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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
{X} ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended December 31, 1996
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{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ____________ to _____________.
0-20364
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(Commission file number)
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, WESTBORO, MASSACHUSETTS 01581
(Address and zip code of principal executive offices)
508-898-1000
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(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
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(Title of Class)
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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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $6,452,681 as of March 24, 1997.
On March 24, 1997, there were 17,505,029 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Specifically identified portions of the Annual Report to Shareholders for
the fiscal year ended December 31, 1996 (the "Annual Report to
Stockholders") are incorporated by reference into Parts I, II and IV.
(2) Specifically identified portions of the Company's Definitive Proxy
Statement to be filed in connection with the Company's 1997 annual meeting
of stockholders are incorporated by reference into Part III.
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This Annual Report on Form 10-K contains forward-looking statements, including
without limitation information with respect to the effect and future costs of
the Company's 1996 reorganization, the potential benefits to end users through
the use of the Company's products, the development future products, anticipated
product development expenditures and the Company's other 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 forward-looking statements. These factors include, without limitation,
those set forth under the caption "Future Operating Results" which is
incorporated by reference into "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in Part II of this Annual Report
on Form 10-K.
PART I
ITEM 1. BUSINESS
GENERAL
Banyan Systems Incorporated ("Banyan(R)" or the "Company") develops, markets and
supports enterprise directory software products that allow people to connect
to one another and access information easily for more effective communications.
The Company's flagship software technology is a global directory service called
StreetTalk(TM). This product allows users to find one another and access network
resources, such as printers, files and applications, regardless of physical
location. Banyan's other enterprise directory services include messaging,
management and security. Together, these services make up the foundation for
Banyan's networking solutions. These solutions integrate mainframes,
minicomputers, workgroup networks and personal computers into a unified
computing environment that is easy for users to navigate and administrators to
manage.
The Company delivers its enterprise directory services in several forms,
including StreetTalk for Windows NT(R) and VINES(R). Introduced in September
1996, Banyan's StreetTalk for Windows NT provides Banyan's premier enterprise
directory capabilities running natively on Microsoft(R) Windows NT, an emerging
standard for corporate networks. VINES is Banyan's well proven, UNIX(R)-based
networking software, which combines file and print sharing with the StreetTalk
directory, messaging, network management and security services. The Company's
Intelligent Messaging(R) option, available for both VINES and Windows NT
environments, provides an enterprise solution for reliably storing and
transporting electronic messages. The Company's ENS (Enterprise Network
Services) product line delivers directory capabilities and integrated network
services for a variety of computing platforms, including NetWare(R), HP-UX(R),
AIX(R) and Solaris(R).
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Banyan, the Banyan logo, StreetTalk, VINES and BeyondMail are registered
trademarks, and Intelligent Messaging, Coordinate.com, Switchboard Banyan
Enterprise Network Solutions and EBR are trademarks of Banyan Systems
Incorporated. StreetTalk is a product of Banyan Systems Incorporated and not a
product of McCarthy, Crisanti & Maffei, Inc. UNIX is a registered trademark of
Novell, Inc. in the United States and in other countries licensed exclusively
through X/Open Company Ltd. IBM and OS/2 are registered trademarks of
International Business Machines Corporation. Microsoft, Windows NT and Windows
are registered trademarks of Microsoft Corporation. Macintosh is a registered
trademark of Apple Computer, Inc. Attachmate is a registered trademark of
Attachmate Corporation. CaLANdar is a registered trademark of Microsystems
Software, Inc. Other product, company or organization names cited in this Form
10-K are trademarks or registered trademarks of their respective companies or
organizations.
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With its acquisition of Beyond Incorporated in 1994 ("Beyond"), the Company
increased its messaging products with the addition of BeyondMail(TM) software.
BeyondMail provides easy-to-use, full-featured e-mail with unique rules-based
agent technology that enables people to manage information more productively.
See Note O to the Company's Consolidated Financial Statements, which are
incorporated herein by reference to the Company's Annual Report to Shareholders
for additional information regarding the Company's acquisition of Beyond.
As both businesses and individuals increasingly use the Internet, Banyan has
extended its technology to deliver Internet-based directory and messaging
products. To capitalize on the Internet market and to continue servicing its
traditional customers, Banyan reorganized its operations into a divisional
structure in the fourth quarter of 1995. See Note F to the Company's
Consolidated Financial Statements which are incorporated herein by reference to
the Company's Annual Report to Shareholders.
In February 1996, the Company launched Switchboard(TM), an Internet directory
service that allows people to locate residential and business listings. To
realize the potential of Switchboard, as well as to fund its future growth, the
Company established Switchboard Incorporated as a Banyan subsidiary.
Subsequently, in November 1996, the Company entered into an agreement with
America Online, Inc. (AOL) and Digital City Inc. (DCI) to sell minority
interests in Switchboard Incorporated to AOL and DCI. At December 31, 1996,
these companies held in the aggregate a 7.5% equity interest in Switchboard
Incorporated. See Note P to the Company's Consolidated Financial Statements,
which are incorporated herein by reference to the Company's Annual Report to
Shareholders. During 1996, the Company also introduced versions of BeyondMail
that support Internet standards.
In the fourth quarter of 1996, Banyan reorganized its operations, creating a
functional, rather than a divisional, operating structure. The Company believes
that this functional operating structure will enable Banyan to reduce costs and
strengthen its ability to develop and deliver innovative software solutions to
the marketplace.
As a result of this reorganization, Banyan recorded in the fourth quarter of
1996 a one-time, pre-tax restructuring charge of $5.5 million, composed
primarily of $1.4 million for closure or consolidation of leased facilities,
$3.2 million for severance and related costs, and $0.9 million for idle assets
related to the restructuring. During 1996, the restructuring resulted in 70
employee separations. The restructuring and other charges are expected to reduce
cash flow by approximately $3.6 million in 1997. See Note F to the Company's
Consolidated Financial Statements, which are incorporated herein by reference to
the Company's Annual Report to Shareholders.
In addition to the reorganization, the Company reduced its worldwide channel
inventories by approximately $9.0 million in the quarter ended December 31,
1996. The Company also recorded a non-cash charge of $8.0 million to establish
a valuation allowance for previously recorded deferred tax assets in the quarter
ended December 31, 1996.
BANYAN ARCHITECTURE AND TECHNOLOGY
Since its founding in 1983, the Company has based its software products on a
modular architecture, specifically designed to serve computing environments with
multiple servers in multiple locations. This architecture enables the delivery
of a set of sophisticated network services that integrate workgroup LANs (Local
Area Networks) and other proprietary computer environments into a single
enterprise network.
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Banyan's enterprise directory services consist of software modules, each
providing a different service that may be shared by users across the network.
At the core of these services is Banyan's StreetTalk directory. StreetTalk
enables network administrators to assign location-independent "StreetTalk" IDs
or names to each user, computer, printer, server or other resource in the
network. These names remain consistent throughout the network, allowing a user
to access any network resource without regard to the physical location of the
user or the resource. The name, network location and characteristics of each
resource are stored in the StreetTalk database. StreetTalk's database is used
by all of the other services and integrated applications to locate and
transparently access resources throughout the network.
All of Banyan's enterprise directory services are integrated with the StreetTalk
directory, including messaging, management, security, local and wide-area
communications, and host connectivity. As a result of this modular
architecture, integration of services throughout the network is easily
maintained even as individual services are enhanced or additional services are
added.
Banyan's integrated enterprise directory services create the "look and feel" of
a single system for users of a complex network of heterogeneous personal
computers, servers, minicomputers and mainframes. For example, users log on to
the network rather than individual servers, and thereby gain access to all of
the resources on the network rather than the resources available on an
individual server. Banyan believes its products supply users with a unified
view of the network, thereby shielding them from its underlying complexities.
Banyan believes its products provide network administrators with the ease-of-
access and centralized management capabilities previously associated only with
minicomputers and mainframe systems.
Banyan believes that its software architecture has enabled it to develop
networking products that offer advantages over other networking products that
have been designed to connect PCs within a workgroup LAN for the purpose of file
and print sharing. Through its integrated set of enterprise directory services,
Banyan seeks to meet the needs of the enterprise networking market with products
that:
- Provide consistency across the entire network in managing,
administrating, locating and controlling access to users, resources,
applications and data;
- Permit the network to be easily reconfigured and expanded to include
additional users, computers, workgroup LANs and sites;
- Ensure the integrity and security of information distributed throughout
the network;
- Provide for integration with minicomputers and mainframes in the
organization; and
- Facilitate the development of client-server applications that support
the enterprise.
The Company also believes that it was the first company to offer global
directory services and that it continues to offer the most comprehensive and
technically advanced set of enterprise directory services in the industry.
INTERNET PRODUCTS AND SERVICES
With the advent of increased intranet and Internet computing, and as a result of
the Company's focus on Internet technology development, in 1996, the Company
released products for Internet
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users built on the Company's traditional strengths in directory and messaging
technology. The Internet versions of BeyondMail offer full-featured messaging
capabilities and time-saving productivity enhancements. Switchboard is an
Internet-based directory service that allows any individual with a Web browser
to look up the names and street addresses of more than 106 million individuals
and 11 million businesses in the United States. Switchboard users can customize
their electronic listings and take advantage of enhanced privacy tools,
including the "Knock-Knock" feature, which provides the first e-mail version of
caller ID. This product is available at no charge to the user.
Banyan generates revenues from Switchboard through display advertisements that
are integrated with its business listings, categorized to match a user's search
criteria -- similar to traditional Yellow Pages telephone directories. Banyan
has created a strategic sales channel for national Yellow Pages advertising by
establishing agreements with leading certified marketing representatives, firms
which place advertisements in traditional Yellow Pages. In December 1996, Banyan
and DCI entered into an agreement under which DCI will be the exclusive sales
channel for local display advertising for Switchboard. In addition, Banyan and
AOL entered into an agreement in November 1996 under which AOL will be the
exclusive vendor of banner advertising for Switchboard.
WINDOWS NT INTEGRATION
With the emergence of Microsoft Corporation's Windows NT operating system, the
Company has released products that allow corporations to integrate Windows NT
into their existing corporate networks. In March 1996, the Company introduced
StreetTalk Access(TM) for Windows NT File and Print software, giving customers a
smooth growth path for deploying Windows NT. The capabilities of the StreetTalk
Access product are now included among the features of StreetTalk for Windows NT,
introduced in September 1996. Running natively in Windows NT environments,
StreetTalk for Windows NT provides organizations with a cost-effective solution
to integrate their existing corporate networks with Microsoft's Windows NT
operating system. In November 1996, the Company introduced Intelligent
Messaging for Windows NT, which delivers highly scalable enterprise message
storage and transport capabilities, providing a secure foundation for
organizational communications.
KEY PRODUCTS
The Company's key products include StreetTalk for Windows NT, VINES, Intelligent
Messaging and BeyondMail. In addition, the Company markets a broad range of
complementary products and options for these base products. In 1996, the
Company introduced several offerings for Internet users, including the
Switchboard Internet directory and Internet versions of BeyondMail.
StreetTalk for Windows NT
StreetTalk for Windows NT provides directory capabilities that extend beyond
individual server communities - encompassing every item and activity in the
enterprise. This simplifies access to all network resources, regardless of
location. The combination of Windows NT and StreetTalk for Windows NT supplies
an enterprise-wide application platform and networking solution that scales to
any size, including tens of thousands of users. StreetTalk also includes
extensive security features. The suggested U.S. retail price for StreetTalk for
Windows NT is $3,495 per server, or ranges from $2,995 for a 10-user version to
$27,995 for a 500-user version.
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VINES
The Company introduced the VINES networking software in 1985. VINES integrates
Banyan's StreetTalk directory and a full suite of enterprise network services
such as security and management into one package. VINES installs on PC servers
and clients and permits users of the leading PC desktop systems - DOS, OS/2(R),
Windows(R) 95, Windows NT and Macintosh(R) -to share information and computing
resources with each other and with host computing environments throughout the
enterprise. In September 1996, the Company introduced VINES 7.0, which offers
improved performance and features. Suggested U.S. retail pricing for the current
VINES product family ranges from $2,995 for a 10-user version to $49,995 for a
1,000-user version.
BeyondMail
A full-featured e-mail product, the Company believes BeyondMail is among the
most advanced software available for managing information overload. With its
unique rules-based agent technology, BeyondMail helps people manage information
with e-mail, classifying messages intuitively in folders for instant recall and
filtering out junk mail. When BeyondMail's intelligent agents are combined with
easy-to-customize forms, businesses are able to automate complex procedures,
such as producing database reports and routing purchase orders for approval.
BeyondMail supports Windows and Macintosh clients and takes full advantage of
StreetTalk and Intelligent Messaging capabilities. There are also pure Internet
versions of BeyondMail available. The suggested U.S. retail price for
BeyondMail ranges from $995 for a 10-user version to $8,500 for a 100-user
version.
Intelligent Messaging
Intelligent Messaging is an enterprise-wide, client/server-based solution for
storing and transporting messages. Tightly integrated with StreetTalk directory
services, Intelligent Messaging eases use, reduces costs and facilitates the
deployment of large-scale messaging networks. In November 1996, Banyan
introduced Intelligent Messaging for Windows NT. The suggested U.S. retail
price for Intelligent Messaging for VINES is $3,495 or ranges from $995 for a
10-user version to $8,500 for a 100-user version. The suggested U.S. retail
price for Intelligent Messaging for Windows NT is $1,495 per server or ranges
from $995 for a 10-user version to $8,500 for a 100-user version.
PRODUCT OPTIONS
Communications Options
In March 1996, the Company announced the expansion of its long-term strategic
partnership with Attachmate Corporation. As a result of this partnership,
Banyan will continue to offer certain Attachmate(R) products while Attachmate
will continue to develop and deliver connectivity and software management
solutions for Banyan environments. The expansion of the partnership also
continues to provide a framework for future technology integration between the
two companies. Through an agreement with Ipswitch, Inc., the Company also
offers a suite of TCP/IP applications, providing Internet access to Banyan
network environments.
CaLANdar
Banyan has partnered with Microsystems Software, Inc. to bring the sophisticated
group scheduling capabilities of CaLANdar(R) to the enterprise messaging system.
BeyondMail
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CaLANdar features the integration of BeyondMail's rules and forms with the
CaLANdar database to facilitate enterprise-wide group scheduling.
SNMP Server Agent
SNMP Server Agent improves the ability to manage network servers and the
services that reside on them, enabling network managers to access more detailed,
accurate and timely management information. This software resides on VINES
servers.
VINES Assistant 3.0
VINES Assistant 3.0 automatically alerts the network administrator to problems
on the network (for example, if a server disk exceeds a set utilization
threshold). Network administrators can be notified of these alerts through an
alarm console or via electronic mail.
Enterprise Backup and Restore (EBR(TM)) for VINES
EBR allows network managers to administer backups from any location, providing a
network-based approach to managing data in VINES environments. This solution
saves time, reduces staffing requirements and lowers hardware and software
costs.
OTHER PRODUCTS AND SERVICES
Upgrades and Subscriptions
Banyan offers upgrade and subscription programs that enable its customers to
migrate cost-effectively to enhanced versions of StreetTalk for Windows NT,
VINES, BeyondMail and other product offerings as they become available.
Customers are encouraged to purchase, for a fixed annual fee, a subscription
contract for their installed Banyan products.
Network Applications
Banyan sells and supports several network applications programs which are
integrated with its enterprise network services. Electronic mail applications
for Intelligent Messaging are available for personal computers running DOS, OS/2
and the Macintosh operating system. A GUI-based management tool called
StreetTalk Explorer is available for StreetTalk for Windows NT and VINES 7.0
products. MNET, which is sold with Banyan's network management service, is a
utility program that monitors the network in real-time and allows for review of
network-wide operational and performance characteristics from any networked PC,
workstation or server. The VINES Assistant suite of utilities automates routine
tasks of network administration, such as renaming a user or changing security
privileges for a group of users or services.
Third-Party Application Software
The Company actively encourages independent software vendors, system
integrators, system vendors and VARs to develop and market application software
for use with StreetTalk, VINES and BeyondMail. Banyan provides developers with
development tools, including documented APIs for enterprise network services, to
assist them in producing programs which are integrated with Banyan's enterprise
networking products. In addition, to aid these companies in marketing their
products to Banyan's customer base, the Company publishes an application
directory which includes more than 5,000 software programs that run in Banyan
environments. Through support
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for emerging industry standards, the Company believes that it will greatly
expand the number of applications available to its customers.
Hardware Products. Prior to 1992, Banyan manufactured and sold proprietary
hardware servers which were optimized for VINES. As a result of the increased
availability of industry-standard hardware servers, the Company discontinued the
manufacture and marketing of its hardware server product lines in 1991. The
Company continues to support customers that have installed Banyan's server
products as part of their networks and accordingly offers a line of spares,
memory expansion and service products to extend their functionality. Banyan
also sells a line of add-on Intelligent Communications Adapter ('ICA') products.
Current versions of the ICA support up to six simultaneous serial communications
ports, each running any of the industry-standard synchronous or asynchronous
protocols supported by Banyan. These hardware products are available for a broad
range of industry-standard servers and support Banyan's wide area communications
services and host connectivity protocols.
CUSTOMERS
The Company estimates that it has approximately 7,000 customers with more than
7.0 million users worldwide. Banyan's customers, which include nearly one-half
of the Fortune 500 companies, typically are medium to large-size businesses,
financial institutions, professional organizations, universities, government
entities and not-for-profit organizations with multiple sites dispersed over
wide geographic areas.
MARKETING, SALES AND DISTRIBUTION
The Company's marketing and distribution strategy focuses most of the Company's
field staff on direct consultative sales to key decision makers to create
product awareness and achieve design wins. Demand fulfillment is primarily
accomplished through Banyan's remarketing partners. The Company's remarketing
partners include aggregators (master value-added resellers that typically resell
to other resellers), system integrators (organizations that integrate third
party products into complete systems for sale to customers) and systems vendors
(hardware manufacturers that integrate third party products into their own
systems for sale to customers) that are qualified to install and support the
Company's products as part of a complete network solution for the customer.
Sales of products through remarketing partners accounted for approximately 80%,
90% and 82% of the Company's revenues in 1996, 1995 and 1994, respectively. The
Company also sells products directly through its own sales force to certain
large end-user customers.
The Company's remarketing partners in the Americas as of December 31, 1996
include three aggregators and 865 channel partner sales sites. Banyan has
established authorization levels (Premier Network Integrator, Authorized Network
Integrator, as well as authorization levels for and messaging resellers) to
distinguish each reseller organization's expertise in working with the Company's
products, as well as their overall network design, certified support centers,
training, and global support. The Company's aggregators are InaCom Corporation,
Ingram Micro and Information Access Inc.
In February 1997, the Company announced a new user-based pricing program, which
was designed to provide greater flexibility for platform deployment and a
simplified purchasing process. This user-based licensing provides an
alternative to Banyan's previous server-based licensing, allowing customers to
choose the most appropriate pricing model.
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In 1996, the Company continued its efforts to reduce worldwide inventories of
its third-party remarketing partners. During 1996, this initiative decreased
worldwide inventories by approximately $15.0 million, including a $9.0 million
reduction in the fourth quarter of 1996.
The Company's international sales currently are made primarily through
distributors in 75 countries. These distributors provide products, technical
support and follow-on service to local resellers, which in turn serve end-user
customers. The Company estimates that its resellers had approximately 300
international sales sites as of December 31, 1996. International sales
accounted for 24%, 23% and 19% of the Company's revenues in 1996, 1995 and 1994,
respectively. See Note N to the Company's Consolidated Financial Statements,
which are incorporated herein by reference to the Company's Annual Report to
Shareholders, for information as to the Company's revenues attributable to each
of the Company's geographic areas during the past three fiscal years.
During 1996, the Company's international distribution activities continued to be
augmented by a joint venture in Japan as well as two OEM agreements. During
1995, the Company had entered into a joint venture with Marubeni Corporation and
Nippon Telegraph and Telephone. At December 31, 1996, these Japanese companies
held a 33% equity interest in Nippon Banyan Systems Kabushiki Kaisha (NBSKK), a
subsidiary of the Company. See Note P to the Company's Consolidated Financial
Statements, which are incorporated herein by reference to the Company's Annual
Report to Shareholders. In addition, the Company has OEM relationships with
Hitachi and Siemens Nixdorf, which includes development, reproduction and
support.
The Company actively supports its resellers and other partners with its own
experienced sales and marketing organization. The Company's sales staff
solicits prospective customers, provides technical advice with respect to
Banyan's products and works closely with the particular Banyan reseller through
which the customer desires to purchase its networking products. The Company
believes that the active participation of its sales staff in the selling
process, in conjunction with the efforts of its resellers, is necessary in order
to provide customers with the level of support required for the implementation
of enterprise networks. Banyan conducts its sales and marketing activities from
its principal offices in Westboro, Massachusetts as well as 26 other North
American sales offices and 12 international offices located in Australia,
Belgium, Chile, Peoples Republic of China, France, Germany, Hong Kong, Japan,
South Korea, Malaysia, The Netherlands and the United Kingdom. As of December
31, 1996, the Company's sales and marketing organization consisted of 277
employees, of which 185 were in the North American group and 92 were in the
international group.
The Company also has entered into sales and support alliances with various
system vendors, including Wang, Hewlett Packard, NCR and Digital Equipment
Corporation. These vendors resell and support Banyan's products within their
customer base. Companies with which Banyan has established support arrangements
include NCR, Cabletron, Dell, Digital, Hewlett Packard, IBM, Proteon, Oracle,
Compaq, Novell, Cisco and Microsoft. Under these alliances, Banyan and its
partners exchange regularly updated technical information and offer mutual
access to technical support centers, training and advanced technical engineers
in order to facilitate problem resolution for customers with multi-vendor
networks.
For the years ended 1996 and 1995, Inacom Corporation accounted for
approximately 11% and 16% of the Company's revenue respectively. In 1994,
Intelligent Electronics, InaCom Corporation and MicroAge Computer Centers
accounted for approximately 13%, 12% and 11%, respectively, of the Company's
revenues. In 1996, 1995 or 1994, no other customer or reseller accounted for
more than 10% of the Company's revenues.
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Delivery lead times for the Company's products are typically short and,
consequently, substantially all of the Company's revenues in each quarter result
from orders received in that quarter. Accordingly, the Company does not
maintain any significant backlog and believes that its backlog at any given
point in time is not a reliable indicator of future sales or earnings. The
absence of significant backlog may contribute to unpredictability in the
Company's results of operations. The Company's backlog of product orders at
December 31, 1996 was immaterial.
CUSTOMER SUPPORT, SERVICE AND TRAINING
A key element of the Company's strategy is to assure that customers are provided
with the technical support, training and consulting services required to build,
manage and optimize the network environment using Banyan products. The Company
provides these services primarily to its partners which in turn are responsible
for providing direct service to end users. At December 31, 1996 the Company had
a total of 77 employees in Customer Services.
The Company maintains technical response centers in Westboro, Massachusetts,
Crawley, England and Sydney, Australia. These centers provide technical
telephone support, on-line access and, to a lesser extent, on-site support. In
addition, pre-sales and post-sales support for partners and end users is
provided through field systems consultants.
The Company offers a wide range of training programs for partners and end users.
Training is offered at the Westboro headquarters, as well as regional sites in
North America, England and Australia. On-site training classes are also offered
at partner's sites as well as end user locations. In addition, there are 68
worldwide Banyan Certified Education Centers which conduct training classes for
users and administrators of Banyan products.
In 1996, a Professional Services organization was established within its
Customer Services division. The Professional Services organization includes the
new consulting services function as well as the established education services
business. Consulting is an integrated component of Banyan's corporate business
that offers customers and partners optional services that can be used to
optimize and/or customize Banyan products to better meet their needs. These
services are offered as package services as well as customized consulting
services.
PRODUCT DEVELOPMENT
The Company believes that its future success will depend in large part on its
ability to enhance and broaden its existing product lines to meet the evolving
needs of the enterprise network computing market and to continue developing and
delivering new open standards-based product offerings, including Internet-
related solutions. The Company's development efforts are currently focused on
enhancing the performance and functionality of its existing StreetTalk for
Windows NT, VINES, Intelligent Messaging and BeyondMail families of products,
expanding its offering of standards based enterprise network services, and new
products and applications for the Internet market, particularly its Switchboard
offering. In addition, the Company anticipates expending significant resources
in the continued translation and localization of its product offerings in 1997.
As of December 31, 1996, Banyan had approximately 186 employees engaged in
research and development, test and quality assurance and technical
documentation. In 1996, 1995 and 1994, Banyan's product development expenditures
totaled $21.9 million, $24.5 million and $20.5 million, respectively. During
1997, the Company anticipates continued significant investment in product
development.
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MANUFACTURING
The Company's software products are distributed as object code on CD-ROM and
standard magnetic diskettes. Included with the software products are security
codes and documentation, which is available on CD-ROM as well as in print. In
general, the Company duplicates all software diskettes in house. Most of the
CD-ROM replication is done by outside vendors, with the ability to produce
smaller volume production runs in-house. From its Manufacturing & Distribution
facility in Westboro, Massachusetts, Banyan ships products worldwide through
authorized network integrators, resellers and international distributors
COMPETITION
The networking software industry is highly competitive and is characterized by
rapidly changing technology and evolving industry standards. The Company
competes with a number of companies, including Novell, IBM, Microsoft and
Digital Equipment Corporation, which have substantially greater development,
marketing, sales and financial resources, distribution infrastructure, customer
support organizations and name recognition than those of the Company.
The Company believes principal competitive factors affecting the market for its
products include product functionality, performance, quality, reliability and
ease of use; quality of customer training and support; vendor reputation and
price. The Company believes that competition in the industry is likely to
intensify as current competitors expand their product lines and new companies
enter the market. The Company's future success will depend in part on its
ability to respond promptly and effectively to the challenges of technological
change, evolving standards and its competitors' innovations by continually
enhancing its own product and support offerings, as well as its marketing
programs.
PROPRIETARY RIGHTS AND LICENSES
The Company does not currently hold any patents and currently relies upon a
combination of copyright, trademark and trade secret laws and contractual
provisions to establish and maintain its proprietary rights to its products.
The Company believes that because of the rapid pace of technological change in
the networking and computer industries, the legal protections for its products
are less significant factors in the Company's success than the knowledge,
ability and experience of the Company's employees, the frequency of product
enhancements, and the timeliness and quality of support services provided by the
Company.
EMPLOYEES
At December 31, 1996, the Company employed 646 persons, including 277 in sales,
marketing and related activities, 186 in research and development, 77 in
customer support and education, 21 in manufacturing, and 86 in finance,
administration, and human resources. The Company has no collective bargaining
agreement with its employees. The Company believes that its relations with its
employees are good.
ITEM 2. PROPERTIES
The Company's principal administrative, sales and marketing, research and
development, manufacturing and support facilities are located in Westboro,
Massachusetts and consist of approximately 170,000 square feet under leases that
expire at various times, from December 31, 1997 through September 30, 2005, with
an aggregate annual base rent of approximately $920,000. In addition, the
Company leases and occupies approximately 26,000 square feet of research and
development space in Waltham, Massachusetts under a lease that expires on
-11-
<PAGE>
February 27, 1999. The Company leases and occupies sales offices in 36
additional locations throughout the United States, Canada, South America,
Europe, Asia, Japan and Australia.
-12-
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
There are no legal proceedings, other than ordinary routine litigation
incidental to its business, to which the Company or any of its subsidiaries is a
party or of which any of their property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
-13-
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The Company's executive officers as of March 27, 1997 were as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
William P. Ferry 44 President and Chief Executive Officer
Robert D. Burke 42 Senior Vice President, Worldwide Sales and Service
Jeffrey D. Glidden 46 Senior Vice President, Administration,
and Chief Financial Officer
Ann Smith 44 Vice President, Human Resources
Richard M. Spaulding 37 Vice President, Finance, and Treasurer
</TABLE>
Mr. Ferry was named President and Chief Executive Officer of the Company in
February 1997. He also is a Director of the Company. Prior to joining Banyan,
Mr. Ferry was President of Wang Laboratories, Inc.'s Services Division. During
his six years at Wang, Mr. Ferry's other positions included Senior Vice
President and General Manager of Wang's North American Operations, Senior Vice
President and General Manager of Europe, Africa and Middle East Operations,
Senior Vice President and General Manager of the OFFICE 2000 Business Unit and
Senior Vice President of Applications and Professional Services. Mr. Ferry's
professional experience also includes executive positions at Digital Equipment
Corporation and Texas Instruments.
Mr. Burke, Senior Vice President, Worldwide Sales and Service, joined the
Company in March 1997. Prior to joining Banyan, Mr. Burke served as Vice
President, Worldwide Systems Integration, of Digital Equipment Corporation's
System Integration Business. During his twenty-one years at Digital, Mr. Burke's
other positions included Vice President, Systems Integration Practice, Vice
President, Digital Consulting U.S. Group, Vice President, U.S. Professional
Services/Systems Integration and Vice President, Digital Services.
Mr. Glidden, Senior Vice President, Administration, and Chief Financial Officer,
joined the Company in July 1991. Prior to joining Banyan, he served as Vice
President at Altwell Group, Inc., a financial advisory services company, from
December 1989 until June 1991 and as Vice President and Treasurer of Imagitex,
Inc., an image processing hardware and software systems manufacturing company,
from November 1982 until November 1989.
Ms. Smith, Vice President, Human Resources, joined the Company in 1995. Prior
to joining Banyan, she served as Human Resource Director for Harvard Community
Health Plan, a health services provider from March 1993 to June 1995. From
September 1989 to March 1993, Ms. Smith served as Human Resources Director of
Motorola Codex, a networking company. From August 1980 to September 1989, Ms.
Smith held a number of positions in human resources at Data General Corporation,
a manufacturer of computer hardware.
Mr. Spaulding, Vice President, Finance, and Treasurer, joined the Company in
September 1990. Prior to joining Banyan, he served in a number of senior
financial management positions with C. R. Bard, Inc., a medical products
provider from June 1985 to September 1990. From June 1983 to June 1985, Mr.
Spaulding was a Certified Public Accountant with Arthur Andersen & Company.
-14-
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Except as set forth below, information with respect to this item may be found in
the section captioned "Quarterly Financial Information" appearing in the Annual
Report to Shareholders. The Company did not sell any equity securities during
1996 that were not registered under the Securities Act. Such information is
incorporated herein by reference.
-15-
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
Information with respect to this item may be found in the section captioned
"Selected Financial Data" appearing in the Annual Report to Shareholders. Such
information is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Information with respect to this item may be found in the section captioned
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing in the Annual Report to Shareholders. Such information is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information with respect to this item may be found on pages 21 through 35, and
in the section captioned "Quarterly Financial Information", appearing in the
Annual Report to Shareholders and in the consolidated financial statements and
schedules referred to in the Index to Consolidated Financial Statements and
Consolidated Financial Statement Schedules filed as part of this 10-K. Such
information is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
The information required by Part III is omitted from this Annual Report on Form
10-K, and incorporated herein by reference to the definitive proxy statement
pursuant to Regulation 14A with respect to the 1997 Annual Meeting of
Stockholders (the "1997 Proxy Statement") which the Company will file with the
Securities and Exchange Commission not later than 120 days after the end of the
fiscal year covered by this Annual Report on Form 10-K.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Except as provided below, information with respect to this item will appear in
the sections captioned "Directors and Nominees" and "Section 16(a) Beneficial
Ownership Reporting Compliance" appearing in the 1997 Proxy Statement and such
information is incorporated herein by reference. Information required by this
item with respect to Executive Officers of the Company may be found under the
section captioned "Executive Officers of the Registrant" in Part I of this
Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to this item will appear in the sections captioned
"Executive Compensation," "Director Compensation," "Compensation Committee
Interlocks and Insider Participation" and "Other Matters" appearing in the 1997
Proxy Statement. Such information is incorporated herein by reference.
-16-
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to this item will appear in the section captioned
"Beneficial Ownership of Common Stock" appearing in the 1997 Proxy Statement.
Such information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to this item will appear in the sections captioned
"Compensation Committee Interlocks and Insider Participation" and "Other
Matters" appearing in the 1997 Proxy Statement. Such information is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of or are included in this Annual
Report on Form 10-K:
1. The financial statements listed in the Index to Consolidated Financial
Statements and Consolidated Financial Statement Schedules, filed as a
part of this Annual Report on Form 10-K.
2. The financial statement schedule listed in the Index to Consolidated
Financial Statements and Consolidated Financial Statement Schedules,
filed as a part of this Annual Report on Form 10-K.
3. The exhibits listed in the Exhibit Index filed with or incorporated
into this Annual Report on Form 10-K.
(B) Reports on Form 8-K: No reports on Form 8-K were filed by the Company
during the last quarter of the year ended December 31, 1996.
-17-
<PAGE>
SCHEDULE II
BANYAN SYSTEMS INCORPORATED
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS
BEGINNING OF CHARGED TO COSTS BALANCE OF
DESCRIPTION PERIOD AND EXPENSES DEDUCTIONS END OF PERIOD
----------- ------------ --------------- ---------- -------------
<S> <C> <C> <C> <C>
Year ended December 31, 1996:
Reserve for price, sales and $5,636 $8,712 $7,180 $7,168
doubtful account allowance
Year ended December 31, 1995:
Reserve for price, sales and $6,596 $4,965 $5,925 $5,636
doubtful account allowance
Year ended December 31, 1994:
Reserve for price, sales and $3,450 $6,516 $3,370 $6,596
doubtful account allowance
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Our report on the consolidated financial statements of Banyan Systems
Incorporated has been incorporated by reference in this Form 10-K from page 37
of the 1996 Annual Report to Shareholders of Banyan Systems Incorporated. In
connection with our audits of such financial statements, we have also audited
the related financial statement schedule in Item 14(a)2 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
January 31, 1997
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: March 27, 1997 BANYAN SYSTEMS INCORPORATED
--------------
/s/ Richard M. Spaulding
-------------------------------------
By: Richard M. Spaulding
Vice President, Finance and Treasurer
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
- ----- ------ -----
<S> <C> <C>
/s/ William P. Ferry President and Chief Executive Officer March 27, 1997
- ------------------------------------ (Principal Executive Officer) --------------
William P. Ferry
/s/ Jeffrey D. Glidden Sr. Vice President, Administration March 27, 1997
- ------------------------------------ and Chief Financial Officer --------------
Jeffrey D. Glidden (Principal Financial Officer)
/s/ Richard M. Spaulding Vice President, Finance and Treasurer March 27, 1997
- ------------------------------------ (Principal Accounting Officer) --------------
/s/ John F. Burton Chairman of the Board of Directors March 27, 1997
- ------------------------------------ ---------------
John F. Burton
/s/ G. Leonard Baker, Jr. Director March 27, 1997
- ------------------------------------ --------------
G. Leonard Baker, Jr.
/s/ A. Peter Hamilton Director March 27, 1997
- ------------------------------------ --------------
A. Peter Hamilton
/s/ David C. Mahoney Vice Chairman of the Board of Directors March 27, 1997
- ------------------------------------ --------------
David C. Mahoney
/s/ Fontaine K. Richardson Director March 27, 1997
- ------------------------------------ --------------
Fontaine K. Richardson
/s/ David N. Strohm Director March 27, 1997
- ------------------------------------ --------------
David N. Strohm
</TABLE>
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER TITLE OF DOCUMENT
------ -----------------
3.1(1) Second Amended and Restated Articles of Organization
of the Company.
3.2(2) Amended and Restated By-Laws of the Company.
+10.1(3) Second Amended and Restated 1984 Incentive Stock
Option Plan.
+10.2(3) Second Amended and Restated 1984 Non-Qualified Stock
Option Plan.
+10.3(17) 1992 Stock Incentive Plan, as amended.
+10.4(2) 1992 Director Stock Option Plan.
+10.5(17) 1996 Officer Merit and Profit Sharing Programs.
+10.6 Consulting Services Agreement, dated as of November 11, 1996,
between the Company and Burton Technology Partners, Ltd.
+10.7 Employment Agreement, dated February 4, 1997, between the Company
and William P. Ferry.
+10.8(2) Employment Letter, dated May 31, 1991, between the Company and
Jeffrey D. Glidden.
10.9(2) Commitment Letter, dated as of May 5, 1992, between the Company and
Silicon Valley Bank.
10.9A(7) Amendment to Commitment Letter, dated May 5, 1994, between the
Company and Silicon Valley Bank.
10.9B(12) Amendment to Commitment Letter, dated May 5, 1995, between the
Company and Silicon Valley Bank.
10.9C(15) Amendment to Commitment Letter, dated May 5, 1996, between the
Company and Silicon Valley Bank.
10.10(2) Real Estate Sublease, dated June 19, 1991, as amended to date,
between the Company and Sytron Corporation.
10.11(2) Lease Agreement dated April 21, 1989, as amended to date,
between the Company and CB Westboro C Limited Partnership,
a Texas Limited Partnership.
10.11A(5) Amendment to Lease Agreement, dated April 21, 1993, between
the Company and CB Westboro C Limited Partnership, a Texas
Limited Partnership.
<PAGE>
EXHIBIT
NUMBER TITLE OF DOCUMENT
------- -----------------
10.11B(13) Amendment to Lease Agreement, dated April 21, 1993, between
the Company and Commonwealth Westboro Limited Partnership, a
Massachusetts Limited Partnership (as successor in interest to
CB Westboro C Limited Partnership, a Texas Limited Partnership).
10.12(2) Lease Agreement dated November 14, 1986, as amended to date,
between the Company and Aetna Real Estate Associated, L.P.
(as assignee of Flanders Realty Trust).
10.12A(5) Amendment to Lease Agreement, dated April 21, 1993, between the
Company and Aetna Real Estate, L.P. (as assignee of Flanders
Realty Trust).
10.13 (reserved)
10.14(2) Lease, dated July 26, 1989 among the Company, Banyan Systems (UK)
Limited and Grosvenor Square Properties Developments Limited.
10.15 (reserved)
10.16 (reserved)
10.17(2) Registration Rights Agreement, dated as of October 19, 1984, as
amended to date, among the Company and the parties named in
Schedules A and B attached thereto.
10.18(2) Non-exclusive Reseller Agreement, dated July 15, 1990, between
the Company and Wang Laboratories, Inc.
10.19(2) OEM Sales Agreement (Comm Server), dated as of October 1, 1991,
between the Company and Digital Communications Associates, Inc.
(including the Master Software Contract dated as of October 1,
1991, as amended to date, between such parties).
10.20A(2) Amendment to Master Software Contract, dated July 29, 1992, between
the Company and Digital Communications Associates, Inc.
10.21 (reserved)
10.22(2) National Reseller Agreement, dated as of March 29, 1990, between
the Company and InaCom Corporation.
10.23(4) Lease agreement, dated March 29, 1993, between the Company and
Westboro Limited Partnership, a Maryland Partnership.
10.24 (reserved)
10.25 (reserved)
<PAGE>
EXHIBIT
NUMBER TITLE OF DOCUMENT
------ -----------------
10.26(6) Software Porting and Licensing Agreement, dated as of July 1993,
between the Company and Legato Systems Incorporated.
10.27(9) Merger Agreement, dated as of January 31, 1994, between the
Company and Beyond Incorporated.
10.28 (reserved)
10.29 (reserved)
10.30 (reserved)
10.31 (reserved)
10.32 (reserved)
10.33 (reserved)
10.34 (reserved)
+10.35(10) Severance Agreement, dated January 30, 1995, between the Company
and A. Peter Hamilton.
10.36(11) Joint Venture Agreement, dated March 22, 1995, between the Company
and Marubeni Corporation.
10.36A(13) Joint Venture Agreement, dated June 15, 1995, between and among,
the Company, Marubeni Corporation and NTT Advanced Technology
Corporation.
10.37 (Reserved)
10.38(14) Software Assets Purchase Agreement, dated as of February 28, 1996,
by and between the Company and Toucan Software, Inc.
+10.39(15) Separation Agreement and Release and Waiver of Claims, dated May 6,
1996, between the Company and John Curtis.
+10.40(16) Separation Agreement and Release and Waiver dated November 1, 1996,
of Claims, between the Company and John M. Paul.
+10.41 Senior Executive Termination Benefits Agreement, dated November 25,
1996, between the Company and Jeffrey D. Glidden.
10.42 Senior Executive Termination Benefits Agreement, dated January 15,
1997, between the Company and Richard M. Spaulding.
10.43 Senior Executive Termination Benefits Agreement, dated January 28,
1997, between the Company and Ann Smith.
<PAGE>
13 Selected portions of Annual Report to Shareholders for the year
ended December 31, 1996 (which is not deemed to be "filed" except
to the extent that portions thereof are expressly incorporated by
reference in this Annual Report on Form 10-K).
21 Subsidiaries of the Company.
23 Consent of Coopers & Lybrand L.L.P
27 Financial Data Schedule.
<PAGE>
+ Management contract or compensation plan or arrangement required
to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.
(1) Incorporated herein by reference to the exhibits to the Company's
Registration statement on Form S-8 (File No. 33-54140).
(2) Incorporated herein by reference to the exhibits to the Company's
Registration statement on Form S-1 (File No. 33-49194).
(3) Incorporated herein by reference to the exhibits to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1992.
(4) Incorporated by reference to the exhibits to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1993.
(5) Incorporated herein by reference to the exhibits to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1993.
(6) Incorporated herein by reference to the exhibits to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1993.
(7) Incorporated herein by reference to the exhibits to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1994.
(8) Incorporated herein by reference to the exhibits to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended September 30,
1994.
(9) Incorporated herein by reference to the Company's Current Report on Form
8-K dated February 28, 1994.
(10) Incorporated herein by reference to the exhibits to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1994.
(11) Incorporated herein by reference to the exhibits to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended March 31,
1995.
(12) Incorporated herein by reference to the exhibits to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1995.
(13) Incorporated herein by reference to the exhibits to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended September 30,
1995.
(14) Incorporated herein by reference to the exhibits to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended March 31,
1996.
(15) Incorporated herein by reference to the exhibits to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1996.
(16) Incorporated herein by reference to the exhibits to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended September 30,
1996.
(17) Incorporated herein by reference to the exhibits to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995.
<PAGE>
CONSULTING SERVICES AGREEMENT
This agreement is made as of the 11/th/ day of November, 1996, by and between
Burton Technology Partners, Ltd. ("BTP") and Banyan Systems Incorporated (the
"Client").
I. BTP'S SERVICES
During the term of this Agreement, BTP will provide nonexclusive consulting
and related services to the Client as an independent contractor. Such
services will be performed by John F. Burton unless otherwise agreed by the
parties.
II. TERM OF THE AGREEMENT
This agreement will be for an initial term of six months commencing on
October 21, 1996. This agreement shall automatically renew for successive
renewal terms of three months. Notwithstanding the preceding, either party
may cancel this agreement upon written notice to the other party with
immediate effect, or on such later date as is specified in such notice.
III. COMPENSATION AND COSTS
A. BASE FEE. As compensation for its services under this agreement, Client
will pay BTP a fee of $2,000 per day. Part days will be billed to client on
a prorated basis. Fees will be due and payable within ten (10) days of
receipt of invoice(s) from BTP.
B. EXPENSES. Client will also reimburse BTP for all reasonable travel,
living, communication and entertainment expenses incurred by BTP in the
performance of its duties hereunder. Expense reimbursement will be due and
payable within ten (10) days of receipt of invoice from BTP.
IV. INDEMNIFICATION. Client shall indemnify BTP against and hold BTP, including
without limitation, its officers and employees, harmless from, any and all
loss, damage, penalty, liability, cost or expense, including without
limitation reasonable attorney fees and expenses, that may be incurred by
or asserted against BTP, by
<PAGE>
reason of any claim, regulatory proceeding or litigation arising from any
act done or omitted to be done by any individual or person in connection
with or related to BTP's services under this agreement, excepting only a
loss, damage, penalty, liability, cost or expense resulting from any act or
omission to act resulting from bad faith of BTP. The provisions of this
agreement shall survive termination of this agreement.
V. APPLICABLE LAW. This agreement shall be subject to the laws of the
Commonwealth of Virginia.
BURTON TECHNOLOGY PARTNERS, LTD.
By: /s/ John F. Burton 1/17/97
------------------------------------------- ----------------------------
John F. Burton
BANYAN SYSTEMS, INCORPORATED
By: /s/ Jeffrey Glidden 1/22/97
------------------------------------------- ----------------------------
Title: Vice President and
Chief Financial Officer
2
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement"), made this 4th day of February,
1997, is entered into by Banyan Systems Incorporated, a Massachusetts
corporation (the "Company"), and William P. Ferry, residing at 45 Bishops
Forest, Waltham, MA 02154 (the "Employee").
The Company desires to employ the Employee, and the Employee desires to be
employed by the Company. In consideration of the mutual covenants and promises
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties hereto, the parties
agree as follows:
1. Term of Employment. The Company hereby agrees to employ the Employee,
------------------
and the Employee hereby accepts employment with the Company, upon the terms set
forth in this Agreement, for an indefinite term commencing on employee's first
day of employment (the "Commencement Date"), subject to termination as set forth
below.
2. Title; Capacity.
---------------
(a) The Employee shall serve as President and Chief Executive Officer
of the Company, reporting to the Board of Directors of the Company (the
"Board"). The Employee hereby accepts such employment and agrees to undertake
the full-time duties and responsibilities inherent in such positions, including
such duties and responsibilities as the Board shall from time to time reasonably
assign to him consistent with such positions. The Employee agrees to devote his
best efforts, attention and energies to the business and interests of the
Company. The Employee agrees to abide by the rules, regulations, instructions,
personnel practices and policies of the Company and any changes therein which
may be adopted from time to time by the Company and which are not inconsistent
with the terms of this Agreement.
(b) The Company shall use its best efforts to cause the Employee to be
nominated and elected as a member of the Board.
(c) The Company shall use its best efforts to have the Employee elected
as Chairman of the Board within twelve (12) months of the Commencement Date. The
timing of such election will relate to how quickly Employee meets performance
criteria agreed upon by the Employee and the Company for such election. Such
criteria will be based principally upon the establishment of a senior management
team by the Employee and the identification and recruitment of additional
members of the Board.
<PAGE>
3. Compensation and Benefits.
-------------------------
3.1 Salary. The Company shall pay the Employee, in monthly
------
installments, a minimum base salary of Three Hundred Fifty Thousand Dollars
($350,000) per year. Such base salary shall be subject to adjustment thereafter
as determined by the Board.
3.2 Bonuses.
-------
(a) The Employee shall be eligible to receive a minimum bonus
("target bonus") of $150,000 at the end of each year, based on the achievement
of performance objectives (based primarily on operating profit and cash flow
objectives or other mutually acceptable objectives) determined by the Board with
the objectives for the initial year being determined within sixty (60) days
after the Commencement Date, provided, however, that all of such bonuses shall
-------- -------
be guaranteed during the first (1st) year of the Agreement and fifty percent
(50%) of such bonus shall be guaranteed during the second (2nd) year of the
Agreement. Such annual bonus for the first (1st) and second (2nd) year of this
Agreement shall be paid in quarterly installments of $18,750 in March, June,
September and December of 1997 and 1998, and the balance for each year shall be
paid at the conclusion of the audit for such year (typically sixty (60) days
after the end of the year). Bonuses are not guaranteed after years one (1) and
two (2).
(b) The Employee shall be eligible to receive a minimum stretch
bonus ("stretch bonus") of $150,000 at the end of each year based on the
achievement of performance objectives. During the first two (2) years of this
Agreement the bonus payment shall be based on (1) five percent (5%) of operating
profit and (2) five percent (5%) of operating cash flow that exceeds 1997 and
1998 operating plan targets; provided that no such stretch bonus will be paid
for a year unless the Company at least meets both its operating profit and
operating cash flow plan targets for such years. After the first two (2) years
of this Agreement, the objectives for the stretch bonus shall be determined by
the Board. Such stretch bonuses shall be paid at the conclusion of the audit for
such year (typically sixty (60) days after the end of the year). Stretch bonuses
are not guaranteed.
2
<PAGE>
3.3 Options
-------
(a) On the date hereof, the Company shall grant to the Employee a
non-qualified stock option to purchase one million (1,000,000) shares of Common
Stock of the Company at an exercise price equal to the last reported sales price
of the Company's Common Stock on the Nasdaq National Market on the effective
date of this Agreement (the "Option"). The Option shall vest and become
exercisable, at the rate of twenty thousand eight hundred thirty-three (20,833)
shares per month commencing at the end of the first month of employment until
terminated consistent with the terms of this Agreement. The Option shall be
evidenced by a Stock Option Agreement substantially in the form appended hereto
as Exhibit A.
------- -
(b) Upon the occurrence of a Change in Control (as defined in
Section 8 below), the Option shall become vested and exercisable as to fifty
percent (50%) of the number of shares covered thereby that would not otherwise
then be vested and exercisable (in reverse order of vesting).
3.4 Stock.
-----
(a) Stock. On the date hereof, the Company shall issue and
-----
sell to the Employee two hundred thousand (200,000) shares of Common Stock of
the Company (the "Restricted Shares"), at a price of $.01 per share, with no
restrictions on employee's right to sell or otherwise transfer other than
restrictions under the Securities Act of 1933.
(b) Loan. If the Employee is unable, due to restrictions
----
imposed by the Securities Act of 1933 ("SEC Restrictions"), or unwilling to sell
a sufficient number of Restricted Shares to satisfy his federal and state tax
obligations with respect to the issuance to him of the Restricted Shares
(including his obligation to pay to the Company any withholding taxes upon such
issuance), the Company shall lend to the Employee such amounts as are necessary
to satisfy such obligations. Such loans shall bear no interest until the SEC
Restrictions, if such restrictions exist, lapse and shall bear interest at the
prime rate less one percent (1%) after such SEC Restrictions lapse or if no such
restrictions exist but Employee is unwilling to sell. Such loans shall be due
and payable one (1) year after the Commencement Date, provided that the after-
tax proceeds of any earlier sale of the Restricted Shares shall be used to
prepay such loans.
3
<PAGE>
3.5 Fringe Benefits. The Employee shall be entitled to participate
---------------
in all medical (full family coverage), insurance and similar benefit programs
the Company establishes and makes available to its employees to the extent that
Employee's position, tenure, salary, age, health and other qualifications make
him eligible to participate. The Employee shall be entitled to four (4) weeks
paid vacation per year. The Company shall provide health insurance for employee
and his family without exclusions for preexisting conditions. However, if the
health insurance provider excludes preexisting conditions, Company will also pay
employee's COBRA health insurance continuation payments for twelve (12) months.
3.6 Reimbursement of Expenses. The Company shall reimburse the
-------------------------
Employee for all reasonable travel, entertainment and other expenses incurred or
paid by the Employee in connection with, or related to, the performance of his
duties, responsibilities or services under this Agreement, in accordance with
the Company's policies, upon presentation by the Employee of documentation,
expense statements, vouchers and/or such other supporting information as the
Company may request.
4. Disability
----------
In the event that Employee becomes physically or mentally disabled or
incapacitated such that he is unable to perform the services required of him
under this Agreement, then six (6) months after the onset of said physical or
mental disability, this Agreement will terminate; provided, however, that during
this six (6) month period all compensation, benefits and other terms of this
Agreement shall continue; however, such continued payments by the Company shall
be integrated with any disability, workers' compensation, or other insurance
payments received, such that the total amount does not exceed the compensation
as provided by this Agreement. For purposes of this Agreement, physical and
mental disability does not include any disability arising from alcoholism or
drug abuse.
5. Termination of Employment.
-------------------------
(a) Termination Without Cause by the Company. The Company may
----------------------------------------
terminate this Agreement at any time and without cause by giving six (6) months
written notice to Employee.
i. In the event the Company terminates this Agreement pursuant to
this section on or before the second (2nd) anniversary of the Commencement Date,
the Company shall pay to the Employee (1) his base salary through the last day
of his actual employment with the Company; (2) the amount by which Nine Hundred
Twenty Five Thousand Dollars ($925,000) exceeds the aggregate
4
<PAGE>
amount of salary and bonuses previously paid to him under this Agreement, and
(3) Five Hundred Thousand Dollars ($500,000).
ii. In the event the Company terminates this Agreement pursuant to
this section after the second (2nd) anniversary of the Commencement Date, the
Company will pay to the Employee (1) his base salary through the last day of his
actual employment with the Company; and (2) an amount equal to the higher of
Five Hundred Thousand Dollars ($500,000) or the sum of the base salary and
target bonus that he would have earned in the year of termination if all
performance criteria for his annual bonus target had been achieved.
iii. Fifty percent (50%) of the total amount due for a termination
under this section shall be paid within sixty (60) days after the effective date
of termination and the balance shall be paid in twelve (12) equal monthly
installments (the "Severance Period"). In addition, in the event of termination
under this section, the Company shall continue to provide to the Employee the
benefits set forth in Section 3.5 and option vesting continuation for a period
of one (1) year after termination.
(b) Termination for Cause by the Company. The Company may terminate
------------------------------------
this Agreement for cause upon the occurrence of any of the following:
1. An intentional act of fraud, embezzlements or theft;
2. An act or omission constituting gross negligence or gross
misconduct which is materially injurious to the Company;
3. Employee's death, disability or incapacity pursuant to
Section 4 above.
If the Company terminates Employee's employment for cause pursuant to
this section, the Company shall pay the employee the compensation and benefits
otherwise payable to him under Sections 3.1 and 3.2 and option vesting
continuation under Section 3.3 through the last day of his actual employment by
the Company.
(c) Termination at Employee's Option Without Good Reason. Employee may
----------------------------------------------------
terminate this Agreement at any time without good reason by giving sixty (60)
days written notice to the Company. In such event, employee shall be entitled
to the compensation and benefits otherwise payable to him under Sections 3.1 and
3.2 and his options vesting continuation under Section 3.3 through the last day
of
5
<PAGE>
his actual employment with the Company. On or after receiving such notice
from Employee, the Company may pay Employee's compensation benefits and option
vesting continuation through the effective date of his resignation and
immediately terminate employee.
(d) Termination For Good Reason By Employee. Employee may terminate
---------------------------------------
this Agreement for good reason by giving notice to the Company at any time
within sixty (60) days after the occurrence of the following events with the
exception that notice may be given within one (1) year of a Change in Control as
defined in Section 8:
1. Material breach of this Agreement by the Company, which is not
cured within 30 days after written notice thereof;
2. Failure of Employee to be nominated/elected as a member of the
board at the first board meeting after Employee's Commencement
Date;
3. Failure of Employee to be nominated and elected as Chairman of
the Board within twelve (12) months of Employee's Commencement
Date;
4. Any requirement by the Company or of any person in control of
the Company that the location at which Employee performs his
principal duties for the Company be changed to a new location
that is outside a radius of thirty (30) miles from the location
at which the Employee performs his principal duties for the
Company;
5. Without the Employee's written consent, the occurrence after a
Change in Control of the Company as defined in Section 8 below
of any of the following circumstances:
(i) Any material diminution in the Employee's position, duties,
responsibilities, power, title or office as in effective
immediately prior to a change in control;
(ii) Any reduction in the Employee's annual base salary or
target bonuses as in effect on the date hereof or as the same
may be increased from time to time;
6
<PAGE>
If Employee terminates his employment pursuant to this section (d), he
will be entitled to the same compensation, benefits and vesting continuation he
would receive upon termination without cause by the Company under Section 5(a)
above. If the Employee terminates his employment for good reason (as defined
above) within one (1) year of a Change of Control as defined in Section 8 below,
Employee will become immediately and fully vested in all Options granted under
Section 3.3.
6. Non-Compete
-----------
(a) During any period of employment, any Severance Period or for one
(1) year after either Employee terminates his employment without good reason
pursuant to Section 5(c) above or the Company terminates his employment for
cause pursuant to Section 5(b) above, Employee will not directly:
1. As an individual proprietor, partner, stockholder, officer,
employee, director, joint venturer, investor, lender, or in any other capacity
whatsoever (other than as the holder of not more than one percent (1%) of the
total outstanding stock of a publicly held company), engage in developing,
producing, marketing or selling products or services directly competitive with
those developed or being developed, produced, marketed or sold by the Company
while the Employee was employed by the Company; or
2. Recruit, solicit or induce, or attempt to induce, any employee
or employees of the Company to terminate their employment with, or otherwise
cease their relationship with, the Company.
(b) If any restriction set forth in this Section 6 is found by any
court of competent jurisdiction to be unenforceable because it extends for too
long a period of time or over too great a range of activities or in too broad a
geographic area, it shall be interpreted to extend only over the maximum period
of time, range of activities or geographic area as to which it may be
enforceable.
(c) The restrictions contained in this Section 6 are necessary for the
protection of the business and goodwill of the Company and are considered by the
Employee to be reasonable for such purpose. The Employee agrees that any breach
of this Section 5 will cause the Company substantial and irrevocable damage and
therefore, in the event of any such breach, in addition to such other remedies
which may be available, the Company shall have the right to seek specific
performance and injunctive relief.
7
<PAGE>
7. Proprietary Information and Developments.
----------------------------------------
7.1 Proprietary Information.
-----------------------
(a) Employee agrees that all information and know-how, whether or
not in writing, of a private, secret or confidential nature concerning the
Company's business or financial affairs (collectively, "Proprietary
Information") is and shall be the exclusive property of the Company. By way of
illustration, but not limitation, Proprietary Information may include
inventions, products, processes, methods, techniques, formulas, compositions,
compounds, projects, developments, plans, research data, clinical data,
financial data, personnel data, computer programs, and customer and supplier
lists. Employee will not disclose any Proprietary Information to others outside
the Company or use the same for any unauthorized purposes without written
approval by an officer of the Company, either during or after his employment,
unless and until such Proprietary Information has become public knowledge
without fault by the Employee.
(b) Employee agrees that all files, letters, memoranda, reports,
records, data, sketches, drawings, laboratory notebooks, program listings, or
other written, photographic, or other tangible material containing Proprietary
Information, whether created by the Employee or others, which shall come into
his custody or possession, shall be and are the exclusive property of the
Company to be used by the Employee only in the performance of his duties for the
Company.
(c) Employee agrees that his obligation not to disclose or use
information, know-how and records of the types set forth in paragraphs (a) and
(b) above, also extends to such types of information, know-how, records and
tangible property of customers of the Company or suppliers to the Company or
other third parties who may have disclosed or entrusted the same to the Company
or to the Employee in the course of the Company's business.
7.2 Developments.
------------
(a) Employee will make full and prompt disclosure to the Company
of all inventions, improvements, discoveries, methods, developments, software,
and works of authorship, whether patentable or not, which are created, made,
conceived or reduced to practice by the Employee or under his direction or
jointly with others during his employment by the Company, whether or not during
normal working hours or on the premises of the Company (all of which are
collectively referred to in this Agreement as "Developments").
8
<PAGE>
(b) Employee agrees to assign and does hereby assign to the
Company (or any person or entity designated by the Company) all his right, title
and interest in and to all Developments and all related patents, patent
applications, copyrights and copyright applications. However, this Section
7.2(b) shall not apply to Developments which do not relate to the present or
planned business or research and development by the Company or which are made
and conceived by the Employee not during normal working hours, not on the
Company's premises or not using the Company's tools, devices, equipment or
Proprietary Information.
(c) Employee agrees to cooperate fully with the Company, both
during and after his employment with the Company, with respect to the
procurement, maintenance and enforcement of copyrights and patents (both in the
United States and foreign countries) relating to Developments. Employee shall
sign all papers, including, without limitation, copyright applications, patent
applications, declarations, oaths, formal assignments, assignment of priority
rights, and powers of attorney, which the Company may deem necessary or
desirable in order to protect its rights and interests in any Development.
7.3 Other Agreements. Employee represents that his performance of the
----------------
terms of this Agreement does not and will not breach any agreement Employee has
with any current or former employer or entity.
8. Change in Control.
-----------------
(a) A "Change in Control" shall occur or be deemed to have occurred
-----------------
only if any of the following events occur:
1. Any "person,"as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), (other
than the Company, any trustee or other fiduciary holding securities under an
employee benefit plan of the Company, or any corporation owned directly or
indirectly by the stockholders of the Company in substantially the same
proportion as their ownership of stock in the Company) is or becomes the
"beneficial owner" (as defined in Rule 133d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing a majority or more of
the combined voting power of the Company's then outstanding securities;
2. Individuals who, as of the date hereof, constitute the Board (as
of the date hereof, the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board, provided that any person becoming a director
subsequent to the date hereof whose election, or nomination for election by the
Company's
9
<PAGE>
stockholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board (other than an election or nomination of an
individual whose initial assumption of office is in connection with an actual or
threatened election contest relating to the election of the directors of the
Company, a such terms are used in Rule 14a-11 of Regulation 14A under the
Exchange Act) shall be, for purposes of this Agreement, considered as though
such person were a member of the Incumbent Board; or
3. The stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than (a) a merger
or consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than fifty percent (50%) of the combined voting power of
the voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation or (b) a merger or consolidation
effected to implement a recapitalization of the Company (or similar transaction)
in which no person (as hereinabove defined), other than a person holding more
than fifty percent (50%) of the combined voting power of the Company's then
outstanding securities immediately prior to such recapitalization, acquires more
than fifty percent (50%) of the combined voting power of the Company's then
outstanding securities; or (c) the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all of the Company's assets.
9. Arbitration. The parties agree that to the fullest extent permitted by
-----------
law, any and all controversies between them, arising out of this Agreement,
Employee's employment or termination thereof, including whether any termination
is with or without cause and excluding only violations arising under Sections 6
and 7 above, will be submitted for resolution to arbitration, in accordance with
the attached Arbitration Agreement, which is incorporated herein by reference.
This means that all parties agree that arbitration will be their exclusive forum
for resolving disputes between them, involving this Agreement or Employee's
employment with the Company or termination thereof. Thus, all parties expressly
waive their entitlement, if any, to have such controversies between them decided
by a court or jury. The prevailing party in any dispute arising hereunder shall
have their attorneys' fees and costs paid by the nonprevailing party.
10. Notices. All notices required or permitted under this Agreement shall
-------
be in writing and shall be deemed effective upon personal delivery or upon
deposit in the United States Post Office, by registered or certified mail,
postage prepaid, addressed to
10
<PAGE>
the other party at the address shown above, or at such other address or
addresses as either party shall designate to the other in accordance with this
Section 10.
11. Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the parties on the subjects covered herein and supersedes all prior
agreements and understandings, whether written or oral, relating to the subject
matter of this Agreement.
12. Amendment. This Agreement may be amended or modified only by a
---------
written instrument executed by both the Company and the Employee.
13. Governing Law. This Agreement shall be construed, interpreted and
-------------
enforced in accordance with the laws of the Commonwealth of Massachusetts.
14. Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of both parties and their respective successors and
assigns, including any corporation with which or into which the Company may be
merged or which may succeed to its assets or business, provided, however, that
the obligations of the Employee are personal and shall not be assigned by him.
15. Miscellaneous.
-------------
15.1 No delay or omission by the Company or Employee in exercising any
right under this Agreement shall operate as a waiver of that or any other right.
A waiver or consent given by the Company or Employee on any one occasion shall
be effective only in that instance and shall not be construed as a bar or waiver
of any right on any other occasion.
15.2 The captions of the sections of this Agreement are for
convenience of reference only and in no way define, limit or affect the scope or
substance of any section of this Agreement.
15.3 In case any provision of this Agreement shall be invalid, illegal
or otherwise unenforceable, the validity, legality and enforceability of the
remaining provisions shall in no way be affected or impaired thereby.
16. Legal Expenses. The Company will reimburse the Employee for $3,000 of
--------------
his legal expenses in connection with this Agreement.
17. Effective Date. The effective date of this Agreement shall be the
--------------
date it is signed by all parties.
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year set forth above.
BANYAN SYSTEMS INCORPORATED
By: /s/ John Burton
-----------------------------------
Title: Chairman
--------------------------------
EMPLOYEE
/s/ William P. Ferry 2/4/97
--------------------------------------
William P. Ferry
12
<PAGE>
ARBITRATION AGREEMENT
This Agreement is between Banyan Systems Incorporated (hereinafter "the
Company") and William P. Ferry (the "Employee"). In consideration for the
promises and undertakings set forth below, the Company and Employee agree to the
following terms:
1. Agreement to Arbitrate All Disputes: Private arbitration is the
referral of a dispute to an impartial third party instead of a court or jury for
a final and binding decision. Any dispute arising out of your employment or
other relations with the Company, including termination of employment, including
statutory claims, will be submitted to binding arbitration pursuant to the
Federal Arbitration Act to the fullest extent permitted by law. The Company and
you each expressly waive entitlement, if any, to have any such controversy heard
before a court or a jury.
2. Time Limits For Initiating Arbitration: Either party may, within one
(1) year of the occurrence of the event giving rise to the dispute, initiate
arbitration by notifying the other in writing. Failure to initiate arbitration
within such one (1) year period, or such extended period as may be mutually
agreed upon in writing, shall constitute a waiver of any and all claims which
shall be forever barred.
3. Selection Of The Arbitrator: Both parties will attempt to agree upon a
mutually acceptable arbitrator. If unable to agree upon an arbitrator then an
arbitrator shall be selected in accordance with the then current Employment
Dispute Resolution rules of the American Arbitration Association.
4. Arbitrator's Authority: The hearing will be conducted according to
American Arbitration Association Employment Dispute Resolution procedures. The
arbitrator shall base the decision on the facts presented at the hearing and in
accordance with governing law, including statutory and judicial authority. The
arbitrator must follow the policies of the Company in effect at the time of the
event giving rise to the dispute. The arbitrator shall not have authority to
modify or revoke this Agreement or any Company policy. The arbitrator's
decision shall be final and binding upon both parties. The prevailing party
shall have all their costs and attorney's fees paid by the nonprevailing party.
The cost of the arbitrator will be paid by the nonprevailing party.
5. Remedies: Any remedies awarded shall be awarded for the purpose of
making the injured party whole and shall be limited to actual and foreseeable
damages proximately caused by the event giving rise to liability and shall,
where applicable, be limited by the terms of this agreement. No punitive
damages or damages in the nature of a penalty shall be awarded unless the
arbitrator determines that there was a violation of a statute or common law
principal which expressly provides for such damages.
13
<PAGE>
6. LOCATION: Any proceeding under this Agreement shall take place in the
greater Boston Area.
7. GOVERNING LAW: This Agreement shall be governed and construed in
accordance with the laws of the Commonwealth of Massachusetts, U.S.A.
8. VOLUNTARY AGREEMENT: The parties acknowledge that they enter into this
Agreement voluntarily, free from any coercion.
9. SAVINGS CLAUSE: If any of the provisions of this Agreement are
determined to be invalid by a court or government agency of competent
jurisdiction, it is agreed that such determination shall not affect the
enforceability of the other provisions of this Agreement.
10. ENTIRE AGREEMENT: This Agreement supersedes any and all other
agreements, whether written, oral, express, or implied, between the parties and
is the entire agreement of the parties concerning the subjects covered herein.
BANYAN SYSTEMS INCORPORATED
Dated: 2/4/97 By: /s/ John Burton
____________________ ____________________________
Dated: 2/4/97 /s/ William P. Ferry
____________________ ____________________________
William P. Ferry
14
<PAGE>
RETENTION AND SEVERANCE AGREEMENT
---------------------------------
THIS AGREEMENT (the "Agreement"), made this 25th day of November,
1996, is entered into by BANYAN SYSTEMS INCORPORATED, a Massachusetts
corporation (the "Company"), and JEFFREY D. GLIDDEN (the "Employee").
The Employee has been appointed the Chief Financial Officer and Senior
Vice President of the Company, and in connection therewith the Employee and the
Company agree as follows:
1. STOCK OPTIONS. On the date hereof, the Company will (i) cancel
-------------
the stock options held by the Employee set forth on Exhibit A hereto and (ii)
---------
grant to the Employee an Incentive Stock Option (the "Stock Option") to purchase
125,000 shares of Common Stock of the Company ("Common Stock") at a per share
exercise price of $3.75 per share. The Stock Option will be granted pursuant to
the Company's 1992 Stock Incentive Plan, as amended, and will be substantially
in the form attached as Exhibit B hereto. The Stock Option shall be
---------
exercisable, subject to the Employee's continued employment by the Company, with
respect to 31,250 shares on November 6 of each of 1997, 1998, 1999 and 2000.
The right of exercise shall be cumulative. The option installment of 31,250
shares that would otherwise vest on November 6, 1999 shall immediately vest and
become exercisable on the date that the closing price of the Common Stock on the
Nasdaq National Market (or such other exchange on which the Common Stock is then
traded) is at least $8.00 per share, and the option installment of 31,250 shares
that would otherwise vest on November 6, 2000 shall immediately vest and become
exercisable on the date that the closing price of the Common Stock on the Nasdaq
National Market (or such other exchange on which the Common Stock is then
traded) is at least $12.00 per share. Except as otherwise set forth herein or
in the Stock Option, the Stock Option will terminate upon the earlier of (i)
November 25, 2006 and (ii) three months from the date of death of the Employee
or
Page 1 of 5
<PAGE>
termination of the Employee's employment with the Company (provided that the
Stock Option shall be exercisable only to the extent that the Employee was
entitled to exercise the Stock Option on the date of such termination).
2. BONUS PAYMENTS. The Company shall pay the Employee a bonus in the
--------------
amount of $25,000.00 on December 31, 1996 for the completion of the Company's
1997 business plan, the completion of the Series A Preferred Stock Purchase
Agreement and related agreements among America Online Incorporated, Digital City
Inc. and Switchboard Incorporated, and for managing Switchboard Incorporated as
interim President. In addition, upon the earlier of (i) March 31, 1997 and (ii)
the appointment of the Company of a new Chief Executive Officer, the Company
shall pay to the Employee a bonus in the amount of $25,000.00, subject to the
Employee's continued employment with the Company as of such date.
3. INVOLUNTARY TERMINATION OR CHANGE IN CONTROL. In the event of (i)
--------------------------------------------
the involuntary termination of employment of the Employee other than a
termination "for cause" (as defined below) or (ii) a "material reduction of
responsibilities" (as defined below) of the Employee that occurs after a "change
in control" (as defined below) of the Company, (a) the Company shall pay to the
Employee an amount equal to his then-current annual salary ($200,000.00),
bonuses ($100,000.00) and benefits (other than benefits under the Company's
401(k) plan), totaling $300,000.00, on customary Banyan pay days for a period of
twelve months at the Undersigned's base, bi-weekly gross salary plus bonus rate
of $11,538.46, less applicable deductions for medical, dental, prescription and
life insurance contributions and/or withholdings for taxes or similar
governmental payments or charges; (b) the Company shall pay to the Employee any
bonus amounts that are accrued as of the date of involuntary termination or
material reduction of responsibilities, as applicable; and (c) 100% of the
options granted pursuant
Page 2 of 5
<PAGE>
to Section 1 above (62,500 shares) then held by the Employee that are not then
vested shall become fully vested and immediately exercisable in full, and except
as otherwise provided in the option plan under which such options are granted,
shall remain exercisable for a period of twelve months from such date.
For purposes of this Section 3, the following terms shall have the
following respective meanings:
(1) Termination of employment "for cause" shall mean termination by reason
of (a) any act or omission involving dishonesty, gross negligence or
misconduct, or (b) the conviction of the Employee of, or the entry of
a pleading of guilty or nolo contendere by the Employee to, any crime
involving moral turpitude or any felony.
(2) A "material reduction in responsibilities" shall be deemed to occur if
and only if the Employee is given a title that does not include "Chief
Executive Officer", "Chief Financial Officer", "Chief Operating
Officer", or "President" of the Company.
(3) A "change in control" of the Company shall be deemed to occur if and
only if (a) any person or entity (other than the Company, any trustee
or other fiduciary holding securities under an employee benefit plan
of the Company, or any corporation owned directly or indirectly by the
stockholders of the Company is substantially the same proportion as
their ownership of stock of the Company) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Securities and Exchange of
1934, as amended), directly or indirectly, of securities of the
Company representing more than 50% of the combined voting power of the
Company's then outstanding voting securities, (b) a merger or
consolidation of the Company following which the voting securities of
the Company outstanding immediately prior thereto do not continue to
represent more than 50% of the combined voting power of the voting
securities of the Company or the entity outstanding immediately after
such merger or consolidation, or (c) a sale of all or substantially
all of the assets of the Company.
4. MISCELLANEOUS.
-------------
4.1. AMENDMENT. This Agreement may be amended or modified only by a
---------
written instrument executed by both the Company and the Employee.
Page 3 of 5
<PAGE>
4.2 GOVERNING LAW. This Agreement shall be construed, interpreted
-------------
and enforced in accordance with the laws of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year set forth above.
BANYAN SYSTEMS INCORPORATED EMPLOYEE
By: /s/ John F. Burton By: /s/ Jeffrey D. Glidden
------------------- -----------------------
Jeffrey D. Glidden
Title: Chairman of the Board Date: November 25, 1996
--------------------- -----------------
Date: November 25, 1996
-----------------
Page 4 of 5
<PAGE>
JEFFREY D. GLIDDEN
------------------
EXHIBIT A
---------
CANCELED STOCK OPTIONS
----------------------
<TABLE>
<CAPTION>
================================================================================
NUMBER OF SHARES EXERCISE PRICE DATE OF GRANT
================================================================================
<S> <C> <C>
25,000 $15.37 July 1994
- --------------------------------------------------------------------------------
10,000 $17.37 February 1995
- --------------------------------------------------------------------------------
50,000 $ 8.00 March 1996
- --------------------------------------------------------------------------------
20,000 $ 8.00 March 1996
- --------------------------------------------------------------------------------
</TABLE>
Page 5 of 5
<PAGE>
SENIOR EXECUTIVE TERMINATION BENEFITS AGREEMENT
-----------------------------------------------
AGREEMENT, dated as of the 15th day of January, 1997 between BANYAN SYSTEMS
INCORPORATED, a Massachusetts corporation ("Banyan"), and RICHARD M. SPAULDING,
VICE PRESIDENT, FINANCE (the "Executive").
RECITALS
--------
A. Banyan considers it essential to the best interests of Banyan and its
stockholders that its management be encouraged to remain with Banyan and to
continue to devote full attention to Banyan's business in the event that an
effort is made to obtain control of Banyan through a tender offer or otherwise.
In this connection, Banyan recognizes that the possibility of a change in
control and the uncertainty and questions which it may raise among management
may result in the departure or distraction of management personnel to the
detriment of Banyan and its stockholders. Accordingly, Banyan's board of
directors (the "Board") has determined that appropriate steps should be taken to
reinforce and encourage the continued attention and dedication of members of
Banyan's management to their assigned duties without distraction in the face of
the potentially disturbing circumstances arising from the possibility of a
change in control of Banyan.
B. The Executive is a key executive of Banyan, and Banyan believes that
the Executive has made valuable contributions to the productivity and
profitability of Banyan.
C. In the event that Banyan receives any proposal from a third person
concerning a possible business combination with, or acquisition of equity
securities of,
Page 1 of 8
<PAGE>
Banyan, the Board believes it imperative that Banyan and the Board be able to
rely upon the Executive to continue in his position and that Banyan be able to
receive and rely upon his advice, if so requested, as to the best interests of
Banyan and its stockholders without concern that he might be distracted by the
personal uncertainties and risks created by such a proposal.
NOW THEREFORE, to assure Banyan that it will have the continued undivided
attention and services of the Executive and the availability of his advice and
counsel notwithstanding the possibility, threat or occurrence of a bid to take
over control of Banyan, and to induce the Executive to remain in the employ of
Banyan, and for other good and valuable consideration, Banyan and the Executive
agree as follows:
1. SERVICES DURING CERTAIN EVENTS
------------------------------
In the event that a third person begins a tender or exchange offer,
circulates a proxy to stockholders, or takes other steps seeking to effect a
Change in Control (as hereafter defined), the Executive agrees that he will not
voluntarily leave the employ of Banyan, and will render the services
contemplated in the recitals to this Agreement, until the third person has
abandoned or terminated its efforts to effect a Change in Control or until after
such a Change in Control has been effected. In the event the Executive does
leave voluntarily either before or after a Change in Control, the benefit
provisions set forth in Section 5 will not be applicable.
2. CHANGE IN CONTROL
-----------------
For purposes of this Agreement, a Change in Control of Banyan shall be
deemed to have taken place if the stockholders of Banyan approve a definitive
agreement for the sale or other disposition of all or substantially all of the
assets of Banyan, the merger or
Page 2 of 8
<PAGE>
other business combination of Banyan with or into another corporation pursuant
to which Banyan will not survive or will survive only as a subsidiary of another
corporation. Any decision by the Board that a third person has abandoned or
terminated his efforts to effect a Change in Control shall be conclusive and
binding on the Executive.
3. CIRCUMSTANCES TRIGGERING RECEIPT OF SEVERANCE BENEFITS
------------------------------------------------------
Banyan shall provide the Executive with the benefits set forth in Sections
5 and 6 upon any termination of the Executive's employment by Banyan within one
year following a Change in Control for any reason except the following:
(A) Termination by reason of the Executive's death;
(B) Termination by reason of the Executive's disability. For the purposes
hereof, "disability" shall be defined as the Executive's inability by
reason of illness or other physical or mental disability to perform the
duties required by his employment for any consecutive period of 180
calendar days, provided that notice of any termination by Banyan because of
the Executive's disability shall have been given to the Executive prior to
the full resumption by him of the performance of such duties;
(C) Termination for cause. For the purposes hereof, "cause" shall be
defined as the willful and continued failure of the Executive to perform
substantially his duties, or action by the Executive involving willful
misfeasance, gross negligence or the commission of any felonious action;
provided, however, that termination for cause based on the Executive's
willful and continued failure to substantially perform his duties shall not
be effective unless the Executive shall have received written notice from
Banyan of such failure (specifying in detail the facts and
Page 3 of 8
<PAGE>
circumstances on which Banyan is relying) and a demand for substantial
performance 30 days prior to such termination and Banyan determines that
the Executive shall have failed during such 30-day period to resume the
diligent performance of his duties.
4. NOTICE OF TERMINATION
---------------------
Any termination of the Executive's employment by Banyan as referred to in
Section 3 shall be communicated by written notice of termination to the
Executive.
5. TERMINATION BENEFITS
--------------------
Subject to the provisions set forth in Section 3, the following benefits
(subject to any applicable taxes required to be withheld) shall be paid in a
lump sum, or in the case of fringe benefits shall continue to be provided, to
the Executive:
(A) COMPENSATION
------------
Banyan shall pay the Executive a lump-sum payment in a gross amount
equal to three months of the Executive's then current base salary, or
$30,000.00, less applicable deductions for medical, dental, prescription
and life insurance contributions and/or withholdings for taxes or similar
governmental payments or charges. Such amount shall be payable on or after
the termination date.
In the event that the Executive has not become employed or assumes
independent contractor status (together "Re-employment") by the end of
three months after the termination date, despite good faith efforts on his
part to find Re-employment, then Banyan shall make payments to the
Executive on customary Banyan pay days for an additional three month
period. Such payments shall be made at the Executive's then current base,
bi-weekly gross salary rate of
Page 4 of 8
<PAGE>
$4,615.38, less applicable deductions for medical, dental, prescription and
life insurance contributions and/or withholdings for taxes or similar
governmental payments or charges. It is expressly understood that such
payments shall be reduced to the extent of any income derived from the
Executive's Re-employment. It shall be the affirmative obligation of the
Executive to notify Banyan promptly in writing upon Re-employment.
(B) INSURANCE BENEFITS, ETC.
------------------------
The Executive's participation (including dependent coverage) in the
life, health and dental insurance plans (excluding further participation in
the existing 401K Plan) of Banyan in effect immediately prior to the Change
in Control shall be continued, or equivalent benefits provided, by Banyan,
at the Executive's then current contribution rate for such benefits for a
period of six months commencing on the termination date.
6. STOCK OPTIONS
-------------
In the event of a termination of the Executive's employment by Banyan
within the one-year period following a Change in Control, Banyan shall
accelerate the vesting of those incentive stock options granted to the Executive
which would have vested within six months from the effective date of such
termination.
7. CONTINUING OBLIGATIONS
----------------------
In order to induce Banyan to enter into this Agreement, the Executive
hereby ratifies and confirms his Employee Patent and Confidential Information
Agreement with Banyan. Without limiting the generality of the foregoing, the
Executive agrees that all documents, records, techniques, business secrets and
other information which have come
Page 5 of 8
<PAGE>
into his possession from time to time during his employment hereunder shall be
deemed to be confidential and proprietary to Banyan and he shall retain in
confidence any confidential information known to him concerning Banyan and its
subsidiaries and their respective businesses and such information shall not be
disclosed.
8. NOTICES
-------
For the purposes of this Agreement, notices and all other communications
provided for herein shall be in writing and shall be deemed to have been duly
given when delivered or mailed by United States registered or certified mail,
return receipt requested, postage prepaid, addressed as follows:
IF TO THE EXECUTIVE: Richard M. Spaulding
66 Solon Street
Newton, MA 02161
IF TO BANYAN: Banyan Systems Incorporated
Attention: Ann Smith, V.P., Human Resources
120 Flanders Road, P. O. Box 5013
Westboro, MA 01581-5013
or to such other address as either party may have furnished to the other in
accordance herewith, except that notices of change of address shall be effective
only upon receipt.
9. GOVERNING LAW
-------------
The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the Commonwealth of Massachusetts.
10. ARBITRATION
-----------
Any controversy or claim arising out of or relating to this Agreement or
the breach thereof shall be settled by arbitration to be conducted in Boston,
Massachusetts, in accordance with the Commercial Arbitration Rules of the
American Arbitration
Page 6 of 8
<PAGE>
Association, and judgment upon the award rendered by the arbitrators may be
entered in any court having jurisdiction thereof.
11. MISCELLANEOUS
-------------
No provisions of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing signed by
the Executive and on behalf of Banyan. No waiver by either party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of the same or any other provisions or
conditions at any prior or subsequent time. No agreements or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not set forth expressly in this
Agreement.
12. SEPARABILITY
------------
The invalidity or unenforceability of any provisions of this Agreement
shall not affect the validity or enforceability of any other provisions of this
Agreement, all of which shall remain in full force and effect.
13. NON-ASSIGNABILITY
-----------------
This agreement is personal in nature and neither of the parties hereto
shall, without the consent of the other, assign or transfer this Agreement or
any rights or obligations hereunder. Without limiting the foregoing, the
Executive's right to receive payments hereunder shall not be assignable or
transferable, whether by pledge, creation of a security interest or otherwise,
other than a transfer by his will or by the laws of descent or distribution, and
in the event of any attempted assignment or transfer contrary
Page 7 of 8
<PAGE>
to this Section Banyan shall have no liability to pay any amount so attempted to
be assigned or transferred.
14. CONFIDENTIALITY
---------------
The Executive agrees that the existence and the terms of this Agreement are
confidential and shall not be disclosed to any person, except that the Executive
may disclose this Agreement to his immediate family or professional tax
advisors.
15. TERMINATION
-----------
Banyan may terminate this Agreement at any time by 30 days' written notice
of such termination given to the Executive.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered as of the day and year first above set forth.
BANYAN SYSTEMS INCORPORATED
BY: /s/ Ann Smith
-------------------------------
Ann Smith
Vice President, Human Resources
BY: /s/ Richard M. Spaulding
-------------------------------
Richard M. Spaulding
Vice President, Finance
Page 8 of 8
<PAGE>
SENIOR EXECUTIVE TERMINATION BENEFITS AGREEMENT
-----------------------------------------------
AGREEMENT, dated as of the 28th day of January, 1997 between BANYAN
SYSTEMS INCORPORATED, a Massachusetts corporation ("Banyan"), and ANN SMITH,
VICE PRESIDENT, HUMAN RESOURCES (the "Executive").
RECITALS
--------
A. Banyan considers it essential to the best interests of Banyan and its
stockholders to provide protection to its executive management in the event of a
merger/acquisition or termination. Banyan also considers it essential to the
best interests of Banyan and its stockholders that its management be encouraged
to remain with Banyan and to continue to devote full attention to Banyan's
business in the event that an effort is made to obtain control of Banyan through
tender offer or otherwise. In this connection, Banyan recognizes that the
possibility of a change in control and the uncertainty and questions which it
may raise among management may result in the departure or distraction of
management personnel to the detriment of Banyan and its stockholders.
Accordingly, Banyan's board of directors (the "Board") has determined that
appropriate steps should be taken to reinforce and encourage the continued
attention and dedication of members of Banyan's management to their assigned
duties without distraction in the face of the potentially disturbing
circumstances arising from the possibility of a change in control of Banyan.
B. The Executive is a key executive of Banyan, and Banyan believes that
the Executive has made valuable contributions to the productivity and
profitability of Banyan.
Page 1 of 8
<PAGE>
C. In the event that Banyan receives any proposal from a third person
concerning a possible business combination with, or acquisition of equity
securities of, Banyan, the Board believes it imperative that Banyan and the
Board be able to rely upon the Executive to continue in her position and that
Banyan be able to receive and rely upon her advice, if so requested, as to the
best interests of Banyan and its stockholders without concern that he might be
distracted by the personal uncertainties and risks created by such a proposal.
D. In the event that the Executive's employment with Banyan is terminated,
except for cause, Bayan shall provide the Executive with the benefits set forth
in Sections 5 and 6.
NOW THEREFORE, to assure Banyan that it will have the continued undivided
attention and services of the Executive and the availability of her advice and
counsel notwithstanding the possibility, threat or occurrence of a bid to take
over control of Banyan, and to induce the Executive to remain in the employ of
Banyan, and for other good and valuable consideration, Banyan and the Executive
agree as follows:
1. SERVICES DURING CERTAIN EVENTS
------------------------------
In the event that a third person begins a tender or exchange offer,
circulates a proxy to stockholders, or takes other steps seeking to effect a
Change in Control (as hereafter defined), the Executive agrees that she will not
voluntarily leave the employ of Banyan, and will render the services
contemplated in the recitals to this Agreement, until the third person has
abandoned or terminated its efforts to effect a Change in Control or until after
such a Change in Control has been effected. In the event the Executive does
Page 2 of 8
<PAGE>
leave voluntarily either before or after a Change in Control, the benefit
provisions set forth in Section 5 will not be applicable.
2. CHANGE IN CONTROL
-----------------
For purposes of this Agreement, a Change in Control of Banyan shall be
deemed to have taken place if the stockholders of Banyan approve a definitive
agreement for the sale or other disposition of all or substantially all of the
assets of Banyan, the merger or other business combination of Banyan with or
into another corporation pursuant to which Banyan will not survive or will
survive only as a subsidiary of another corporation. Any decision by the Board
that a third person has abandoned or terminated their efforts to effect a Change
in Control shall be conclusive and binding on the Executive.
3. CIRCUMSTANCES TRIGGERING RECEIPT OF SEVERANCE BENEFITS
------------------------------------------------------
Banyan shall provide the Executive with the benefits set forth in Sections
5 and 6 upon any termination of the Executive's employment by Banyan or
termination of employment for any reason except the following:
(A) TERMINATION FOR CAUSE. For the purposes hereof, "cause" shall be
defined as the willful and continued failure of the Executive to perform
substantially her duties, or action by the Executive involving willful
misfeasance, gross negligence or the commission of any felonious action;
provided, however, that termination for cause based on the Executive's
willful and continued failure to substantially perform her duties shall not
be effective unless the Executive shall have received written notice from
Banyan of such failure (specifying in detail the facts and circumstances on
which Banyan is relying) and a demand for substantial
Page 3 of 8
<PAGE>
performance 30 days prior to such termination and Banyan determines that
the Executive shall have failed during such 30-day period to resume the
diligent performance of her duties.
4. NOTICE OF TERMINATION
---------------------
Any termination of the Executive's employment by Banyan as referred to in
Section 3 shall be communicated by written notice of termination to the
Executive.
5. TERMINATION BENEFITS
--------------------
Subject to the provisions set forth in Section 3, the following benefits
(subject to any applicable taxes required to be withheld) shall be paid to the
Executive:
(A) COMPENSATION. Pay the sum of six months of On Target Earnings ("OTE")
which consists of base salary plus bonuses at the Executive's then current
effective compensation plan on the termination date, less any applicable
deductions and taxes required to be withheld. If after six months the
Executive has not found employment, the Executive will be paid the
difference between any outside earnings and the Executive's OTE, as defined
in the compensation plan in effect at that time, for an additional six
months.
(B) INSURANCE BENEFITS, ETC. The Executive's participation (including
dependent coverage) in the life, health and dental insurance plans
(excluding further participation in the existing 401K Plan) of Banyan in
effect shall be continued, or equivalent benefits provided, by Banyan, at
the Executive's then current contribution rate for such benefits for a
period of up to 12 months commencing on the termination date.
Page 4 of 8
<PAGE>
6. STOCK OPTIONS
-------------
In the event of a Change in Control or termination, 50% (15,000 shares) of
the Executive's November 6, 1996 stock option grant will vest. Vested options
may be exercised up to 12 months following termination.
7. CONTINUING OBLIGATIONS
----------------------
In order to induce Banyan to enter into this Agreement, the Executive
hereby ratifies and confirms her Employee Patent and Confidential Information
Agreement with Banyan. Without limiting the generality of the foregoing, the
Executive agrees that all documents, records, techniques, business secrets and
other information which have come into her possession from time to time during
her employment hereunder shall be deemed to be confidential and proprietary to
Banyan and he shall retain in confidence any confidential information known to
her concerning Banyan and its subsidiaries and their respective businesses and
such information shall not be disclosed.
8. NOTICES
-------
For the purposes of this Agreement, notices and all other communications
provided for herein shall be in writing and shall be deemed to have been duly
given when delivered or mailed by United States registered or certified mail,
return receipt requested, postage prepaid, addressed as follows:
Page 5 of 8
<PAGE>
IF TO THE EXECUTIVE: Ms. Ann Smith
4 Edwards Road
Foxborough, MA 02035
IF TO BANYAN: Banyan Systems Incorporated
Attention: Jeffrey D. Glidden
President and COO (Acting)
120 Flanders Road, P. O. Box 5013
Westboro, MA 01581-5013
or to such other address as either party may have furnished to the other in
accordance herewith, except that notices of change of address shall be effective
only upon receipt.
9. GOVERNING LAW
-------------
The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the Commonwealth of Massachusetts.
10. ARBITRATION
-----------
Any controversy or claim arising out of or relating to this Agreement or
the breach thereof shall be settled by arbitration to be conducted in Boston,
Massachusetts, in accordance with the Commercial Arbitration Rules of the
American Arbitration Association, and judgment upon the award rendered by the
arbitrators may be entered in any court having jurisdiction thereof.
11. MISCELLANEOUS
-------------
No provisions of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing signed by
the Executive and on behalf of Banyan. No waiver by either party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of the same or any other provisions or
conditions at any prior or subsequent time. No agreements or representations,
oral or otherwise, express or implied,
Page 6 of 8
<PAGE>
with respect to the subject matter hereof have been made by either party which
are not set forth expressly in this Agreement.
12. SEPARABILITY
------------
The invalidity or unenforceability of any provisions of this Agreement
shall not affect the validity or enforceability of any other provisions of this
Agreement, all of which shall remain in full force and effect.
13. NON-ASSIGNABILITY
-----------------
This agreement is personal in nature and neither of the parties hereto
shall, without the consent of the other, assign or transfer this Agreement or
any rights or obligations hereunder. Without limiting the foregoing, the
Executive's right to receive payments hereunder shall not be assignable or
transferable, whether by pledge, creation of a security interest or otherwise,
other than a transfer by her will or by the laws of descent or distribution, and
in the event of any attempted assignment or transfer contrary to this Section
Banyan shall have no liability to pay any amount so attempted to be assigned or
transferred.
14. CONFIDENTIALITY
---------------
The Executive agrees that the existence and the terms of this Agreement are
confidential and shall not be disclosed to any person, except that the Executive
may disclose this Agreement to her immediate family or professional tax
advisors.
Page 7 of 8
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered as of the day and year first above set forth.
BANYAN SYSTEMS INCORPORATED
BY: /s/ Ann Smith
-----------------------
BY: /s/ Jeffrey D. Glidden
-----------------------
Jeffrey D. Glidden
President and COO (Acting)
Page 8 of 8
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND CONSOLIDATED
FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements appear in the Company's 1996
Annual Report to Shareholders and are incorporated herein by reference:
<TABLE>
<CAPTION>
DESCRIPTION PAGE NUMBER IN
1996 ANNUAL REPORT TO SHAREHOLDERS
<S> <C>
Report of Independent Accountants 37
Consolidated Balance Sheets as of December 31, 1996 and 1995 23
Consolidated Statements of Operations for the Years Ended
December 31, 1996, 1995 and 1994 24
Consolidated Statements of Shareholders' Equity for the Years
Ended December 31, 1996, 1995 and 1994 25
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994 26
Notes to Consolidated Financial Statements 27
</TABLE>
The following schedule is included in this Annual Report on Form 10-K:
DESCRIPTION
Report of Independent Accountants
II - Valuation and Qualifying Accounts
All other schedules are omitted because they are either not required, not
applicable or the information is shown in the Consolidated Financial Statements
or the Notes thereto.
<PAGE>
Management's Discussion and Analysis
of Financial Condition and Results of Operation
................................................................................
Overview
Banyan is a leader in directory enabled enterprise networking software products
which allow customers to integrate a broad range of computing platforms into a
unified global network that is easy to use and manage. The Company's key
software products include StreetTalk for Windows NT,(R) VINES,(R) Intelligent
Messaging(R) and BeyondMail.(R) In addition, the Company markets a broad range
of related products including security service, network management,
communication and host connectivity. The Company markets products worldwide
through authorized integrators, resellers and international distributors.
The Company was incorporated in 1983 and began commercial shipments of the
VINES network operating system and proprietary hardware servers in 1985. During
1990, as a result of the increased availability of industry-standard hardware
servers, the Company began to phase out production and sale of its hardware
servers in order to focus its development and marketing efforts principally on
networking software products. As a result, sales of hardware have declined
significantly since that time.
In 1994, as a result of the Company's acquisition of Beyond Incorporated, a
number of additional product offerings were added, including BeyondMail and
CaLANdar.(R) In addition, the Company continued to introduce directory enabled
network services in 1994 and 1995 across a full range of computing platforms
with its ENS(R) product line. In 1995, the Company enhanced its technology
offerings with the delivery of VINES 6.0 and extended network management
capabilities. Additionally, the Company employed significant resources in
developing localized versions of VINES and BeyondMail to address many of the
major international market opportunities. During 1996, the Company expanded its
activities to include specific Internet products and services including a pure
Internet version of BeyondMail and Switchboard,(TM) an Internet directory
service launched in February 1996. To market Switchboard, the Company
established Switchboard Incorporated as a Banyan subsidiary in 1996. In the
fourth quarter of 1996, the Company also introduced the next major revision of
its VINES networking software, VINES 7.0, and extended additional platform
support for its directory and messaging services by delivering StreetTalk for
Windows NT and Intelligent Messaging for Windows NT.
Although Banyan made progress in expanding its networking solutions and
further establishing its Internet products identity with the introduction of
Switchboard, the Company's operating results for 1996 were negatively impacted
by a number of factors, including delays in the delivery of extensions and new
versions of VINES and BeyondMail, as well as translated versions of these
products; the introduction of new competitive product offerings, resulting in
extended evaluations by new and existing customers; and an effort to reduce
worldwide channel inventories. In addressing these factors, the Company
restructured its operations in the quarter ended December 31, 1996 and reduced
its overall costs through a 15% reduction of its work force.
19
<PAGE>
Management's Discussion and Analysis
of Financial Condition and Results of Operation
................................................................................
Results of Operations
General
................................................................................
The following table sets forth statements of operations data of the Company
expressed as a percentage of related revenues for the fiscal years indicated.
Gross margin data is expressed as a percentage of applicable product revenue.
<TABLE>
<CAPTION>
Fiscal Year 1996 1995 1994
...................................................................
<S> <C> <C> <C>
Revenues:
Software 82.8% 81.1% 79.2%
Support and training 15.6 16.2 13.6
Hardware 1.6 2.7 7.2
........................
Total revenues 100.0 100.0 100.0
Gross Margins:
Software 87.7 86.9 88.5
Support and training 18.1 34.8 43.3
Hardware 66.0 40.4 59.1
........................
Total gross margin 76.5 77.2 80.2
Operating Expenses:
Sales and marketing 57.7 62.3 42.9
Product development 20.7 18.9 13.7
General and administrative 10.9 10.2 8.3
Restructuring and other charges 5.2 12.2 -
Purchased research and development - - 11.6
........................
Total operating expenses 94.6 103.6 76.5
(Loss)/income from operations (18.1) (26.4) 3.7
Net (loss)/income (25.6)% (16.5)% 3.3%
</TABLE>
Revenues
................................................................................
Total revenues for 1996 decreased 19% to $105.4 million, compared with $129.7
million in 1995 and $150.1 million in 1994. The decrease in 1996 was primarily
due to lower software revenues as well as declines in support and training
revenues. The decrease in 1995 was due to lower software revenues as well as
continued expected declines in hardware revenues. The Company's software
revenues decreased 17% to $87.3 million, compared with $105.2 million in 1995
and $118.9 million in 1994. The decline in software revenues in 1996 was
attributable primarily to lower revenues from the Company's current VINES
offerings and messaging products, delays in the delivery of extensions, and new
and translated versions of VINES and BeyondMail as well as reduced shipments to
third-party distribution partners in an effort to reduce worldwide inventories
by approximately $15.0 million in 1996. The decline in software revenues in 1995
was attributable primarily to lower revenues from the Company's VINES and ENS
offerings primarily as a result of lengthened customer purchasing decisions, a
transition in sales leadership in the second quarter of 1995 and delays in the
release and localization of certain product offerings. The Company's support and
training revenues decreased 22% to $16.5 million, compared with $21.1 million in
1995 and $20.4 million in 1994. The decline in support and training revenues in
1996 was attributable primarily to lower revenues from education services due to
delays in new product offerings and a decline in directly delivered end-user
support services. The growth in support
20
<PAGE>
and training revenues in 1995 was attributable primarily to revenue from end-
user support services. Hardware revenues declined 51% in 1996 to $1.7 million,
compared with $3.5 million in 1995 and $10.8 million in 1994, due to the
continued phase-out of the Company's hardware business.
North American revenues decreased 20% to $79.9 million, compared with $100.0
million in 1995 and $121.1 million in 1994. The decrease in 1996 was
attributable primarily to lower revenues from the Company's current VINES
offerings and messaging products as well as reduced shipments to third-party
distribution partners in an effort to reduce channel inventories. The decline in
1995 was a result of lower sales of VINES and ENS products. International
revenues decreased 14% to $25.6 million, compared with $29.7 million in 1995 and
$29.0 million in 1994. The decrease in 1996 was primarily due to lower revenues
in Europe. The increase in 1995 was due to revenue growth in the Asia/Pacific
region, which expanded to $8.9 million in 1995 from $5.1 million in 1994 which
were offset in part by lower revenues in Europe primarily due to delays in the
release and localization of certain product offerings.
Gross Margins
................................................................................
Gross margins for software were 87.7%, or $76.5 million, compared with 86.9%, or
$91.4 million, in 1995 and 88.5%, or $105.2 million, in 1994. The decrease in
gross margin dollars in 1996 was due to the decline in software revenues. The
increase in gross 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 decreases in
gross margin percentages and dollars in 1995 were due primarily to the impact of
fixed costs with lower sales volume. Cost of software revenues consists of
product media, documentation, manufacturing costs and amortization of
capitalized software.
Gross margins for support and training were 18.1%, or $3.0 million, compared
with 34.8%, or $7.3 million, in 1995 and 43.3%, or $8.9 million, in 1994. The
decrease in gross margin dollars in 1996 was primarily due to lower revenues
from education classes and end-user support contracts. The decrease in gross
margin percentages was primarily due to the absorption of fixed overhead on
lower revenues. The decreases in gross margin percentages and dollars in 1995
were due in part to additional investment in personnel required to support the
Company's expanding product line and regional expansion in the Asia/Pacific
region as well as lower levels of education revenues. Cost of support and
training revenues consists of customer support costs, including Technical
Response Centers, third-party field service costs, costs of training materials
and staff.
Gross margins for hardware were 66.0%, or $1.1 million, compared with 40.4%,
or $1.4 million, in 1995 and 59.1%, or $6.4 million, in 1994. The increase in
gross margin percentage in 1996 was 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 gross margin
dollars in 1995 was due primarily to the continued phase-out of hardware-related
products. Cost of hardware revenues consists of hardware components, packaging
and associated manufacturing costs.
Operating Expenses
................................................................................
Sales and marketing expenses decreased 25% to $60.8 million in 1996, compared
with $80.8 million in 1995 and $64.4 million in 1994. The decrease in 1996 was
primarily due to lower sales staffing and facility costs as a result of the
reduction in force as part of the Company's reorganization in the quarter ended
December 31, 1995. Higher spending in 1995 included increases in staffing and
personnel-related costs associated with expanding the Company's domestic and,
particularly, international field infrastructure as well as expanded promotional
programs. The increase in 1995 also was due in part to costs incurred in the
realignment of the Company's direct sales force. Sales and marketing expenses as
a percentage of revenues were 58%, 62% and 43% for 1996, 1995 and 1994,
respectively.
21
<PAGE>
Management's Discussion and Analysis
of Financial Condition and Results of Operation
................................................................................
Product development expenses decreased 11% to $21.9 million in 1996, compared
with $24.5 million in 1995 and $20.5 million in 1994. The decrease in 1996 was
primarily due to a reduction in staffing 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,
particularly the Windows NT-based products and its messaging products.
Additionally, the Company has increased its investment in Internet-related
product initiatives, particularly Switchboard Incorporated technology and
services. The increase in 1995 was due to additional personnel to support the
development of software that enhanced the capabilities of existing product
offerings and the development of new products. In particular, the increase in
1995 was due in part to the development of network management and messaging
software. During 1996, 1995 and 1994, the Company capitalized $2.3 million, $1.9
million and $0.9 million of software costs, which represented 10%, 7% and 4% of
total product development expenditures for the respective years. The increase in
the Company's capitalized software costs in 1996 related primarily to VINES 7.0,
Windows NT-based products and localization of its product offerings. The
increase in the Company's capitalized software costs in 1995 was related
primarily to the localization of its product offerings and the development of
VINES 6.0. Product development expenses as a percentage of revenues were 21%,
19% and 14% for 1996, 1995 and 1994, respectively.
General and administrative expenses decreased 13% to $11.5 million in 1996,
compared with $13.2 million in 1995 and $12.4 million in 1994. The decrease in
1996 was primarily due to lower administrative and personnel costs as a result
of the reduction in force as part of the Company's reorganization in the quarter
ended December 31, 1995. The increase in 1995 was due primarily to additional
building, telecommunications and personnel costs required to support
international operations. General and administrative expenses as a percentage of
revenues were 11%, 10% and 8% for 1996, 1995 and 1994, respectively.
In 1996, the Company initiated a corporate reorganization to return to a
functional, rather than divisional, operating structure. As a result, the
Company recorded a pre-tax restructuring charge of $5.5 million, composed
primarily of $1.4 million for closure or consolidation of leased facilities,
$3.2 million for severance and related costs and $0.9 million for idle assets
related to the restructuring. During 1996, the restructuring action resulted in
70 employee separations. The remaining actions, primarily closure or
consolidation of leased facilities, will be completed in 1997.
In 1995, the Company recorded total restructuring and other charges of $15.8
million due to the reorganization of its operations into a divisional structure,
a consolidation of distribution activities and a simplification of product
configurations. The Company recorded pre-tax restructuring charges of $7.8
million related to the reorganization and $8.0 million of other charges related
to the consolidation of distribution activities and the simplification of
product configurations. During 1995, the restructuring action resulted in 81
employee separations. Substantially all remaining actions, which primarily
included the elimination of certain channel partners, closure or consolidation
of leased facilities and 15 employee separations, were completed in 1996 (see
Note F in the Consolidated Financial Statements).
In the quarter ended March 31, 1994, the Company acquired all the outstanding
stock of Beyond Incorporated for $17.5 million and assumed certain liabilities.
The transaction was accounted for as a purchase and a charge for purchased
research and development of $17.6 million was recorded upon the closing of the
acquisition (see Note O in the Consolidated Financial Statements).
22
<PAGE>
Other Income
................................................................................
Other income decreased to $1.1 million in 1996, compared with $3.7 million in
1995 and $1.5 million in 1994. The decrease in 1996 was due to lower levels of
available funds invested in marketable securities and the inclusion of a $2.0
million one-time gain on the sale of an unconsolidated affiliate in 1995. The
increase in 1995 from 1994 was due primarily to the aforementioned gain.
Income Taxes
................................................................................
The Company's effective income tax provision was 50% in 1996, compared with a
benefit of 30% in 1995 and a provision of 29% in 1994. The effective tax rate
for 1996 was principally affected by the establishment of a valuation allowance
for previously recorded deferred tax assets of $8.0 million based upon
management's assessment of future realizability per SFAS 109. Management has
considered recent results of operations and concluded that it is more likely
than not that the deferred tax assets will not be realizable. Additionally,
losses were not benefited in 1996 and certain foreign taxes are included in the
tax provision. The effective tax rate for 1995 principally reflects the benefit
of the Company's net operating losses offset in part by foreign losses which
could not be benefited.
Future Operating Results
Certain of the information contained in this Annual Report, 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 1996, the Company announced a reorganization of its operations, including a
reduction of approximately 15% of its work force. The Company also reduced
worldwide channel inventories of its distribution partners by approximately $9.0
million in the quarter ended December 31, 1996, which contributed to a decline
in software revenues and a net operating loss in the quarter ended December 31,
1996. There can be no assurance the planned reorganization will be successfully
implemented. The Company's future success will depend on its ability to retain
its key employees and attract new employees, and there can be no assurance it
will be able to do so.
In 1995 and 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 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 and 1996, 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 and 1996 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 the future. On September 30, 1996, the Company
introduced StreetTalk for Windows NT, which integrates the Windows NT operating
system into a VINES network. 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 invested significant resources to develop products and
services to bring the Company's directory and messaging capabilities to Internet
users. In 1996, the Company introduced Switchboard, a directory service for
Internet users. The Company has limited experience in developing or selling
products for the Internet and the success of the Company will depend in part on
its ability to enter into strategic alliances with other
23
<PAGE>
Management's Discussion and Analysis
of Financial Condition and Results of Operation
................................................................................
Internet providers. Any delay in developing additional or enhanced products and
services for the Internet or failure of its Internet products and services to
achieve market acceptance could have a material adverse effect on the Company's
future results of operations.
The markets for the Company's products 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 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. 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, the Company believes that period-to-period
comparisons of its financial results are not necessarily meaningful and it
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 year-end 1995 to ($1.5) million
at year-end 1996, primarily
as a result of a restructuring charge and operating loss for the year ended
December 31, 1996. At December 31, 1996, cash and cash equivalents combined with
short-term and long-term marketable securities were $19.2 million, compared with
$31.3 million at December 31, 1995, or a 39% decrease. Cash and cash equivalents
decreased $1.8 million, resulting in a cash balance of $10.6 million at December
31, 1996. This decrease was due principally to expenditures of $8.1 million for
restructuring and other charges related to the reorganization of the Company in
the quarter ended December 31, 1995; $5.7 million for capital expenditures; and
$3.4 million for software capitalization and licenses. These uses of cash were
offset in part by $10.2 million for net proceeds from sales of marketable
securities; $3.0 million from minority equity investments, restricted for
Switchboard Incorporated activities; $2.2 million for proceeds from common
stock; and other operating, investing and financing activities.
In the quarter ended December 31, 1996, the Company recorded a restructuring
charge of $5.5 million. The restructuring charge is expected to reduce cash flow
by approximately $3.6 million, of which $0.7 million had been expended in 1996.
In the quarter ended December 31, 1995, the Company recorded restructuring and
other charges of $15.8 million. As of December 31, 1996, a balance of $4.9
million, including $0.9 million associated with the 1995 charge, remains on the
balance sheet. Management believes that this remaining balance is adequate to
cover future expenditures associated with the 1996 and 1995 restructuring and
other charges.
The Company established a $10 million line of credit that expires in May 1997.
The line provides for borrowings to be made at the bank's prime rate. At
December 31, 1996, the Company had no borrowings under this line of credit and
was not in compliance with certain financial covenants. The Company has received
a waiver for the fourth quarter of 1996 and renegotiated the terms under the
existing line of credit, including borrowing base and financial covenants. The
Company intends to renew its line of credit and expects the new facility to have
a lower maximum borrowing amount. The Company believes that existing cash and
marketable securities, combined with cash expected to be generated from
operations and the available line of credit, will be sufficient to fund the
Company's operations through at least 1997.
24
<PAGE>
Consolidated Balance Sheets
................................................................................
<TABLE>
<CAPTION>
Year Ended December 31, 1996 1995
................................................................................
(in thousands, except share amounts)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 8,314 $ 12,398
Restricted cash and cash equivalents (Note P) 2,299 -
Marketable securities 4,139 7,729
Accounts receivable, less allowances of
$7,168 and $5,636 19,754 24,288
Inventories 2,863 3,664
Income tax receivable - 6,042
Deferred taxes, current portion - 6,494
Software licenses 3,016 2,550
Other current assets 3,368 4,240
...................
Total current assets 43,753 67,405
Property and equipment, net 13,565 14,596
Marketable securities 4,436 11,136
Other assets, net of accumulated amortization of
$5,661 and $6,145 7,778 13,172
...................
Total assets $ 69,532 $106,309
___________________
Liabilities
Current liabilities:
Long-term debt, current portion $ 261 $ 62
Accounts payable 3,633 4,443
Accrued compensation 6,338 7,077
Accrued expenses 7,368 8,443
Accrued costs for restructuring and other
charges (Note F) 4,908 9,007
Income taxes payable 212 2,531
Software license payable, current portion 1,581 3,266
Note payable 1,079 719
Deferred revenue 19,886 22,323
...................
Total current liabilities 45,266 57,871
Commitments and contingencies (Notes H and P)
Software license payable, non-current 590 3,266
Minority interests in consolidated subsidiaries 3,354 830
Shareholders' Equity
Common stock, $.01 par value; authorized 25,000,000
shares; issued and outstanding 18,996,882 and
18,623,154 shares, respectively 190 186
Preferred stock, $.01 par value; authorized
1,000,000 shares; none issued and
outstanding - -
Additional paid-in capital 64,581 62,347
(Accumulated deficit)/retained earnings (15,792) 11,238
Treasury stock at cost; 1,848,000 shares (28,564) (28,564)
Foreign currency translation adjustment (23) (868)
Unrealized (loss)/gain on investments (70) 3
...................
Total shareholders' equity 20,322 44,342
...................
Total liabilities and shareholders'
equity $ 69,532 $106,309
___________________
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
25
<PAGE>
Consolidated Statements of Operations
................................................................................
<TABLE>
<CAPTION>
Years Ended December 31, 1996 1995 1994
................................................................................
<S> <C> <C> <C>
(in thousands, except per share amounts)
Revenues:
Software $ 87,281 $105,160 $118,899
Support and training 16,456 21,059 20,444
Hardware 1,687 3,464 10,770
..............................
Total revenues 105,424 129,683 150,113
Cost of Revenues:
Software 10,758 13,771 13,670
Support and training 13,470 13,727 11,583
Hardware 574 2,064 4,406
..............................
Total cost of revenues 24,802 29,562 29,659
..............................
Gross margin 80,622 100,121 120,454
Operating Expenses:
Sales and marketing 60,811 80,810 64,395
Product development 21,875 24,502 20,507
General and administrative 11,521 13,208 12,405
Restructuring and other charges (Note F) 5,500 15,802 -
Purchased research and development - - 17,606
..............................
Total operating expenses 99,707 134,322 114,913
..............................
(Loss)/income from operations (19,085) (34,201) 5,541
Other Income (Expense):
Gain on sale of equity investment - 2,036 -
Interest income 1,088 1,812 1,887
Minority interest 571 594 -
Interest expense (80) (90) (40)
Other, net (511) (666) (326)
..............................
Total other income 1,068 3,686 1,521
..............................
(Loss)/income before taxes (18,017) (30,515) 7,062
Provision/(benefit) for income taxes 9,013 (9,155) 2,075
..............................
Net (loss)/income $(27,030) $(21,360) $ 4,987
______________________________
Net (Loss)/Income Per Share:
Primary $ (1.59) $ (1.27) $ 0.27
______________________________
Fully diluted $ (1.59) $ (1.27) $ 0.27
______________________________
Weighted average number of common
and common equivalent shares outstanding:
Primary 16,947 16,797 18,195
______________________________
Fully diluted 16,947 16,797 18,299
______________________________
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
26
<PAGE>
Consolidated Statements of Shareholders' Equity
................................................................................
<TABLE>
<CAPTION>
Three Years Ended December 31, 1996
.........................................................................................................
Net
Common Stock Treasury Stock (Accumulated Foreign Unrealized Total
................ ..................... Additional Deficit)/ Currency Gain/(Loss) Share-
Number of Par Number of Paid-in Retained Translation on holders'
Shares Value Shares Cost Capital Earnings Adjustment Investments Equity
....................................................................................................................................
(in thousands, except share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 17,349,002 $173 $ - $ 52,006 $27,611 $(378) $ - $ 79,412
Issuance of stock under
stock and option plans
including related
tax benefits 681,641 7 5,426 5,433
Purchase of treasury
stock (1,000,000) (15,878) (15,878)
Net income 4,987 4,987
Change in net
unrealized gain/(loss)
on investments (75) (75)
......................................................................................................
Balance, December 31, 1994 18,030,643 180 (1,000,000) (15,878) 57,432 32,598 (378) (75) 73,879
Issuance of stock under
stock and option plans
including related
tax benefits 592,511 6 4,915 4,921
Purchase of treasury
stock (848,000) (12,686) (12,686)
Net loss (21,360) (21,360)
Foreign currency
translation adjustment (490) (490)
Change in net
unrealized gain/(loss)
on investments 78 78
.......................................................................................................
Balance, December 31, 1995 18,623,154 186 (1,848,000) (28,564) 62,347 11,238 (868) 3 44,342
Issuance of stock under
stock and option plans
including related
tax benefits 373,728 4 2,234 2,238
Net loss (27,030) (27,030)
Foreign currency
translation adjustment 845 845
Change in net
unrealized gain/(loss)
on investments (73) (73)
......................................................................................................
Balance, December 31, 1996 18,996,882 $190 (1,848,000) $(28,564) $64,581 $(15,792) $ (23) $ (70) $20,322
_______________________________________________________________________________________________________
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
27
<PAGE>
Consolidated Statements of Cash Flows
................................................................................
<TABLE>
<CAPTION>
Years Ended December 31, 1996 1995 1994
...................................................................................................................................
(in thousands)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net (loss)/income $(27,030) $(21,360) $ 4,987
Adjustments to reconcile net (loss)/income to net
cash (used in)/provided by operating activities:
Depreciation and amortization 8,928 9,957 7,493
Restructuring and other charges, noncash portion 1,852 5,457 -
Gain on sale of investments - (2,036) -
Purchased research and development charge - - 17,606
Deferred taxes - - (6,690)
Increase in income taxes payable due to
acquisition of business - - 2,064
Changes in operating assets and liabilities,
net of effect of acquisition:
Decrease/(increase) in accounts receivable 4,521 9,156 (9,554)
(Increase)/decrease in inventories (292) (883) 394
Decrease/(increase) in income tax receivable 6,042 (6,042) -
(Increase)/decrease in other current assets (576) (1,468) 109
(Decrease)/increase in accounts payable and
accrued compensation and expenses (2,716) (1,359) 2,723
(Decrease)/increase in accrued costs for
restructuring and other charges (5,149) 9,007 -
Increase/(decrease) in software license
payable, net 964 586 (323)
Increase/(decrease) in income taxes payable 121 (1,712) 968
Decrease/(increase) in deferred taxes 9,926 (3,078) -
(Decrease)/increase in deferred revenue (2,448) 872 4,709
(Decrease)/increase in other liabilities (211) 124 -
Decrease/(increase) in other noncurrent assets 68 500 (456)
..............................
Net cash (used in)/provided by operating activities (6,000) (2,279) 24,030
Cash Flows from Investing Activities:
Capital expenditures (5,683) (9,616) (10,230)
(Purchases of)/proceeds from investments in
unconsolidated affiliates (2,001) 2,536 -
Minority interest equity investments 3,095 1,444 -
Acquisition of software licenses (1,125) (1,314) (1,021)
Capitalization of software costs (2,314) (1,919) (892)
Proceeds from marketable securities, net 10,217 9,675 17,611
Acquisition of business - - (19,992)
...............................
Net cash provided by/(used in) investing activities 2,189 806 (14,524)
Cash Flows from Financing Activities:
Proceeds from stock plan purchases, stock options
and related tax benefits 2,238 4,921 5,433
Repayment of principal on long-term debt (177) (137) (131)
Purchase of treasury stock - (12,686) (15,878)
...............................
Net cash provided by/(used in) financing activities 2,061 (7,902) (10,576)
...............................
Effect of exchange rate changes on cash and cash equivalents (35) (460) (241)
Net (decrease) in cash and cash equivalents (1,785) (9,835) (1,311)
...............................
Cash and cash equivalents at beginning of the year 12,398 22,233 23,544
..............................
Cash and cash equivalents at end of the year $ 10,613 $ 12,398 $ 22,233
______________________________
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest $ 20 $ 30 $ 40
Income taxes $ 688 $ 3,308 $ 6,359
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
28
<PAGE>
Notes to Consolidated Financial Statements
................................................................................
A. Nature of Business
Banyan Systems Incorporated (the "Company") develops, markets and supports
enterprise networking software products that enable personal computer users to
share applications, information and resources in large, complex enterprise-wide
networks. The Company markets products worldwide primarily through authorized
integrators, resellers and international distributors.
B. Summary of Significant Accounting Policies
Basis of Presentation
................................................................................
The consolidated financial statements comprise those of the Company and its
subsidiaries. Intercompany accounts and transactions have been eliminated.
Certain previously reported amounts have been reclassified to conform to the
current method of presentation.
Cash Equivalents and Marketable Securities
................................................................................
In accordance with Statement of Financial Accounting Standards No. 115 (SFAS
115), Accounting for Certain Investments in Debt and Equity Securities, the
Company classifies all of its marketable debt and marketable equity securities
as available for sale securities. These securities are valued at their fair
value. Unrealized holding gains and losses are reported as a net amount in a
separate component of stockholders' equity (see Note K).
The Company considers all highly liquid investments with an original maturity
of three months or less to be cash equivalents. Those instruments with
maturities between three and twelve months are considered to be short-term
marketable securities, and investments with maturities of greater than one year
at the date of purchase are classified as long-term marketable securities. Cash
equivalents and marketable securities are carried at market, and consist
primarily of U.S. government securities, corporate and municipal issues, and
interest bearing deposits with major banks. These investments generally mature
within 24 months.
Inventories
................................................................................
Inventories are stated at the lower of cost (first-in, first-out) or market.
Property and Equipment
................................................................................
Property and equipment are stated at cost. Depreciation is computed using the
straight-line method over the following estimated asset lives:
Computers and peripherals 3 years
Equipment 2-5 years
Furniture and fixtures 5 years
Maintenance and repairs are charged to expense when incurred, while
betterments are capitalized. Leasehold improvements are amortized over the
lesser of the lease term or the life of the asset. When property is retired or
otherwise disposed of, the related cost and accumulated depreciation are removed
from the respective amounts and any gain or loss is reflected in operations.
Software Licenses
................................................................................
The Company has purchased various software licenses for technology that is
incorporated in the Company's products. The cost of these licenses, included in
other assets, is amortized on a straight-line basis over their estimated useful
lives, not to exceed three years (see Note E). Certain of these licenses require
royalty payments based on future sales. Such amounts are expensed as incurred.
The Company has entered into agreements with various third parties to develop
or license products. Under the terms of these agreements, the Company is
generally required to pay minimum annual royalties commencing upon first
customer shipment. Such amounts are expensed as incurred. The committed
royalties are included in current and noncurrent assets and liabilities.
Income Taxes
................................................................................
The provision for income taxes includes U.S. Federal, state and foreign income
taxes, each currently payable and deferred, as determined in accordance with the
provisions of SFAS 109, Accounting for Income Taxes.
Deferred income tax assets and liabilities result from temporary differences
between the tax basis of assets and liabilities, and their reported amounts in
the financial statements that will result in taxable or deductible amounts in
future years.
29
<PAGE>
Notes to Consolidated Financial Statements
................................................................................
Revenue Recognition
................................................................................
Revenues from software licenses and hardware products are recognized upon
shipment. Subscription, support and training revenues are recognized as the
services are performed or ratably over the contract period. Reserves for sales
returns and allowances are recorded in the same period as the related revenues.
Product Development
................................................................................
Expenditures for research and development are charged to operations as incurred.
Foreign Currency Translation
................................................................................
The Company's subsidiaries generally use the U.S. dollar as the functional
currency, and transaction gains and losses are included in other income and
expenses in the statement of operations and are immaterial for all periods
presented. The Company's foreign subsidiaries, Banyan Systems (U.K.) Limited and
Nihon Banyan Systems Kabushiki Kaisha (NBSKK), use the local currency as
functional currency. Assets and liabilities are translated into U.S. dollars at
period-end exchange rates, and income and expense accounts are translated at
average rates of exchange prevailing during the period. Adjustments resulting
from translation are recorded as a separate component of shareholders' equity.
Minority Interests
................................................................................
Minority interests in consolidated subsidiaries represent minority shareholders'
proportionate shares of the equities in the Company's subsidiaries, NBSKK and
Switchboard Incorporated. At December 31, 1996, the Company owned 67% of the
capital stock of NBSKK and 92.5% of the capital stock of Switchboard
Incorporated (see Note P).
Risks and Uncertainties
................................................................................
The Company invests its cash and cash equivalents primarily in deposits and
money market funds with a single commercial bank. The Company has not
experienced any losses to date on its invested cash.
The Company sells its products principally through a direct sales force and a
limited number of resellers domestically and through distributors outside of the
United States to customers in a broad range of industries. The Company performs
ongoing credit evaluations of its customers but does not require collateral or
other security to support customer receivables. The Company maintains reserves
for credit losses and such losses have been within management's expectations.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Income/(Loss) Per Share
................................................................................
Income per share data is computed using the weighted average number of shares of
common stock outstanding and dilutive common stock equivalents from the exercise
of stock options and warrants (using the treasury stock method). In loss
periods, common equivalents are excluded as the effect is anti-dilutive.
C. Inventories
Inventories consist of the following at:
<TABLE>
<CAPTION>
December 31, 1996 1995
.................................
<S> <C> <C>
(in thousands)
Purchased parts $ 989 $1,250
Work in process 313 740
Finished goods 1,561 1,674
..............
$2,863 $3,664
______________
</TABLE>
30
<PAGE>
D. Property and Equipment
Property and equipment consists of the following at:
<TABLE>
<CAPTION>
December 31, 1996 1995
...........................................................................................................................
(in thousands)
<S> <C> <C>
Computer and peripherals $ 24,885 $ 20,709
Equipment 11,434 9,959
Furniture and fixtures 4,645 4,639
Leasehold improvements 4,655 4,585
...................
Total cost $ 45,619 $ 39,892
Accumulated depreciation and amortization (32,054) (25,296)
....................
$ 13,565 $ 14,596
____________________
</TABLE>
Depreciation expense for 1996, 1995 and 1994 was $7,022,000, $8,274,000 and
$5,846,000, respectively.
E. Other Assets
Other assets consist of the following at:
<TABLE>
<CAPTION>
December 31, 1996 1995
.............................................................................................................................
(in thousands)
<S> <C> <C>
Capitalized software costs $ 2,685 $ 2,167
Investment in unconsolidated affiliate 2,001 -
Software licenses 2,690 4,997
Deferred income taxes - 5,872
Other 402 136
...................
$ 7,778 $ 13,172
___________________
</TABLE>
In accordance with the provisions of SFAS 86, Accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed, certain software
costs are capitalized after technological feasibility has been established.
Amortization of the capitalized software costs is recognized over the economic
useful lives of the software products, generally three years, and is charged to
cost of revenues. During 1996, 1995 and 1994, the Company capitalized
$2,314,000, $1,919,000 and $892,000 of software costs, respectively.
Amortization expense for capitalized software costs was $1,796,000, $1,683,000,
and $902,000 for 1996, 1995 and 1994, respectively.
F. Restructuring and Other Charges
On November 7, 1996, the Company announced a reorganization of its operations to
return to a functional, rather than divisional, operating structure. As a result
of the reorganization, the Company recorded a pre-tax restructuring charge of
approximately $5,500,000 in the fourth quarter ended December 31, 1996. The
reorganization charge was composed primarily of $1,400,000 for the closure or
consolidation of leased facilities, $3,200,000 for severance and related costs,
and $900,000 for idle assets related to the restructuring. The restructuring
charge will provide for facility consolidations, severance costs related to the
reduction of approximately 15% of the Company's workforce and other related
costs.
At December 31, 1996, the Company's cash expenditures related to employee
separation and other costs associated with the restructuring charge were
approximately $700,000. The remaining reserve balance of approximately
$4,000,000 is adequate to cover currently planned restructuring and other
actions. During 1996, the restructuring action resulted in approximately 70
employee separations. During the first quarter of 1997, 15 employee separations
will occur to complete the planned severance. The restructuring and other
charges are expected to reduce cash flow by approximately $3,642,000 in 1997
while providing an expected annual cash flow benefit beginning in 1997.
31
<PAGE>
Notes to Consolidated Financial Statements
................................................................................
In 1995, the Company recorded total restructuring and other charges of
$15,802,000, the components of which are described below:
In 1995, the Company reorganized its operations into a divisional structure
and, as a result, recorded pre-tax restructuring charges of $7,849,000 in the
quarter ended December 31, 1995. These charges were composed primarily of
$2,032,000 for closure or consolidation of leased facilities, $2,969,000 for
severance and related costs, and $2,848,000 for idle assets related to the
restructuring. Through the end of 1996, restructuring action resulted in 96
employee separations, which completed the planned severance. At December 31,
1996, an accrual balance of $900,000 remained on the Company's balance sheet
related to the closure or consolidation of leased facilities.
As part of the reorganization, the Company also implemented a consolidation of
distribution activities and a simplification of product configurations,
packaging and related asset write-offs, which led to a pre-tax charge of
approximately $7,953,000 in the quarter ended December 31, 1995. These other
charges were composed primarily of $5,495,000 for costs associated with
eliminating certain channel partners and $2,458,000 for write-offs of intangible
assets and inventory with no future value as a result of the reorganization.
These activities were completed at December 31, 1996.
G. Line of Credit
In May 1996, the Company renewed and extended a $10,000,000 line of credit with
a commercial bank. There were no borrowings under this agreement in 1996. This
agreement expires in May 1997. Outstanding borrowings drawn under this line are
restricted to the lesser of (a) 80% of the Company's eligible accounts
receivable, or (b) $10,000,000. At December 31, 1996, the Company was not in
compliance with certain covenants of this line of credit. The Company has
received a waiver for the fourth quarter of 1996 and renegotiated the terms
under the existing line of credit, including borrowing base, 30% of eligible
accounts receivable, and financial covenants. The Company intends to renew its
line of credit and expects the new facility to have a lower maximum borrowing
amount.
H. Commitments and Contingencies
The Company leases its facilities and certain equipment under non-cancelable
lease agreements which expire at various dates through March 2014. Rental
expense under these leases totaled $4,872,000, $4,986,000 and $3,648,000 in
1996, 1995 and 1994, respectively. Under these agreements, the Company is
obligated to pay for utilities, taxes, insurance and maintenance.
At December 31, 1996, future minimum lease payments under operating leases
with initial terms exceeding one year are as follows:
<TABLE>
<CAPTION>
(in thousands)
..............................................
<S> <C>
1997 $ 4,817
1998 2,996
1999 1,766
2000 1,282
2001 863
Thereafter 5,295
.......
Total future minimum lease payments $17,019
_______
</TABLE>
32
<PAGE>
I. Income Taxes
The components of the (benefit)/provision for income taxes are as follows:
<TABLE>
<CAPTION>
Years Ended December 31, 1996 1995 1994
......................................................
(in thousands)
<S> <C> <C> <C>
Currently payable:
U.S. Federal $(1,598) $(5,723) $ 7,320
State - (319) 1,123
Foreign 974 (35) 480
...........................
(624) (6,077) 8,923
Deferred:
U.S. Federal 9,637 (2,335) (6,848)
State - (743) -
...........................
$ 9,013 $(9,155) $ 2,075
___________________________
</TABLE>
As required by SFAS 109, management of the Company has evaluated the positive
and negative evidence bearing upon the realizability of its deferred tax assets.
Management has considered the Company's recent results of operations and
concluded, in accordance with the applicable accounting standards, that it is
more likely than not that the deferred tax assets will not be realizable.
Accordingly, deferred tax assets as of December 31, 1996 have been fully
reserved. Management reevaluates the positive and negative evidence on a
quarterly basis. Temporary differences which give rise to deferred tax assets
and liabilities for the years ended December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
Deferred Deferred
1996 Tax Assets Tax Liabilities
............................................................................
(in thousands)
<S> <C> <C>
Net operating loss and other carryforwards $ 6,322 $ -
Purchased research and development 5,426 -
Depreciation and amortization 967 -
Capitalized software 2,223 (3,395)
Benefit plans 277 -
Bad debt allowances 718 -
Other 1,807 -
...........................
17,740 (3,395)
Valuation allowance (17,740) 3,395
...........................
$ - $ -
___________________________
Deferred Deferred
1995 Tax Assets Tax Liabilities
............................................................................
(in thousands)
Net operating loss and other carryforwards $ 4,690 $ -
Depreciation and amortization 997 -
Capitalized software 1,008 (1,572)
Benefit plans 245 -
Bad debt allowances 778 -
Purchased research and development 5,872 -
Other 1,141 -
...........................
14,731 (1,572)
Valuation allowance (793) -
............................
$ 13,938 $(1,572)
____________________________
</TABLE>
33
<PAGE>
Notes to Consolidated Financial Statements
................................................................................
A reconciliation of the statutory U.S. Federal income tax rate and the effective
tax rate is as follows:
<TABLE>
<CAPTION>
Years Ended December 31, 1996 1995 1994
<S> <C> <C> <C>
Statutory rate (35.0)% (35.0)% 35.0%
State income taxes, net of U.S. Federal benefit - (1.0) 3.0
Foreign operation 5.4 4.0 _
Valuation allowance 79.6 _ _
Research and development credits - (1.5) (1.5)
Foreign losses not benefitted - 2.6 _
Other - 0.9 (1.0)
.......................
Effective tax rate before purchased research
and development 50.0 (30.0) 35.5
Impact of purchased research and development - - (6.1)
.......................
Effective tax rate after in-process research
and development write-off 50.0% (30.0)% 29.4%
_______________________
</TABLE>
J. Preferred Stock
In July 1992, the shareholders of the Company approved the creation of a new
class of undesignated preferred stock and authorized 1,000,000 shares of $.01
par value, in one or more series, with voting rights and preferences to be
determined by the Board of Directors. At December 31, 1996, there were no shares
issued or outstanding and the Company has no present plans to issue any shares
of preferred stock.
K. Realized and Unrealized Gains and Losses on Marketable Securities
Unrealized holding gains and losses at December 31, 1996 were as follows:
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized
Aggregate Amortized Holding Holding
Security Type Fair Value Cost Gains Losses
...........................................................................................................................
(in thousands)
<S> <C> <C> <C> <C>
Maturing within one year:
U.S. Treasury Notes $ 2,981 $ 3,011 $ - $30
Tax free municipal bond 1,158 1,158 - -
........................................
4,139 4,169 - 30
Maturing after one year through five years:
U. S. Treasury Notes 4,296 4,336 - 40
Certificate of deposit 140 140 - -
.......................................
4,436 4,476 - 40
.......................................
Totals $ 8,575 $ 8,645 $ - $70
_______________________________________
Unrealized holding gains and losses at December 31, 1995 were as follows:
Gross Gross
Unrealized Unrealized
Aggregate Amortized Holding Holding
Security Type Fair Value Cost Gains Losses
.........................................................................................................................
(in thousands)
Maturing within one year:
Tax-free municipal bonds $ 7,729 $ 7,727 $ 2 $ -
........................................
7,729 7,727 2 -
Maturing after one year through five years:
Tax-free municipal bonds 11,136 11,135 1 -
........................................
11,136 11,135 1 -
........................................
Totals $18,865 $18,862 $ 3 $ -
________________________________________
</TABLE>
Realized gains/(losses) were $47,000, $9,000 and $(46,000) for the years ended
December 31, 1996, 1995 and 1994, respectively.
34
<PAGE>
L. Stock Option Plans
Under the Company's 1984 stock option plans, the Company may grant incentive and
non-qualified stock options to purchase up to an aggregate of 5,113,841 shares
of common stock, of which 422,403 options were outstanding at December 31, 1996.
In June 1992, the Board of Directors voted that no further options be granted
under the 1984 stock option plans. Generally, options outstanding are
immediately exercisable and ownership rights in the underlying shares vest
ratably over a four-year period and expire ten years from the date of grant.
Under the Company's 1992 Stock Incentive Plan, the Company may grant incentive
stock options and non-statutory options for the purchase of an aggregate of
2,700,000 shares of common stock to employees or consultants. In 1996, the
Company granted incentive stock options and non-statutory stock options to
purchase 964,689 shares of common stock. At December 31, 1996, 2,145,122 options
were outstanding. The plan provides that incentive stock options may not be
granted at less than the fair market value of the Company's common stock at the
grant date, and options generally vest ratably over a four-year period and
expire ten years from the date of grant.
Under the Company's 1992 Director Stock Option Plan (the "1992 Director
Plan"), the Company may grant non-statutory stock options for the purchase of up
to an aggregate of 100,000 shares of common stock to directors of the Company
who are not officers or employees of the Company or any subsidiary of the
Company. Under the terms of the 1992 Director Plan, initial options shall be
granted to each eligible director upon his or her initial election as a director
that cover 15,000 shares of common stock and annual options shall be granted on
the date of each Annual Meeting of Shareholders of the Company that cover 3,000
shares of common stock. The Plan provides that options shall be granted at the
fair market value of the Company's common stock at the grant date. Annual
options generally vest twelve months after the date and initial options vest
ratably over a four-year period. At December 31, 1996, 63,000 options had been
granted under the 1992 Director Plan.
Under the Company's 1995 Employee Stock Purchase Plan, 450,000 shares of
common stock are available to all full-time employees through semi-annual
offerings. At December 31, 1996, 262,519 shares of common stock have been
purchased.
In October 1995, the Financial Accounting Standards Board issued SFAS 123,
Accounting for Stock-Based Compensation. SFAS 123 is effective for periods
beginning after December 15, 1995, and requires that companies either recognize
compensation expense for grants of stock, stock options, and other equity
instruments based on fair value, or provide pro forma disclosure of net income
and earnings per share in the notes to the financial statements. The Company
adopted the disclosure provisions of SFAS 123 in 1996. Had compensation cost for
the Company's stock-based compensation plans been determined based on the fair
value at the grant dates as calculated in accordance with SFAS 123, the
Company's net income and earnings per share for the years ended December 31,
1996 and 1995 would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1995
.........................................
As Pro As Pro
Reported Forma Reported Forma
.....................................................................................
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net (loss) $(27,030) $(30,562) $(21,360) $(23,053)
Net (loss) per share $ (1.59) $ (1.80) $ (1.27) $ (1.37)
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1996 and 1995, respectively: dividend yield of 0%
and 0%; expected volatility of 62% and 62%; risk-free interest rates of 6.4% and
6.0%; and expected lives of 5.5 and 5.0 years. The effects of applying SFAS 123
in this pro forma disclosure are not likely to be representative of the effects
on reported net income for future years. Additional awards in future years are
anticipated. SFAS 123 does not apply to awards prior to 1995.
35
<PAGE>
Notes to Consolidated Financial Statements
................................................................................
A summary of the status of the Company's Plan as of December 31, 1996, 1995 and
1994, and changes during the years ending on those dates is presented below.
<TABLE>
<CAPTION>
1996 1995 1994
....................................................................................
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
...................................................................................................................................
(in thousands, except exercise price data)
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 2,537 $ 8.34 2,497 $ 7.04 2,360 $ 5.76
Granted 1,080 6.32 1,081 12.34 983 8.54
Exercised (111) 4.16 (458) 4.59 (552) 4.33
Cancelled (875) 9.30 (583) 13.09 (294) 6.97
...................................................................................
Outstanding at end of year 2,631 $ 7.02 2,537 $ 8.34 2,497 $ 7.04
___________________________________________________________________________________
Options exercisable at year-end 1,154 $ 7.06
______________________
Weighted-average fair value of
options granted during the year $ 3.93 $ 5.80
</TABLE>
The following table summarizes information
about the Plan's stock options at December
31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
............................................................................
Number Weighted Weighted Number Weighted
Outstanding at Average Average Exercisable at Average
December 31, Remaining Exercise December 31, Exercise
Range of Exercise Price 1996 Contractual Life Price 1996 Price
....................................................................................................................................
(in thousands, except weighted average exercise data)
<S> <C> <C> <C> <C> <C>
$1.15 - $ 3.99 354 7.7 years $ 3.21 99 $ 1.83
$4.00 - $ 6.99 814 8.0 years $ 6.04 251 $ 4.24
$7.00 - $10.00 1,282 8.1 years $ 7.58 668 $ 7.35
$10.01 - $17.38 181 7.6 years $14.86 136 $14.62
..........................................................................
2,631 1,154
__________________________________________________________________________
</TABLE>
M. Employee Benefit Plan
In 1989, the Company established a savings and profit sharing plan covering
substantially all U.S. employees. The plan is qualified under Section 401(a) of
the Internal Revenue Code of 1986, as amended. Effective January 1, 1994, the
Company elected to match an employee's elective deferrals to the plan based upon
a prescribed formula. The maximum matching contribution was 2% of an employee's
annual compensation. Vesting is over a four-year period and begins on the date
of hire. The Company contributed $549,000, $620,000 and $627,000 in 1996, 1995
and 1994, respectively.
N. Segment Information
The Company is engaged in one industry segment: the development, marketing and
support of directory enabled enterprise networking software and related hardware
products and services. The Company distributes its products worldwide and
revenue can be grouped into geographic areas as follows:
<TABLE>
<CAPTION>
Years Ended December 31, 1996 1995 1994
....................................................................
(in thousands)
<S> <C> <C> <C>
Revenues from unaffiliated customers:
North America
United States $ 69,746 $ 89,116 $106,610
Canada 10,116 10,875 14,455
............................
79,862 99,991 121,065
International
Europe 17,757 20,833 23,932
Other 7,805 8,859 5,116
............................
25,562 29,692 29,048
............................
Total revenues $105,424 $129,683 $150,113
____________________________
</TABLE>
36
<PAGE>
One customer accounted for approximately 11% of total revenues for 1996. One
customer accounted for approximately 16% of total revenues in 1995. Three
customers individually accounted for approximately 13%, 12% and 11% of total
revenues in 1994. The customers who have been included in these percentages vary
from year to year.
O. Business Combination
On February 28, 1994, the Company acquired Beyond Incorporated, a leading
provider of electronic mail-enabled enterprise software applications. The
Company acquired all the outstanding stock of Beyond for $17,500,000 and assumed
certain liabilities. The transaction was accounted for as a purchase. The
purchase price, which included liabilities assumed and a $500,000 equity
investment made in the first quarter of 1993, was approximately $20,492,000. The
purchase price was first allocated to tangible assets based on their fair market
values ($836,000) and to purchased software ($2,050,000) for software that had
reached technological feasibility, which is being amortized over three years.
At December 31, 1996 and 1995, the Company has accumulated amortization of
$1,936,000 and $1,253,000, respectively, for the purchased software. The
remaining purchase price was allocated to purchased research and development for
software which has not reached technological feasibility or has no alternative
future use. A charge for purchased research and development of $17,606,000 was
recorded upon the closing of the acquisition. The related tax benefit of this
acquisition was $6,690,000 and the net after-tax charge was $10,916,000.
P. Minority Interests
In 1995, the Company entered into an agreement with Marubeni Corporation to sell
a minority interest in the Company's Japanese subsidiary, NBSKK. Subsequently,
in 1995, the Company and Marubeni Corporation entered into an agreement with NTT
Technology Corporation to sell a minority interest in NBSKK. Pursuant to these
agreements, the Japanese companies hold a 33 percent equity interest in NBSKK.
All assets, liabilities, revenues and expenses of NBSKK are included in the
consolidated financial statements for the years ended December 31, 1996 and
1995. The minority interest in the net loss of NBSKK is deducted from net
income. For the year ended December 31, 1996, revenue and expenses for NBSKK
were approximately $1,321,000 and $3,328,000, respectively. For the year ended
December 31, 1995, revenue and expenses for NBSKK were approximately $1,408,000
and $2,944,000, respectively. The Japanese companies' minority interest in
NBSKK's assets and liabilities is shown net in the consolidated balanced sheet.
At December 31, 1996, assets and liabilities for NBSKK were approximately
$2,567,000 and $2,233,000, respectively. At December 31, 1995, assets and
liabilities were approximately $3,572,000 and $2,046,000, respectively.
In 1996, the Company entered into an agreement with America Online(R) (AOL)
and Digital City(TM) Incorporated (DCI) to sell minority interests in the
Company's subsidiary, Switchboard Incorporated, to AOL and DCI. Pursuant to this
agreement, AOL and DCI invested a total of $3,000,000 in Switchboard
Incorporated and hold a combined equity interest of 7.5%. At December 31, 1996,
$2,299,000 in cash and cash equivalents in the consolidated balance sheet are
restricted for use in funding Switchboard activities. AOL and DCI's minority
interest in the net loss of Switchboard is deducted from net income. For the
year ended December 31, 1996, revenue and expenses were approximately $170,000
and $1,479,000, respectively. AOL and DCI's minority interest in Switchboard's
assets and liabilities is shown net in the consolidated balance sheet. At
December 31, 1996, assets and liabilities for Switchboard Incorporated were
approximately $3,792,000 and $871,000, respectively.
37
<PAGE>
Report of Independent Accountants
................................................................................
To the Board of Directors and Shareholders of Banyan Systems Incorporated:
................................................................................
We have audited the accompanying consolidated balance sheets of Banyan Systems
Incorporated as of December 31, 1996 and 1995, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
three years in the period ended December 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Banyan Systems
Incorporated as of December 31, 1996 and 1995, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1996 in conformity with generally accepted accounting
principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
January 31, 1997
38
<PAGE>
Supplementary Data
................................................................................
Selected Financial Data
<TABLE>
<CAPTION>
Years Ended December 31, 1996 1995 1994 1993 1992
................................................................................................
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Statement of operations data:
Revenues:
Software $ 87,281 $105,160 $118,899 $ 94,231 $ 75,513
Support and training 16,456 21,059 20,444 18,559 14,728
Hardware 1,687 3,464 10,770 14,980 23,252
...................................................
Total revenues 105,424 129,683 150,113 127,770 113,493
(Loss)/income from operations (19,085) (34,201) 5,541 19,630 13,048
Net (loss)/income (27,030) (21,360) 4,987 12,962 8,234
Net (loss)/income per share $ (1.59) $ (1.27) $ 0.27 $ 0.70 $0.50
Balance sheet data:
Working capital $ (1,513) $ 9,534 $ 30,602 $ 50,477 $ 47,292
Total assets 69,532 106,309 124,960 121,984 85,133
Long-term obligations,
less current maturities - - 61 - 24
Total shareholders' equity 20,322 44,342 73,879 79,412 58,778
</TABLE>
<TABLE>
<CAPTION>
1996 Quarter Ended Dec. 31 Sept. 30 June 30 March 31
.....................................................................................
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Revenues:
Software $ 12,688 $ 23,917 $ 25,745 $ 24,931
Support and training 4,297 3,795 3,895 4,469
Hardware 177 417 561 532
.........................................
Total revenues 17,162 28,129 30,201 29,932
(Loss)/income from operations(1) (18,127) (1,442) 135 349
Net (loss)/income(2) (26,802) (783) 186 369
Net (loss)/income per share $ (1.56) $ (0.05) $ 0.01 $ 0.02
Stock prices:(3)
High $ 6.16 $ 7.56 $ 10.44 $ 11.25
Low $ 3.63 $ 5.13 $ 6.50 $ 7.38
1995 Quarter Ended Dec. 31 Sept. 30 June 30 March 31
.....................................................................................
(in thousands, except per share amounts)
Revenues:
Software $ 22,149 $ 24,990 $ 24,342 $ 33,679
Support and training 5,287 5,244 5,210 5,318
Hardware 541 969 602 1,352
.........................................
Total revenues 27,977 31,203 30,154 40,349
(Loss)/income from operations(4) (26,225) (7,370) (5,653) 5,047
Net (loss)/income(4) (17,308) (4,317) (3,292) 3,557
Net (loss)/income per share $ (1.03) $ (0.26) $ (0.20) $ 0.20
Stock prices:(3)
High $ 12.75 $ 14.00 $ 18.38 $ 19.13
Low $ 6.87 $ 10.00 $ 12.50 $ 15.00
</TABLE>
1. In the fourth quarter of 1996, the Company took a one-time charge of $5,500
related to restructuring the Company.
2. In the fourth quarter of 1996, the Company wrote off deferred tax assets of
$8,038.
3. The Company's common stock is traded on the over-the-counter market and is
quoted on the Nasdaq National Market under the symbol "BNYN". The common
stock prices are based on the Nasdaq National Market daily closing stock
price.
4. In the quarter ended December 31, 1995, the Company took a one-time charge
of $15,802, resulting in an after-tax charge of $11,061 related to the
restructuring and other charges incurred by the Company.
The Company has not paid cash dividends on its common stock and has
historically retained earnings for use in its business. The Company intends to
retain any future earnings for its business and does not expect to pay dividends
for the foreseeable future. In addition, the Company's current line of credit
prohibits the payment of cash dividends.
On December 31, 1996, the Company had 9,512 shareholders of record.
39
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
1. Banyan Systems International Incorporated
120 Flanders Road
Westboro, Massachusetts 01581
2. Banyan Securities Corporation
120 Flanders Road
Westboro, Massachusetts 01581
3. Banyan Systems Asia-Pacific Incorporated
120 Flanders Road
Westboro, Massachusetts 01581
4. Banyan Systems World Trade Incorporated
120 Flanders Road
Westboro, Massachusetts 01581
5. Banyan Systems (UK) Ltd.
Banyan House
Northwood Park
Gatwick Road
Crawley, West Sussex, U.K. RH102XN
6. Banyan Systems (Holland) B.V.
Planetenbaan 28
3606 AK MAARSSEN
The Netherlands
7. Banyan Systems (Deutschland) GmbH
Kappellenstr. 10
85622 Feldkirchen
Germany
8. Banyan Systems (France) S.A.R.L.
11 Rue Salomon de Rothschild
92150 Suresnes
France
9. Beyond Incorporated
120 Flanders Road
Westboro, Massachusetts 01581
10. Banyan Systems S.A. de C.V.
Diego Rivera 27-202
Col. San Pablo Tepetlapa
Mexico, D.F. 04380
11. Banyan Systems Asia Pacific Ltd.
1301 Harcourt House
39 Gloucester Road
Wanchai
Hong Kong
12. Banyan Systems (Taiwan), Incorporated
120 Flanders Road
Westboro, Massachusetts 01581
13. Nihon Banyan Systems K.K.
Kokusaikougyo Gobancho
K Bldg.
12 Gobancho, Chiyoda-ku
Tokyo 102 Japan
14. Banyan Systems (Korea) Co., Ltd.
6F Eunseoung Bldg.
601-18 Yeoksam-Dong
Kangnam-ku
Seoul, Korea 135-729
15. Banyan Systems (Scandinavia) AB
Isafjordsgatan 11
S-164 40 Kista
Sweden
16. Banyan Systems do Brasil Ltda.
Av. Roque Petrone Jr.
999-13 Andar
CEP 04707-910, Sao Paulo,
SP Brasil
17. Banyan Enterprise Networks
P.O. Box 98910
Sloanpark
Bryanston 2152
Johannesburg, South Africa
18. Coordinate.com
120 Flanders Road
Westboro, MA 01581
19. Switchboard Inc.
115 Flanders Road
Westboro, MA 01581
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements of
Banyan Systems Incorporated on Form S-8 (File Nos. 33-50860, 33-50862, 33-50864,
33-54140, 33-57734, 33-78804, 33-92312, 33-95288 and 333-22631) of our reports
dated January 31, 1997, on our audits of the consolidated financial statements
and financial statement schedule of Banyan Systems Incorporated as of December
31, 1996 and 1995, and for each of the three years in the period ended December
31, 1996, which reports are included or incorporated by reference in this Annual
Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
March 31, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 1996 ANNUAL
REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> DEC-31-1996 DEC-31-1995
<CASH> 10,613 12,398
<SECURITIES> 4,139 7,729
<RECEIVABLES> 26,922 29,924
<ALLOWANCES> 7,168 5,636
<INVENTORY> 2,863 3,664
<CURRENT-ASSETS> 43,753 67,405
<PP&E> 45,619 39,892
<DEPRECIATION> 32,054 25,296
<TOTAL-ASSETS> 69,532 106,309
<CURRENT-LIABILITIES> 45,266 57,871
<BONDS> 0 0
0 0
0 0
<COMMON> 190 186
<OTHER-SE> 20,132 44,156
<TOTAL-LIABILITY-AND-EQUITY> 69,532 106,309
<SALES> 88,968 108,624
<TOTAL-REVENUES> 105,424 129,683
<CGS> 11,332 15,835
<TOTAL-COSTS> 124,509 163,884
<OTHER-EXPENSES> 511 666
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 80 90
<INCOME-PRETAX> (18,017) (30,515)
<INCOME-TAX> 9,013 (9,155)
<INCOME-CONTINUING> (27,030) (21,360)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (27,030) (21,360)
<EPS-PRIMARY> (1.59) (1.27)
<EPS-DILUTED> (1.59) (1.27)
</TABLE>
