in Rule 12b-2 under the Act)
becomes the "beneficial owner" (within the meaning of Rule
13d-3 under the Act) of at least fifty percent (50%) of the
Corporation's stock;
<PAGE>
12.2 Merger or Consolidation. The shareholders of the
Corporation approve a definitive agreement or plan to merge or
consolidate the Corporation with or into another corporation, to sell
or otherwise dispose of all or substantially all of its assets, or to
liquidate the Corporation; or
12.3 Change in Board. When, during the Term of Agreement, the
individuals who, at the beginning of such period, constitute the Board
(the "Incumbent Directors") cease for any reason other than death or
retirement to constitute at least a majority thereof; provided,
however, that a director who was not a director at the beginning of the
Term of Agreement shall be deemed to have satisfied such requirement,
and be an Incumbent Director, if such director was elected by, or on
the recommendation of or with the approval of, at least two-thirds of
the directors who then qualified as Incumbent Directors either
actually, because they were directors at the beginning of the Term of
Agreement, or by prior operation of this Section 12.
13. No Conflicting Obligations. Executive represents and warrants that
he is under no contract, agreement or understanding with any third party which
would conflict with the terms and conditions of this Agreement or otherwise
impair his ability to perform fully his duties hereunder.
14. Investments. During the term of this Agreement, the Executive may
without limitation purchase and divest passive interests in public or privately
held incorporated or unincorporated business entities, provided such an interest
does not constitute Competition within the meaning of Section 7.4(a) above or
otherwise breach his obligations to the Corporation.
15. Indemnification. The Corporation represents and warrants that a
copy of the Corporation's Certificate of Incorporation is attached hereto as
Exhibit C.
16. Necessity of Agreement. The Executive acknowledges and agrees that
the covenants and provisions set forth in Sections 7.2 and 7.3 of this Agreement
are reasonably necessary for the protection of the Corporation and its
Affiliates and that such covenants and provisions are reasonably limited with
respect to the activities prohibited, the duration thereof, the geographical
area thereof, the scope thereof and the effect on the Executive and the general
public. The Executive further acknowledges and agrees that the purpose and
effect of such restrictive covenants and provisions is solely to protect the
Corporation and its Affiliates for a limited period of time from unfair
competition by the Executive, and that the issuance of securities of the
Corporation to the Executive, the employment of the Executive hereunder, and the
enhanced provisions contained in this revised Agreement are conditioned upon the
Executive agreeing to abide by and be bound by all of the covenants and
provisions contained in this Agreement.
17. Irreparable Damage. The Executive acknowledges and agrees that any
breach of Sections 7.2 and/or 7.3 of this Agreement will result in irreparable
damage and continuing injury to the Corporation. Therefore, in the event of any
breach or threatened breach of any of the foregoing provisions of this Agreement
by the Executive, the Executive acknowledges and agrees that the Corporation or
any Affiliate shall be entitled, without limiting any other available legal or
equitable remedy (whether conferred by statute or otherwise), to an injunction
to be issued by any court of competent jurisdiction enjoining and restraining
the Executive from committing any violation or
<PAGE>
threatened violation of this Agreement, and the Executive hereby consents to the
issuance of such injunction. The Corporation shall not be required to post any
bond to obtain any such injunction. The Executive agrees that all remedies
available to the Corporation or any Affiliate (or any of them) by reason of a
breach of any of the foregoing provisions of this Agreement are cumulative and
that none is exclusive and that all remedies may be exercised concurrently or
consecutively at the option of the Corporation or any Affiliate, as the case may
be.
18. Severability. The provisions of this Agreement shall be deemed
severable, and the invalidity or unenforceability of any provision (or part
thereof) of this Agreement shall in no way affect the validity or enforceability
of any other provisions (or remaining part thereof). If any part of any covenant
or provision contained in this Agreement is determined by a court of competent
jurisdiction, or by any arbitration panel to which a dispute is submitted, to be
invalid, illegal or incapable of being enforced, then the court or arbitration
panel so deciding shall interpret such provisions in a manner so as to enforce
them to the fullest extent of the law. Without limiting the foregoing, in the
event the restrictions on interference and solicitation as set forth in Section
7 or the geographic scope as set forth in Section 7.4 are determined to be
invalid or unenforceable, the provisions of these Sections shall be deemed
severable, and the invalidity or unenforceability of any provision (or part
thereof) shall in no way effect the validity or enforceability of any other
provision (or remaining part thereof).
19. Other Agreements. Excepts as provided otherwise in this Section 19,
this Agreement supersedes all prior agreements and understandings, oral or
written, between the Corporation and the Executive with respect to the subject
matter hereof (but not any Proprietary Information and Inventions Agreement to
which the Corporation and the Executive are parties). In the event, however,
that the provisions of the noncompetition covenant and/or nonsolicitation
covenant contained in Section 7.2 and 7.3 herein are determined to be invalid or
unenforceable, to any extent, the Executive shall continue to be subject to all
of his obligations to the Corporation under the Original Agreement.
20. Amendment. No change, modification, termination or attempted
waiver of any of the provisions of this Agreement shall be binding upon any
party hereto unless reduced to writing and signed by the party against whom
enforcement is sought.
21. Counterparts. Any number of counterparts of this Agreement
may be signed and delivered, each of which shall be considered an original and
all of which, together, shall constitute one and the same instrument.
22. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of North Carolina, without
reference to its conflict of law provisions.
23. Venue. Any litigation under this Agreement may be brought by the
Corporation in the State of North Carolina, notwithstanding that the Executive
is not at that time a resident of the State of North Carolina and cannot be
served process within that state. The Executive hereby irrevocably consents to
the jurisdiction of the courts of North Carolina (whether federal or state
courts) over his or her person.
<PAGE>
24. Binding Effect. The provisions of this Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their heirs,
assigns and successors in interest. The Corporation shall have the right to
assign this Agreement to an affiliate or subsidiary or surviving entity
(including in the event of a Change in Control), and all covenants and
agreements hereunder shall inure to the benefit of and be enforceable by any
such assignee. The Executive's rights and obligations under this Agreement shall
not be transferable by assignment or otherwise by the Executive, such rights
shall not be subject to commutation, encumbrance, or the claims of the
Executive's creditors, and any attempt to do any of the foregoing shall be null
and void.
25. Withholding of Taxes. The Corporation may withhold from any
compensation payable under this Agreement all federal, state, city, or other
taxes as shall be required pursuant to any law, regulation or ruling.
26. Headings. The headings contained in this Agreement are for
reference purposes only and shall not be deemed interpretation of this
Agreement.
27. Representation. The Executive represents and warrants that the
performance of the Executive's duties under this Agreement, and the execution of
this Agreement by him, will not violate any agreement between the Executive and
any other person, firm, partnership, corporation or any other organization. The
Executive represents and warrants that he has consulted with and received advice
from his own counsel (Richard Rutherford) in electing to enter into this
Agreement.
28. Notices. Any notice given to either party hereto shall be in
writing and shall be deemed to have been given when delivered personally or sent
by certified or registered mail, postage prepaid, return receipt requested, duly
and properly addressed to the party concerned at the address indicated below or
to such changed address as party may subsequently give notice of:
<PAGE>
If to the Corporation:
BroadBand Technologies, Inc.
4024 Stirrup Creek Drive
P. O. Box 13737
Research Triangle Park, North Carolina 27709-3737
If to the Executive:
Salim A. L. Bhatia
107 Rustic Wood Lane
Cary, North Carolina 27511
29. Survival. The Executive and the Corporation agree that the
provisions of Section 6.4, Sections 7-12, and Sections 16-29 herein shall
survive the termination of this Agreement and the termination of the Executive's
employment hereunder.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
The Executive:
SALIM A. L. BHATIA
(Seal)
(Signature)
The Corporation:
BROADBAND TECHNOLOGIES, INC.
ATTEST: By:
(Signature)
[Corporate Seal]
Name: John R. Hutchins, III
_________________________
Title:
Chairman
Secretary
<PAGE>
EXHIBIT A
List of Current Board Memberships
Not-For-Profit/Community
1. AEEG
2. NCEITA
3. A K Network - Council for USA, ITREB - USA
4. Al-Ummah
Business
1. Sentient Network Systems
2. SAS Investments
<PAGE>
EXHIBIT 10.25
EMPLOYMENT AGREEMENT
This Agreement is made and entered this the 10th day of March, 1997,
effective as stated herein, by and between BroadBand Technologies, Inc., a
Delaware corporation (the "Corporation"), and David E. Orr (the "Executive").
WHEREAS, the Executive desires to be employed by the Corporation as its
President and Chief Executive Officer ("CEO") upon the terms and conditions
provided herein; and
WHEREAS, the Corporation desires to employ the Executive as its
President and CEO upon the terms and conditions provided herein; and
WHEREAS, the Executive acknowledges that this employment agreement and
the compensation and benefits provided herein are valuable consideration to
which he is not otherwise entitled; and
WHEREAS, the Corporation desires to receive from the Executive certain
promises contained herein, including but not limited to the noncompetition and
nonsolicitation covenants set forth herein; and
WHEREAS, the Executive acknowledges that his employment with the
Corporation is conditioned, in part, upon his agreement to observe the
noncompetition and nonsolicitation covenants set forth herein.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Executive and the Corporation agree as follows:
EMPLOYMENT. SUBJECT TO AND UPON THE TERMS AND CONDITIONS
HEREIN PROVIDED, THE CORPORATION HEREBY AGREES TO EMPLOY THE EXECUTIVE AND THE
EXECUTIVE HEREBY AGREES TO BE EMPLOYED BY THE CORPORATION DURING THE TERM OF
AGREEMENT AS DEFINED IN SECTION 2 HEREOF.
2. Term of Agreement and Duties. The term of this Agreement shall
commence on April 1, 1997 (the "Effective Date") and shall terminate on the
first to occur of (i) the termination of this Agreement as provided herein, or
(ii) March 31, 2002; provided, however, that if neither party has given written
notice to the other, at least one (1) year prior to the expiration date then in
effect, of the intention not to renew the Agreement beyond such expiration date,
then the Term of this Agreement shall automatically extend for an additional one
(1) year at the conclusion of such expiration date. The period during which this
Agreement is in effect is referred to herein as the "Term of Agreement". If the
Executive's employment with the Corporation continues beyond the Term of
Agreement, such continued employment shall be at will and, except as
specifically noted herein, no provision or condition of this Agreement shall
govern such extended employment.
<PAGE>
3. Position and Responsibilities. During the Term of Agreement, the
Executive shall be employed as President and CEO of the Corporation. While so
employed, the Executive agrees to devote his full time and attention to carrying
out his duties and responsibilities under this Agreement and all duties and
responsibilities directed by the Board of Directors of the Corporation (the
"Board"), and the Executive shall use his best efforts, skills and abilities to
further the interests of the Corporation. The Executive shall serve under the
direction and supervision of the Board. The Executive may not serve on the board
of directors of any other business entity unless (i) such entity is not engaged,
directly or indirectly, in competition with the business of the Corporation, as
determined by the Board in its discretion, (ii) such service would not interfere
with the Executive's obligations to the Corporation, (iii) the Executive obtains
the prior express written consent of the Board, and (iv) the Executive adheres
to such limitations as may imposed by the Board in granting such consent.
4. Director. The Corporation shall present the Executive for election
as a member of the Board as soon as possible following the Effective Date as is
reasonable in the normal course of operations of the Corporation, and the
Executive agrees to accept any such election and to serve in such capacity
during all or any part of the Term of Agreement without any additional
compensation therefor.
5. Compensation.
5.1 Base Salary. The Corporation shall pay the Executive a
base salary, in periodic installments in accordance with the
Corporation's usual payroll practice for senior management-level
employees of the Corporation as these employees are described by the
Corporation ("Senior Management"), at an annual rate of at least
$350,000, which amount may be increased by the Board as part of its
customary annual compensation review process.
5.2 Incentive Bonus. For the period beginning on the Effective
Date and ending on March 31, 1998, the Executive shall be entitled to
an incentive bonus in the amount of at least $175,000; during such
period, the Executive shall not otherwise participate in any incentive
compensation or bonus arrangements for other employees of the
Corporation. Said bonus shall be payable on or about April 1, 1998.
During the period beginning January 1, 1998 and ending on the date on
which this Agreement terminates, the Executive shall be entitled to
participate in the Corporation's incentive compensation program, if
any, in accordance with its terms, as determined by the Board in its
discretion; provided, however, that the annual target bonus for the
Executive under such program shall be at least 50% of his annual base
salary.
<PAGE>
5.3 Signing Bonus. The Executive shall be entitled to a
signing bonus in the amount of $4,000,000 (the "Bonus"), plus income
with respect to such sum, payable as described in this Section 5.3. To
fulfill its obligations under this Section 5.3, as soon as
administratively possible after the Executive executes this Agreement
the Corporation shall pay and deliver the sum of $4,000,000 to a bank
or trust company mutually acceptable to the Executive and the
Corporation, as trustee (the "Trustee") under a written trust agreement
(the "Trust Agreement") between the Corporation and the Trustee. Such
trust shall be designed as a rabbi trust, provided that it shall
automatically convert to a secular trust upon the occurrence of certain
events as specified in the Trust Agreement. The terms of the Trust
Agreement shall be mutually agreed to by the Corporation and the
Executive as soon as administratively possible following the date of
this Agreement. All accrued income with respect to the Bonus shall be
paid to the Executive quarterly commencing three months from the
effective date of this Agreement, except as otherwise provided in the
Trust Agreement. The principal of the trust plus all income accrued and
unpaid thereon shall be paid to the Executive within the period
specified in the Trust Agreement following the first to occur of the
following events: (i) the fifth anniversary of the effective date of
this Agreement, if this Agreement has not sooner terminated (other than
as specified in clause (ii) below); or (ii) the date on which the
Corporation terminates the Executive's employment other than for Cause
(as defined in Section 8.3(a) below). Upon the Executive's Disability
prior to the fifth anniversary of the effective date of this Agreement,
a pro-rata portion of the Bonus and the income accrued and unpaid
thereon, determined on the basis of the number of full or partial
months of employment with the Corporation that the Executive has
completed on the date of such Disability, shall be paid to the
Executive within the period specified in the Trust Agreement following
the date of such Disability. The Trustee shall be charged with
investing and distributing the $4,000,000, as required by this
Agreement and the Trust Agreement, and the overriding investment
consideration shall be the preservation of principal. The rights of the
Executive to sums held under the Trust Agreement shall not be
transferable other than by will or the laws of descent and
distribution. The Corporation's obligations under this Section 5.3
shall terminate immediately in the event of the Executive's death, or
in the event that the Executive breaches this Agreement, the Executive
voluntarily terminates his employment, or the Corporation terminates
the Executive's employment for Cause (as defined in Section 8.3(a)
below).
5.4 Restricted Stock Award. The Executive shall be entitled to
a restricted stock award of shares of the Corporation's common stock
with a value equal to $1,000,000 (rounded up to the next highest number
of shares) calculated as of the last trading price of the Corporation's
common stock on the date the Executive signs this Agreement (or, if not
a business day, on the last business day prior to the date the
Executive signs this Agreement). The terms and conditions of such award
shall be substantially as set forth in the Restricted Stock Award
Agreement attached hereto as Exhibit A and incorporated herein by
reference.
5.5 Nonqualified Stock Option. The Corporation shall grant the
Executive a nonqualified stock option (the "Option") to purchase
350,000 shares of the common stock of the Corporation, which Option
shall become vested and exercisable upon the attainment of certain
performance goals. The terms and conditions of the Option shall be
substantially as set forth
<PAGE>
in the Nonqualified Stock Option Award
Agreement attached hereto as Exhibit B and incorporated herein by
reference.
6. Employee Benefits, Perquisites and Expenses.
6.1 General Benefit Plans. Except as provided otherwise in
Section 5.2 above and in this Section 6.1, the Executive shall be
entitled to participate in all of the Corporation's health, retirement,
life insurance, stock option, and other benefit plans, programs or
practices from time to time in effect for Senior Management in
accordance with their terms; provided, however, that the Executive
shall not be entitled to participate in any severance program or
arrangement established for other employees of the Corporation;
provided, further, that, subject to satisfying underwriting
requirements, the Executive shall be entitled to participate in a
disability program comparable to that provided to the Executive by
Alcatel immediately prior to his termination of employment with Alcatel
and, assuming that the Executive is insurable, the Executive shall be
entitled to participate in an arrangement that provides term life
insurance coverage of $2 million on the life of the Executive for so
long as he is employed by the Corporation.
6.2 Nonqualified Retirement Plan. The Corporation shall
establish a nonqualified deferred compensation/trust arrangement
pursuant to which the Executive shall be entitled to defer all or a
portion of his salary and bonus on an annual basis, in accordance with
the provisions of the arrangement and the requirements of the Internal
Revenue Code of 1986, as amended. In addition, the Corporation shall
annually credit the amount of $82,000 on behalf of the Executive under
such arrangement. The trust maintained in connection with such
arrangement shall be designed as a rabbi trust, provided that it shall
automatically convert to a secular trust upon the occurrence of certain
events as specified therein. Subject to such reasonable limitations as
are necessary for the arrangement to be considered deferred
compensation, the Executive's benefits under such arrangement shall be
fully vested at all times. The corpus of the trust maintained as part
of such arrangement shall be invested as directed by the Board (or a
committee to which the Board delegates this responsibility) after
receiving input from the Executive as to his investment preferences.
Such arrangement shall contain such other terms and conditions as shall
be mutually agreed to by the Corporation and the Executive as soon as
administratively possible following the date of this Agreement.
6.3 Vacation. The Executive shall be entitled to participate
in the Corporation's holiday, sick leave and vacation policies in
effect for Senior Management as may be established from time to time;
provided, however, that in no event shall the Executive's annual
vacation entitlement be less than the maximum amount of vacation to
which any full-time member of Senior Management is entitled under such
policies (currently 4 weeks). The Executive shall receive, within
thirty (30) days after his employment terminates, a payment for any
accrued but unused vacation at the termination of the employment of the
Executive in accordance with the Corporation's vacation policy in
effect at the time of termination.
6.4 Expenses. The Corporation shall reimburse the Executive
for all reasonable and documented expenses incurred in connection with
the performance of his duties hereunder
<PAGE>
and incurred in accordance with policies and procedures established
from time to time by the Corporation. The Executive shall keep
reasonably detailed and accurate records of expenses incurred in
connection with the performance of his duties hereunder, and
reimbursement therefor shall be made in accordance with policies and
procedures to be established from time to time by the Corporation.
6.5 Relocation Package. In connection with the commencement of
Executive's employment with the Corporation pursuant to this Agreement,
the Corporation shall provide the Executive with certain relocation
reimbursements in accordance with the Corporation relocation policy, a
copy of which is attached hereto as Exhibit C and incorporated herein
by reference. Notwithstanding the terms of such policy, (i) the
Corporation shall provide Executive with a primary residence buy-out
package comparable to that described in Exhibit D hereto; (ii) the
Executive shall be entitled to reimbursement by the Corporation for
costs incurred in connection with the acquisition of a primary
residence in the Raleigh - Durham - Chapel Hill area up to a maximum of
$15,000, which costs are limited to fees for loan origination,
appraisals, title searches and insurance, surveys, termite inspections,
attorney's fees and government-required recording charges, and (iii)
the Executive shall be entitled to reimbursement or advance payment by
the Corporation for reasonable expenses incurred in connection with
moving his boat by land to the Wilmington, North Carolina, area.
6.6 Financial Planning Allowance. The Corporation shall
reimburse the Executive for documented financial planning and legal
expenses up to a maximum amount of $20,000 total for expenses incurred
during the period commencing January 1, 1997, and ending March 31,
1998, and $10,000 total for expenses incurred during each consecutive
twelve-month period thereafter during the Term of Agreement.
7. Noncompetition and Nonsolicitation Covenants.
7.1 Need for Covenants. The Executive acknowledges that the
Corporation has expended, and is expected to expend, large amounts of
time, money and effort in researching, developing, designing and
testing its products, developing and keeping a committed management
team, and manufacturing and marketing its products. The Executive
further acknowledges that crucial to the success of the Corporation
will be its ability to continuously develop superior design and
manufacturing technologies for broadband and narrowband fiber optic
loop systems which are trade secrets of the Corporation and which are
not known to others engaged in similar businesses or
<PAGE>
ventures. The Executive further acknowledges that he will learn a great
deal of information about the business of the Corporation, including
its trade secrets and confidential information, including, but not
limited to, customer and supplier lists, know-how, processes, and
methods of doing business, and the Executive agrees that the
Corporation is entitled to be protected from the possibility, both
during and after the Executive's employment terminates, of the
Executive becoming associated with a business which competes with the
Corporation. The Executive further acknowledges that if he did become
associated with such a business, such business would compete unfairly
with the business of the Corporation in view of the trade secrets and
confidential, proprietary information which will become known to the
Executive by reason of being employed by the Corporation. The Executive
further acknowledges that the nature of the Corporation's products are
such that its natural market will be worldwide because fiber optic loop
systems can be used worldwide wherever fiber optic cable and equipment
can be used, and the Corporation's competition in fiber optic loop
systems research and development is located throughout the world and
competes in a worldwide market. Accordingly, the Executive hereby
agrees that the time, geographic and other restrictions contained in
this Agreement are reasonable to protect the legitimate interests of
the Corporation and do not unfairly restrict or penalize the Executive.
7.2 Noncompetition Covenant. During the Restricted Period (as
defined in Section 7.4 below) the Executive shall not Compete (as
defined in Section 7.4 below), directly or indirectly, with the
Corporation or any Affiliate (as defined in Section 7.4 below) of the
Corporation by engaging in any line of business (as defined in Section
7.4 below) in which on the Termination Date (as defined in Section 7.4
below) the Corporation or any Affiliate of the Corporation is engaged
(or is planning to engage) in any Prohibited Location (as defined in
Section 7.4 below).
7.3 Nonsolicitation Covenant. During the entire Restricted
Period (as defined in Section 7.4 below), the Executive: (i) shall not
interfere with, or seek to interfere with, the relationship between the
Corporation or any Affiliate, and any of the employees of such
entities, (ii) shall not interfere with, or seek to interfere with, the
relationship between the Corporation or any Affiliate, and any of the
suppliers of such entities, (iii) shall not solicit or otherwise
encourage any employee of the Corporation or of any Affiliate to leave
the employ of the Corporation or of any Affiliate, (iv) shall not
interfere with, or seek to interfere with, the relationship between the
Corporation or any Affiliate, and any customers of such entities, and
(v) shall not utilize or disclose any personnel information about any
employee of the Corporation or of any Affiliate, including but not
limited to information regarding the employee's performance, abilities,
responsibilities or functions.
7.4 Definitions.
(a). The terms "Compete" and "Competition," as used
herein, shall be deemed to include, without limitation,
becoming or being an employee, owner, partner, consultant,
agent, stockholder, director, officer of any person,
partnership, firm, corporation or other entity (other than the
Corporation or any Affiliate) which engages directly in (i)
the business of broadband or narrowband fiber optic
residential or small business access
<PAGE>
systems, or any systems
that perform substantially similar functions, but does not
include parts, software, components, or subsystems of said
systems that the Corporation purchases from third party
vendors for inclusion in the Corporation's systems without
modification by the Corporation and/or (ii) any other business
conducted by the Corporation or any Affiliate immediately
prior to the date of termination of Executive's employment or
in which the Corporation or any Affiliate shall at the time of
termination of the Executive's employment with the Corporation
be actively preparing to enter.
Notwithstanding the foregoing, the following shall
not constitute competition with the Corporation (i) ownership
of five (5%) percent or less of any class of securities of any
entity whose securities are publicly traded, or (ii)
employment by a person or entity engaged in the business
described above if all the following conditions are met: (1)
the business described above constitutes less than five (5%)
percent of the gross sales of the new employer on a
consolidated basis, (2) the employer's stock or the stock of a
parent company is publicly traded, (3) Executive shows to the
satisfaction of the Corporation that Executive is employed in
a division or department not engaged in the business described
above and the duties of Executive do not require contact with
the division or department engaged in the business described
above, and (4) prior to the date of such employment Executive
and Executive's new employer execute and deliver to the
Corporation an agreement in form and substance reasonably
satisfactory to the Corporation in which (x) Executive and his
new employer represent that the conditions set forth in
clauses (1), (2), and (3) above have been satisfied, (y) the
new employer agrees not to obtain from Executive any
proprietary information of the Corporation or to use, retain
or disclose any such proprietary information of the
Corporation which Executive may willfully or inadvertently
disclose to such new employer in violation of any agreement
between Executive and the Corporation, and (z) Executive
reaffirms to the Corporation all obligations of Executive with
respect to proprietary information of the Corporation
contained in any agreement between the Corporation and
Executive.
(b). The phrases "engage in a business" or "engage in
a line of business" and similar phrases shall be deemed to
include marketing or otherwise selling products or
researching, developing, designing, testing or manufacturing
products or services or otherwise preparing to market or sell
products or services.
(c). The term "Affiliate" shall mean any corporation,
partnership or other entity (i) which owns more than 50% of
the voting securities of the Corporation, or (ii) in which the
Corporation owns more than 50% of its voting securities, or
(iii) more than 50% of the voting securities of which are
owned by a person or entity that owns more than 50% of the
voting securities of the Corporation.
(d). The term "Prohibited Location" means the
following:
(i). Any location within the United
States;
<PAGE>
(ii). Any location within Canada;
(iii). Any location within England;
(iv). Any location within France;
(v). Any location within Italy;
(vi). Any location within Germany;
(vii). Any location within Taiwan; and
(viii). Any location within Korea.
A competitor located outside a Prohibited Location shall be
deemed to be competing in a Prohibited Location if the
competitor either (i) Competes in the Prohibited Location by
selling products in Competition in the Prohibited Location, or
(ii) is actively preparing to Compete in the Prohibited
Location.
With respect to the covenant contained in Section 7.2 above,
it is acknowledged by the Executive that the Corporation's
competition in fiber optic loop systems research, development,
marketing and sales is located throughout the world and
competes in a worldwide market, and that unfair competition
can only be prevented by enforcing this specific covenant in
these prohibited locations specifically set forth in Section
7.4(d) above.
(e). The term "Restricted Period" shall mean the
period commencing on the date of this Agreement and ending
upon the second anniversary of the Termination Date.
(f). The term "Termination Date" means the date
on which the Executive's employment with the Corporation and
its Affiliates terminates for any reason or no reason.
7.5 Benefits Conditioned upon Enforceability. Notwithstanding
anything to the contrary contained in this Agreement, in the event that
Sections 7.2 and/or 7.3 of this Agreement are determined to be
unenforceable, to any extent, by a court or arbitration panel, whether
by preliminary or final adjudication, the Corporation shall not be
liable for any payments or benefits under Sections 8.1(c), 8.1(d), 9.3,
9.4 and/or 9.5.
8. Payment to the Executive Upon Termination of Employment.
8.1 Termination Without Cause. The Corporation shall have the
right to terminate Executive's employment at any time with or without cause. If
the Corporation terminates the employment of the Executive without Cause (as
defined in Section 8.3(a) below) other than during the three year period
<PAGE>
commencing on the effective date of a Change in Control (as defined in Section
11 below), the Term of Agreement shall terminate immediately thereafter and:
(a). the Corporation shall pay the Executive the
portion of his base salary in effect at the time of
termination as he may be entitled to receive for services
rendered prior to the date of such termination;
(b). the Corporation shall pay the Executive for any
accrued but unused vacation as set forth in Section 6.2;
(c). subject to the restrictions set forth in
Sections 7.5 and 10, the Corporation shall pay the Executive,
at the end of each month for the first twenty-four (24) months
following the date on which the Executive executes the release
described in Section 10 below (the "Release Date"), an amount
equal to one twelfth (1/12) of the sum of (x) his annual base
salary in effect at the time of termination, plus (y) his
target bonus for the year in which the termination occurs (as
determined by the Board in its discretion).
If the Executive has foregone receiving all or a portion of
his regular salary as authorized by the Board, any committee
thereof or any officer authorized to determine salaries,
payment to the Executive under this subsection (c) shall
constitute full payment of all such amounts.
(d). subject to the restrictions set forth in
Sections 7.5 and 10, the forfeiture provisions applicable upon
a termination of employment under the restricted stock award
described in Section 5.4 shall lapse as of the date of the
termination of the Executive's employment.
8.2 Termination with Cause, Death or Disability. The
Corporation shall have the right to terminate the Executive's
employment and this Agreement at any time with Cause (as defined in
Section 8.3(a) below). If the Corporation terminates the employment of
the Executive with Cause (as defined in Section 8.3(a) below), or upon
the death or Disability (as defined in Section 8.3(b) below) of the
Executive, the Term of Agreement shall terminate immediately thereafter
and the Corporation shall pay the Executive or his beneficiary such
compensation as is set forth in Sections 8.1(a) and 8.1(b) above and
shall cause the payments to which the Executive is entitled under
Section 5.3 above, if any, to be paid to the Executive in accordance
with Section 5.3.
8.3 Definitions.
(a). For purposes of the Agreement, the term "Cause"
shall be limited to the following events: (i) drug abuse by
the Executive; (ii) alcohol abuse by the Executive if it
interferes with the efficient conduct of business by the
Executive; (iii) theft, embezzlement or other similar act by
the Executive of any tangible or intangible asset of the
Corporation or any customer, supplier or investor of the
Corporation; (iv) commission of any other criminal act by the
Executive (whether or not the Executive is
<PAGE>
prosecuted and convicted) if such act causes or is likely to
cause damage to the business of the Corporation; (v) a
material breach by the Executive of any written agreement
between the Corporation and the Executive, including, without
limitation, this Agreement, the Proprietary Information and
Inventions Agreement, or any written policy of the Corporation
known by and applicable to all its employees, if the Executive
fails to cure his breach within ten (10) days after notice of
breach is given to the Executive by the Corporation; (vi)
gross negligence or willful misconduct by the Executive in his
conduct of the business of the Corporation, but a mere mistake
in business judgment shall not constitute cause unless it is
part of a continuing pattern of bad judgment that has caused
actual damage to the Corporation or its business, and (vii)
willful failure by the Executive to follow the instructions of
the Board, to the extent such instructions are reasonably
related to the business of the Corporation, are given in good
faith to promote the interest of the Corporation, would not
require the Executive to commit any illegal act and are not
given to provide the Corporation with cause for terminating
the Executive. This definition of cause shall not create in
the Executive any right to employment or cause of action on
account of termination of the Executive's employment with the
Corporation without Cause.
(b). For purposes of this Agreement, the Executive's
employment with the Corporation shall be deemed to have
terminated on account of "Disability" on the date on which the
Executive is eligible for and commences benefits under the
Corporation's program of long-term disability insurance.
9. Change in Control. If a Change in Control occurs during the Term of
Agreement and the Corporation terminates the Executive's employment other than
for Cause (as defined in Section 8.3(a) above) during the three year period
commencing on the effective date of the Change of Control, the Term of Agreement
shall terminate immediately following such termination of the Executive's
employment and the Executive shall be entitled to the following in lieu of the
benefits described in Section 8:
9.1 Salary. The Corporation shall pay the Executive the
portion of his base salary in effect at the time of termination as he may be
entitled to receive for services rendered prior to the date of such termination.
9.2 Vacation. The Corporation shall pay the Executive
for any accrued but unused vacation as set forth in Section 6.2.
9.3. Stock Option. The Corporation shall provide one of
the following two benefits to the Executive with respect to the Option to the
extent the Option is not already fully vested and exercisable on the date of the
termination of the Executive's employment:
(a). the Corporation shall take all action necessary
to provide that the Option is fully vested and exercisable as of the date of the
termination of the Executive's employment; or
<PAGE>
(b). the Corporation shall make a lump sum payment to
the Executive in an amount equal to the value lost under the
Option, payable as soon as administratively possible after the
date of the termination of the Executive's employment.
The Corporation shall determine which benefit described in
this Section 9.3 shall be provided to the Executive in its
sole discretion. For purposes of subsection (b) above, the
value lost under an Option shall be determined by calculating
the net benefit lost by the Executive under the Option,
exclusive of taxes, assuming that the Option was fully vested
and exercisable on the date of the termination of the
Executive's employment, that the Executive exercised the
Option as of the date of the termination of the Executive's
employment, and that Executive sold the shares of Corporation
stock acquired by exercise of the Option on the date of the
termination of the Executive's employment.
9.4 Lump Sum Payments. Subject to the restrictions set forth
in Sections 7.5 and 10, the Executive shall be entitled to three lump sum
payments by the Corporation, each in an amount equal to his base salary in
effect on the date of the termination of the Executive's employment and his
target bonus for the year in which such termination occurs. The first such
payment shall be made as of the date of the termination of the Executive's
employment, the second such payment shall be made as of the first anniversary of
the date of the termination of the Executive's employment, and the third such
payment shall be made as of the second anniversary of the date of the
termination of the Executive's employment.
9.5 Restricted Stock. Subject to the restrictions set forth in
Sections 7.5 and 10, the forfeiture provisions applicable upon a termination of
employment under the restricted stock award described in Section 5.4 shall lapse
as of the effective date of the termination of the Executive's employment.
10. Condition on Payment of Benefits: The Executive agrees that he
shall be entitled to payments and benefits under the terms of Sections 8.1(c),
8.1(d), 9.3, 9.4 and/or 9.5 above, as applicable, only if he executes a complete
and general release in a form substantially comparable to the release set forth
in Exhibit E hereto and incorporated herein by reference or in such other form
as is determined to be necessary or desirable by the Corporation in its
discretion, which release shall at least contain a release by the Executive and
any beneficiary of the Executive entitled to receive all or any portion of the
benefits specified in such Sections of any claims arising from the Executive's
employment or associations with the Corporation or otherwise existing against
the Corporation and its officers, directors, agents, employees, shareholders,
and representatives at the time of execution of the release. Notwithstanding any
other provision set forth herein, if the Executive elects not to execute such a
general release, then the Executive's benefits under Section 8.1(c), 8.1(d),
9.3, 9.4, and/or 9.5 above, as applicable, shall consist solely of an amount
equal to one-half (1/2) of the Executive's base salary in effect at the time of
the termination.
11. Change in Control: For purposes of this Agreement, "Change in
Control" shall be deemed to have occurred if:
<PAGE>
11.1 Tender Offer or Acquisition. Any "person" as defined in
section 3(a)(9) of the Securities Exchange Act of 1934 (the "Act"),
including a "group" (as that term is used in sections 13(d)(3) and
14(d)(2) of the Act), but excluding the Corporation and any employee
benefit plan sponsored or maintained by the Corporation, including any
trustee of such plan acting as trustee, who:
(a). makes a tender or exchange offer for any shares
of the Corporation's stock pursuant to which at least fifty
percent (50%) of the Corporation's stock is purchased; or
(b). together with its "affiliates" and "associates"
(as those terms are defined in Rule 12b-2 under the Act)
becomes the "beneficial owner" (within the meaning of Rule
13d-3 under the Act) of at least fifty percent (50%) of the
Corporation's stock;
11.2 Merger or Consolidation. The shareholders of the
Corporation approve a definitive agreement or plan to merge or
consolidate the Corporation with or into another corporation, to sell
or otherwise dispose of all or substantially all of its assets, or to
liquidate the Corporation; or
11.3 Change in Board. When, during the Term of Agreement, the
individuals who, at the beginning of such period, constitute the Board
(the "Incumbent Directors") cease for any reason other than death or
retirement to constitute at least a majority thereof; provided,
however, that a director who was not a director at the beginning of the
Term of Agreement shall be deemed to have satisfied such requirement,
and be an Incumbent Director, if such director was elected by, or on
the recommendation of or with the approval of, at least two-thirds of
the directors who then qualified as Incumbent Directors either
actually, because they were directors at the beginning of the Term of
Agreement, or by prior operation of this Section 11.
12. No Conflicting Obligations. Executive represents and warrants that
he is under no contract, agreement or understanding with any third party which
would conflict with the terms and conditions of this Agreement or otherwise
impair his ability to perform fully his duties hereunder.
13. Investments. During the term of this Agreement, the Executive may
without limitation purchase and divest passive interests in public or privately
held incorporated or unincorporated business entities, provided such an interest
does not constitute Competition within the meaning of Section 7.4(a) above or
otherwise breach his obligations to the Corporation.
14. Necessity of Agreement. The Executive acknowledges and agrees that
the covenants and provisions set forth in Sections 7.2 and 7.3 of this Agreement
are reasonably necessary for the protection of the Corporation and its
Affiliates and that such covenants and provisions are reasonably limited with
respect to the activities prohibited, the duration thereof, the geographical
area thereof, the scope thereof and the effect on the Executive and the general
public. The Executive further acknowledges and agrees that the purpose and
effect of such restrictive covenants and provisions is solely to protect the
Corporation and its Affiliates for a limited period of time from unfair
competition by the Executive, and that the issuance of securities of the
Corporation to the Executive, the
<PAGE>
employment of the Executive hereunder, and the
enhanced provisions contained in this revised Agreement are conditioned upon the
Executive agreeing to abide by and be bound by all of the covenants and
provisions contained in this Agreement.
15. Irreparable Damage. The Executive acknowledges and agrees that any
breach of Sections 7.2 and/or 7.3 of this Agreement will result in irreparable
damage and continuing injury to the Corporation. Therefore, in the event of any
breach or threatened breach of any of the foregoing provisions of this Agreement
by the Executive, the Executive acknowledges and agrees that the Corporation or
any Affiliate shall be entitled, without limiting any other available legal or
equitable remedy (whether conferred by statute or otherwise), to an injunction
to be issued by any court of competent jurisdiction enjoining and restraining
the Executive from committing any violation or threatened violation of this
Agreement, and the Executive hereby consents to the issuance of such injunction.
The Corporation shall not be required to post any bond to obtain any such
injunction. The Executive agrees that all remedies available to the Corporation
or any Affiliate (or any of them) by reason of a breach of any of the foregoing
provisions of this Agreement are cumulative and that none is exclusive and that
all remedies may be exercised concurrently or consecutively at the option of the
Corporation or any Affiliate, as the case may be.
16. Severability. The provisions of this Agreement shall be deemed
severable, and the invalidity or unenforceability of any provision (or part
thereof) of this Agreement shall in no way affect the validity or enforceability
of any other provisions (or remaining part thereof). If any part of any covenant
or provision contained in this Agreement is determined by a court of competent
jurisdiction, or by any arbitration panel to which a dispute is submitted, to be
invalid, illegal or incapable of being enforced, then the court or arbitration
panel so deciding shall interpret such provisions in a manner so as to enforce
them to the fullest extent of the law. Without limiting the foregoing, in the
event the restrictions on interference and solicitation as set forth in Section
7 or the geographic scope as set forth in Section 7.4 are determined to be
invalid or unenforceable, the provisions of these Sections shall be deemed
severable, and the invalidity or unenforceability of any provision (or part
thereof) shall in no way effect the validity or enforceability of any other
provision (or remaining part thereof).
17. Other Agreements. This Agreement supersedes all prior agreements
and understandings, oral or written, between the Corporation and the Executive
with respect to the subject matter hereof.
18. Amendment. No change, modification, termination or attempted
waiver of any of the provisions of this Agreement shall be binding upon any
party hereto unless reduced to writing and signed by the party against whom
enforcement is sought.
19. Counterparts. Any number of counterparts of this Agreement may be
signed and delivered, each of which shall be considered an original and all of
which, together, shall constitute one and the same instrument.
20. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of North Carolina, without reference to
its conflict of law provisions.
<PAGE>
21. Venue. Any litigation under this Agreement may be brought by the
Corporation in the State of North Carolina, notwithstanding that the Executive
is not at that time a resident of the State of North Carolina and cannot be
served process within that state. The Executive hereby irrevocably consents to
the jurisdiction of the courts of North Carolina (whether federal or state
courts) over his or her person.
22. Binding Effect. The provisions of this Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their heirs,
assigns and successors in interest. The Corporation shall have the right to
assign this Agreement to an affiliate or subsidiary or surviving entity
(including in the event of a Change in Control, and all covenants and agreements
hereunder shall inure to the benefit of and be enforceable by any such assignee.
The Executive's rights and obligations under this Agreement shall not be
transferable by assignment or otherwise by the Executive, such rights shall not
be subject to commutation, encumbrance, or the claims of the Executive's
creditors, and any attempt to do any of the foregoing shall be null and void.
23. Withholding of Taxes. The Corporation may withhold from any
compensation payable under this Agreement all federal, state, city, or other
taxes as shall be required pursuant to any law, regulation or ruling.
24. Headings. The headings contained in this Agreement are for
reference purposes only and shall not be deemed interpretation of this
Agreement.
25. Representation. The Executive represents and warrants that he has
consulted with and received advice from his own counsel (Goehring, Rutter &
Boehn of Pittsburgh, PA) in electing to enter into this Agreement.
26. Notices. Any notice given to either party hereto shall be in
writing and shall be deemed to have been given when delivered personally or sent
by certified or registered mail, postage prepaid, return receipt requested, duly
and properly addressed to the party concerned at the address indicated below or
to such changed address as party may subsequently give notice of:
If to the Corporation:
BroadBand Technologies, Inc.
4024 Stirrup Creek Drive
P. O. Box 13737
Research Triangle Park, North Carolina 27709-3737
If to the Executive:
David E. Orr
740 Creekwood Drive North
Fairview, Texas 75069
<PAGE>
27. Survival. The Executive and the Corporation agree that the
provisions of Section 7 and Sections 14-27 herein shall survive the termination
of this Agreement and the termination of the Executive's employment hereunder.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
The Executive:
DAVID E. ORR
(Seal)
(Signature)
The Corporation:
BROADBAND TECHNOLOGIES, INC.
ATTEST: By:
(Signature)
[Corporate Seal]
Name:
Title:
Secretary
<PAGE>
EXHIBIT A
BROADBAND TECHNOLOGIES, INC.
RESTRICTED STOCK AWARD AGREEMENT
THIS AGREEMENT, made and entered into this ____ day of March, 1997, by
and between BroadBand Technologies, Inc., a Delaware corporation (the
"Company"), and David E. Orr (the "Executive").
WHEREAS, the Executive and the Company have entered into an employment
agreement (the "Employment Agreement") pursuant to which he will become entitled
to a salary and other benefits in exchange for his services as President and
Chief Executive Officer of the Company and for his compliance with
noncompetition and nonsolicitation covenants set forth in the Employment
Agreement; and
WHEREAS, one of the benefits to which the Executive is entitled under
the Employment Agreement is a restricted stock award of shares of the Company's
common stock; and
WHEREAS, this Agreement evidences the terms and conditions of the
restricted stock award described in the Employment Agreement; and
WHEREAS, the Executive desires to accept this award of restricted stock
in full satisfaction of the Company's obligations with respect to the restricted
stock award described in the Employment Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
promises contained herein, the parties hereby agree as follows:
1. AWARD. SUBJECT TO THE TERMS AND CONDITIONS SET FORTH HEREIN,
THE COMPANY HEREBY AWARDS TO THE EXECUTIVE, IN THE FORM OF RESTRICTED STOCK,
EIGHTY THOUSAND (80,000) SHARES OF THE COMMON STOCK OF THE COMPANY, PAR VALUE
$.01 (THE "STOCK"). THE SHARES AND ALL DISTRIBUTIONS WITH RESPECT TO THE SHARES
SHALL BE SUBJECT TO THE RESTRICTIONS SET FORTH IN SECTION 2 HEREOF.
<PAGE>
<PAGE>
2. Restrictions. The Shares and any ownership interest in the
Shares may not be sold, transferred, exchanged, pledged, hypothecated or
otherwise disposed of to the extent that the Shares are subject to forfeiture
as described below.
(a) Except as provided in subsections (b) and (c) below, if
the Executive's employment with the Company shall terminate, for any reason, as
determined by the Company in its discretion, prior to the fifth anniversary of
the Award Date (such five year period is referred to herein as the "Restriction
Period"), the Executive shall forfeit the Stock. The Executive may not sell,
transfer, exchange, pledge, hypothecate or otherwise dispose of all or any
portion of the Stock or any ownership interest therein during the Restriction
Period.
(b) In the event that the Company terminates the Executive's
employment without Cause (as defined in Section 8.3(a) of the Employment
Agreement) during the Term of Agreement (as defined in Section 2 of the
Employment Agreement), as determined by the Company in its discretion, prior to
the fifth anniversary of the Award Date, and subject to the restrictions set
forth in Section 7.5 and 10 of the Employment Agreement, the Restriction Period
shall terminate and the Stock shall no longer be subject to forfeiture pursuant
to subsection (a) as of the effective date of such termination of the
Executive's employment.
(c) In the event that a Change in Control (as defined in
Section 11 of the Employment Agreement) occurs during the Term of Agreement (as
defined in Section 2 of the Employment Agreement and the Company terminates the
Executive's employment other than for Cause (as defined in Section 8.6(a) of the
Employment Agreement) during the three year period commencing on the effective
date of the Change in Control, and subject to the restrictions set forth in
Sections 7.5 and 10 of the Employment Agreement, the Restriction Period shall
terminate and the Stock shall no longer be subject to forfeiture pursuant to
subsection (a) as of the effective date of such termination of the Executive's
employment.
3. Documentation of Restricted Stock Award. The Executive's right to
receive the Shares is conditioned upon his execution and delivery of this
Agreement, and such other agreement, receipts and other documents as the Company
may request, within thirty (30) days after request by the Company.
4. Stock Certificates.
(a) The Company shall retain, in a custodial capacity, stock
certificates representing the Shares until forfeiture or lapse of the
restrictions applicable to the Shares, whichever first occurs. Upon delivery to
the Company of the executed Stock Power attached hereto and incorporated herein
by reference, the Company shall register stock certificates representing the
Shares in the name of the Executive, which stock certificates shall bear such
legends as the Company deems appropriate.
(b) As soon as administratively possible following the
expiration of the Restriction Period, the Company shall deliver to the Executive
unrestricted stock certificates for the Stock, unless the Stock has been
forfeited prior to such date.
(c) Upon forfeiture of the Stock pursuant to Section 2 above,
the stock certificates held on behalf of the Executive shall be transferred to
the Company pursuant to the executed Stock Power described in subparagraph (a)
above.
5. Authority of Compensation Committee.
<PAGE>
(a) Except as provided in subsection (b) below, the
Compensation Committee of the Company (the "Committee") shall have the exclusive
right to (i) interpret and construe the terms of this Agreement and any
amendment hereto, and (ii) amend this Agreement, including but not limited to
amendments in recognition of unusual or nonrecurring events affecting the
Company or its financial statements or changes in applicable laws, regulations
or accounting principles or amendments intended to correct any defect, supply
any omission or reconcile any inconsistency in this Agreement in the manner and
to the extent it shall deem desirable to carry it into effect. Except as
provided in subsection (b) below, all acts, determinations and decisions of the
Committee made or taken pursuant to this Agreement or with respect to any
questions arising in connection with the interpretation of this Agreement,
including the severability of any and all of the provisions thereof, shall be
conclusive, final and binding upon all parties.
(b) If the Executive shall provide to the Committee, within
thirty (30) days after the date of any action taken by the Committee with
respect to this Agreement, written notice of his objection to such action, such
action shall be referred to a third party for review. The identity of such third
party shall be agreed in writing by the Committee and the Executive. The
decision of such third party on review shall be conclusive, final and binding
upon all parties.
(c) If any reorganization, recapitalization, reclassification,
stock split-up, stock dividend, or consolidation of the Stock, merger or
consolidation of the Company or sale or other disposition by the Company of all
or a portion of its assets, any other change in the Company's corporate
structure, or any distribution to shareholders other than a cash dividend
results in the outstanding shares of Stock, or any securities exchanged therefor
or received in their place, being exchanged for a different number or class of
shares of stock or other securities of the Company, or for shares of stock or
other securities of any other corporation; or new, different or additional
shares or other securities of the Company or of any other corporation being
received by the holders of outstanding shares of Stock, then equitable
adjustments may be made by the Committee in its sole discretion in the terms,
conditions or restrictions of this Agreement.
6. Rights as a Shareholder. Except as otherwise provided in this
Agreement, the Executive shall have all of the rights of a shareholder of the
Company with respect to the Stock, including the right to vote the Stock to the
extent the Stock has voting rights.
7. Compliance with Securities Laws. The Executive agrees that he will
not distribute or resell all or any portion of the Stock in violation of the
Securities Act of 1933, as amended, that he will indemnify and hold the Company
harmless against all liability for any such violation, that upon request he (i)
will furnish a letter agreement containing any representations and/or
undertakings which the Company shall request, and (ii) will accept a certificate
representing share of the Company bearing any legend restricting transferability
as the Company shall request to ensure compliance with securities laws. The
Stock shall not be transferable except in compliance with the conditions
indicated in such legends. Notwithstanding anything in this Agreement to the
contrary, the restrictions applicable to the Stock set forth in Section 2 above
shall not lapse if the Company reasonably believes, as determined by the Company
in its discretion, that as a result of such lapse the Company will not be in
compliance with all applicable federal and state securities laws.
8. Stop Transfer Instructions. The Company shall have the right to have
stop transfer instructions placed on or removed from the stock records of the
Company with respect to the Shares until such time as the restrictions set forth
in Section 2 above have lapsed, under the rules, regulations, and other
requirements of the Securities and Exchange Commission, NASDAQ or any stock
exchange upon which the Stock is then listed and any applicable federal or state
laws, and the Company may cause a legend or legends to
<PAGE>
be placed on any such certificates to make appropriate reference to such
restrictions. In making such determination, the Company may rely upon an opinion
of counsel for the Company.
9. Other Consideration. If additional shares of common stock of the
Company, shares of stock in another corporation, or other consideration
(including but not limited to dividends) is issued in connection with the Shares
at a time at which the restrictions specified in Section 2 above have not
lapsed, the Executive shall execute and deliver to the Company one or more
additional Stock Powers with respect to any such stock, deliver to the Company
the stock certificates representing any such stock, and forward to the Company
any such other consideration. Such stock certificates and/or other consideration
shall be retained by the Company and shall be credited to the account of the
Executive and shall be distributed to the Executive, subject to forfeiture and
the other terms and conditions of this Agreement, at the same time as the Shares
are to be distributed free and clear of all restrictions.
10. Taxes.
(a) The Company shall have the right to withhold from any
transfer or payment made to the Executive under this Agreement, in cash or
stock, all Federal, state, city or other taxes as shall be required pursuant to
any statute or governmental regulation or ruling. In connection with such
withholding the Company shall be entitled to make any arrangement for
withholding which is consistent with this Agreement.
(b) The Executive agrees to give the Company prompt written
notice of any election made by the Executive under section 83(b) of the Internal
Revenue Code of 1986, as amended.
11. Administrative Costs. All costs and expenses in connection
with the administration of this Agreement shall be borne by the Company.
12. Limitation of Liability. The liability of the Company, its Board of
Directors, the Committee, and their officers, employees and agents, under this
Agreement and in the award of the Shares hereunder, is limited to the
obligations set forth with respect to such award, and nothing herein contained
shall be interpreted as imposing any liability in favor of the Executive with
respect to any loss, cost or expense which such recipient may incur in
connection with or arising out of any transaction involving the Shares that is
subject to the provisions of this Agreement.
13. No Right to Employment. Nothing in this Agreement shall be
construed to confer upon the Executive any right to continue in the employ of
the Company or to serve as an officer or director thereof, or interfere in any
way with the right of the Company to terminate the Executive's employment at any
time. Any rights of the Executive hereunder shall, except as otherwise provided
by the Company, be no greater than the right of an unsecured general creditor of
the Company. Any payments to be made hereunder shall be paid from the general
funds of the Company, and no special or separate fund shall be established and
no segregation of assets shall be made to assure payment of such amounts, except
as provided in Section 5(a) above.
14. Governing Law. The validity, construction, interpretation
and enforceability of this Agreement shall be determined and governed by
the laws of the State of North Carolina, except with respect to its choice of
law provisions.
15. Integration. The parties hereto agree that this Agreement sets
forth all of the promises, agreements, conditions, understandings, warranties,
and representations between the parties with respect to the Shares and that
there are no promises, agreements, conditions, understandings, warranties, or
<PAGE>
representations, oral or written, express or implied between the parties with
respect to the Shares other than as set forth in this Agreement. Any
modifications or any waiver of any provision contained in this Agreement shall
not be valid unless made in writing and signed by the person or persons sought
to be bound by such waiver or modifications.
16. Severability. The provisions of the Agreement are severable
and if any one or more provisions are determined to be illegal or otherwise
unenforceable, in whole or in part, the remaining provisions, and any
partially unenforceable provision to the extent enforceable in any jurisdiction,
shall nevertheless be binding and enforceable.
17. Waiver. The waiver by the Company of a breach of any
provision of this Agreement by the Executive shall not operate or be
construed as a waiver of any subsequent breach by the Executive.
18. Binding Agreement. The terms and provisions of this Agreement shall
be binding upon and shall inure to the benefit of the parties hereto and their
successors and permitted assigns, including, without limitation, the estate of
the Executive, and the executors, administrators, or trustees of such estate and
any receiver, trustee in bankruptcy or representative of the creditors of the
Executive.
19. Notices. Any notice which either party hereto may be required or
permitted to give to the other shall be in writing, and may be delivered
personally or by mail, postage prepaid, addressed as follows: to the Secretary
of the Company at 4024 Stirrup Creek Drive, Suite 150, Durham, North Carolina
27703, or at such other address as the Company, by notice to the Executive, may
designate in writing from time to time; to Executive at Executive's address as
shown on the records of the Company, or at such other address as Executive, by
notice to the Company, may designate in writing from time to time.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
ATTEST: COMPANY:
BROADBAND TECHNOLOGIES, INC.
___________________________ By:________________________________
Secretary
(Corporate Seal)
EXECUTIVE:
DAVID E. ORR
____________________________(SEAL)
<PAGE>
EXHIBIT B
BROADBAND TECHNOLOGIES, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT, is made and entered into as of the 10th day of
March, 1997 (the "Grant Date"), by and between BroadBand Technologies, Inc., a
Delaware corporation (the "Corporation"), and David E. Orr (the "Optionee").
WHEREAS, Optionee and the Corporation have entered into an
employment agreement (the "Employment Agreement") pursuant to which Optionee
will become entitled to a salary and other benefits in exchange for his services
as President and Chief Executive Officer of the Corporation and for his
compliance with noncompetition and nonsolicitation covenants set forth in the
Employment Agreement; and
WHEREAS, One of the benefits to which Optionee is entitled
under the Employment Agreement is a nonqualified stock option award with respect
to the Corporation's common stock; and
WHEREAS, this Agreement evidences the terms and conditions of
the nonqualified stock option award described in the Employment Agreement; and
WHEREAS, Optionee desires to accept the nonqualified stock
option award evidenced by this Agreement in full satisfaction of the
Corporation's obligations with respect to the nonqualified stock option award
described in the Employment Agreement.
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants and agreements hereinafter set forth, the parties hereto
mutually covenant and agree as follows:
1. Grant of Option. Subject to the terms and conditions set
forth herein, the Corporation grants to Optionee the option to purchase from the
Corporation up to but not exceeding in the aggregate 350,000 shares of the
Corporation's Common Stock, par value $.01 per share (Common Stock), at a price
of Twelve Dollars and Fifty Cents ($12.50) per share. Vested options may be
exercised, in whole or in part, at any time and from time to time during the
Option Period as hereinafter defined. Unvested options may not be exercised. The
Option Period shall commence six (6) months following the first date of this
Agreement and shall terminate upon the earlier to occur of (i) March 10, 2007,
the tenth anniversary of the date of grant of the option, or (ii) the
termination of the following grace periods after Optionee ceases to be an
employee of the Corporation or any of its Subsidiaries: (x) in the case of
termination on account of the permanent disability of Optionee, twelve (12)
months after the date of termination, (y) in the case of termination on account
of the death of Optionee, twelve (12) months after the date of death and (z) in
the case of termination on account of any reason other than the permanent
disability or death of Optionee, thirty (30) days after the date of termination.
2. Exercise of Option.
(a) The option hereby granted shall be exercised by
Optionee delivering to the Secretary of the Corporation, from time to time, on
any business day, written notice specifying the whole number of shares Optionee
then desires to purchase. Payment in full of the option price of such shares
must be made at the time the option is exercised. Payment may be made in cash or
by certified or official bank check payable to the order of the Corporation for
an amount in U.S. dollars equal to the option
<PAGE>
price of such shares. Payment may also be made in shares of Common Stock of the
Corporation previously held by Optionee. Payment may also be made by combining
cash and shares previously held. To the extent that shares previously held are
used in making full or partial payment of the option price, each such share will
be valued at the fair market value (as defined in subsection (b) below) thereof
as of the date of exercise. Any overpayment will be promptly refunded, and any
underpayment will be deemed an exercise of such lesser whole number of shares as
the amount paid is sufficient to purchase.
(b) For purposes of this Agreement, the "fair market
value" of shares of Common Stock shall be determined as
follows:
(i) For so long as the Common Stock is not traded in
any established securities market and no broker-dealer makes a
market in the Common Stock, fair market value shall be
determined in good faith by the Board of Directors of the
Company (the "Board"). If a broker-dealer is making a market
in the Common Stock, then the fair market value of the Common
Stock on a given date shall be the mean between the highest
and lowest quoted selling prices of the Common Stock on that
date, said mean to be based on the sale of a minimum of 100
shares of Common Stock; provided, however, that if fewer than
100 shares of Common Stock are traded on such date or if no
sales prices are quoted, then, in either such event, the fair
market value of the Common Stock on such date shall be the
mean between the lowest asked and the highest bid price in
such market on such date.
(ii) If the Common Stock is traded on a national
securities exchange, then the fair market value of the Common
Stock on a given date shall be the closing price of the Common
Stock on such exchange based on the sales of a minimum of 100
shares of Common Stock; provided, however, that if fewer than
100 shares of Common Stock are traded on such date or if not
sales prices are quoted, then fair market value of the Common
Stock on such date shall be the closing price of the Common
Stock on such exchange on the last prior date on which at
least 100 shares were sold.
3. Restrictions on Transfer of Option and Option Shares
(a) This option is not transferable by Optionee
otherwise than by will or the laws of descent and distribution and is
exercisable during Optionee's lifetime only by Optionee. No assignment or
transfer of this option or of the rights represented thereby, whether voluntary
or involuntary, by operation of law or otherwise, except by will or the laws of
descent and distribution, shall vest in the assignee or transferee any interest
or right herein whatsoever, but immediately upon any attempt to assign or
transfer this option the same shall terminate and be of no force or effect.
(b) Optionee agrees that Optionee will not distribute
or resell any shares (or other securities) issuable upon exercise of the option
granted hereby in violation of the Securities Act of 1933, as amended, that
Optionee will indemnify and hold the Corporation harmless against all liability
for any such violation, that upon request Optionee (i) will furnish a letter
agreement in connection with any exercise of this option containing any
representations and/or undertakings which the Corporation shall request, and
(ii) Optionee will accept a certificate representing shares of the Corporation
bearing any legend restricting transferability as the Corporation shall request
to ensure compliance
with securities laws. The shares shall not be transferable
except in compliance with the conditions indicated in the legend.
(c) The Corporation may impose stop-transfer
instructions with respect to any shares (or other securities) subject to any
restriction set forth in this Paragraph 3 until the restriction has been
satisfied or terminates.
4. Expiration; Vesting
(a) The option granted hereby shall expire and
be of no further force and effect on the tenth annual anniversary of the date
the option was granted, notwithstanding that Optionee remains employed by the
Corporation or any of its Subsidiaries.
(b) Any unvested option granted hereby shall
expire immediately upon Optionee ceasing to be an employee of the Corporation or
any of its Subsidiaries without regard to reason or lack thereof.
(c) The options hereby granted shall vest as
follows:
(i) 50,000 shares when the fair market
value of a share of the Corporation's Common Stock (A) remains at or above
$19.00 for 20 consecutive trading days; or (B) remains at or above $15.00 for 60
consecutive trading days;
(ii) an additional 50,000 shares when the
fair market value of a share of the Corporation's Common Stock (A) remains at or
above $23.00 for 20 consecutive trading days; or (B) remains at or above $19.00
for 60 consecutive trading days;
(iii) an additional 50,000 shares when the
fair market value of a shares of the Corporation's Common Stock remains at or
above $30.00 for 20 consecutive trading days;
(iv) an additional 50,000 shares when the
fair market value of a share of the Corporation's Common Stock remains at or
$38.00 above for 20 consecutive trading days;
(v) an additional 75,000 shares when the
fair market value of a share of the Corporation's Common Stock remains at or
above $57.00 for 20 consecutive trading days; and
(vi) an additional 75,000 shares when the
fair market value of a share of the Corporation's Common Stock remains at or
above $76.00 for 20 consecutive trading days.
Notwithstanding any other provision of this Agreement, the Option shall become
fully vested and exercisable, to the extent not already fully vested and
exercisable, on the fifth anniversary of the Grant Date.
5. Optionee. Whenever the word "Optionee" is used in any
provision of this Agreement under circumstances where the provision should
logically be construed to apply to the estate, personal representative, or
beneficiary to whom this option may be transferred by will or by the laws of
descent and distribution, it shall be deemed to include such person.
<PAGE>
6. Optionee Not A Shareholder. Optionee shall not be deemed
for any purpose to be a shareholder of the Corporation with respect to any
shares as to which this option shall not have been exercised and payment made as
hereby provided and a stock certificate for such shares actually issued to
Optionee. No adjustment will be made for dividends or other rights for which the
record date is prior to the date of such issuance.
7. Corporate Transactions. The existence of this option shall
not affect in any way the right or power of the Corporation or its shareholders
to make or authorize any or all adjustments, recapitalization, reorganizations
or other changes in the Corporation's capital structure or its business, or any
merger or consolidation of the Corporation, or any issue of bonds, debentures,
preferred or prior preference stocks ahead of or convertible into, or otherwise
affecting the Common Stock or the rights thereof, or the dissolution or
liquidation of the Corporation or any sale or transfer of all or any part of its
assets or business, or any other corporate act or proceeding, whether of a
similar character or otherwise.
8. Antidilution. The shares with respect to which this option
is granted are shares of the Common Stock of the Corporation as constituted on
the date of this Agreement but if, and whenever, prior to the delivery by the
Corporation of all the shares of Common Stock with respect to which this option
is granted, the Corporation shall effect a subdivision or consolidation of
shares, or other capital readjustment, or the payment of a stock dividend, or
other increase or reduction of the number of shares of Common Stock outstanding,
without receiving any compensation therefor in money, services or property, then
(a) in the event of any increase in the number of such shares outstanding
without receiving any compensation therefor, the number of shares of Common
Stock then remaining subject to option hereunder shall be proportionately
increased (except that any fraction of a share resulting from any such
adjustment shall be excluded from the operation of this Agreement), and the cash
consideration payable per share shall be proportionately reduced, and (b) in the
event of a reduction in the number of such shares outstanding, the number of
shares of Common Stock then remaining subject to option hereunder shall be
proportionately reduced (except that any fractional share resulting from any
such adjustment shall be excluded from the operation of this Agreement), and the
cash consideration payable per share shall be proportionately increased.
9. Deferral of Issuance of Shares. Anything in this Agreement
to the contrary notwithstanding, if, at any time specified herein for the issue
of shares to Optionee, any law, or any regulation or requirement of the
Securities and Exchange Commission or other governmental authority having
jurisdiction in the premises shall require either the Corporation or Optionee to
take any action in connection with the shares then to be issued, the issue of
such shares shall be deferred until such action shall have been taken; the
Corporation shall be under no obligation to take such action; and the
Corporation shall have no liability whatsoever as a result of the non-issuance
of such shares, except to refund to Optionee any consideration tendered in
respect of the exercise price.
10. Issuance of Shares. Shares of Common Stock issued pursuant
to the exercise of this option will be issued only in the name of Optionee and
may not be transferred into the name of any agent of or nominee for Optionee
until such time as Optionee has complied with the terms of this Agreement.
11. Authority of Compensation Committee.
(a) Except as provided in subsection (b) below, the
Compensation Committee of the Company (the "Committee") shall have the exclusive
right to (i) interpret and construe the terms of this Agreement and any
amendment hereto, and (ii) amend this Agreement, including but not limited to
amendments
<PAGE>
in recognition of unusual or nonrecurring events affecting the Company or its
financial statements or changes in applicable laws, regulations or accounting
principles or amendments intended to correct any defect, supply any omission or
reconcile any inconsistency in this Agreement in the manner and to the extent it
shall deem desirable to carry it into effect. Except as provided in subsection
(b) below, all acts, determinations and decisions of the Committee made or taken
pursuant to this Agreement or with respect to any questions arising in
connection with the interpretation of this Agreement, including the severability
of any and all of the provisions thereof, shall be conclusive, final and binding
upon all parties.
(b) If the Optionee shall provide to the Committee, within
thirty (30) days after the date of any action taken by the Committee with
respect to this Agreement, written notice of his objection to such action, such
action shall be referred to a third party for review. The identity of such third
party shall be agreed in writing by the Committee and the Optionee. The decision
of such third party on review shall be conclusive, final and binding upon all
parties.
(c) If any reorganization, recapitalization, reclassification,
stock split-up, stock dividend, or consolidation of the Stock, merger or
consolidation of the Corporation or sale or other disposition by the Corporation
of all or a portion of its assets, any other change in the Corporation's
corporate structure, or any distribution to shareholders other than a cash
dividend results in the outstanding shares of Stock, or any securities exchanged
therefor or received in their place, being exchanged for a different number or
class of shares of stock or other securities of the Corporation, or for shares
of stock or other securities of any other corporation; or new, different or
additional shares or other securities of the Corporation or of any other
corporation being received by the holders of outstanding shares of Stock, then
equitable adjustments may be made by the Corporation in its sole discretion in
the terms, conditions or restrictions of this Agreement.
12. Taxes. The Corporation shall have the right to withhold from any
transfer or payment made to the Optionee under this Agreement, in cash or stock,
all Federal, state, city or other taxes as shall be required pursuant to any
statute or governmental regulation or ruling. In connection with such
withholding the Corporation shall be entitled to make any arrangement for
withholding which is consistent with this Agreement.
13. Administrative Costs. All costs and expenses in connection with
the administration of this Agreement shall be borne by the Corporation.
14. Limitation of Liability. The liability of the Corporation, the
Board, the Committee, and their officers, employees and agents, under this
Agreement and in the award of the Shares hereunder is limited to the obligations
set forth with respect to such award, and nothing herein contained shall be
interpreted as imposing any liability in favor of the Optionee with respect to
any loss, cost or expense which such recipient may incur in connection with or
arising out of any transaction involving the Shares that is subject to the
provisions of this Agreement.
15. No Right to Employment. Nothing in this Agreement shall be
construed to confer upon the Optionee any right to continue in the employ of the
Corporation or to serve as an officer or director thereof, or interfere in any
way with the right of the Corporation to terminate the Optionee's employment at
any time. Any rights of the Optionee hereunder shall, except as otherwise
provided by the Corporation, be no greater than the right of an unsecured
general creditor of the Corporation. Any payments to be made hereunder shall be
paid from the general funds of the Corporation, and no
<PAGE>
special or separate fund shall be established and no segregation of assets shall
be made to assure payment of such amounts, except as provided in Section 5(a)
above.
16. Governing Law. The validity, construction, interpretation and
enforceability of this Agreement shall be determined and governed by the laws
of the State of North Carolina, except with respect to its choice of law
provisions.
17. Integration. The parties hereto agree that this Agreement sets
forth all of the promises, agreements, conditions, understandings, warranties,
and representations between the parties with respect to the Shares and that
there are no promises, agreements, conditions, understandings, warranties, or
representations, oral or written, express or implied between the parties with
respect to the Shares other than as set forth in this Agreement. Any
modifications or any waiver of any provision contained in this Agreement shall
not be valid unless made in writing and signed by the person or persons sought
to be bound by such waiver or modifications.
18. Severability. The provisions of the Agreement are severable and if
any one or more provisions are determined to be illegal or otherwise
unenforceable, in whole or in part, the remaining provisions, and any partially
unenforceable provision to the extent enforceable in any jurisdiction, shall
nevertheless be binding and enforceable.
19. Waiver. The waiver by the Corporation of a breach of any provision
of this Agreement by the Optionee shall not operate or be construed as a waiver
of any subsequent breach by the Optionee.
20. Binding Agreement. The terms and provisions of this Agreement shall
be binding upon and shall inure to the benefit of the parties hereto and their
successors and permitted assigns, including, without limitation, the estate of
the Optionee, and the executors, administrators, or trustees of such estate and
any receiver, trustee in bankruptcy or representative of the creditors of the
Optionee.
21. Notices. Any notice which either party hereto may be required or
permitted to give to the other shall be in writing, and may be delivered
personally or by mail, postage prepaid, addressed as follows: to the Secretary
of the Corporation at 4024 Stirrup Creek Drive, Suite 150, Durham, North
Carolina 27703, or at such other address as the Corporation, by notice to the
Optionee, may designate in writing from time to time; to Optionee at Optionee's
address as shown on the records of the Corporation, or at such other address as
Optionee, by notice to the Corporation, may designate in writing from time to
time.
IN WITNESS WHEREOF, the Corporation has caused this Agreement
to be executed by its duly authorized officer, and Optionee has hereunto set
Optionee's hand and seal, all on the day and year first above written.
BROADBAND TECHNOLOGIES, INC.
By: ATTEST:
Title:
Title: Secretary
<PAGE>
DAVID E. ORR
(SEAL)
ADDRESS:
<PAGE>
STOCK POWER
FOR VALUE RECEIVED, the undersigned does hereby assign and transfer to
Eighty Thousand (80,000) shares of the common stock of BroadBand Technologies,
Inc. (the "Corporation"), par value $.01, standing in the name of the
undersigned on the books of the Corporation represented by Certificate No. , and
does hereby irrevocably constitute and appoint attorney to transfer said stock
on the books of the Corporation, with full power of substitution in the
premises.
DATED: ______________________
___________________________(SEAL)
David E. Orr
GUARANTEE:
<PAGE>
EXHIBIT 24.1
Consent of Independent Auditors
We consent to the incorporation by reference in the following Registrations
Statements: Form S-8 No. 33-67076 and Form S-8 No. 33-87630 pertaining to the
BroadBand Technologies, Inc. 1988 Incentive Stock Option Plan; Form S-8 No.
33-67724 pertaining to the BroadBand Technologies, Inc. 1992 Nonqualified Stock
Option Plan; Form S-8 No. 33-73802 pertaining to the Broadband Technologies,
Inc. 401(k) Plan; Form S-3 No. 333-09661 pertaining to the BroadBand
Technologies, Inc. 5% Convertible Subordinated Notes due May 15, 2001 and Form
S-3 No. 333-10443 pertaining to the BroadBand Technologies, Inc. 1,000,000
shares of common stock issuable upon exercise of outstanding warrants of our
report dated January 31, 1997 with respect to the financial statements of
BroadBand Technologies, Inc. included in the Annual Report (Form 10-K) for the
year ended December 31, 1996.
/s/ ERNST & YOUNG LLP
Ernst & Young LLP
Raleigh, North Carolina
March 26, 1997
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 107,672,971
<SECURITIES> 22,359,232
<RECEIVABLES> 6,284,217
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<CURRENT-ASSETS> 954,288
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<TOTAL-ASSETS> 171,347,175
<CURRENT-LIABILITIES> 24,445,936
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0
0
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<TOTAL-LIABILITY-AND-EQUITY> 171,347,175
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<INTEREST-EXPENSE> (2,014,173)
<INCOME-PRETAX> (31,018,413)
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