EXHIBIT 4
BIOGRAPHICAL INFORMATION
The biographical information that follows includes (1) the name and age of
each nominee as a Class I director and for each director continuing in office,
(2) the principal occupation or employment of each during the past five years,
(3) the period during which each has served as a director of the Company, (4)
the principal other directorships held by each, (5) the number of whole shares
of Common Stock of the Company beneficially owned by each (as determined under
the rules and regulations of the Securities and Exchange Commission), directly
or indirectly, as of September 17, 1996, based upon information furnished by
the nominee or director, (6) the percentage of the class outstanding so owned
by each (where such percentage exceeds 1%), and (7) the date of the expiration
of the term for which the nominees are candidates and for which the continuing
directors hold office, and the class designation. Except as otherwise
indicated, beneficial ownership consists of sole voting and investment power.
Each of the nominees for election as a Class I director is currently a director
of the Company, in Mr. Conrades' case upon election in December 1993 by action
of the Board upon his employ by the Company as its chief executive officer, and
in Mr. Levy's case upon election most recently by the shareholders at the 1993
Annual Meeting.
SHARES OF COMMON
STOCK BENEFICIALLY
TERM OWNED AS OF
DIRECTOR EXPIRES/ SEPTEMBER 17, 1996;
NAME AND PRINCIPAL OCCUPATION AGE SINCE CLASS PERCENT OF CLASS
----------------------------- --- -------- -------- -------------------
Nominees for Director:
George H. Conrades................. 57 1993 1999/I 553,452(2)(3)
President and Chief Executive Officer(1) 2.6%
Stephen R. Levy.................... 56 1973 1999/I 72,227(5)
Consultant and Private Investor(4)
DIRECTORS CONTINUING IN OFFICE:
+ John M. Albertine................ 52 1986 1997/II 36,617(3)(8)
Chairman of the Board and Chief
Executive
Officer of Albertine Enterprises,
Inc.(6)(7)
* Lucie J. Fjeldstad............... 52 1994 1998/III 3,250(10)
President of the multimedia
business unit of
Tektronix Inc. (9)
Max D. Hopper...................... 61 1996 1997/II 6,875(3)(12)
Consultant (11)
Regis McKenna...................... 56 1996 1998/III 5,854(3)(14)
Chairman of Gemini-McKenna, High
Tech
Strategies (13)
+ Andrew L. Nichols................ 60 1978 1998/III 15,150(16)
Partner of Choate, Hall & Stewart
(15)
*+ Roger D. Wellington............. 69 1981 1997/II 38,077(18)
Consultant (17)
- --------
+ Member of the Audit Committee of the Board of Directors.
* Member of the Compensation and Stock Option Committee of the Board of
Directors.
(1) Mr. Conrades has been the President and Chief Executive Officer of the
Company since January 1994. Prior to that time, he had been employed for
over 30 years at International Business Machines Corporation. During his
employment with IBM, Mr. Conrades held a number of marketing-management
and general-management positions, including most recently senior vice
president, corporate marketing and services and general manager of IBM
United States, including hardware, software, maintenance, and services,
with responsibility for all of that company's customer-related operations
in the United States. Mr. Conrades retired from IBM in March 1992, and
after that time and prior to his appointment as President of the Company,
Mr. Conrades was consulting in venture capital businesses and was on the
board of directors of several small technology ventures, including a
subsidiary of the Company. Mr. Conrades is a director of Westinghouse
Electric Corporation, Cubist Pharmaceuticals Corporation, and CRA Managed
Care, Inc.
(2) The shares shown as owned beneficially by Mr. Conrades include 32,202
shares owned jointly with his spouse, as to which shares Mr. Conrades and
his spouse share voting and investment power, and 506,250 shares as to
which Mr. Conrades has the right to acquire ownership through the exercise
of those options, held by him under the stock option plans of the Company,
which are exercisable within 60 days of September 17, 1996. Mr. Conrades
also owns $50,000 principal amount of the Company's 6% Convertible
Subordinated Debentures due 2012.
(3) The shares shown as owned beneficially by Messrs. Conrades, Albertine,
Hopper, and McKenna include 15,000, 1,000, 5,000, and 3,729 shares,
respectively, sold to the director under the Company's 1996 Restricted
Stock Plan at 75% of the fair market value of the shares on the date of
sale. The shares are restricted as to transfer and the individual is
required to offer the shares back to the Company at the price paid if the
individual terminates his service relationship with the Company within 2
years of the date of acquisition.
(4) Mr. Levy is Chairman of the Board Emeritus of the Company. Since his
retirement as an employee of the Company in 1995, he has consulted for
start-up ventures, in certain of which he has made private investments.
Mr. Levy was an officer of the Company from 1970 to 1995, serving as
President and Chief Executive Officer from 1976 to 1983; as Chairman of
the Board and Chief Executive Officer from 1983 to 1993; as Chairman of
the Board, President, and Chief Executive Officer in 1993; and as Chairman
of the Board in 1994 and 1995. Mr. Levy is a director of Thermo Optek,
Inc. and OneWave Inc.
(5) The shares shown as owned beneficially by Mr. Levy include 32,995 shares
held in his participant account under the BBN Retirement Trust.
(6) Dr. Albertine has been Chairman of the Board and Chief Executive Officer
of Albertine Enterprises, Inc., economic and public policy consultants,
since its organization by him in 1990. Dr. Albertine is also Chairman of
the Board of JIAN Group Holdings, LLC, a financial services consulting and
holding company. Dr. Albertine was Vice Chairman of the Board of Farley
Inc., a diversified manufacturing company, from 1986 to 1990, and Vice
Chairman of the Board of its affiliate, Fruit of the Loom, Inc., a
manufacturer of personal apparel, from 1987 to 1990. Dr. Albertine also
held the office of Vice Chairman of the Company of West Point-Pepperell
Inc., a textile manufacturer and an affiliate of Farley Inc., from 1989 to
1990. Dr. Albertine is a director of Thermo Electron Corporation and
American Precision Industries, Inc.
(7) In July 1991, an involuntary petition was filed against Farley Inc., of
which Dr. Albertine was Vice Chairman of the Board from 1986 to 1990,
under Chapter 7 of the Federal bankruptcy laws. In September 1991, Farley
Inc. converted the Chapter 7 proceeding into a Chapter 11 reorganization,
and a plan of reorganization was confirmed in December 1992. Also in 1992,
Farley Inc.'s holdings in West Point-Pepperell Inc., of which Dr.
Albertine served as Vice Chairman
of the Company from 1989 to 1990, was financially restructured by
exchanging equity for debt forgiveness, as part of a so-called "pre-
packaged" Chapter 11 bankruptcy reorganization of the Farley Inc. affiliate
owning West Point-Pepperell. Dr. Albertine had also served as Vice Chairman
of the Farley Inc. affiliate owning West Point-Pepperell from 1989 to 1990.
(8) The shares shown as owned beneficially by Dr. Albertine include 324 shares
owned by Dr. Albertine's spouse, as to which shares Dr. Albertine
disclaims beneficial ownership, and 2,250 shares as to which Dr. Albertine
has the right to acquire ownership through the exercise of those options,
held by him under the stock option plans of the Company, which are
exercisable within 60 days of September 17, 1996. The shares shown as
owned beneficially also include 17,509 shares represented by units
allocated under the Company's deferred compensation plan for non-employee
directors entitling Dr. Albertine as of July 1, 1996 to receive that
number of shares on or after his deferral termination date.
(9) Ms. Fjeldstad has been the President of the Video and Networking business
unit of Tektronix Inc., a manufacturer of printers, displays, test
instrumentation, and video equipment, since January 1995. During 1993 and
1994, she was President and Chief Executive Officer of Fjeldstad
International, computing, telecommunications, media/entertainment, and
consumer electronics industries consultants. Prior to that time, she had
been employed for 25 years at International Business Machines Corporation.
During her employment with IBM, Ms. Fjeldstad held a number of senior
technical and management positions, including most recently corporate vice
president, and general manager of multimedia (1992 to 1993); corporate
vice president, and president of the multimedia and education division
(1990 to 1992); and corporate vice president, and general manager of the
general and public and academic section (1988 to 1990).
(10) The shares shown as owned beneficially by Ms. Fjeldstad include 2,250
shares as to which Ms. Fjeldstad has the right to acquire ownership
through the exercise of those options, held by her under the stock option
plans of the Company, which are exercisable within 60 days of September
17, 1996.
(11) Mr. Hopper serves as president and is the principal owner of Max D.
Hopper Associates, Inc., an advanced information technologies consulting
firm he founded in 1995. Prior to that time, Mr. Hopper had been chairman
of The SABRE Group (a technology services group) of AMR Corporation since
1993, and a senior vice president of AMR (the parent of American
Airlines) since 1985. Mr. Hopper is a director of Centura Software
Corporation, Computer Language Research Inc., Gartner Group Inc., Scopus
Technology Corporation, USData Corp., VTEL Corp., and Worldtalk
Corporation.
(12) The shares shown as owned beneficially by Mr. Hopper include 1,875 shares
as to which Mr. Hopper has the right to acquire ownership through the
exercise of those options, held by him under the stock option plans of
the Company, which are exercisable within 60 days of September 17, 1996.
(13) Mr. McKenna is chairman of Gemini McKenna, High Tech Strategies, a
management and marketing consulting firm. Gemini McKenna is a venture
formed in 1995 by Regis McKenna Inc., a marketing strategy company formed
by Mr. McKenna in 1970, and Gemini Consulting, Inc. Mr. McKenna is also a
venture partner of the venture capital firm of Kleiner Perkins Caufield &
Byers, and is a director of Radius Inc.
(14) The shares shown as owned beneficially by Mr. McKenna include 1,875
shares as to which Mr. McKenna has the right to acquire ownership through
the exercise of those options, held by him under the stock option plans
of the Company, which are exercisable within 60 days of September 17,
1996. The shares shown as owned beneficially also include 250 shares
represented by units allocated under the Company's deferred compensation
plan for non-employee directors entitling Mr. McKenna as of July 1, 1996
to receive that number of shares on or after his deferral termination
date.
(15) Mr. Nichols has been a partner of the law firm of Choate, Hall & Stewart,
Boston, Massachusetts, since 1969. Choate, Hall & Stewart served as a
counsel to the Company in fiscal 1996 and is expected to serve in such
capacity in fiscal 1997.
(16) The shares shown as owned beneficially by Mr. Nichols include 900 shares
owned by a partnership of which Mr. Nichols is a general partner and in
which he has a 50% beneficial interest, and 12,250 shares as to which Mr.
Nichols has the right to acquire ownership through the exercise of those
options, held by him under the stock option plans of the Company, which
are exercisable within 60 days of September 17, 1996.
(17) Mr. Wellington serves as President and Chief Executive Officer of
Wellington Consultants, Inc. and of Wellington Associates, international
business consulting firms he founded in 1994 and 1989, respectively.
Prior to 1989, Mr. Wellington served as Chairman of the Board of Augat
Inc., a manufacturer of electromechanical components, for more than five
years. Prior to 1988, he also held the positions of President and Chief
Executive Officer of Augat Inc. Mr. Wellington is a director of Thermo
Electron Corporation.
(18) The shares shown as owned beneficially by Mr. Wellington include 12,250
shares as to which Mr. Wellington has the right to acquire ownership
through the exercise of those options, held by him under the stock option
plans of the Company, which are exercisable within 60 days of September
17, 1996. The shares shown as owned beneficially also include 19,827
shares represented by units allocated under the Company's deferred
compensation plan for non-employee directors entitling Mr. Wellington as
of July 1, 1996 to receive that number of shares on or after his deferral
termination date.
BOARD OF DIRECTORS AND COMMITTEE ORGANIZATION
Compensation and Other Transactions. During the Company's fiscal year ended
June 30, 1996, the Board of Directors of the Company held a total of 16
meetings. Each director who was not a full-time employee of the Company
received an annual retainer of $10,000 for services as a director, plus $750
for each Board meeting attended by the individual during the year and for each
date (other than the date of a meeting of the Board) on which the individual
attended one or more meetings of committees of the Board, plus $375 for each
date of a meeting of the Board on which the individual also attended one or
more separate meetings of committees of the Board. Each incumbent director
attended not less than 75% of the aggregate of the meetings of the Board and
of the committees of which he or she was a member held during the fiscal year
ended June 30, 1996.
Under the Company's deferred compensation plan for non-employee directors,
each non-employee director has the option to make an annual election to defer
his or her compensation as a director and to receive the deferred amounts in
shares of Common Stock, either after the individual ceases to be a director or
after the individual retires from his or her principal occupation. Deferred
compensation is credited in units of stock of the Company, based on the value
of the Common Stock at the time so credited. Messrs. Albertine and McKenna
currently participate in this plan; until January 1, 1996, Mr. Wellington also
participated in the plan. At July 1, 1996, the three individuals had units
under the plan entitling them to an aggregate of 37,586 shares of Common
Stock.
The Company's 1986 Stock Incentive Plan provides that an option to purchase
3,000 shares of Common Stock is granted automatically on an annual basis to
each non-employee director, on the third business day following the date of
each annual meeting of shareholders at which the eligible director is elected
or continues to serve under an unexpired term. The exercise price of each
option is equal to the fair market value per share of the Common Stock on the
date the option is granted.
Options granted to non-employee directors are for a term of 5 years, and vest
in equal annual installments over the first four years (subject to
acceleration in the event of the director's death, mandatory retirement from
the Board by reason of age, or retirement by reason of disability).
Dr. Albertine has served as a member of the Company's Board of Visitors
since November 1995. The Board of Visitors is a business development group
organized by the Company to seek out new opportunities for government
business. Dr. Albertine has elected to defer his compensation as a member of
the Board of Visitors (currently $2,000 per meeting attended) and to receive
the deferred amounts in shares of Common Stock under the Company's deferred
compensation plan for non-employee directors.
Mr. McKenna provided consulting services relating to marketing and business
communications to the Company and its subsidiaries from September 1994 to
December 1995, for which services he received fees aggregating approximately
$175,000. Mr. McKenna's consulting arrangement with the Company has concluded,
and he became a director of the Company in April of 1996.
Mr. Hopper provided consulting services relating to strategic marketing to
the Company and its subsidiaries from March 1995 to March 1996, for which
services he received fees aggregating approximately $50,000. Mr. Hopper's
consulting arrangement with the Company has concluded, and he became a
director of the Company in April of 1996.
In fiscal 1996 the Company undertook a reorganization program to combine its
Internet and internetworking services operations, and to focus its business
principally on a range of Internet capabilities. A corollary of this focus was
the elimination or sale of subsidiaries. In this connection, the portion of
executive compensation related to subsidiary stock options has been largely
terminated, replaced in most part by a replacement option program for shares
in BBN. In this connection, Messrs. Hopper and McKenna, who each served as a
director of the Company's BBN Planet subsidiary prior to his election as a
director of BBN, received a replacement option for 3,750 shares of BBN Common
Stock in January 1996 in exchange for the termination of BBN Planet options
owned by him. Also in connection with termination of the subsidiary option
programs in BBN Planet Corporation and BBN HARK Systems Corporation, Mr.
Conrades received replacement options as set forth in the table on Option
Grants in Last Fiscal Year under the Caption "Compensation and Certain Other
Transactions Involving Executive Officers" below, and Mr. Levy received a cash
payment aggregating $79,688.
In August and September 1996, each of Messrs. Albertine, Conrades, Hopper,
and McKenna purchased 1,000, 15,000, 5,000, and 3,729 shares of Common Stock,
respectively, from the Company under the Company's 1996 Restricted Stock Plan
at 75% of the fair market value of the shares on the date of sale. The shares
are restricted as to transfer and the individual is required to offer the
shares back to the Company at the price paid if the individual terminates his
service relationship with the Company within 2 years of the date of
acquisition.
Audit Committee. The Audit Committee of the Board of Directors held 4
meetings during the fiscal year ended June 30, 1996. In general, the function
of the Audit Committee is to recommend to the Board of Directors the
engagement or discharge of the independent auditors; to consider with the
independent auditors the scope of their audit and their audit fees; to review
with the independent auditors the scope and results of their audit and their
report and management letters; to review non-audit professional services by
generic classification to be provided by the independent auditors, to review
the magnitude of the range of fees for such non-audit services, and to
consider the independence of the independent auditors; to review with the
independent auditors and with the internal auditors and management of the
Company, the Company's policies and procedures with respect to internal
auditing, accounting, and financial controls; and to review the financial
reporting and accounting standards and principles of the Company. Messrs.
Albertine, Nichols, and Wellington, none
of whom is or has been an officer or employee of the Company, currently serve
as the Audit Committee.
Compensation Committee; Compensation Committee Interlocks and Insider
Participation. The Compensation and Stock Option Committee of the Board of
Directors (the "Compensation Committee") held 13 meetings during the fiscal
year ended June 30, 1996. In general, the function of the Compensation
Committee is to administer the executive compensation and incentive
compensation and stock option programs of the Company; to establish the
compensation of the chief executive officer of the Company; to review salary
and incentive bonus awards for other executive officers; and to award stock
options.
Ms. Fjeldstad and Messrs. Hatsopoulos and Wellington currently serve on the
Compensation Committee. None of these individuals is or has been an officer or
employee of the Company.
Customer Relationships Committee. The Board of Directors has a standing
Customer Relationships Committee, the function of which, in general, is to
monitor customer relationship processes, and to evaluate customer satisfaction
criteria. Ms. Fjeldstad and Messrs. Hopper, McKenna, Nichols, and Wellington
currently serve on the Customer Relationships Committee.
Nominating Committee. The Board of Directors has not appointed a standing
nominating committee.
----------------
As of September 17, 1996, the executive officers and former executive
officers of the Company named in the Summary Compensation Table below and all
directors and executive officers of the Company at that date as a group owned
beneficially shares of Common Stock as follows:
AMOUNT
TITLE OF BENEFICIALLY PERCENT OF
CLASS NAME OR GROUP OWNED(1)(2) CLASS(3)
------------ ------------------------- ------------ ------------
Common Stock George H. Conrades(4) 553,452 2.6%
David N. Campbell 54,375
John T. Kish, Jr.(5) 19,063
Paul R. Gudonis (4) 46,875
Ralph A. Goldwasser 35,623
All current directors and 905,051(4)(6)(7)(8)(9) 4.2%(4)
executive officers as a (6)(7)(8)(9)
group (14 persons)(5)
(1) The inclusion herein of any shares deemed beneficially owned under the
rules of the Securities and Exchange Commission does not constitute an
admission of beneficial ownership of such shares.
(2) The shares shown as owned beneficially by the named individuals include
506,250, 39,375, 19,063, 36,875, and 25,375 shares, respectively, as to
which Messrs. Conrades, Campbell, Kish, Gudonis, and Goldwasser have the
right to acquire ownership through the exercise of those options, held by
each under the stock option plans of the Company, which are exercisable
within 60 days of September 17, 1996.
(3) If such percentage exceeds 1%.
(4) The shares shown as owned beneficially include 15,000 and 10,000 shares
shown as owned by Messrs. Conrades and Gudonis, respectively, and an
aggregate of 9,729 shares owned by three other included directors, sold
in August and September 1996 to the individual under the Company's 1996
Restricted Stock Plan at 75% of the fair market value of the shares on
the date of sale. The shares are restricted as to transfer and the
individual is required to offer the shares
back to the Company at the price paid if the individual terminates his
service relationship with the Company within 2 years of the date of
acquisition.
(5) Mr. Kish is no longer an executive officer or in the employ of the
Company. Where included, information concerning Mr. Kish has been
provided to the Company by Mr. Kish.
(6) The shares shown as owned beneficially include 324 shares owned by the
spouse of one included director, as to which shares beneficial ownership
by the applicable director is disclaimed, and 900 shares owned by a
partnership of which a director is a general partner and has a 50%
beneficial interest. The shares shown as owned beneficially also include
an aggregate of 37,202 shares as to which two directors (one of whom is
also an executive officer named in the table) share voting and investment
power with their respective spouses.
(7) The shares shown as owned beneficially include 37,586 shares represented
by units allocated under the Company's deferred compensation plan for
non-employee directors entitling three directors as of July 1, 1996 to
receive in the aggregate that number of shares of Common Stock on or
after their respective deferral termination dates.
(8) The shares shown as owned beneficially include an aggregate of 658,313
shares as to which certain directors and current executive officers
(including current executive officers named in the table) have the right
to acquire ownership through the exercise of those options, held by such
directors and current executive officers under stock option plans of the
Company, which are exercisable within 60 days of September 17, 1996. The
shares shown as owned beneficially also include 3,750 shares issuable
upon exercise of a stock option, the exercisability of which will be
accelerated to become immediately exercisable by one current director
upon his retirement from the Board on November 6, 1996 by reason of the
Company's mandatory retirement age policy for directors.
(9) The shares shown as owned beneficially include 32,995 shares held in the
participant account of one included director under the BBN Retirement
Trust.
Information with respect to beneficial ownership of Common Stock by the
directors and nominees is contained in the table and footnotes under the
caption "1--Election of Directors--Biographical Information" above.
Information in the table above and in the table with respect to directors and
nominees under Item 1 does not include options to acquire Common Stock, or to
acquire common stock of subsidiaries, but does include shares of Common Stock
which have not been issued but which are subject to options which either are
currently exercisable or will become exercisable within 60 days of September
17, 1996; no shares of subsidiaries which are the subject of options are
included, since none of the subsidiary options are currently exercisable.
COMPENSATION AND CERTAIN OTHER TRANSACTIONS INVOLVING
EXECUTIVE OFFICERS
Compensation. There is set forth below, on an accrual basis, the aggregate
amount of base salary, bonus, and other cash compensation paid by the Company,
and the number of shares of Common Stock of the Company and of common stock of
specified subsidiaries of the Company issuable upon exercise of stock options
granted under the respective company's stock option plans, during the fiscal
years ended June 30, 1996, 1995, and 1994 for services rendered, to the
individual (Mr. Conrades) who served during the fiscal year ended June 30,
1996 as chief executive officer of the Company, and to the four other most
highly compensated individuals (Messrs. Campbell, Kish, Gudonis, and
Goldwasser) who were serving as executive officers of the Company at the end
of the 1996 fiscal year. Mr. Kish is no longer in the employ of the Company.
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------------- -----------------------
STOCK UNDERLYING
OPTIONS (NUMBER ALL
FISCAL OTHER ANNUAL OF SHARES OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION AND COMPANY(1) COMPENSATION(2)
- --------------------------- ------ ---------- -------- ------------ ----------------------- ---------------
George H. Conrades, 1996 $ 400,000 0 $270,928(3) 13,500(BBN)(4) $7,688(5)
President and Chief
Executive Officer 1995 400,000 0 176,871(6) 100,000(FLT)(4) 14,860(5)
100,000(HRK)(4)
1994 206,154(7) 0 88,800(8) 800,000(BBN) 0
100,000(LSC)(9)
100,000(DC)(10)
David N. Campbell, 1996 284,230 $150,000 79,600(11) 194,050(BBN)(4)(12) 0
Senior Vice President
30,000(PLT)(4)
30,000(HRK)(4)
30,000(DC)(10)
John T. Kish, Jr., 1996 270,000 10,241(13) 675(BBN)(4)(14) 4,500
Vice President 1995 225,000 125,000 170,874(15) 65,000(BBN)(16) 0
5,000(PLT)(4)
5,000(HRK)(4)
1994 786(17) 300,000(DC)(18) 0
Paul R. Gudonis, 1996 220,833 50,000 153,800(BBN)(4) 5,625(5)
Vice President
1995 125,000(19) 138,500 50,000(BBN) 0
350,000(PLT)(4)
5,000(DC)(10)
5,000(HRK)(4)
Ralph A. Goldwasser, 1996 210,000 50,000 42,500(BBN)(4) 17,688(5)
Senior Vice President
and Chief Financial 20,000(HRK)(4)
Officer
23,000(DC)(10)
1995 182,500 25,000 40,000(BBN) 15,423(5)
30,000(PLT)(4)
10,000(HRK)(4)
1994 172,500 0 25,000(BBN) 12,527
7,000(LSC)(9)
7,000(DC)(10)
- --------
(1) In addition to options granted to purchase Common Stock of the Company
(designated in the table as "BBN"), certain executive officers of the
Company have in the past been granted options to purchase common stock of
specified subsidiaries of the Company, as compensation for their services
related to the subsidiary. Options were granted during the fiscal years
ended June 30, 1996, June 30, 1995, and June 30, 1994 to the specified
executive officers in one or more of the following subsidiaries of the
Company: LightStream Corporation (designated in the table as "LSC"), a
majority-owned subsidiary of BBN; BBN Planet Corporation (designated in
the table as "PLT"), formerly a majority-owned subsidiary of BBN; BBN
Domain Corporation, formerly known as BBN Software Products Corporation
(designated in the table as "DC"), formerly a wholly-owned subsidiary of
BBN; and BBN HARK Systems Corporation (designated in the table as "HRK"),
formerly a wholly-owned subsidiary of BBN. In January 1995, LightStream
Corporation sold substantially all of its assets for approximately
$120,000,000 in cash. In connection with that transaction, stock options
held in LightStream by Messrs. Conrades and Goldwasser and certain other
executive officers of the Company were canceled by agreement, without
payment to the individuals. Stock options held by LightStream employees
were, in general, exchanged in that transaction for a cash payment from
LightStream. In fiscal 1996, BBN HARK Systems Corporation
was merged into the Company. In connection with that transaction, stock
options held in BBN HARK by Messrs. Conrades, Campbell, Kish, Gudonis, and
Goldwasser and certain other executive officers of the Company were
replaced by options in the Company's stock under the Company's 1986 Stock
Incentive Plan. In fiscal 1996, in connection with the reorganization of
the Company's Internet and internetworking activities, stock options held
in BBN Planet Corporation by Messrs. Conrades, Campbell, Kish, Gudonis, and
Goldwasser and certain other executive officers of the Company were
replaced by options in the Company's stock under the Company's 1986 Stock
Incentive Plan. BBN Planet has since been merged into the Company. In July
1996, BBN Domain Corporation was recapitalized and the majority of the
Company's stock ownership in BBN Domain was sold; in connection with the
recapitalization and sale, stock options held in BBN Domain by Messrs.
Conrades, Campbell, Gudonis, and Goldwasser and certain other executive
officers of the Company who held options but did not become employees of
BBN Domain remain outstanding, to the extent vested at the time of sale, at
a reformulated price of $0.61 per share. Mr. Kish, who left the employ of
the Company in connection with the sale and remains the president of BBN
Domain (now called Domain Solutions Corporation), continues in his options
of Domain Solutions Corporation at the reformulated price of $0.61 per
share.
(2) Except as otherwise noted, indicated amounts are the Company's
contribution to the BBN Retirement Trust, the tax-qualified defined
contribution retirement plan of the Company and its subsidiaries, for the
benefit of the indicated individual.
(3) Amount represents expenses paid by the Company in connection with the
carrying expenses of Mr. Conrades' former residence, assumed by the
Company by agreement in connection with Mr. Conrades' relocation to
Massachusetts, and tax reimbursement for such expenses paid, in the fiscal
year.
(4) In fiscal 1996 the Company undertook a program to combine its Internet and
internetworking services operations, and to focus its business principally
on a range of Internet capabilities. A corollary of this focus was the
elimination or sale of subsidiaries. In this connection, the portion of
the executive compensation package related to subsidiary stock options has
been largely terminated, replaced for those employees covered previously
by subsidiary options who remained or became employees of BBN by a
replacement option program for shares in BBN. Replacement options for BBN
shares have been awarded to recipients of options under the plans of BBN
Planet and BBN HARK, in general to the effect that for every 100 shares of
stock of BBN Planet covered by a replaced option, the individual received
a BBN option for 12.5 shares of BBN stock at an exercise price of $18.125
per share, as to which 50% would vest after 6 months and an additional 50%
would vest after 12 months, and that for every 100 shares of stock of BBN
HARK covered by a replaced option, the individual received a BBN option
for 1 share of BBN stock at an exercise price of $28.875 per share, as to
which 25% would vest after 1 year and an additional 25% would vest
annually thereafter. As a result, BBN Planet and BBN HARK options have
been canceled, unexercised; replacement options for BBN shares are
included in fiscal 1996 figures.
(5) Includes amounts credited by the Company to the account of the individual
under the Company's non-qualified deferred compensation plan for certain
key executives, established effective April 1, 1995. In general,
participation in the Deferred Compensation Plan is limited to executives
selected from among those with annual base salary in excess of $150,000.
Under the Deferred Compensation Plan, a participant may defer base salary
in excess of the $150,000 limit, plus bonuses; in addition, the Company
can make discretionary retirement contributions. Deferred amounts are
payable at a fixed future date selected in advance by the participant,
upon termination of employment, or in the case of certain hardships.
Accounts are adjusted for notional investment earnings based on
participant choices from among the same range of investment funds (other
than Company stock) as are available under the Company's tax-qualified
BBN Retirement Trust. The Company, although not obligated to do so under
the terms of the Deferred Compensation Plan, has established a trust to
help meet future payment obligations under the
Deferred Compensation Plan. Obligations under the Deferred Compensation
Plan are general obligations of the Company, and the rights of participants
to benefits remain those of general creditors of the Company. In the event
of certain changes in control of the Company, participants would be
entitled to reimbursement for certain costs incurred in enforcing rights
under the Deferred Compensation Plan. To make up for certain limitations
imposed by the Internal Revenue Code on contributions to the BBN Retirement
Trust the Company credited the following amounts: for the year ended June
30, 1995, $3,750 and $4,313, respectively, for Messrs. Conrades and
Goldwasser; for the year ended June 30, 1996, $6,438, $1,125, and $6,438,
respectively, for Messrs. Conrades, Gudonis, and Goldwasser.
(6) Amount includes expenses incurred by the Company in connection with the
sale of Mr. Conrades' former residence, assumed by the Company by
agreement in connection with Mr. Conrades' relocation to Massachusetts,
aggregating $170,346. Amount also includes interim local living expenses
prior to Mr. Conrades' relocation to Massachusetts paid, and tax
reimbursement for interim local living expenses paid, in the fiscal year,
aggregating $6,525.
(7) Payments primarily constituting six months salary, at an annualized rate
of $400,000 per year.
(8) Amount includes interim local living expenses prior to Mr. Conrades'
relocation to Massachusetts paid, and tax reimbursement for interim local
living expenses paid, in the fiscal year, aggregating $51,300. Amount
also includes $37,500, the amount of the difference between the price
paid by Mr. Conrades for 20,202 shares of Common Stock of the Company
purchased from the Company upon Mr. Conrades joining the employ of the
Company, and the fair market value of such shares on the date of
purchase.
(9) Canceled by agreement, without compensation to the individual, upon sale
of the business of LightStream Corporation.
(10) Options for employees of BBN Domain were reformulated upon the
recapitalization and sale by BBN of the majority of the stock of that
company in July 1996. Following the sale, stock options in BBN Domain
held by certain executive officers of BBN who held options but did not
become employees of BBN Domain, remain outstanding, to the extent vested
at the time of the sale, at a reformulated price of $0.61 per share.
(11) Amount represents relocation expenses related to Mr. Campbell's
relocation to Massachusetts paid in the fiscal year, aggregating $41,000,
and expenses incurred by the Company in connection with the sale of Mr.
Campbell's former residence, assumed by the Company by agreement in
connection with Mr. Campbell's relocation to Massachusetts, aggregating
$38,600.
(12) Included are options for 40,000 shares which were conditionally granted
under a proposed amendment to the Company's 1986 Stock Incentive Plan,
subject to stockholder approval at the 1996 Annual Meeting.
(13) Amount represents relocation expenses related to Mr. Kish's relocation to
Massachusetts and related tax reimbursement paid in the fiscal year.
(14) Options for 362 of such shares were unvested at, and terminated upon, Mr.
Kish's leaving the employ of the Company in July 1996.
(15) Amount represents relocation expenses related to Mr. Kish's relocation to
Massachusetts and related tax reimbursement paid in the fiscal year,
aggregating $115,747, and expenses incurred by the Company in connection
with the sale of Mr. Kish's former residence, assumed by the Company by
agreement in connection with Mr. Kish's relocation to Massachusetts,
aggregating $55,127.
(16) Options for 46,250 of such shares were unvested at, and terminated upon,
Mr. Kish's leaving the employ of the Company in July 1996.
(17) Mr. Kish joined the employ of the Company in June 1994.
(18) In connection with the recapitalization and sale of a majority of the
stock of BBN Domain Corporation by the Company in July 1996, option was
continued at a reformulated price of $0.61 per share.
(19) Payments consisting of seven and one-half months of salary, at an
annualized rate of $200,000 per year.
The aggregate incremental cost of personal benefits provided by the Company
in each of fiscal 1996, 1995, and 1994, to each of the individuals named in
the Summary Compensation Table (other than to Messrs. Conrades, Campbell, and
Kish), did not exceed the lesser of $50,000 or 10% of the indicated amount of
total annual salary and bonus reported for the named individual in the Summary
Compensation Table.
Employment Agreements, Loans, and Separation Pay Arrangements.
The agreement with Mr. Conrades provides that if his employment is
terminated by the Company without cause, the Company will pay him an amount
equal to one year's base salary, as full termination benefits.
In connection with the sale by the Company of the majority of the stock of
BBN Domain Corporation, of which Mr. Kish serves as president, Mr. Kish left
the employ of the Company on July 31, 1996, after 2 years of service. At that
time Mr. Kish received $135,000 in incentive pay and the Company agreed that
in the event his employment with BBN Domain (the name of which has been
changed in connection with the sale to Domain Solutions Corporation) is
involuntarily terminated for any reason other than cause within 1 year
following July 31, 1996, and if the total severance package paid to him in
connection with such termination has a value of less than $270,000, BBN will
pay Mr. Kish at the time of such termination the difference between such value
and $270,000. In addition, the exercisability of options held by Mr. Kish for
15,000 shares of Common Stock of the Company granted in August 1994 was
accelerated to become exercisable through the period ending September 29,
1996. BBN also agreed with Domain Solutions Corporation to sell to Domain
Solutions Corporation, at the exercise price of $0.61 per share, a portion of
its shares of Domain Solutions Corporation necessary to fund the exercise by
Mr. Kish of the outstanding and vested options for 150,000 shares of common
stock of Domain Solutions Corporation held by Mr. Kish at the date of
termination, as well as for a supplemental grant to Mr. Kish by Domain
Solutions Corporation, if made, for 25,000 shares.
In connection with his relocation to Massachusetts to join the employ of the
Company, Mr. Kish borrowed from the Company in August 1994 an aggregate of
$150,000 to bridge the purchase of a house in Massachusetts pending the sale
of his previous home in California. The borrowing was represented by a term
note, due in two equal installments on August 1, 1995 and 1996, given by Mr.
Kish, which note carried simple interest at 8% per annum. The principal amount
of $75,000 outstanding at July 31, 1996, together with accrued interest, was
forgiven by the Company following the termination of employment with BBN of
Mr. Kish.
As part of the bonus payments made to Mr. Gudonis in the 1995 fiscal year,
$88,500 was paid to him to reimburse him for forfeitures under a bonus plan at
his former employer. Mr. Gudonis' agreement with the Company provides that in
the event that he resigns from BBN during the first four years of employment,
he is responsible for reimbursing a pro-rata share of this payment made to
him.
Stock Option Grants. The table below sets forth information with respect to
stock options granted in fiscal year 1996 to the individuals named in the
Summary Compensation Table above; the options listed below are reflected in
the Summary Compensation Table. Information presented in the table below is
with respect to employee stock option plans; neither the Summary Compensation
Table above nor the tables on option grants and option exercises below
includes information related to the Company's employee stock purchase plan,
which is generally available to employees of the Company.
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM (9)
-------------------------------- ------------------------------
NUMBER
OF SHARES
UNDERLYING
OPTIONS % OF TOTAL
GRANTED TO OPTIONS
PURCHASE COMMON GRANTED TO
STOCK OF BBN EMPLOYEES EXERCISE MARKET EXPIRATION
OR SPECIFIED IN FISCAL PRICE PRICE DATE
NAME SUBSIDIARIES (1)(4)(5) YEAR (6) ($/SH)(7) ($/SH)(8) (2)(3)(4)(5) 0% 5% 10%
---- ----------------------------------- --------- --------- ------------ -------- --------- ----------
George H.
Conrades.......... 1,000 (BBN) (2) 0.05% $28.875 1/17/01 $ 7,978 $ 17,628
12,500 (BBN) (3) 0.6 18.125 $28.875 1/17/00 $134,375 212,159 301,886
David N. Campbell. 150,000 (BBN) 7.7 35.75 7/24/02 2,183,074 5,087,457
30,000 (PLT) (10) 11.1 8.00 7/27/05 (10) (10)
30,000 (HRK) (11) 17.2 1.00 8/4/05 (11) (11)
30,000 (DC) (12) 9.0 3.50 8/7/05 66,033(12) 167,339(12)
300 (BBN) (2) 0.0 28.875 1/17/01 2,393 5,288
3,750 (BBN) (3) 0.2 18.125 28.875 1/17/00 40,312 63,648 90,565
40,000 (BBN) (13) 2.1 27.50 5/6/03 447,810 1,043,581
John T. Kish,
Jr. .............. 50 (BBN) (2) 0.0 28.875 1/17/01 399 881
625 (BBN) (3) 0.0 18.125 28.875 1/17/00 6,718 10,608 15,094
Paul R. Gudonis... 50 (BBN) (2) 0.0 28.875 1/17/01 399 881
43,750 (BBN) (3) 2.2 18.125 28.875 1/17/00 470,312 742,558 1,056,601
110,000 (BBN) 5.7 28.875 1/17/03 1,293,053 3,013,363
Ralph A.
Goldwasser........ 20,000 (HRK) (11) 11.4 1.00 8/4/05 (11) (11)
23,000 (DC) (12) 6.9 3.50 8/7/05 50,626(12) 128,293(12)
300 (BBN) (2) 0.0 28.875 1/17/01 2,393 5,288
3,750 (BBN) (3) 0.2 18.125 28.875 1/17/00 40,312 63,648 90,565
38,450 (BBN) 2.0 27.50 5/6/03 430,457 1,003,142
- --------
(1) BBN Corporation is designated in the table as "BBN"; BBN HARK Systems
Corporation, formerly a wholly-owned subsidiary of BBN, is designated in
the table as "HRK"; BBN Planet Corporation, formerly a majority-owned
subsidiary of BBN, is designated in the table as "PLT"; and BBN Domain
Corporation, formerly a wholly-owned subsidiary of BBN, is designated in
the table as "DC".
(2) These options for BBN shares were granted under the Company's 1986 Stock
Incentive Plan replacing options previously granted under the subsidiary
option plan for BBN HARK Systems Corporation. These BBN stock options are
exercisable as to 25% after one year from grant, an additional 25% after
two years, an additional 25% after three years, and the remainder after
four years from grant, if the optionee is employed by BBN at the
respective date. These options were granted for a term of 5 years.
(3) These options for BBN shares were granted under the Company's 1986 Stock
Incentive Plan replacing options previously granted under the subsidiary
option plan for BBN Planet Corporation. These BBN stock options are
exercisable as to 50% after 6 months from grant, and the remainder after
12 months from grant, if the optionee is employed by BBN at the respective
date. These options were granted for a term of 4 years. The fair market
value of the BBN Common Stock on the date of grant was $28.875.
(4) All BBN options (other than the BBN Planet replacement options) granted in
fiscal 1996 to named individuals vest 25% after one year from grant, an
additional 25% after two years, an additional 25% after three years, and
the remainder after four years from grant, if the optionee is employed by
BBN at the respective date. All BBN options (other than the BBN Planet and
BBN HARK replacement options) were each granted for terms of 7 years. In
general, all BBN options, including the BBN Planet and BBN HARK
replacement options granted to Messrs. Conrades, Campbell, Kish, Gudonis,
and Goldwasser, are subject to termination 60 days following termination
of the optionee's employment (180 days, in the event of death). All BBN
options (other than the BBN Planet replacement options) were granted at
fair market value (closing price of the Company's Common Stock on the New
York Stock Exchange) at date of grant. The BBN options replacing options
previously granted under the subsidiary option plan of BBN Planet were
granted at a reduced price from fair market value, which took into
consideration the spread in the estimated BBN Planet stock value and the
replaced option's exercise price. The exercise price and tax withholding
obligations related to exercise of all BBN options may be paid by delivery
of already-owned shares or by offset of the underlying shares, subject to
certain conditions.
(5) All subsidiary options granted in fiscal 1996 vested as to 25% after one
year from grant, an additional 25% after two years, an additional 25%
after three years, and the remainder after four years from grant, if the
optionee was employed at the respective date. None of the options was
exercisable until 90 days after the respective company's stock becomes
publicly traded. The options were each granted for terms of 10 years,
subject to termination 60 days following termination of the optionee's
employment (180 days, in the event of death), or if later, 90 days after
the company's stock becomes publicly traded. In general, options were
granted at the estimated fair value of the company's stock at the date of
grant. The exercise price and tax withholding obligations relating to
exercise could be paid by delivery of already owned shares or by offset of
the underlying shares, subject to certain conditions.
(6) Percentage figure is of the total options of shares of the respective
company granted in the fiscal year.
(7) Under the terms of the company's stock option plans, the Committee or the
respective board retains the discretion, subject to plan limits, to modify
the terms of outstanding options and to reprice the options.
(8) Market price of the underlying security on the date of grant, if in excess
of the exercise price.
(9) Gains are calculated net of the option exercise price, but before taxes
associated with exercise. These amounts represent certain assumed rates of
appreciation only. Actual gains, if any, in stock option exercises are
dependent upon the future performance of the respective common stock, as
well as the optionee's continued employment through the vesting period,
and for subsidiary options, on the respective company's stock becoming
publicly traded during the option period. The amounts reflected in these
columns may not necessarily be achieved.
(10) These options have been replaced by options for BBN shares. See footnote
3 above.
(11) These options have been replaced by options for BBN shares. See footnote
2 above.
(12) In connection with the recapitalization of BBN Domain Corporation and the
July 31, 1996 sale by the Company of the majority of the stock of that
company, options for 25% of the optioned shares, at a reformulated price
of $0.61 per share, were vested; the remainder were unvested, and were
canceled upon the termination of the service relationship of the
individual with BBN Domain Corporation.
(13) Options were conditionally granted under a proposed amendment to the
Company's 1986 Stock Incentive Plan, subject to stockholder approval of
the 1996 Annual Meeting.
Stock Option Exercises and Options Outstanding. The table below sets forth
information with respect to stock options exercised by the individuals named
in the Summary Compensation Table in fiscal year 1996, and the number and
value of unexercised options held by such persons on June 30, 1996.
OPTION EXERCISES IN FISCAL YEAR 1996 AND YEAR-END OPTION VALUES
COMPANY AND
NUMBER OF SHARES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT JUNE 30, 1996 AT JUNE 30, 1996
ACQUIRED ON VALUE ------------------------------------ ---------------------------- --- ---
NAME EXERCISE REALIZED COMPANY(1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ----------- -------- ---------- ------------------------- ----------------------------
George H. Conrades.... 0 -- BBN 500,000 313,500 $ 4,687,500(2) $ 2,857,813(2)
DC 0 100,000(4) (3) (3)(4)
David N. Campbell..... 0 -- BBN 0 194,050(5) 0 13,594(2)
DC 0 30,000(4) 0 (3)(4)
John Kish............. 0 -- BBN 3,750 61,925(6) 13,594(2) 424,297(2)(6)
DC 0 300,000 (3) (3)
Paul R. Gudonis....... 0 -- BBN 0 203,800 0 302,344(2)
DC 0 5,000(4) (3) (3)(4)
Ralph A. Goldwasser... 28,500 $779,625 BBN 19,000 90,000 164,125(2) 310,906(2)
DC 0 30,000(4) (3) (3)(4)
- --------
(1) BBN Corporation is designated in the table as "BBN"; and BBN Domain
Corporation, formerly a wholly-owned subsidiary of BBN, is designated in
the table as "DC".
(2) Represents the excess, if any, between the closing price of the Company's
Common Stock on June 28, 1996 and the exercise price of the options.
(3) These options were vested as to 50,000 shares, 0 shares, 150,000 shares,
1,250 shares, and 3,500 shares, respectively, for each of Messrs.
Conrades, Campbell, Kish, Gudonis, and Goldwasser at June 30, 1996 but
are unexercisable until following public trading of the related common
stock, and no public market currently exists for the shares underlying
these options. Accordingly, no value in excess of the exercise price has
been attributed to these options.
(4) Option amounts in excess of the then-vested portion (vested as to 50,000
shares, 7,500 shares, 1,250 shares, and 9,250 shares, respectively, for
each of Messrs. Conrades, Campbell, Gudonis, and Goldwasser) were
canceled, unexercised under the terms of the options following the sale
by BBN of the majority of the stock of BBN Domain Corporation in July
1996.
(5) Included are options for 40,000 shares which were conditionally granted
under a proposed amendment to the Company's 1986 Stock Incentive Plan,
subject to stockholder approval at the 1996 Annual Meeting (see
information under the caption, "Proposal to Amend the 1986 Stock
Incentive Plan Relative to Increase in Shares" above).
(6) The exercisability of the options to the extent of 15,000 shares was
accelerated upon Mr. Kish leaving the employ of the Company in July 1996,
and the remaining unvested options were terminated at that time. The
vested options held by Mr. Kish (aggregating 19,063 shares) may be
exercised though the period ending September 27, 1996.
Change-of-Control Arrangements. The Company has termination agreements with
the individuals named in the Summary Compensation Table above, which
agreements obligate the respective employee to remain in the employ of the
Company during the pendency of any change-of-control proposal. In
consideration for such agreement, the Company agrees to pay severance benefits
to each such individual, consisting of payment of approximately three times
his then most recent five-year average annual salary and cash bonus, together
with certain other benefits (including the acceleration of the exercisability
of outstanding stock options and continued participation for one year in
accident and health insurance) and payment of an amount equal to a "gross-up"
payment with
respect to any excise taxes payable by the individual as a result of the
severance benefits. The benefits are payable in the case of Mr. Conrades if
his employment terminates (including a voluntary termination on his part) for
any reason other than death, disability, normal retirement, or as the result
of commission by him of a felony; the benefits are payable in the case of each
of the other named individuals only if his employment is terminated by the
Company for any reason other than for "cause" or is terminated by such
individual as the result of specified justification, in all cases during a
period of two years following a "change of control" of the Company. A change
of control is defined to include the acquisition of 30% or more of the
Company's then-outstanding stock, and other changes of control as determined
by regulatory authorities. Such severance payments would not be reduced for
compensation received by the individual from any new employment. The
agreements provide that five years after commencement, the change-of-control
payment rights may be canceled by the Company by notice given more than 30
days prior to the change of control. The five-year period has run for Mr.
Goldwasser. Under the agreements, based upon the average annual compensation
paid by the Company to the individual with respect to the last five calendar
years or shorter period he has been with the Company (and assuming no gross-up
payment), change-of-control cash severance payments would, if payable, be
approximately $1,200,000, $900,000, $900,000, $800,000, and $515,000,
respectively, for Messrs. Conrades, Campbell, Kish, Gudonis, and Goldwasser.
The agreement with Mr. Kish has terminated as a result of his termination of
employment with the Company effective July 31, 1996.
REPORT OF COMPENSATION AND STOCK OPTION COMMITTEE
ON ANNUAL EXECUTIVE COMPENSATION
(The following Report of the Compensation and Stock Option Committee on
Annual Executive Compensation shall not be deemed incorporated by reference by
any general statement incorporating by reference this proxy statement into any
filing under the Securities Act of 1933 or under the Securities Exchange Act
of 1934.)
Report. The Compensation and Stock Option Committee of the Board of
Directors (the "Committee") was composed in fiscal 1996 of three outside
directors, none of whom is or has been an officer or employee of the Company.
The Committee is responsible for setting and administering policies which
relate to executive compensation and to the incentive compensation and stock
ownership programs of the Company, and in that regard, the Committee on an
annual basis reviews and evaluates the Company's executive compensation
programs. The Company's executive compensation is also subject to periodic
review, and approval as to reasonableness, by an audit agency of the
Department of Defense.
The objectives of the Company's executive compensation program are to
attract and retain the highest caliber of executive talent, to motivate the
individuals to achieve the goals inherent in the Company's business
strategies, to link executive and stockholder interests through incentive and
equity-based plans, and to provide a compensation package that recognizes
individual contributions as well as the financial results of operations. The
executive incentive and BBN stock option portions of the Company's executive
compensation package are designed to correlate individual performance with
operating income and stockholder value, and represent in the aggregate a
compensation strategy under which a significant portion of executive
compensation (depending on the cash incentive and option awards) may be
predicated upon achievement of specified financial goals. The subsidiary
option portion of the executive compensation package was designed to encourage
an entrepreneurial interest of the executive in, and a collaboration among
executives in, the developing subsidiaries of the Company, aligning
management's interest in the successful development of the subsidiaries to the
overall, long-term interests of the Company's stockholders; however, in fiscal
1996 the Company undertook a program to combine its Internet and
internetworking services operations, and to focus its
business principally on a range of Internet capabilities. A corollary of this
focus was the elimination or sale of subsidiaries. In this connection, the
subsidiary option portion of the executive compensation package has been
terminated, replaced for those employees covered previously by subsidiary
options who remained or became employees of BBN by a replacement option
program for shares in BBN.
The key elements of the Company's executive compensation package are base
salary, performance-based cash incentives, and stock options. The Committee
establishes the base salary of Mr. Conrades and approves the salaries of the
other executive officers, including the executive officers named in the
Summary Compensation Table; the Committee establishes the performance-based
cash incentive plan for Mr. Conrades; the Committee at the end of the fiscal
year reviews cash incentive awards proposed by Mr. Conrades under the
incentive program for all of the executive officers other than Mr. Conrades
(the Committee and Mr. Conrades jointly reviewed the individual performances
of each executive officer other than Mr. Conrades, and the Committee gave
significant consideration to Mr. Conrades' views on the performance of each
such executive officer); and the Committee during the fiscal year, but not on
a fixed schedule, awards all BBN stock options, and in the past has reviewed
all stock options granted by subsidiaries. In fiscal 1996, the Committee also
reviewed and approved the awards of BBN stock options in connection with the
reorganization of the Internet and internetworking activities of the Company's
business, including replacing stock options previously granted by certain
subsidiaries. The Committee's policies with respect to each of these elements,
including the basis for the compensation awards to Mr. Conrades, are discussed
below.
Base Salaries. The base salary for Mr. Conrades was determined by direct
negotiations with Mr. Conrades at the time of his hiring in December of 1993,
with reference to the then-existing marketplace for executive ability and
experience comparable to Mr. Conrades'. The base salary amount, as established
in 1993, was continued for fiscal year 1996 without change. In determining
what the Committee was willing to approve as a base salary for Mr. Conrades,
the Committee focused on the subjective factor of the importance to the
Company of having a chief executive officer with an outstanding business and
marketing history who could provide the leadership necessary to improve the
Company's performance. (Mr. Conrades also has received relocation expenses
reimbursement and other non-recurring benefits in connection with his hiring
and relocation, as specified in the Summary Compensation Table provided
above.)
Base salaries for other executive officers of the Company are determined by
evaluating subjective factors, including the responsibilities of the position
and the experience of the individual, and by referring to the marketplace for
executive talent, including a comparison to base salaries for comparable
positions with other corporations. In this latter connection, the Committee
avails itself of internal, Company-prepared reports, which are based upon
major published surveys on salaries (including the American Electronics
Association Top Management Survey, the Radford Management Survey, The Mercer
Finance, Accounting, and Legal Survey, The Mercer Telecommunications Survey,
and SC Chips Executive Alliance Top Management Survey), comparing the
Company's executive salaries to survey information on compensation for like
positions in public (primarily high technology) corporations of similar size.
The Company believes that to be competitive, the mid-point of the salary range
for each of the Company's executive categories should be at or near the 50th
percentile of the surveyed companies. (The companies in the surveys include
some of, but are not the same as, the companies in the peer group index in the
Comparison of Five-Year Cumulative Total Return graph included elsewhere in
this Proxy Statement.)
Annual salary adjustments, if any, are determined by the subjective
evaluation of each executive officer's performance, with consideration given
to the performance of the Company for the preceding year, the responsibilities
of the individual, and in the case of officers with responsibility for
operating units, the perceived strategic importance of the unit to the future
performance of the Company.
Incentive Compensation Plans. Provisions have been made since 1970 to pay
bonuses pursuant to cash incentive plans of the Company. The general bonus
program in effect for fiscal 1996 provided for cash incentives, in varying
amounts, to be paid out of separate pools for the staffs of the operating
units of the Company (BBN Systems and Technologies Division, BBN Domain, BBN
Planet, and BBN HARK), for the staff of the Corporate Services unit, and for
the members of the executive management staff of the Company (including the
CEO) not covered by one of the other plans. The operating units plans for the
fiscal year provided for separate pools equal to specific amounts to be
awarded in whole or in part based upon the level of attainment of the
respective operating unit's operating income and revenue objectives; the
corporate staff plan provided for a pool equal to a fixed percentage (10%) of
the aggregate total bonus pools of the operating units of the Company, and the
executive management staff plan provided for a bonus pool of up to $376,000,
in each case payable in whole or in part based upon the level of attainment of
operating income and revenue targets for the Company. (Notwithstanding the
formulas, the incentive program provided for maximum limits on the pools, and
provides a mechanism for the Board of Directors to establish a discretionary
pool, when a formula would otherwise result in a more limited pool or no
bonuses.) In addition, each of the operating units had at the start of the
fiscal year a predetermined pool which, at the discretion of the head of the
operating unit, could have been awarded to individuals for notable
achievements. Bonuses from this pool were payable at any time during the year.
Within the pools under the Company's general incentive program, individual
bonuses to executive officers are determined by the subjective evaluation of
the individual's contribution to the specific unit's performance for the year.
No bonus was paid to Mr. Conrades for fiscal 1996 under the general bonus
program of the Company. Bonuses totaling $287,500 were paid to the other
executive officers of the Company for the fiscal year.
Upon his hiring, the Committee established an incentive bonus plan for Mr.
Conrades under which he is eligible to receive an annual bonus equal to
$100,000 if the Company achieves a positive net income (after tax, and after
taking into account such bonus) on a quarterly basis; an additional $100,000
if the Company achieves a positive net income of at least $0.25 per share on a
quarterly basis; and an additional $200,000 if the Company achieves a positive
net income of at least $0.50 per share on a quarterly basis, in each case for
a number of consecutive quarters that would indicate that it would be
reasonable to expect the respective earnings would continue. The bonus level
achieved for each fiscal year, as well as the number of quarters to be taken
into account in each determination under the plan, is to be made by the
Committee. No bonus was paid under this plan to Mr. Conrades for fiscal 1996.
Included in the $287,500 paid in bonuses to the executive officers of the
Company for the fiscal year was a bonus to Mr. Campbell, $75,000 of which was
guaranteed for fiscal 1996 as part of his compensation package agreed to at
the time of his employment in 1995.
Stock Option Plans. Under the standard BBN stock option plans, stock options
are granted from time to time but not on a fixed schedule to key persons,
including executive officers of the Company. The Committee selects the option
recipients and sets the size of stock option awards based upon subjective
factors, including primarily the perceived importance of the individual's
contribution to the success of the Company, similar to the subjective factors
considered in setting base salary, and upon the amount of and value of options
otherwise currently held by the individual. The Committee also takes into
consideration in granting options to executive officers the relationship of
the number of options held by each of the executive officers to a subjective
rating of the degree of responsibility of the position held by each officer
compared to that of the other executive officers. While not having a target
ownership level of Common Stock by executive officers, the Committee has
endeavored to motivate executives by granting options at levels that present
executives with an opportunity for significant gains, commensurate with gains
in stockholder value.
Stock options are designed to align the interests of the recipients with
those of the stockholders of the Company. Stock options are typically granted
by the Company with an exercise price equal to the market price of the
Company's Common Stock on the date of grant. The options generally vest over
four years. Accordingly, the full benefit of the options is realized when
stock price appreciation occurs over an extended period.
The Company, as majority shareholder of BBN Planet Corporation and as sole
shareholder of BBN Domain Corporation and BBN HARK Systems Corporation, had
previously approved, by action of the Board, stock option programs of those
subsidiaries, under which options for shares of the subsidiary's common stock
were granted to employees of the subsidiary or of the Company, including
certain executive officers of the Company, and to the presidents of the other
subsidiaries of the Company. The Committee reviewed the aggregate number of
options granted by each subsidiary's board of directors, and reviewed
individually options granted by each such board to executive officers of the
Company and to the presidents of other subsidiaries. The Committee's review of
the option recipients and the size of subsidiary stock options awarded to
executive officers of the Company was premised upon subjective factors,
including primarily the anticipated support to be provided to the subsidiary
by the executive officer and the perceived importance of the individual's
contribution to the success of the subsidiary's development. The Committee's
review of the size of subsidiary stock options awarded to the presidents of
other subsidiaries was premised upon subjective factors, including primarily
the desire to encourage collaboration among the subsidiaries and with the
Company, for the benefit of the Company as a whole. While the subsidiary
options generally vested over four years, they were not exercisable until
after the subsidiary's stock became publicly traded. Under the subsidiary
option programs, stock of the Company's participating subsidiaries reserved
for issuance under option awards was approximately 7% to 12% of the respective
subsidiary's outstanding stock.
In fiscal 1996 the Company undertook a reorganization program to combine its
Internet and internetworking services operations, and to focus its business
principally on a range of Internet capabilities. A corollary of this focus was
the elimination or sale of subsidiaries. In this connection, the portion of
the executive compensation package related to subsidiary stock options has
been largely terminated, replaced for those employees covered previously by
subsidiary options who remained or became employees of BBN by a replacement
option program for shares in BBN. In this connection, the Company's Board
adopted a 1996 Stock Incentive Plan to provide replacement options to
employees (other than certain executive officers, who were granted replacement
options under the Company's 1986 Stock Incentive Plan) previously covered by
the option programs of certain former subsidiaries and to provide options to
individuals (other than executive officers, to whom additional options, if
any, were granted under the 1986 Plan) undertaking additional or changed
responsibilities as a result of the reorganization. Replacement options for
BBN shares have been awarded to recipients of options under the plans of BBN
Planet and BBN HARK, in general to the effect that for every 100 shares of
stock of BBN Planet covered by a replaced option, the individual received a
BBN option for 12.5 shares of BBN stock at an exercise price of $18.125 per
share, as to which 50% would vest after 6 months and an additional 50% would
vest after 12 months, and that for every 100 shares of stock of BBN HARK
covered by a replaced option, the individual received a BBN option for 1 share
of BBN stock at an exercise price of $28.875 per share, as to which 25% would
vest after 1 year and an additional 25% would vest annually thereafter. The
replacement of the BBN Planet options resulted in the grant of options for
222,920 BBN shares (of which 156,670 shares were under the Replacement Plan
and 66,250 shares were under the 1986 Stock Incentive Plan) at an option
exercise price which was below the market value of BBN shares at the date of
grant in an aggregate amount of $2,400,000, which amount will be charged to
expense as compensation paid by the Company over the vesting period of such
options; $1,800,000 of such charge was recorded in the Company's 1996 fiscal
year. The replacement of the BBN HARK options resulted in the grant of options
for 5,833 BBN shares (of which 3,983 shares were under the Replacement Plan
and 1,850 shares were under the 1986 Stock
Incentive Plan) at an option exercise price equal to the market value of BBN
shares at the date of grant. In addition to the subsidiary replacement
options, options were granted under the Replacement Plan as a result of the
reorganization for an aggregate of 607,199 shares to 324 individuals; such
options were at option prices equal to the market value of BBN shares at the
dates of grant. Options for employees of BBN Domain were reformulated upon the
recapitalization of BBN Domain and the sale by the Company of the majority of
the stock of that company in July 1996. Following the recapitalization and
sale, stock options in BBN Domain held by Mr. Conrades and certain other
executive officers of the Company who held options but did not become
employees of BBN Domain, remain outstanding, to the extent vested at the time
of the sale, at a reformulated price of $0.61 per share. The reformulated
price, effected in connection with the recapitalization, equally affected all
holders of the class of securities underlying the options.
In connection with the hiring by the Company of Mr. Conrades in fiscal 1994,
and based upon what the Committee deemed necessary and appropriate for the
hiring of a person of the capability and experience of Mr. Conrades, he
received options for 800,000 shares of BBN Common Stock and 100,000 shares of
BBN Domain common stock and 100,000 shares of common stock of LightStream
Corporation. Following his hiring, Mr. Conrades received options for 100,000
shares of each of BBN Planet and BBN HARK. The grant of subsidiary options to
Mr. Conrades was based upon the Committee's subjective view of the
contributions to the operations of the subsidiaries expected to be provided by
Mr. Conrades.
At June 30, 1996, Mr. Conrades owned 32,202 shares of Common Stock of the
Company, exclusive of exercisable stock options. He also has options granting
him the right to acquire an additional 800,000 shares of Common Stock of the
Company, which options are exercisable in full by December 1997, and options
for 13,500 shares of Common Stock of the Company (of which 6,250 are vested
and exercisable) received in replacement of options held by Mr. Conrades in
BBN Planet and BBN HARK. He also has options granting him the right to acquire
50,000 shares of the common stock of BBN Domain (now called Domain Solutions
Corporation) which are vested although not currently exercisable. Options in
LightStream held by Mr. Conrades were canceled by agreement, without payment
to Mr. Conrades, upon the sale by the Company of the assets of that
subsidiary. In addition, Mr. Conrades owns $50,000 principal amount of the
Company's 6% Convertible Subordinated Debentures due 2012.
Section 162(m) of the Internal Revenue Code. Subject to specific exemptions
for certain performance-based compensation, Internal Revenue Code Section
162(m) precludes a public corporation from taking a tax deduction for
compensation in excess of $1 million for its chief executive officer or any of
its four other highest-paid executive officers in office on the last day of a
tax year.
The Section 162(m) limits did not affect the Company's tax deductions with
respect to compensation paid in the 1996 fiscal year. The fiscal 1996 cash
compensation paid by the Company did not, and the fiscal 1997 cash
compensation to be paid to the specified individual executive officers of the
Company is not expected to, exceed in any case the $1 million figure. Further,
it is believed that stock options exercises in fiscal 1996 qualified as
performance-based compensation. In general, stock options granted at an
exercise price equal to the underlying stock's fair market value under the
Company's 1986 Stock Incentive Plan are intended to qualify as performance-
based compensation, with the intended result that the deduction of
compensation resulting from the exercises of such options would not be
affected by the Section 162(m) deduction limit as it may apply in the future.
However, during fiscal 1996 certain stock options were granted to the
specified individual officers at an exercise price below fair market value of
the underlying shares on the date of grant, in replacement of options held by
the individuals in BBN Planet; such options were not intended to qualify for
exemption from the Section 162(m) limits and consequently the deductibility of
any compensation arising by reason of exercises of such options could be
affected in the year of exercise by the $1 million deduction limit.
The Committee will continue to assess the implications of the legislation on
executive compensation to determine what action, if any, may be appropriate in
the Company's case. In adopting and administering executive compensation plans
and arrangements, the Committee will consider whether the deductibility of
such compensation will be limited under Section 162(m) and, in appropriate
cases, will strive to structure such compensation so that any such limitation
will not apply.
Conclusion. The programs described above are intended to link a significant
portion of the Company's executive compensation to individual performance and
to corporate performance and stock price appreciation. The Committee intends
to continue the policy of linking executive compensation to corporate
performance and improvement in stockholder value, recognizing that economic
factors beyond management's control may result in imbalances for particular
periods, but that consistent improvement in corporate performance over the
long term would inure to the mutual benefit of the Company's executives and
its stockholders.
The foregoing report has been furnished by the members of the Committee
during fiscal 1996,Ms. Fjeldstad and Messrs. Hatsopoulos and Wellington.