<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarter ended March 31, 1996 Commission File Number 0-20364
BANYAN SYSTEMS INCORPORATED
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2798394
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
120 Flanders Road 01581
Westboro, Massachusetts (Zip Code)
(Address of principal executive offices)
(508) 898-1000
(Registrant's telephone number, including area code)
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
------- -------
Number of shares outstanding of each of the issuer's classes of common stock, as
of April 30, 1996:
Class Number of Shares Outstanding
----- -----------------------------
Common Stock, par value $.01 per share 16,822,685
-1-
<PAGE>
BANYAN SYSTEMS INCORPORATED
INDEX
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets 3
March 31, 1996 and December 31, 1995
Consolidated Statements of Operations 4
Three months ended March 31, 1996 and 1995
Consolidated Statements of Cash Flows 5
Three months ended March 31, 1996 and 1995
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial 7
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURE 12
EXHIBIT INDEX 13
</TABLE>
This Quarterly Report on Form 10-Q contains forward-looking statements,
including information with respect to the Company's plans and strategy for its
business. For this purpose, any statements contained herein that are not
statements of historical fact may be deemed to be forward-looking statements.
Without limiting the foregoing, the words "believes", "anticipates", "plans",
"expects", and similar expressions are intended to identify forward-looking
statements. There are a number of important factors that could cause actual
events or the Company's actual results to differ materially from those indicated
by such forwarding-looking statements. These factors include, without
limitation, those set fourth below under the caption "Factors Affecting Future
Operating Results" included under "Mangement's Discussion and Analysis of
Financial Condition and Results of Operations" in Part I, Item 2 of this
Quarterly Report on Form 10-Q.
-2-
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
BANYAN SYSTEMS INCORPORATED
CONSOLIDATED BALANCE SHEETS
(in thousands except share amounts)
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
--------------- ------------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 9,220 $ 12,398
Marketable securities 954 7,729
Accounts receivable, less allowances of $5,547 and $5,636 29,712 24,288
Inventories 3,311 3,664
Income taxes receivable 6,042 6,042
Deferred taxes, current portion 6,382 6,494
Other current assets 6,742 6,790
-------- -----------
Total current assets 62,363 67,405
Property and equipment:
Computers and peripherals 20,968 20,709
Equipment 10,962 9,959
Furniture and fixtures 4,576 4,639
Leasehold improvements 4,684 4,585
-------- -----------
Total 41,190 39,892
Less accumulated depreciation and amortization 26,715 25,296
-------- -----------
Property and equipment, net 14,475 14,596
Marketable securities 13,154 11,136
Deferred taxes, non-current 5,872 5,872
Other assets, net of accumulated amortization of $3,719 and $6,145 7,815 7,300
-------- -----------
Total assets $103,679 $ 106,309
======== ===========
LIABILITIES
Current liabilities:
Long-term debt, current portion $ 42 $ 62
Accounts payable 4,076 4,443
Accrued compensation 6,065 7,077
Accrued expenses 7,289 8,443
Accrued costs for restructuring and other charges 3,483 9,007
Income taxes payable 4,081 2,531
Software licenses payable, current portion 2,932 3,266
Note payable 1,034 719
Deferred revenue 26,193 22,323
-------- -----------
Total current liabilities 55,195 57,871
Software licenses payable, non-current 2,966 3,266
Minority interest in consolidated subsidiary 827 830
STOCKHOLDERS' EQUITY
Common stock, $.01 par value; authorized 25,000,000 shares; issued and
outstanding 18,670,685 and 18,623,154 shares 186 186
Preferred stock, $.01 par value; authorized 1,000,000 shares; none
issued and outstanding - -
Additional paid-in capital 62,452 62,347
Retained earnings 11,608 11,238
Treasury stock at cost; 1,848,000 common shares (28,564) (28,564)
Foreign currency translation adjustment (885) (868)
Unrealized gain/(loss) on appreciation/(depreciation) of investments (106) 3
-------- -----------
Total stockholders' equity 44,691 44,342
-------- -----------
Total liabilities and stockholders' equity $103,679 $ 106,309
======== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-3-
<PAGE>
BANYAN SYSTEMS INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
Revenues:
Software $24,931 $33,679
Support and training 4,469 5,318
Hardware 532 1,352
------- -------
Total revenues 29,932 40,349
Cost of revenues:
Software 2,515 3,788
Support and training 3,273 3,205
Hardware 183 692
------- -------
Total cost of revenues 5,971 7,685
------- -------
Gross margin 23,961 32,664
Operating expenses:
Sales and marketing 15,179 18,722
Product development 5,333 5,706
General and administrative 3,100 3,189
------- -------
Total operating expenses 23,612 27,617
------- -------
Income from operations 349 5,047
Other income (expense):
Interest income 335 549
Interest expense (21) (8)
Other, net (87) (63)
------- -------
Total other income (expense) 227 478
------- -------
Income before income taxes 576 5,525
Provision for income taxes 207 1,968
------- -------
Net income $ 369 $ 3,557
======= =======
Net income per share $0.02 $0.20
======= =======
Weighted average number of common 17,275 17,958
and dilutive common equivalent shares ====== =======
outstanding
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-4-
<PAGE>
BANYAN SYSTEMS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------
1996 1995
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 369 $ 3,557
Adjustments to reconcile net income to net cash (used in)/provided by operating activities:
Depreciation and amortization 1,683 2,248
Changes in operating assets and liabilities:
(Increase)/decrease in accounts receivable (5,449) 1,701
Decrease/(increase) in inventories 352 (1,303)
Decrease in other current and non current assets 139 590
(Decrease) in accounts payable and accrued compensation and expenses (2,256) (3,183)
(Decrease) in accrued costs for restructuring and other charges (5,524) -
(Decrease)/increase in software licenses payable, net (240) 767
Increase/(decrease) in income taxes payable 1,651 (1,209)
Increase in deferred revenue 3,877 2,829
------- -------
Net cash (used in)/provided by operating activities (5,398) 5,997
Cash flows from investing activities:
Capital expenditures (1,247) (2,773)
Capitalization of software costs (524) (590)
Acquisition of software licenses (725) (219)
Proceeds from/(purchases of) marketable securities, net 4,648 (1,877)
------- -------
Net cash provided by/(used in) investing activities 2,152 (5,459)
Cash flows from financing activities:
Repayment of principal on long-term debt (20) (39)
Proceeds from common stock options and related tax benefits 106 1,803
Purchases of treasury stock - (4,165)
------- -------
Net cash provided by/(used in) financing activities 86 (2,401)
Effect of exchange rate changes on cash and cash equivalents (18) (222)
------- -------
Net decrease in cash and cash equivalents (3,178) (2,085)
Cash and cash equivalents at beginning of the period 12,398 22,233
------- -------
Cash and cash equivalents at end of the period $ 9,220 $20,148
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-5-
<PAGE>
BANYAN SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. Basis of Presentation:
The accompanying unaudited consolidated financial statements include the
accounts of the Company and its subsidiaries as of March 31, 1996, and
have been prepared by the Company in accordance with generally accepted
accounting principles. In the opinion of management, the accompanying
unaudited consolidated financial statements contain all adjustments,
consisting only of those of a normal recurring nature, necessary for a fair
presentation of the Company's financial position, results of operations and
cash flows at the dates and for the periods indicated. While the Company
believes that the disclosures presented are adequate to make the
information not misleading, these consolidated financial statements should
be read in conjunction with the consolidated financial statements and
related notes included in the Company's 1995 Annual Report to Stockholders.
The results of operations for the three-month period ended March 31, 1996
are not necessarily indicative of the results expected for the full fiscal
year.
B. Inventories:
Inventories consist of the following at:
<TABLE>
<CAPTION>
(in thousands) March 31, 1996 December 31, 1995
-------------- -----------------
<S> <C> <C>
Purchased parts $ 958 $1,250
Work in process 522 740
Finished goods 1,831 1,674
------ ------
$3,311 $3,664
====== ======
</TABLE>
C. Capitalized Software Costs:
During the quarters ended March 31, 1996 and 1995, the Company capitalized
$524,000 and $590,000, respectively, of software costs. The Company
amortized software costs of $337,000 and $436,000 for the quarters ended
March 31, 1996 and 1995, respectively.
-6-
<PAGE>
BANYAN SYSTEMS INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Total revenues for the three-month periods ended March 31, 1996 and 1995 were
$29.9 million and $40.3 million, respectively. This decrease was due to lower
software and support revenues as well as continued expected declines in hardware
revenues. The Company's software revenues decreased by 26% compared to the
corresponding period in 1995 to $24.9 million, primarily due to lower revenues
from messaging products and the Company's current ENS offerings. Support and
training revenues decreased by 15% compared to the corresponding period in 1995
to $4.5 million, primarily due to lower revenues from educational services.
Hardware revenues declined 61% compared to the corresponding period in 1995 to
$532,000, due to the continued phase-out of the Company's hardware business.
International revenues for the three-month periods ended March 31, 1996 and 1995
were $7.0 million and $6.9 million, respectively. This increase was due to
higher revenues in the Asia Pacific region, which was partially offset by a
decline in European revenue. International revenues accounted for 23% of total
revenues for the three-month period ended March 31, 1996, compared with 17% for
the corresponding period in 1995.
Gross margins for software were $22.4 million, or 90%, for the three-month
period ended March 31, 1996, compared with 89%, or $29.9 million, for the
corresponding period in 1995. The increase in software margin percentage was
primarily due to lower manufacturing costs as a result of the Company's
restructuring in the quarter ended December 31, 1995, which reduced staffing and
related facility costs. The decrease in software margin dollars was due to lower
sales volume.
Gross margins for support and training were $1.1 million, or 27%, for the three-
month period ended March 31, 1996, compared with 40%, or $2.1 million, for the
corresponding period in 1995. This decrease was due to lower revenues from
education classes domestically.
Gross margins for hardware were 66%, or $349,000, for the three-month period
ended March 31, 1996, compared with 49%, or $660,000, for the corresponding
period in 1995. The increase in hardware margin percentage was primarily due to
lower manufacturing costs as a result of the Company's restructuring in the
quarter ended December 31, 1995, which reduced staffing and related facility
costs. The increase was also due to increased sales of higher margin, add-on
hardware products. The decrease in hardware margin dollars was due to the
continued phase-out of the Company's hardware business.
Sales and marketing expenses decreased 19% to $15.2 million for the three-month
period ended March 31, 1996, compared to the same period in 1995. This decrease
was primarily due to lower sales staffing and personnel costs as a result of the
reduction in work force as part of the Company's reorganization in the quarter
ended December 31, 1995. Additionally, variable sales costs, including
commissions, decreased due to lower revenues in the quarter ended March 31, 1996
when compared to the corresponding period in the prior year. Sales and marketing
expenses as a percentage of revenues were 51% and 46% for the three-month
periods ended March 31, 1996 and 1995, respectively.
-7-
<PAGE>
Product development expenses decreased 7% to $5.3 million for the three-month
period ended March 31, 1996, compared to the corresponding period in 1995. This
decrease was primarily due to lower headcount in the quarter ended
March 31, 1996 when compared to the corresponding period in the prior year as a
result of the Company's reorganization in the quarter ended December 31, 1995.
The Company continues to focus its product development resources on its
Enterprise network services offerings and its messaging products as well as its
internet related activities. Product development expenses as a percentage of
revenues were 18% and 14% for the three-month periods ended March 31, 1996 and
1995, respectively. Software costs of $524,000 and $590,000 were capitalized for
the three-month periods ended March 31, 1996 and 1995, respectively. The amounts
capitalized represented 9% of product development expenditures for each of the
three-month periods ended March 31, 1996 and 1995.
General and administrative expenses decreased 3% to $3.1 million for the three-
month period ended March 31, 1996, compared to the same period in 1995. This
decrease was due to lower administrative and personnel costs as a result of the
reduction in work force as part of the Company's reorganization in the quarter
ended December 31, 1995. General and administrative expenses as a percentage of
revenue were 10% and 8% for the three-month periods ended March 31, 1996 and
1995, respectively.
Interest income was $335,000 and $549,000 for the three-month periods ended
March 31, 1996 and 1995, respectively. This decrease was due to lower levels of
available funds invested in marketable securities.
The Company's effective tax rate was 36% for each of the three-month periods
ended March 31, 1996 and 1995.
-8-
<PAGE>
FACTORS AFFECTING FUTURE OPERATING RESULTS
Certain of the information contained in this Form 10-Q, including information
with respect to the Company's plans and strategy for its business expectations,
consists of forward-looking statements. Important factors that could cause
actual results to differ materially from the forward-looking statements include
the following:
In 1995 and the first quarter of 1996, a substantial majority of the Company's
product sales were to existing customers for upgrade or expansion of their
networks. The Company's results in 1996 will depend on its ability both to
continue to sell products for use in networks of existing customers and to
attract new customers for the Company's products. In addition, in 1995, the
Company experienced extended selling cycles due to an increase in multi-year
customer agreements and to longer evaluation of operating systems and hardware
platforms by potential customers. The Company expects that extended selling
cycles will continue to affect the Company's operating results for the
foreseeable future.
The Company's results are partially dependent on its ability to enhance existing
products and introduce new products on a timely basis, and to achieve market
acceptance for such enhanced and new products. The Company's results in 1995
were adversely affected by delays in the release and localization of certain
products, and there can be no assurance that the Company will not experience
similar delays in 1996. The Company plans in 1996 to introduce additional
product offerings that provide integration of the Windows NT operating system
into a VINES network. While the Company does not expect to record significant
revenues from this NT-based product in 1996, any delay in introducing this
product or failure of this product to achieve market acceptance could have a
material adverse effect on the Company's future results of operations.
The Company has recently established its Internet Products Division
(Coordinate.com) to and develop products and services to bring the Company's
directory and messaging capabilities to Internet users. The Company has limited
experience in developing or selling products for the Internet and the success of
the division will depend in part on its ability to enter into strategic
alliances with other Internet providers. While the Company does not expect to
record significant revenues in 1996 from sales of products for the Internet, any
delay in developing its products and services for the Internet or failure of
such products and services to achieve market acceptance could have a material
adverse effect on the Company's future results of operations.
In 1995, the Company reorganized its operations and, as a result, has reduced
its workforce by approximately ten percent. The Company's future success will
depend on its ability both to retain its key employees and attract new
employees, and there can be no assurance it will be able to do so.
The markets for the products of the Enterprise Networking Division and the
planned products of the Internet Division are highly competitive and
characterized by rapidly changing technology. There can be no assurance that
current or potential competitors will not introduce products that offer
performance or other features that are more attractive than those of the
Company's products. Many of the Company's competitors have greater name
recognition, larger installed customer bases and greater financial resources
than the Company and therefore may be able to adapt more quickly to new or
emerging technologies and changes in customer requirements.
The Company sells its products through a limited number of resellers worldwide.
One reselling partner accounted for approximately 15% of the Company's revenues
in the quarter ended March 31, 1996. The loss of this or any other major
reselling partner would have a material adverse effect on the Company's future
results of operations.
-9-
<PAGE>
Other factors that may affect the Company's future operating results include its
ability to expand its international sales, its dependence on indirect reseller
channels, declines in purchases by any major reseller, and fluctuations in
currency exchange rates.
Because of the foregoing factors, past financial results should not be relied
upon as an indication of future performance. The Company believes that period-
to-period comparisons of its financial results are not necessarily meaningful
and its expects that its results of operations may fluctuate from period to
period in the future.
LIQUIDITY AND CAPITAL RESOURCES
Working capital decreased from $9.5 million at December 31, 1995 to $7.2 million
at March 31, 1996. At March 31, 1996, cash and cash equivalents combined with
short-term and long-term marketable securities were $23.3 million, compared with
$31.3 million at December 31, 1995, or a 25% decrease. Cash and cash
equivalents decreased $3.2 million resulting in a cash balance of $9.2 million
at March 31, 1996. This decrease was due principally to $5.5 million in
restructuring and other charges, $1.2 million in capitalization and purchases of
software and $1.2 million in capital expenditures, offset in part by $4.6
million in net proceeds from sales of marketable securities.
In the quarter ended December 31, 1995, the Company recorded reorganization and
other charges of $15.8 million. As of March 31, 1996, a balance of $3.5 million
associated with this charge remains on the balance sheet. Management believes
that this remaining balance is adequate to cover future expenditures associated
with the 1995 reorganization and other charges.
The Company is currently negotiating to extend its $10 million line of credit,
which expires in May 1996. Under the current agreement, borrowings may be made
at the bank's prime rate. At March 31, 1996, the Company had no borrowings under
this line of credit. The Company believes that existing cash and marketable
securities, combined with cash expected to be generated from operations and the
line of credit, if extended, will be sufficient to meet the Company's working
capital and capital expenditure requirements through at least 1996.
-10-
<PAGE>
BANYAN SYSTEMS INCORPORATED
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) The exhibits listed in the Exhibit Index filed as part of this report
are filed as part of or are included in this report.
(b) The Company filed no reports on Form 8-K during the fiscal quarter
for which this report is filed.
-11-
<PAGE>
BANYAN SYSTEMS INCORPORATED
SIGNATURE
Pursuant to the requirements 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.
BANYAN SYSTEMS INCORPORATED
Date: May 9, 1996 By: /s/ Jeffrey D. Glidden
----------------------
Jeffrey D. Glidden
Senior Vice President, Administration,
and Chief Financial Officer
(principal financial and accounting officer)
-12-
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
<S> <C>
Exhibit Number Title Of Document
- - -------------- -----------------
10.38 Software Assets Purchase Agreement, dated
as of February 28, 1996, by and between the Company
and Toucan Software, Inc.
27 Financial Data Schedule
</TABLE>
-13-
<PAGE>
EXHIBIT 10.38
CONFIDENTIAL TREATMENT
BANYAN SYSTEMS INCORPORATED HAS REQUESTED THAT THE MARKED PORTIONS OF THIS
DOCUMENT BE ACCORDED CONFIDENTIAL TREATMENT PURSUANT TO RULE 24b-2 UNDER THE
SECURITIES EXCHANGE ACT OF 1934.
SOFTWARE ASSETS PURCHASE AGREEMENT
This Software Assets Purchase Agreement (the "Agreement") is entered
into this 28th day of February, 1996 (the "Effective Date") by and between
Banyan Systems, Inc., a Massachusetts corporation with its principal office
at 120 Flanders Road, Westboro, Massachusetts 01581 ("Banyan"), and Toucan
Software, Inc., a Washington corporation, with its principal office at 979
Osos Street, Suite E, San Luis Obispo, California 93401 ("Toucan").
WITNESSETH
----------
WHEREAS, Banyan desires to purchase, and Toucan desires to sell, all
of Toucan's rights, title and interest in certain software products developed
and/or distributed by Toucan under the STREETDRIVE and STREETPRINT trademarks.
NOW, THEREFORE, in consideration of the mutual promises hereinafter
set forth and other good and valuable consideration, the receipt of which
is hereby acknowledged, the parties hereby agree as follows:
1. DEFINITIONS
-----------
As used in this Agreement:
1.1 "STREETDRIVE" shall mean the software product of Toucan, the
specifications for which are set forth in all material respects in Exhibit
A, that is distributed as of the Effective Date under the trademark
STREETDRIVE;
1.2 "STREETPRINT" shall mean the software product of Toucan, the
specifications for which are set forth in all material respects in Exhibit
A, that is distributed as of the Effective Date under the trademark STREETPRINT;
and
1.3 "Purchased Software" shall mean STREETDRIVE and STREETPRINT.
2. SALE AND DELIVERY OF THE ASSETS
-------------------------------
2.1 Assignment of Rights and Assumption of Liabilities.
--------------------------------------------------
(a) Effective upon Acceptance (as defined in Section 2.3), Toucan
hereby assigns to Banyan all right, title and interest in and to or under (i)
the Purchased Software, including but not limited to all copyrights, trade
secrets, and technical information owned by Toucan relating to the Purchased
<PAGE>
Software, including all rights arising under any agreement or otherwise
pursuant to which Toucan has acquired or been granted rights in any of the
foregoing (collectively, the "Software Rights and Information"), (ii) all
trademarks, tradenames and service marks owned by Toucan relating to the
Purchased Software, including the marks "STREETDRIVE" and "STREETPRINT,"
but excluding the marks and trade names "Toucan" and "Toucan Software"
(collectively, the "Marks"), (iii) all of Toucan's end-user licenses, reseller
agreements and support and maintenance agreements relating to the Purchased
Software with the customers and resellers listed in Exhibit C attached hereto
(collectively, the "Purchased Software Licenses"), and (iv) the Agreement
for Settlement, Release, and Accord and Satisfaction between Toucan, LANShark
Systems, Inc., Craig Armstrong, and Craig Armstrong dba Software Classics,
except for payments due to Toucan thereunder, as described below (the
"Settlement Agreement"). Collectively, the Software Rights and Information,
Marks, Settlement Agreement and Purchased Software Licenses are hereinafter
referred to as the "Intangible Property." The Purchased Software and the
Intangible Property are hereinafter referred to as the "Assets."
(b) Notwithstanding anything to the contrary in paragraph 2.1(a)
above, the Assets to be purchased by Banyan hereunder shall not include (i) any
existing inventory of, or packaging or marketing materials for, the Purchased
Software, (ii) any software programs or intellectual property unrelated to the
Purchased Software, (iii) any cash, accounts receivable, equipment, furnishings
or fixtures of Toucan, (iv) any contracts or commitments other than those
explicitly referred to in paragraph 2.1(a), (v) any end-user licenses, reseller
agreements or support and maintenance agreements not listed on Exhibit C (the
"Excluded Licenses"), or (vi) any payments due to Toucan from LANShark Systems,
Inc. under the Settlement Agreement, including without limitation royalty
payments due to Toucan under Section 13 of the Settlement Agreement. Banyan
shall obtain from LANShark or otherwise make such payments due to Toucan and
shall pay Toucan such amounts in a reasonable period.
(c) Effective upon Acceptance (as defined in Section 2.3), Banyan
hereby assumes all of Toucan's duties, liabilities and obligations under the
Purchased Software Licenses and the Settlement Agreement.
2.2 Delivery of the Assets and Further Assurances.
---------------------------------------------
(a) Subject to and upon the terms and conditions of this Agreement,
within ten (10) days of the date of this Agreement, Toucan shall deliver
to Banyan a copy of all versions (including all work in process) of source
code, object code and
2
<PAGE>
documentation (in source and object code form) for the STREETDRIVE and
STREETPRINT programs (the "Initial Deliverables").
(b) Toucan shall also deliver to Banyan each of the following
additional documents:
(i) one copy of end user product documentation, white paper,
integration document, and Toucan's standard software license agreement and
reseller agreement, to the extent Toucan has such materials as of the date of
this Agreement.
(ii) such instruments of conveyance, assignment and transfer, in
form and substance satisfactory to Banyan, as shall be appropriate to convey,
transfer and assign to, and to vest in, Banyan, all of Toucan's right, title and
interest in and to the Assets:
(iii) such contracts, files and other data and documents pertaining
to the Assets as Banyan may reasonably request.
(c) At Banyan's request and at Banyan's expense, but without further
consideration to Toucan, Toucan promptly shall execute and deliver such
instruments of sale, transfer, conveyance, assignment and confirmation, and
take such other action, as Banyan may reasonably request to more effectively
transfer, convey and assign to Banyan, to confirm Banyan's title to all of the
Assets, to put Banyan in actual possession and operating control thereof, and to
carry out the purpose and intent of this Agreement.
2.3 Acceptance Process.
------------------
(a) Commencing on Toucan's delivery of the Initial Deliverables under
Section 2.2(a) to Banyan, Banyan shall have a period, subject to the 30 maximum
Acceptance Testing Period (as defined below), to test and evaluate the Purchased
Software in confidence (the "Initial Evaluation").
(b) Banyan shall accept the Purchased Software if it conforms in all
material respects to the Acceptance Criteria set forth in Exhibit A (the
"Acceptance Criteria"). The Purchased Software shall be deemed to conform in all
material respects unless it contains a "Severity 1" or "Severity 2" level
problem as defined in Exhibit B attached hereto (a "Material Non-Conformity").
If Banyan reasonably determines during the Initial Evaluation that the Purchased
Software contains a Material Non-Conformity, it may notify Toucan in writing of
such Material Non-Conformity (a "Non-Conformity Notice"), in which case Toucan
shall provide modifications or corrections for such Material Non-
3
<PAGE>
Conformity within five business days of Toucan's receipt of such Non-Conformity
Notice ("Corrections"). Banyan shall thereafter have a period of five (5)
business days to evaluate and accept the Purchased Software, as modified
by the Corrections (the "Subsequent Evaluation"). If Banyan reasonably
determines during the Subsequent Evaluation that the Purchased Software
still contains the Material Non-Conformity described in the initial
Non-Conformity Notice or another Material Non-Conformity, it may send Toucan
another Non-Conformity Notice, in which case Toucan shall again provide
Corrections within five business days, and Banyan shall again have the
opportunity to conduct another Subsequent Evaluation on the same terms as
provided above, until such Material Non-Conformity shall have been resolved
to Banyan's reasonable satisfaction.
(c) Banyan shall be deemed to have accepted the Purchased Software
("Acceptance") if any of the following occur: (i) Banyan notifies Toucan
in writing that it has accepted the Purchased Software, (ii) Banyan fails
to notify Toucan prior to the expiration of the Initial Evaluation period
or any Subsequent Evaluation period that the Purchased Software contains
a Material Non-Conformity, or (iii) whether or not either of the foregoing
has occurred, Banyan ships any Purchased Software products to its own
customer(s) for revenue production purposes, unbundled or bundled with other
products or services.
(d) In the event that Banyan does not accept the Purchased Software
in accordance with the terms of this Section 2.3 within 30 calendar days
of delivery of the Initial Deliverables (the "Acceptance Testing Period")
as a result of Toucan's inability to correct a Severity Level 1 Material
Non-Conformity, as described in Exhibit B, for which Toucan has received
a Non-Conformity Notice from Banyan, either party shall have the right to
terminate this AGreement without liability for such termination. In the
even of such termination, (i) Banyan shall promptly thereafter return the
Initial Deliverables and any other documents or materials delivered by Toucan
to Banyan in connection with this Agreement, and (ii) Toucan shall promptly
thereafter return the $375,000 initial payment under Section 2.4(b), without
interest, to Banyan. In addition, if Banyan does not accept the Purchased
Software, nothing in this Agreement or in the actions of either party taken
in contemplation of or in performance of this Agreement shall be deemed to
grant Banyan any ownership interest whatsoever in the Assets.
(e) In the event that Banyan provides its Acceptance of the Purchased
Software even though Toucan is unable to correct a Severity Level 1 Material
Non-Conformity for which Toucan has received a Non-Conformity Notice from
Banyan during the Acceptance Testing Period, Banyan shall have the right
to withhold up to $37,500 from the $375,000 second payment due under
4
<PAGE>
Section 2.4(b) until Toucan is able to correct such Severity Level 1 Material
Non-Conformity. In the event that Toucan is unable to correct such Severity
Level 1 Material Non-Conformity prior to the end of the initial 12 month
term under the Support Services Agreement between the parties, Banyan shall
have the right to retain the amount so withheld by Banyan.
2.4 Base Purchase Price
-------------------
(a) The full and complete cash purchase price for the Assets shall
be seven hundred fifty thousands dollars ($750,000), (the "Purchase Price").
The Purchase Price shall be payable in the manner described in paragraph
(b) of this Subsection 2.4
(b) Banyan shall pay Toucan the sum of three hundred seventy-five
thousand dollars ($375,000) in cash, by cashier's or certified check or
by wire transfer of immediately available funds to an account designated
by Toucan upon the execution of this Agreement by Banyan and Toucan. Subject
to paragraph (e) of Section 2.3, Banyan shall pay Toucan the sum of three
hundred seventy-five thousand dollars ($375,000) upon Banyan's Acceptance
in writing of the Purchased Software.
3. REPRESENTATIONS OF TOUCAN.
-------------------------
Except as disclosed in Toucan's Schedule of Exceptions attached hereto
as Exhibit D and incorporated by reference herein. Toucan represents and
warrants to Banyan as follows:
3.1 Organization.
------------
Toucan is a corporation duly organized and validly existing under the
laws of the state of its incorporation, and has all requisite power and
authority (corporate and other) to own its properties, to carry on its business
as now being conducted, to execute and deliver this Agreement and the agreements
contemplated herein, and to consummate the transactions contemplated hereby.
3.2 Authorization.
-------------
The execution and delivery of this Agreement by Toucan, and the agreements
provided for herein, and the consummation by Toucan of all transactions
contemplated hereby, have been duly authorized by all requisite corporate
and shareholder action. This Agreement and all such other agreements and
obligations entered into and undertaken in connection with the transactions
contemplated hereby to which Toucan is a party constitute the valid and
legally binding obligations of Toucan, enforceable against Toucan in accordance
with their respective terms. The execution, delivery and performance by
Toucan of this Agreement
5
<PAGE>
and the agreements provided for herein, and the consummation by Banyan of
the transactions contemplated hereby and thereby, will not, with or without
the giving of notice or the passage of time or both, (a) violate the provisions
of any law, rule or regulation applicable to Toucan; (b) violate the provisions
of the Certificate of Incorporation or Bylaws of Toucan; (c) violate any
judgment, decree, order or award of any court, governmental body or arbitrator;
or (d) conflict with or result in the breach or termination of any term
or provision of, or constitute a default under, or cause any acceleration
under, or cause the creation of any lien, charge or encumbrance upon the
properties or assets of Toucan pursuant to, any indenture, mortgage, deed
of trust or other instrument or agreement to which Toucan is a party or
by which Toucan or any of its properties is or may be bound. No consents
or approvals of third parties are required in connection with the consummation
by Toucan of the transactions contemplated by this Agreement.
3.3 Ownership of the Assets.
-----------------------
To the best of Toucan's knowledge, thee are no claims, liabilities,
liens, pledges, charges, encumbrances and equities of any kind affecting
the Assets. Toucan is the original author of the Purchased Software and owner
of the Assets, and has the right to sell and transfer to Banyan all of Toucan's
right, title and interest in and to the Assets, free and clear of all delivery
to Banyan of the instruments of transfer of ownership contemplated by this
Agreement will vest all of Toucan's right, title and interest in and to the
Assets in Banyan, free and clear of all liens, mortgages, pledges, security
interests, restrictions, prior assignments, encumbrances and claims of any
kind or nature whatsoever.
3.4 Litigation.
----------
Toucan is not a party to, or to Toucan's best knowledge threatened
with, and none of the Assets are subject to, any litigation, suit, action,
investigation, proceeding or controversy before any court, administrative
agency or other governmental authority relating to or affecting the Assets
or the business or condition (financial or otherwise) of Toucan.
3.5 Contracts and Commitments.
-------------------------
Toucan acknowledges that Banyan is not assuming any of the obligations
of Toucan under any agreements between Toucan and a third party unrelated
to this Agreement.
3.6 Customers.
---------
6
<PAGE>
Exhibit C attached hereto sets forth, to the best of Toucan's knowledge,
a true, correct and complete list of the names and addresses of all customers
of Toucan.
3.7 Trade Names and Other Intangible Property.
-----------------------------------------
(a) To the best of Toucan's knowledge, true, correct and complete
copies of all licenses and other agreements relating to the Intangible Property
have been previously delivered by Toucan to Banyan.
(b) Toucan has received no notice of, and has no knowledge of any
basis for, a claim against it that any of its operations, activities, products
or publications infringes on any patent, trademark, trade name, copyright
or other intellectual property right of a third party, or that it is illegally
or otherwise using the trade secrets or any other property rights of others.
Toucan has no disputes with or claims against any third party for infringement
by such third party of any trade name or other Intangible Property of Toucan.
4. REPRESENTATIONS OF BANYAN
-------------------------
Banyan represents and warrants to Toucan that Banyan is a corporation
duly organized, validly existing and in good standing under the laws of
the Commonwealth of Massachusetts, and has requisite power and authority
(corporate and other) to own its properties and to carry on its business
as now being conducted. Banyan has full power to execute and deliver this
Agreement and to consummate the transactions contemplated hereby.
4.1 Litigation.
----------
Banyan is not a party to, or to Banyan's best knowledge threatened
with, and none of the Assets are subject to, any litigation, suit, action,
investigation, proceeding or controversy before any court, administrative
agency or other governmental authority relating to or affecting the Assets
or the business or condition (financial or otherwise) of Banyan. Banyan
is not in violation of or in default with respect to any judgment, order,
writ, injunction, decree or rule of any court, administrative agency or
governmental authority or any regulation of any administrative agency or
governmental authority.
4.2 Authorization.
-------------
The execution and delivery of this Agreement by Banyan, and the agreements
provided for herein, and the consummation by Banyan of all transactions
contemplated hereby, have been duly authorized by all requisite corporate
and shareholder action. This Agreement and all such other agreements and
obligations
7
<PAGE>
entered into and undertaken in connection with the transactions contemplated
hereby to which Banyan is a party constitute the valid and legally binding
obligations of Banyan, enforceable against Banyan in accordance with their
respective terms. The execution, delivery and performance by Banyan of this
Agreement and the agreements provided for herein, and the consummation by
Banyan of the transactions contemplated hereby and thereby, will not, with
or without the giving of notice or the passage of time or both, (a) violate
the provisions of any law, rule or regulation applicable to Banyan; (b)
violate the provisions of the Certificate of Incorporation or Bylaws of
Banyan; (c) violate any judgment, decree, order or award of any court,
governmental body or arbitrator; or (d) conflict with or result in the breach
or termination of any term or provision of, or constitute a default under,
or cause any acceleration under, or cause the creation of any lien, charge
or encumbrance upon the properties or assets of Banyan pursuant to, any
indenture, mortgage, deed of trust or other instrument or agreement to which
Banyan is a party or by which Banyan or any of its properties is or may
be bound. No consents or approvals of third parties are required in connection
with the consummation by Banyan of the transactions contemplated by this
Agreement.
5. INDEMNIFICATION
---------------
5.1 By Banyan and Toucan.
--------------------
Banyan and Toucan each hereby indemnifies and holds harmless the other
party against all claims, damages, losses, liabilities, costs and expenses
(including, without limitation, settlement costs and any legal, accounting
or other expenses for investigating or defending any actions or threatened
actions) reasonably incurred by Banyan or Toucan by reason of or arising
out of or in connection with the following:
(a) Any breach by the indemnifying party of any representation or
warranty in this Agreement;
(b) Any breach of any covenant,, agreement or obligation of the
indemnifying party contained in this Agreement or any other agreement,
instrument or document contemplated by this Agreement; and
(c) Any misrepresentation contained in any statement, certificate
or Exhibit furnished by the indemnifying party pursuant to this Agreement
or in connection with the transactions contemplated by this Agreement.
Each party agrees to provide applicable documents and personnel and
to reasonably cooperate in the event of any claim, suit or action arising
out of this Agreement.
8
<PAGE>
5.2 Indemnification by Toucan.
-------------------------
Except as provided below, Toucan further agrees to indemnify and hold
harmless Banyan from any and all claims, damages, losses, liabilities, costs
and expenses (including, without limitation, settlement costs and any legal,
accounting or other expenses for investigating or defending any actions
or threatened actions), reasonably incurred by Banyan, by reason of or arising
out of or in connection with the following:
(a) Any claims against or liabilities of Toucan under end user
licenses, reseller agreements or support and maintenance agreements which
are not specifically assumed by Banyan pursuant to this Agreement;
(b) Any claims by Craig Armstrong and/or Armstrong d/b/a Software
Classics or any affiliate, successor or assign of the foregoing arising out
of any act or omission by Toucan which is determined in a final judgment
by a court of competent jurisdiction, following all appeals, to constitute
a breach by Toucan of the Settlement Agreement.
However, notwithstanding anything to the contrary herein, Toucan shall
not indemnify or hold harmless Banyan against any claims, damages, or expenses,
including without limitation, settlement costs or legal expenses arising
out of or in connection with any claims or action by LANShark or Scott Sharkey,
or any affiliate, successor or assign of the foregoing arising from the
Settlement Agreement.
5.3 Indemnification by Banyan.
-------------------------
(a) Banyan shall at its expense defend, indemnify and hold harmless
Toucan, Charles Joseph Stephens and Mary Lee Olson from all claims, damages,
losses, liabilities, costs and expenses (including, without limitation,
settlement costs and any legal, accounting or other expenses for investigating
or defending any actions or threatened actions) arising out of any claim
or action that:
(i) names Banyan and Toucan, Charles Joseph Stephens and/or
Mary Lee Olson; or
(ii) names only Toucan, Charles Joseph Stephens and/or Mary
Lee Olson and is made or filed by LANShark Systems, Inc., Scott Sharkey,
or any affiliate, successor or assign of the foregoing; and
(iii) in either case of subparagraphs (i) or (ii) above, alleges
that the Purchased Software or any authorized derivatives, modifications
or enhancements thereof infringe or
9
<PAGE>
misappropriate a patent, copyright, trademark, other intellectual property
or other right of a third party plaintiff or any claim or suit related to
the Settlement Agreement or the Assets.
Banyan shall have sole control of the defense, settlement or compromise
of such claim or suit, and the retention and direction of counsel. Banyan
shall not assert a claim against Toucan pursuant to Toucan's indemnity
obligations described above until final judgment from a court of competent
jurisdiction, following all appeals, on the claim or claims against which
Banyan is indemnifying Toucan or until after a written settlement arising
under Banyan's indemnity obligation.
(b) Banyan shall at its expense defend, indemnify and hold harmless
Toucan, Charles Joseph Stephens and Mary Lee Olson from any and all loss,
damage or expense, cost and liability, including without limitation legal
fees (up to a maximum of $500,000 for all such legal fees, loss, damage and
expense) arising out of any claim or action that:
(i) names only Toucan, Charles Joseph Stephens and/or Mary
Lee Olson and that is alleged or brought by Craig Armstrong and/or Armstrong
d/b/a Software Classics or any affiliate, successor or assign of the foregoing;
and
(ii) alleges that the Purchased Software or any authorized
derivatives, modifications, or enhancements thereof infringe or misappropriate
a patent, copyright, trademark or other intellectual property right of Craig
Armstrong and/or Armstrong d/b/a Software Classics or any affiliate, successor
or assign of the foregoing, or makes any other claim related to the Settlement
Agreement or the Assets.
In the event that Craig Armstrong and/or Armstrong d/b/a Software Classics
or any affiliate, successor or assign of the foregoing files an action against
Toucan, Charles Joseph Stephens and/or Mary Lee Olson, Banyan shall, as
applicable in Banyan's judgment:
(i) include a condition in any settlement agreement therewith
that Toucan, Charles Joseph Stephens and Mary Lee Olson will be released
from any claims related to the Assets and/or the Settlement Agreement;
(ii) not file an action against Toucan, Charles Joseph Stephens
and/or Mary Lee Olson for a breach of the Settlement AGreement; or
(iii) pursue litigation against Craig Armstrong and/or Armstrong
d/b/a Software Classics or any affiliate, successor or assign of the foregoing,
and only pursue a claim
10
<PAGE>
against Toucan under Toucan's indemnity obligations described above, following
all appeals, if a final judgment by a court of competent jurisdiction is
issued against Toucan, Charles Joseph Stephens and/or Mary Lee Olson for
a breach of the Settlement Agreement.
Banyan shall have the right to name Hale and Dorr as its representative
legal counsel in connection with any such claim or suit. However, the parties
will mutually agree upon local counsel that will represent Toucan, Charles
Joseph Stephens and/or Mary Lee Olson to defend such claim or suit. If Toucan
and Banyan are not able to agree upon such local law firm, Fenwick and West
shall be retained by Banyan to serve as local law firm for such purposes.
Banyan shall not assert a claim against Toucan pursuant to Toucan's
indemnity obligations described above until final judgment from a court of
competent jurisdiction, following all appeals, on the claim or claims against
which Banyan is indemnifying Toucan, or until after a written settlement
arising under Banyan's indemnity obligation.
Banyan and Toucan agree that any settlement or compromise of such claim
or suit shall not in any way affect Banyan's right, title to and interest
in the Assets purchased by Banyan pursuant to the Agreement.
(c) Except as otherwise specifically provided above in subparagraph
(a) (ii) regarding Banyan's obligation to indemnify Toucan from claims by
Scott Sharkey or LANShark, or any affiliate, successor or assign of the
foregoing arising from the Settlement Agreement, Banyan shall have no obligation
under paragraphs (a) and (b) of this Section 5.3 to indemnify Toucan if,
and only to the extent that, any loss, damage, expense, cost or liability
incurred by Toucan in connection with a claim that would otherwise be subject
to Banyan's indemnification obligations under paragraphs (a) or (b) of this
Section 5.3 arises out of an act or omission by Toucan against which Toucan
is required to indemnify Banyan pursuant to Sections 5.1 or 5.2 above and
following all appeals from a final judgment issued by a court of competent
jurisdiction under Section 5.3.
5.4 Claims for Indemnification; Defense by Indemnifying Party.
---------------------------------------------------------
(a) Any party that proposes to assert the right to be indemnified
under Sections 5.1, 5.2 or 5.3 will, promptly after receipt of notice of
commencement of any action against such party in respect of which a claim
is to be made against an indemnifying party or parties under such
sections, notify such indemnifying party of the commencement of such action,
enclosing
11
<PAGE>
a copy of all papers served, but the omission so to notify such indemnifying
party will not relieve it from any liability that it may have to any
indemnified party under such Sections to the extent it is not prejudiced
as a proximate result of such failure.
(b) If any such action is brought against any indemnified party
and it notifies the indemnifying party of its commencement as required by
paragraph (a), the indemnifying party will be entitled to participate in
and to the extent that it so elects by delivering written notice to the
indemnified party promptly after receiving notice of the commencement of
the action from the indemnified party. Except as provided in paragraph (c)
or Section 5.3 above, the indemnifying party may control the defense of
the action and choose counsel to represent the indemnified party.
(c) Notwithstanding paragraph (b) above, the indemnified party shall
have the right to employ its counsel in any such action, but the fees, expenses
and other charges of such counsel will be at the expense of such indemnified
party unless (1) the employment of counsel by the indemnified party has
been authorized in writing by the indemnifying party, (2) the indemnified
party has reasonably concluded (based on written advice of counsel) that
there may be legal defenses available to it that are different from or in
addition to those available to the indemnifying party, (3) a conflict or
potential conflict exists between the indemnified party and the indemnifying
party (in which case the indemnifying party will not have the right to direct
the defense of such action on behalf of the indemnified party) or (4) the
indemnifying party has not in fact employed counsel to assume the defense
of such action within a reasonable time after receiving notice of the
commencement of the action, in each of which cases the reasonable fees,
disbursements and other charges of counsel will be at the expense of the
indemnifying party or parties.
(d) It is understood that the indemnifying party shall not, in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for the reasonable fees, disbursements and other charges of more
than one separate firm at any one time for the indemnified party except as
provided in Section 5.3(b). All such fees, disbursements and other charges
will be reimbursed by the indemnifying party promptly as they are incurred.
An indemnifying party will not be liable for any settlement of any action
or claim effected without its written consent (which consent will not be
unreasonably withheld). In the event that Banyan is the indemnifying party,
it may reasonably withhold its consent to any settlement or compromise that
adversely affects Banyan's right, title and interest in the Assets.
12
<PAGE>
5.5 Payment of Indemnification Obligation.
-------------------------------------
Banyan agrees not to set-off any claim for indemnification by Banyan
under this Section 5 or under any other provision of this Agreement against
Banyan's obligation to make payments pursuant to Section 2.4. Indemnification
hereunder shall be affected by payment of cash or delivery of a cashiers or
certified check in the amount of the indemnification liability.
5.6 Survival of Representations and Claims for Indemnification.
----------------------------------------------------------
All representations and warranties made by the parties hereunder shall
survive the effective date of this Agreement and shall expire on the seventh
anniversary of such effective date, except for any claims asserted in writing
prior to such seventh anniversary which shall survive until fully resolved
and satisfied. All claims for indemnity shall be asserted or maintained
in writing by a party hereto on or prior to the expiration of such seven
year period.
6. PROPRIETARY INFORMATION
-----------------------
Toucan and Banyan agree that from and after the Effective Date:
The recipient party shall hold in confidence, and use its best efforts
to have all of its officers, directors and personnel hold in confidence,
all knowledge and information of a secret or confidential nature with respect
to the business of the disclosing party ("Confidential Information") and
shall not disclose, publish or make use of the same without the consent
of the disclosing party.
The following information shall not be considered Confidential Information
for purposes of this Agreement: information lawfully obtained from other
sources; information necessary to disclose to government authorities having
jurisdiction over either party, provided the disclosing party has received
prompt written notice of such disclosure requirement, or as may otherwise
be required by law; information for which such duty as to confidentiality
is waived by the disclosing party; information that was independently developed
by employees of the receiving party who have not had access to such Confidential
Information; or information that is or becomes publicly available through
no wrongful act of the receiving party.
The recipient party agrees that the remedy at law for any breach of this
Subsection 6 would be inadequate and that the disclosing party shall be
entitled to injunctive relief in
13
<PAGE>
addition to any other remedy it may have upon breach of any provision of
this Subsection 6.
7. NON-COMPETITION AGREEMENT
-------------------------
Concurrently with the execution of this Agreement by the parties, Mary
Lee Olson and Charles Joseph Stephens shall enter into a Non-Competition
Agreement.
8. USE OF NAME
-----------
Toucan agrees not to use the trademarks "STREETDRIVE", "STREETPRINT"
or any derivation thereof after the Effective Date in connection with any
business related to, competitive with, or an outgrowth of, the business
conducted by Toucan on the Effective Date.
9. PRODUCT CLAIMS AND RETURNS
--------------------------
Until the Effective Date, Toucan shall remain liable and responsible
for customer claims relating to the Purchased Software licensed by Toucan
and services performed by Toucan prior to such date to the extent such claims
are asserted by the customer prior to such date. Thereafter, Banyan shall
be liable and responsible for all such claims.
10. TERMINATION BY AGREEMENT OF THE PARTIES
---------------------------------------
In addition to other rights of termination as provided above in Section
2, this Agreement may be terminated by the mutual written agreement of the
parties hereto. In the event of such termination by mutual agreement, Banyan
shall have no further obligation or liability to Toucan under this Agreement,
and Toucan shall have no further obligation or liability to Banyan under
this Agreement.
11. TRANSFER AND SALES TAX
----------------------
Notwithstanding any provisions of law imposing the burden of such taxes
on Toucan or Banyan, as the case may be, Banyan shall be responsible for
and shall pay all sales, use and transfer taxes imposed on Banyan or Toucan
pursuant to the transaction contemplated by this Agreement by the Commonwealth
of Massachusetts or the State of California, and Toucan shall be responsible
for and shall pay all taxes imposed on Toucan's income from the transaction
contemplated by this Agreement.
12. NOTICES
-------
Any notices or other communications required or permitted hereunder
shall be sufficiently given if in writing and delivered
14
<PAGE>
personally or sent by telex, Federal Express, registered or certified mail,
postage prepaid, addressed as follows or to such other address of which
the parties may have given notice:
To Toucan:
Mary Lee Olson, President
Toucan Software, Inc.
979 Osos Street, Suite E
San Luis Obispo, CA 93401
With a copy to:
Richard E. Wyde, Esq.
Davis Wright Tremaine
1501 Fourth Avenue, Suite 2600
Seattle, WA 98101
To Banyan:
Banyan Systems Inc.
120 Flanders Road
Westboro, MA 01581
Attn: General Counsel
Unless otherwise specified herein, such notices or other communications
shall be deemed received on the date such notice is actually received.
13. SUCCESSORS AND ASSIGNS
----------------------
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns, except that
Toucan may not assign its respective obligations hereunder without the prior
written consent of Banyan. Any assignment in contravention of this Provision
shall be void.
14. ENTIRE AGREEMENT; AMENDMENTS; ATTACHMENTS
-----------------------------------------
(a) This Agreement, all Exhibits hereto, and all agreements and
instruments to be delivered by the parties pursuant hereto represent the
entire understanding and agreement between the paries hereto with respect
to the subject matter hereof and supersede all prior oral and written and
all contemporaneous oral negotiations, commitments and understandings between
such parties. Banyan and Toucan, by the consent of their respective Boards
of Directors, or officers authorized by such Boards, may amend or modify
this Agreement, in such manner as may be agreed upon, by a written instrument
executed by Banyan and Toucan.
(b) If the provisions of any Exhibit to this Agreement are
inconsistent with the provisions of this Agreement, the
15
<PAGE>
provision of the Agreement shall prevail. The Exhibits attached hereto or
to be attached hereafter are hereby incorporated as integral parts of this
Agreement.
15. EXPENSES
--------
Except as otherwise expressly provided herein, Banyan and Toucan shall
each pay their own expenses in connection with this Agreement and the
transactions contemplated hereby.
16. LEGAL FEES
----------
In the event that legal proceedings are commenced by Banyan against
Toucan, or by Toucan against Banyan, in connection with this Agreement or
the transactions contemplated hereby, the party or parties which do not prevail
in such proceedings shall pay the reasonable attorneys' fees and other costs
and expenses, including investigation costs, incurred by the prevailing
party in such proceedings.
17. GOVERNING LAW
-------------
This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts, excluding its rules on conflicts
of law, and provided however, that venue shall be in the courts of San
Francisco, California.
18. SECTION HEADINGS
----------------
The section headings are for the convenience of the parties and in
no way alter, modify, amend, limit, or restrict the contractual obligations
of the parties.
19. SEVERABILITY
------------
The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of
this Agreement.
20. COUNTERPARTS
------------
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original, but all of which shall be one and
the same document.
16
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto as of and on the date first above written.
BANYAN SYSTEMS, INC.
By:/s/ Richard L. Bugley
--------------------------------------
Printed Name: Richard L. Bugley
---------------------------
Title: Vice President and General Counsel
----------------------------------
TOUCAN SOFTWARE, INC.
By: /s/ Mary Lee Olson
--------------------------------------
Printed Name: Mary Lee Olson
----------------------------
Title: President
-----------------------------------
17
<PAGE>
EXHIBIT A
---------
Purchased Software and Acceptance Criteria
------------------------------------------
1. StreetDrive Specifications
1.1 StreetDrive is a service that allows workstations, that are running
Banyan VINES client software versions 5.50 or greater, to SETDRIVE to
Windows NT hard disks, CD-ROMs, optical disks, floppy disks, and some
remote network drives. StreetDrive responds to the workstations in the
same manner as a native VINES file service version 5.50 or greater,
other than OS/2 extended attributes, which are not supported.
StreetDrive does NOT support Macintosh clients.
1.2 StreetDrive stores all logging and tracing messages in the Windows
NT Event Manager.
1.3 StreetDrive is controlled by the Windows NT Service Control Manager.
1.4 StreetDrive has a configuration program which runs on the same physical
Windows NT machine which is running the StreetDrive service. This
configuration saves it's information in the Windows NT Registry and
notifies the StreetDrive service that configuration changes have
been made.
1.5 StreetDrive does NOT report disk size or free space larger than 4
gigabytes to VINES workstations of any type.
1.6 StreetDrive shall include a Banyan product name and Banyan trademark
and copyright notices.
1.7 StreetDrive runs on Windows NT version 3.51.
1.8 StreetDrive registers with StreetTalk as multiple PC-based file
services. VINES workstations, as stated in Exhibit A, can communicate
with any or all of these PC-based file services.
1.9 StreetDrive responds to the Banyan SETARL program as a VINES 5.5x or
VINES 6.xx file service does.
1.10 StreetDrive mostly works on subnets that have NO Banyan servers
directly attached. However, there are problems with Banyan's Vns
ValidateNonce function which does impact security in this case.
2. Acceptance Criteria for StreetDrive
StreetDrive must comply with the StreetDrive Specifications as well as
support the following functionality and software revisions:
<PAGE>
2.1 StreetDrive must respond correctly to the following VINES workstation
types: DOS 5.x, DOS 6.x, Windows 3.1, Windows for Workgroups 3.11,
Windows NT 3.5, Windows NT 3.51, Windows 95.
2.2 StreetDrive must respond to OS/2 Warp, OS/2 2.0, OS/2 2.1, and
OS/2 2.11 in the correct manner for all requests other than requests
for Extended Attribute support.
2.3 StreetDrive must respond correctly to VINES workstations running
VINES versions 5.5x and 6.xx unless otherwise stated in Exhibit A.
2.4 StreetDrive must run when the Windows NT machine running StreetDrive
is connected to StreetTalk servers running VINES versions 5.5x and
6.xx, and currently shipping versions of ENS for UNIX, unless otherwise
stated in Exhibit A.
2.5 StreetDrive must work correctly with VINES 5.xx ARLs other than as
follows. When ARLs are configured as Single ARL and Directory-level
ARLs, New File ARL inheritance does NOT work as in File-level ARLs.
2.6 When user limits are established for a share through the StreetDrive
Configuration program, the StreetDrive service will limit the number
of concurrent connections to the configured limit for that share.
2.7 When idle connection timeouts are enabled for a share in the StreetDrive
Configuration program, the StreetDrive service will disconnect a
SPP connection if no data has been sent from the workstation for
the configured amount of idle time. This feature does NOT remove
the drive letter mapping from the user's workstation.
2.8 When Remote Administration access is enabled, the StreetDrive Monitor
can disconnect individual users or the all of the users of a share.
StreetDrive must correctly allow either users in the AdminList for
the StreetTalk share or a configured list of StreetTalk items to
perform the two disconnect operations. The disconnect operation does
not remove the drive letter from the user's workstation; it merely
disconnects the SPP connection.
2.9 The StreetDrive Monitor program must correctly display Service
Statistics.
2.10 StreetDrive must act as a "Z drive" to VINES 5.5x and VINES 6.xx
workstations as a Banyan VINES 5.5x or VINES 6.xx "Z drive" responds,
unless otherwise stated in Exhibit A.
2.11 The StreetDrive service must provide access to the following file
systems on Windows NT: FAT, NTFS, HPFS, CDFS, remote LAN Manager
shares, remote VINES shares, remote NFS shares, and remote Netware
volumes via Microsoft's Novell Gateway.
2.12 StreetDrive must allow the VINES client types listed in Exhibit A
sections 2.1 and 2.2 to open files, close files, read from files,
write to files, lock and unlock sections of a file, and seek to a
position in a file.
3. StreetPrint Specifications
19
<PAGE>
3.1 StreetPrint is a service that allows workstations, that are running
Banyan VINES's client software versions 5.50 or greater, to print
to Windows NT connected printer queues. StreetDrive responds to
the workstations in the same manner as a native VINES print service
version 5.50 or greater. Streetprint does NOT work with PC-print.
StreetPrint does NOT redirect print jobs to another Banyan VINES
print queue.
3.2 StreetPrint stores all logging and tracing messages in the Windows
NT Event Manager.
3.3 StreetPrint is controlled by the Windows NT Service Control Manager.
3.4 StreetPrint has a configuration program which runs on the same physical
Windows NT machine which is running the StreetPrint service. This
configuration program saves it's information in the Windows NT Registry
and notifies the StreetPrint service that configuration changes
have been made.
3.5 VINES PC-print is NOT supported by StreetPrint.
3.6 StreetPrint shall include a Banyan product name and Banyan trademark
and copyright notices.
3.7 StreetPrint runs on Windows NT version 3.51.
3.8 The StreetPrint Reports program displays filtered print reports
as either an hourly usage report, a print job list, or a StreetTalk
usage report. These reports are filtered by a time range and a
StreetTalk pattern.
3.9 StreetPrint mostly works on subnets that have NO Banyan servers
directly attached. However, there are problems with Banyan's
VnsValidateNonce function which does impact security in this case.
4. Acceptance Criteria for StreetPrint
StreetPrint must comply with the StreetPrint Specifications as well as
support the following functionality and software revisions:
4.1 StreetPrint must respond correctly to the following VINES workstation
types: DOS 5.x, DOS 6.x, Windows 3.1, Windows for Workgroups 3.11,
Windows NT 3.5, Windows NT 3.51, Windows 95, OS/2 Warp, OS/2 2.0,
OS/2 2.1, and OS/2 2.11 in the correct manner.
4.2 If the number of jobs is limited for a StreetPrint destination in
the StreetPrint Configuration program, the StreetPrint service must
NOT allow a greater number of jobs in the print queue at any one
time.
4.3 If the job size is limited for a StreetPrint destination in the
StreetPrint Configuration program, the StreetPrint service must
NOT allow jobs of a greater size than the configured amount into
the print queue.
4.4 StreetPrint must only allow users in the Users list access to the
StreetPrint queue. All other users must be denied.
20
<PAGE>
4.5 StreetPrint must only allow users in the Operators list to control
the StreetPrint queue and jobs belonging to other users. All other
users must be denied this access.
4.6 StreetPrint must correctly print jobs to local and remotely configured
Windows NT print queues.
4.7 The SETPRINT command must correctly display the list of jobs currently
in a StreetPrint queue.
4.8 StreetPrint must respond correctly to the following SETPRINT commands:
SHOW details, ON HOLD, OFF HOLD, RESCHEDULE, CANCEL, REPRINT job,
Move to TOP of queue, Move to BOTTOM of queue, and CHANGE format.
StreetPrint does NOT respond correctly to the Move to DIFFERENT
queue command.
4.9 StreetPrint must allow connections view SETPRINT and the Windows
Print Manager from the VINES client types listed in Exhibit A
sections 4.1.
4.10 StreetPrint must allow the VINES client types listed in Exhibit A
sections 4.1 to BPRINT to the StreetPrint service.
21
<PAGE>
EXHIBIT B
---------
SEVERITY LEVELS
---------------
Severity Procedures
- - -------------------
Severity 1: Indicates a critical condition where the server, network or
- - ----------
mission critical service or application is down and requires an immediate
solution.
Severity 1 Examples:
- - -------------------
Data loss or data inconsistency. Users are unable to login to the
server/network. Server is in an inconsistent state and will not boot.
Consultant or Toucan on-site.
Severity 2: Indicates that the server or network is operational but the
- - ----------
customer's business is being impacted.
Severity 2 Examples:
- - -------------------
A server must be rebooted to prevent a server crash. A service must be recycled
to prevent a server crash. Intermittent client disconnects from the network.
22
<PAGE>
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
EXHIBIT C
END USERS AND RESELLERS
*[ENTIRE PAGE DELETED]*
C - 1
<PAGE>
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
*[ENTIRE PAGE DELETED]*
C - 2
<PAGE>
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
*[ENTIRE PAGE DELETED]*
C - 3
<PAGE>
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
*[ENTIRE PAGE DELETED]*
C-4
<PAGE>
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
*[ENTIRE PAGE DELETED]*
C - 5
<PAGE>
EXHIBIT D
SCHEDULE OF EXCEPTIONS
The representations and warranties of Toucan Software, Inc. contained in
that certain Software Assets Purchase Agreement dated February __, 1996 (the
"Purchase Agreement") are made subject to, and qualified in all respects by the
information contained in this Schedule of Exceptions. Capitalized terms used but
not otherwise defined herein have the meanings set forth in the Purchase
Agreement.
1. Section 3.2 (Authorization). The third sentence is qualified as follows:
---------------------------
Compliance with the applicable bulk sales laws may be required. If the bulk
sales laws of any jurisdiction apply to this transaction and are not
complied with, Banyan could be liable for, and the Assets may be subject to,
the claims of Toucan's creditors.
2. Section 3.3 (Ownership of Assets). This section is qualified as follows:
---------------------------------
(a) Toucan and Charles Joseph Stephens were sued in 1995 by LANShark
Systems, Inc., Craig Armstrong and Armstrong d/b/a Software Classics over
alleged copyright violations and breach of a Software Publishing Agreement
between Armstrong and Stephens, on the one hand, and LANShark, on the other.
That lawsuit was settled pursuant to an Agreement for Settlement, Release,
and Accord and Satisfaction among the parties (the "Settlement Agreement"),
a copy of which has been previously provided to Banyan. Under the Settlement
Agreement, the parties acknowledged "similarities" and "some similar
software source code and structure" between STREETDRIVE (Version 1x), on the
one hand, and software programs developed by Stephens and Armstrong and
marketed by LANShark pursuant to the Software Publishing Agreement under the
name "CD-Direct" and certain draft software referred to in the Settlement
Agreement, on the other. Pursuant to the Settlement Agreement, the parties
agreed that each of them "owns individually and separately those similar
portions and that each party has the right to use those portions without
payment, royalties or accounting to the other party."
(b) Toucan has included copyright notices (C) in the user documentation for
the Purchased Software, in the source code listings, on the label of the
Purchased
D-1
<PAGE>
Software media and on the initialization screen for the Purchased Software.
Toucan has generally but not always included a trademark notice ("TM") with
written references to the Marks contained in user documentation, marketing
materials, product packaging, and the like. Toucan has not filed any
copyright registration applications or patent registration applications
with respect to the Purchased Software or any trademark registrations with
respect to the Marks, nor has it conducted any search for patent or
copyright registration applications, copyright registrations, or issued
patents that might be infringed by the Purchased Software or any search for
trademarks, registered or unregistered, that might be infringed by the
Marks.
(c) See Item 1 of this Schedule of Exceptions.
(d) Toucan has licensed the Purchased Software to its customers under
"shrinkwarp" or "boxtop" licenses included as part of the product
packaging. The enforceability of such licenses is by no means clear. In
addition, some of Toucan's resellers may have repackaged or licensed copies
of the Purchased Software licensed to their own customers without including
Toucan's standard end-user license.
3. Section 3.4 (Litigation). This Section is qualified as follows:
------------------------
Toucan understands that Scott Sharkey, on being apprised of this
transaction, apparently made comments to Mike Wixon that suggest he and
LANShark may make claims against Toucan. Scott Sharkey did not specify what
claims might be asserted.
4. Section 3.6 (Customers). This Section is qualified as follows:
-----------------------
Exhibit D sets forth a list of those customers and resellers, together with
their names and addresses, of which Toucan is aware. Some of Toucan's
resellers do not identify to Toucan the end-users of the Purchased Software
who license the software through the reseller.
5. Section 3.7 (Trade Names and Other Intangible Property).
-------------------------------------------------------
This Section is qualified by the exceptions described in Item 2(a) and
Item 3 above.
D-2
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> MAR-31-1996 MAR-31-1995
<CASH> 9,220 12,398
<SECURITIES> 954 7,729
<RECEIVABLES> 32,259 29,924
<ALLOWANCES> 5,547 5,636
<INVENTORY> 3,311 3,664
<CURRENT-ASSETS> 62,363 67,405
<PP&E> 41,190 39,892
<DEPRECIATION> 26,715 25,296
<TOTAL-ASSETS> 103,679 106,309
<CURRENT-LIABILITIES> 55,195 57,871
<BONDS> 0 0
0 0
0 0
<COMMON> 186 186
<OTHER-SE> 44,505 44,156
<TOTAL-LIABILITY-AND-EQUITY> 103,679 106,309
<SALES> 25,463 35,031
<TOTAL-REVENUES> 29,932 40,349
<CGS> 2,698 4,480
<TOTAL-COSTS> 26,885 30,822
<OTHER-EXPENSES> (248) (486)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 21 8
<INCOME-PRETAX> 576 5,525
<INCOME-TAX> 207 1,968
<INCOME-CONTINUING> 369 3,557
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 369 3,557
<EPS-PRIMARY> $0.02 $0.20
<EPS-DILUTED> $0.02 $0.20
</TABLE>
