<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarter ended March 31, 1997 Commission File Number 0-20364
BANYAN SYSTEMS INCORPORATED
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2798394
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
120 FLANDERS ROAD 01581
WESTBORO, MASSACHUSETTS (Zip Code)
(Address of principal executive offices)
(508) 898-1000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- ------
Number of shares outstanding of each of the issuer's classes of common stock as
of April 30, 1997:
Class Number of Shares Outstanding
----- -----------------------------
Common Stock, par value $.01 per share 17,306,153
<PAGE>
BANYAN SYSTEMS INCORPORATED
INDEX
<TABLE>
<CAPTION>
PAGE NUMBER
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PART I. FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets 3
March 31, 1997 and December 31, 1996
Consolidated Statements of Operations 4
Three months ended March 31, 1997 and 1996
Consolidated Statements of Cash Flows 5
Three months ended March 31, 1997 and 1996
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial 7
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURE 12
EXHIBIT INDEX 13
</TABLE>
This Quarterly Report on Form 10-Q contains forward-looking statements,
including information with respect to the Company's plans and strategy for its
business. For this purpose, any statements contained herein that are not
statements of historical fact may be deemed to be forward-looking statements.
Without limiting the foregoing, the words "believes", "anticipates", "plans",
"expects" and similar expressions are intended to identify forward-looking
statements. There are a number of important factors that could cause actual
events or the Company's actual results to differ materially from those indicated
by such forward-looking statements. These factors include, without limitation,
those set forth below under the caption "Factors Affecting Future Operating
Results" included under "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in Part I, Item 2 of this Quarterly Report
on Form 10-Q.
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<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
--------------------
BANYAN SYSTEMS INCORPORATED
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
ASSETS March 31, 1997 December 31, 1996
--------------- ------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,342 $ 8,314
Restricted cash and cash equivalents 1,334 2,299
Marketable securities 7,226 4,139
Accounts receivable, less allowances of $5,101 and $7,168 18,377 19,754
Inventories 1,831 2,863
Software licenses 1,930 3,016
Other current assets 3,645 3,368
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Total current assets 38,685 43,753
Property and equipment:
Computers and peripherals 25,021 24,885
Equipment 11,409 11,434
Furniture and fixtures 4,459 4,645
Leasehold improvements 4,540 4,655
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Total 45,429 45,619
Less accumulated depreciation and amortization 33,587 32,054
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Property and equipment, net 11,842 13,565
Marketable securities - 4,436
Other assets, net of accumulated amortization of $4,949 and $5,661 7,722 7,778
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Total assets $ 58,249 $ 69,532
======== ===========
LIABILITIES
Current liabilities:
Accounts payable $ 1,677 $ 3,633
Accrued compensation 4,138 6,338
Accrued expenses 7,601 7,629
Accrued costs for restructuring and other charges 2,504 4,908
Income taxes payable 218 212
Software licenses payable, current portion 1,337 1,581
Note payable 1,094 1,079
Deferred revenue 20,736 19,886
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Total current liabilities 39,305 45,266
Software licenses payable, non-current 590 590
Minority interest in consolidated subsidiary 3,108 3,354
STOCKHOLDERS' EQUITY
Common stock, $.01 par value; authorized 25,000,000 shares; issued
and outstanding 19,154,153 and 18,996,882 shares 194 190
Preferred stock, $.01 par value; authorized 1,000,000 shares; none - -
issued and outstanding
Additional paid-in capital 65,892 64,581
(Accumulated deficit) (22,184) (15,792)
Treasury stock at cost; 1,848,000 common shares (28,564) (28,564)
Foreign currency translation adjustment (33) (23)
Unrealized (loss) on investments (59) (70)
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Total stockholders' equity 15,246 20,322
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Total liabilities and stockholders' equity $ 58,249 $ 69,532
======== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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<PAGE>
BANYAN SYSTEMS INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1997 1996
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<S> <C> <C>
Revenues:
Software $16,265 $24,931
Support and training 3,653 4,469
Hardware 113 532
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Total revenues 20,031 29,932
Cost of revenues:
Software 2,548 2,515
Support and training 2,763 3,273
Hardware 50 183
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Total cost of revenues
Gross margin 14,670 23,961
Operating expenses:
Sales and marketing 12,982 15,179
Product development 4,728 5,333
General and administrative 3,348 3,100
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Total operating expenses 21,058 23,612
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(Loss)/income from operations (6,388) 349
Other income (expense):
Interest income 142 335
Interest expense (24) (21)
Other, net (32) (87)
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Total other income (expense) 86 227
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(Loss)/income before income taxes (6,302) 576
Provision for income taxes 90 207
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Net (loss)/income $(6,392) $ 369
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Net (loss)/income per share $(0.37) $0.02
======= =======
Weighted average number of common 17,251 17,275
======= =======
and dilutive common equivalent shares
outstanding
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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<PAGE>
BANYAN SYSTEMS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------
1997 1996
--------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss)/income $(6,392) $ 369
Adjustments to reconcile net (loss)/income to net cash (used in) operating activities:
Depreciation and amortization 2,213 1,683
Noncash charges-issuance of stock 721 -
Changes in operating assets and liabilities:
Decrease/(increase) in accounts receivable 1,348 (5,449)
Decrease in inventories 1,029 352
Decrease in other current assets 572 139
(Decrease) in other liabilities (231) (98)
(Decrease) in accounts payable and accrued compensation and expenses (3,964) (2,273)
(Decrease) in accrued costs for restructuring and other charges (1,771) (5,524)
(Decrease) in software licenses payable, net (244) (240)
Increase in income taxes payable 6 1,651
(Increase) in other non current assets (207) -
Increase in deferred revenue 863 3,877
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Net cash (used in) operating activities (6,057) (5,513)
Cash flows from investing activities:
Capital expenditures (403) (1,247)
Minority interest equity investments - 95
Capitalization of software costs (323) (524)
Acquisition of software licenses - (725)
Proceeds from/(purchases of) marketable securities, net 1,360 4,648
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Net cash provided by investing activities 634 2,247
Cash flows from financing activities:
Proceeds from stock plan purchases and stock options 594 106
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Net cash provided by financing activities 594 106
Effect of exchange rate changes on cash and cash equivalents (108) (18)
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Net decrease in cash and cash equivalents (4,937) (3,178)
Cash and cash equivalents at beginning of the period 10,613 12,398
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Cash and cash equivalents at end of the period $ 5,676 $ 9,220
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</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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<PAGE>
BANYAN SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. BASIS OF PRESENTATION:
The accompanying unaudited consolidated financial statements include the
accounts of the Company and its subsidiaries as of March 31, 1997, and have
been prepared by the Company in accordance with generally accepted
accounting principles. In the opinion of management, the accompanying
unaudited consolidated financial statements contain all adjustments,
consisting only of those of a normal recurring nature, necessary for a fair
presentation of the Company's financial position, results of operations and
cash flows at the dates and for the periods indicated. While the Company
believes that the disclosures presented are adequate to make the
information not misleading, these consolidated financial statements should
be read in conjunction with the consolidated financial statements and
related notes included in the Company's 1996 Annual Report to Stockholders
and Annual Report on Form 10-K.
The results of operations for the three-month period ended March 31, 1997
are not necessarily indicative of the results expected for the full fiscal
year.
B. INVENTORIES:
<TABLE>
<CAPTION>
Inventories consist of the following at:
(in thousands) March 31, 1997 December 31, 1996
-------------- -----------------
<S> <C> <C>
Purchased parts $ 866 $ 989
Work in process 314 313
Finished goods 651 1,561
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$1,831 $2,863
====== ======
</TABLE>
C. NEW ACCOUNTING PRONOUNCEMENT:
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS"),
which is effective for fiscal years ending after December 15, 1997,
including interim periods. SFAS 128 establishes standards for computing and
presenting earnings per share (EPS) and requires a dual presentation of
basic and dilutive EPS. The Company is currently assessing the impact of
SFAS 128.
D. SUBSEQUENT EVENT:
On April 21, 1997, the Company announced a reorganization of its
operations. As a result of the reorganization, the Company expects to
record pre-tax restructuring and other charges of approximately $10,000,000
to $13,000,000 in the quarter ending June 30, 1997. The restructuring and
other charges will provide for severance costs related to the reduction of
approximately 25% of the Company's workforce and costs related to facility
and product line consolidations.
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<PAGE>
BANYAN SYSTEMS INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
GENERAL
Total revenues for the three-month periods ended March 31, 1997 and 1996 were
$20.0 million and $29.9 million, respectively. This decrease was due to lower
software and support and training revenues as well as expected declines in
hardware revenues due to the continued phase-out of the Company's hardware
business. The Company's software revenues decreased by 35% compared to the
corresponding period in 1996 to $16.3 million. The decline in software revenues
in 1997 was attributable primarily to lower levels of sales of messaging
products, as a result of delays in delivery of new versions of BeyondMail IM,
and the Company's current VINES offerings. The revenues in the three-month
period ended March 31, 1997 were affected by several customer purchasing delays
due to general uncertainty resulting from the transition in senior management.
Support and training revenues decreased by 18% compared to the corresponding
period in 1996 to $3.7 million. The decline in support and training revenues was
attributable primarily to lower revenues from education services due to delays
in new product offerings. International revenues for the three-month periods
ended March 31, 1997 and 1996 were $6.2 million and $7.0 million, respectively.
This decrease was primarily due to lower revenues from messaging products.
International revenues accounted for 31% of total revenues for the three-month
period ended March 31, 1997, compared with 23% for the corresponding period in
1996.
Gross margins for software were $13.7 million, or 84%, for the three-month
period ended March 31, 1997, compared with $22.4 million, or 90%, for the
corresponding period in 1996. The decrease in gross margin percentage was
primarily due to the absorption of overhead costs on lower levels of sales. The
decrease in gross margin dollars was due to lower sales volume.
Gross margins for support and training were $0.9 million, or 24%, for the three-
month period ended March 31, 1997, compared with 27%, or $1.1 million, for the
corresponding period in 1996. The decrease in gross margin percentage was
primarily due to the absorption of overhead costs on lower revenues. The
decrease in gross margin dollars was due to lower revenues from education
classes.
Sales and marketing expenses decreased 14% to $13.0 million for the three-month
period ended March 31, 1997, compared to the same period in 1996. This decrease
was primarily due to lower sales staffing and personnel costs as a result of the
reduction in work force as part of the Company's reorganization in the quarter
ended December 31, 1996. Additionally, variable sales costs, including
commissions, decreased due to lower revenues in the quarter ended March 31, 1997
when compared to the corresponding period in the prior year. Sales and
marketing expenses as a percentage of revenues were 65% and 51% for the three-
month periods ended March 31, 1997 and 1996, respectively.
Product development expenses decreased 11% to $4.7 million for the three-month
period ended March 31, 1997, compared to the corresponding period in 1996. This
decrease was primarily due to lower headcount in the quarter ended March 31,
1997 when compared to the corresponding period in the prior year as a result of
the Company's reorganization in the quarter ended December 31, 1996. The Company
continues to focus its product development resources on its enterprise network
services offerings, particularly the Windows NT-based products and BeyondMail
products. Additionally, the Company has maintained its investment in Internet-
related product initiatives, particularly Switchboard Incorporated technology
and services.
-7-
<PAGE>
Product development expenses as a percentage of revenues were 24% and 18% for
the three-month periods ended March 31, 1997 and 1996, respectively. Software
costs of $324,000 and $524,000 were capitalized for the three-month periods
ended March 31, 1997 and 1996, respectively. The amounts capitalized represented
6% and 9% of product development expenditures for each of the three-month
periods ended March 31, 1997 and 1996, respectively.
General and administrative expenses increased 8% to $3.3 million for the three-
month period ended March 31, 1997, compared to the same period in 1996. This
increase was primarily attributable to a one-time non cash charge of $721,000
for common stock issued as an executive signing bonus, offset in part by lower
administrative and personnel costs as a result of the reduction in work force as
part of the Company's reorganization in the quarter ended December 31, 1996.
General and administrative expenses as a percentage of revenue were 17% and 10%
for the three-month periods ended March 31, 1997 and 1996, respectively.
Interest income was $142,000 and $335,000 for the three-month periods ended
March 31, 1997 and 1996, respectively. This decrease was due to lower levels of
available funds invested in marketable securities.
No tax provision, other than that required for foreign income or foreign
withholding taxes, was recorded for the three-month period ended March 31, 1997
due to the Company's net operating loss. The effective tax rate for the
three-month period ended March 31, 1996 was 36%.
-8-
<PAGE>
FACTORS AFFECTING FUTURE OPERATING RESULTS
Certain of the information contained in this Form 10-Q, including information
with respect to the Company's plans and strategy for its business expectations,
consist of forward-looking statements. Important factors that could cause
actual results to differ materially from the forward-looking statements include
the factors listed under "Factors Affecting Future Operating Results" in the
Company's 10-K for the year ended December 31, 1996, which are incorporated
herein by reference, as well as the following factors:
In 1996, the Company announced a reorganization of its operations, including the
search for a new president and chief executive officer and 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.
In the second quarter of 1997, following the hiring of the new president and
chief executive officer, the Company announced a reorganization of its
operations. As a result of the reorganization the Company expects to record
pre-tax restructuring and other charges of approximately $10.0 million to $13.0
million in the quarter ending June 30, 1997. The restructuring and other
charges will provide for severance costs related to the reduction of
approximately 25% of the Company's workforce and costs related to facility and
product line consolidations. 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 1996 and the first quarter of 1997, a 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 1996 and the first quarter of 1997, 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 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.
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 new products. The Company's results in 1996 and
the first quarter of 1997 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.
Because of the foregoing factors and the factors incorporated herein by
reference, 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 increased from a $1.5 million deficit at December 31, 1996 to a
$0.6 million deficit at March 31, 1997. At March 31, 1997, cash and cash
equivalents combined with short-
-9-
<PAGE>
term and long-term marketable securities were $12.9 million, compared with $19.2
million at December 31, 1996. Cash and cash equivalents decreased $4.9 million
resulting in a cash balance of $5.7 million at March 31, 1997. This decrease was
due principally to the net loss in the quarter, $3.9 million decrease in
accounts payable and accrued expenses and $1.8 million in restructuring and
other charges, offset in part by a $1.4 million decrease in accounts receivable,
$1.4 million in proceeds from sales of marketable securities, $1.0 million
decrease in inventories and various other operating, investing and financing
activities.
On April 21, 1997, the Company announced a reorganization of its operations. As
a result of the reorganization, the Company expects to record pre-tax
restructuring and other charges of approximately $10.0 million to $13.0 million
in the quarter ending June 30, 1997. The restructuring and other charges will
provide for severance costs related to the reduction of approximately 25% of the
Company's workforce and costs related to facility and product line
consolidations. The restructuring charge is expected to use cash of
approximately $3.0 million to $4.0 million.
In the quarter ended December 31, 1996, the Company recorded a restructuring
charge of $5.5 million. Management believes that the liability balance is
adequate to cover future expenditures associated with the restructuring charge.
The restructuring charge is expected to use cash of approximately $3.6 million,
of which $2.0 million had been expended through March 31, 1997.
The Company had a $10 million line of credit that expired in May 1997.The line
provided for borrowings to be made at the bank's prime rate. At March 31, 1997,
the Company had no borrowings under this line of credit. The Company is
negotiating to renew the line of credit and is also considering alternative
sources of financing. The Company believes that existing cash and marketable
securities, combined with cash expected to be generated from operations and an
available line of credit, will be sufficient to fund the Company's operations
through at least 1997. There can be no assurance, however, that the Company will
be able to renew its line of credit or establish a new line of credit or an
alternative source of financing. If the Company fails to obtain such financing,
the Company could require additional cash to fund operations prior to the end of
1997. In addition, if revenues during the remainder of 1997 are lower than
expected, the Company could require additional cash to fund operations prior to
the end of 1997. There can be no assurance that such funds would be available on
commercially reasonable terms, if at all.
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<PAGE>
BANYAN SYSTEMS INCORPORATED
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) The exhibits listed in the Exhibit Index filed as part of this
report are filed as part of or are included in this report.
(b) The Company filed no reports on Form 8-K during the fiscal quarter
for which this report is filed.
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<PAGE>
BANYAN SYSTEMS INCORPORATED
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BANYAN SYSTEMS INCORPORATED
Date: May 13, 1997 By: /s/ Richard M. Spaulding
------------------------
Richard M. Spaulding
Vice President, Finance and Treasurer
(principal financial and accounting officer)
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<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER TITLE OF DOCUMENT
- -------------- -----------------
10.44 Loan Document Modification Agreement, dated as
of March 28, 1997, by and between the Company
and Silicon Valley Bank.
27 Financial Data Schedule.
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<PAGE>
LOAN DOCUMENT MODIFICATION AGREEMENT
------------------------------------
(No. 7; dated as of March 28, 1997)
-----------------------------------
LOAN DOCUMENT MODIFICATION AGREEMENT dated as of March 28, 1997 (the
"Agreement") by and between BANYAN SYSTEMS INCORPORATED, a Massachusetts
- ----------
corporation with its principal place of business at 120 Flanders Road, Westboro,
MA 01581 (the "Borrower") and SILICON VALLEY BANK (the "Bank"), a California
-------- ----
chartered bank with its principal place of business at 3003 Tasman Drive, Santa
Clara, California 95054, and with a loan production office located at Wellesley
Office Park, 40 William Street, Wellesley, MA 02181, doing business under the
name "Silicon Valley East".
I. Reference to Existing Loan Documents.
------------------------------------
Reference is hereby made to that Commitment Letter dated May 5, 1992
between the Bank and the Borrower, as previously amended as of May 5, 1993, May
5, 1994, May 5, 1995, January 22, 1996, February 1, 1996 and May 5, 1996 (with
the attached schedules and exhibits, the "Commitment Letter") and the Loan
-----------------
Documents referred to therein, including without limitation that certain
Amended and Restated Promissory Note of the Borrower dated May 5, 1996 in the
principal amount of $10,000,000 (the "Note"), and the Security Documents
----
referred to therein. Unless otherwise defined herein, capitalized terms used
in this Agreement shall have the same respective meanings as set forth in the
Commitment Letter.
I. Effective Date.
--------------
This Agreement shall become effective as of May 28, 1997 (the "Effective
---------
Date"), provided that the Bank shall have received the following on or before
----
May 30, 1997 and provided further, however, in no event shall this Agreement
become effective until signed by an officer of the Bank in California:
A. two copies of this Agreement, duly executed by the Borrower;
A. a check in the amount of $2,000 to cover the Bank's variance
fee or a letter authorizing the Bank to debit the Borrower's account in such
amount.
By the signature of its authorized officer below, the Borrower is hereby
representing that, except as modified in Schedule A attached hereto, the
----------
representations of the Borrower set forth in the Loan Documents (including
those contained in the Credit Agreement, as amended by this Agreement) are true
and correct as of the Effective Date as if made on and as of such date.
Finally, the Borrower (and each guarantor, if any, signing below) agrees that,
as of the Effective Date, it has no defenses against its obligations to pay any
amounts under the Credit Agreement and the other Loan Documents.
In addition, the Borrower (a) agrees to furnish to the Bank on or before
April 15, 1997 a duly completed and signed Perfection Certificate in the form
furnished herewith and to cooperate with the Bank in executing such further UCC
financing statements as the Bank may reasonably
<PAGE>
request, and (b) agrees to permit the Bank as its agent to conduct an accounts
receivable audit at Borrower's expense on or before April 28, 1997. Borrower
acknowledges that the Bank's failure to receive such a report favorable in
substance to the Bank on or before such date shall constitute an "Event of
Default" hereunder.
I. Modifications to Commitment Letter.
-----------------------------------
As of the Effective Date, the Commitment Letter is modified in the following
respects:
A. Numbered paragraph 7 of the Commitment Letter is hereby
restated in its entirety as follows:
"7. The Borrower may not permit the (a) sum of the aggregate unpaid
principal amount of any advances under this Commitment and (b) the
aggregate of (i) all amounts available to be drawn under any letters of
credit issued for the account of the Borrower as provided in Paragraph 8
below (the "Available Letter of Credit Amount"), and (ii) all unreimbursed
drawings under such letters of credit (the sum of (a) and (b), the
"Extensions of Credit"), to exceed at any time an amount equal to either
the sum of $10,000,000 committed by the Bank hereunder (the "Committed
Amount") or the Borrowing Base, whichever is less. If, at any time or for
any reason, the aggregate amount of all Extensions of Credit under this
Commitment is greater than the lesser of the Committed Amount or the
Borrowing Base, the Borrower shall immediately pay to the Bank, in cash,
the amount of such excess.
A. Numbered paragraph 4(c) of Schedule II is hereby amended by
inserting the following language at the beginning of the paragraph:
"(c) provided, however, that such a Compliance Certificate shall also
be required within thirty (30) days of the end of each month with respect
to Borrower's compliance with the Minimum Quick Ratio covenant set forth
in Paragraph 17 of Schedule II"
A. Numbered paragraph 17 of Schedule II is hereby restated in
its entirety as follows:
"17. Quick Ratio. The Borrower will not permit the Quick Ratio to be
-----------
less than 1.5 to 1 at the end of any fiscal month, commencing as of
February 28, 1997."
A. Numbered paragraph 18 of Schedule II (the Minimum
Profitability Covenant) is hereby corrected by substituting the word "not" for
the word "now" appearing in the first line thereof.
"18. Minimum Profitability. The Borrower shall not incur Net Losses
---------------------
in any two consecutive fiscal quarters and shall not permit Net Income to
be less than $1.00 in any fiscal year."
A. Schedule III is hereby amended by inserting or restating the
following definitions thereunder in alphabetical order:
<PAGE>
"Borrowing Base" means an amount equal to (i) thirty percent (30%) of
Eligible Accounts Receivable plus (ii) thirty percent (30%) of the value
of Eligible Foreign Accounts Receivable, as determined by Bank with
reference to the most recent Borrowing Base Certificate delivered by
Borrower.
"Eligible Accounts Receivable" means those accounts receivable that
arise in the ordinary course of Borrower's business that comply with all
of Borrower's representations and warranties to Bank set forth in Schedule
I. Unless otherwise agreed to by Bank in writing, Eligible Accounts
Receivable shall not include the following:
(a) accounts that the account debtor has failed to pay within
ninety (90) days of invoice date;
(b) accounts with respect to an account debtor, fifty percent
(50%) of whose accounts the account debtor has failed to pay within ninety
(90) days of invoice date;
(c) accounts with respect to an account debtor, including
Affiliates, whose total obligations to Borrower exceed twenty-five percent
(25%) of all accounts receivable, to the extent such obligations exceed
the aforementioned percentage, except as approved in writing by Bank;
(d) accounts with respect to which the account debtor does not
have its principal place of business in the United States;
(e) accounts with respect to which the account debtor is a
federal, state, or local governmental entity or any department, agency, or
instrumentality thereof, except for those accounts of the United States or
any department, agency or instrumentality thereof as to which the payee
has assigned its rights to payment thereof to Bank and the assignment has
been acknowledged, pursuant to the Assignment of Claims Act of 1940, as
amended (31 U.S.C. 3727);
(f) accounts with respect to which Borrower is liable to the
account debtor, but only to the extent of any amounts owing to the account
debtor (sometimes referred to as "contra" accounts, e.g. accounts payable,
customer deposits, credit accounts etc.).
(g) accounts generated by demonstration or promotional equipment,
or with respect to which goods are placed on consignment, guaranteed sale,
sale or return, sale on approval, bill and hold, or other terms by reason
of which the payment by the account debtor may be conditional;
(h) accounts with respect to which the account debtor is an
Affiliate, officer, employee, or agent of Borrower;
(i) accounts with respect to which the account debtor disputes
liability or makes any claim with respect thereto as to which Bank
believes, in its sole discretion,
<PAGE>
that there may be a basis for dispute (but only to the extent of the
amount subject to such dispute or claim), or is subject to any Insolvency
Proceeding, or becomes insolvent, or goes out of business; and
(j) accounts with respect to which the account debtor disputes
liability or makes any claim with respect thereto as to which Bank
believes, in its sole discretion, that there may be a basis for dispute
(but only to the extent of the amount subject to such dispute or claim),
or is subject to any Insolvency Proceeding, or becomes insolvent, or goes
out of business; and
(k) accounts the collection of which Bank reasonably determines
to be doubtful.
"Eligible Foreign Accounts" means accounts receivable with respect to
which the account debtor does not have its principal place of business in
the United States and that are: (1) covered by credit insurance in form
and amount, and by an insurer satisfactory to Bank less the amount of any
deductible(s) which may be or become owing thereon; or (2) supported by
one or more letters of credit either advised or negotiated through Bank or
in favor of Bank as beneficiary, in an amount and of a tenor, and issued
by a financial institution, acceptable to Bank; or (3) that Bank approves
on a case-by-case basis.
"Insolvency Proceeding" means any proceeding commenced by or against
any person or entity under any provision of the United States Bankruptcy
Code, as amended, or under any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, formal or informal
moratoria, compositions, extension generally with its creditors, or
proceedings seeking reorganization, arrangement, or other relief.
A. Schedule II to the Commitment Letter is hereby further
amended by restating Exhibit A thereto in its entirety in the form of Exhibit A
hereto.
A. Schedule II to the Commitment Letter is hereby further
amended by restating Exhibit B thereto in its entirety in the form of Exhibit B
hereto.
A. The Commitment Letter and the other Loan Documents are
hereby amended wherever necessary or appropriate to reflect the foregoing
changes.
I. Waiver of Events of Default.
---------------------------
The Bank hereby waives any and all Events of Default created by the
Borrower's failure to comply with the provisions of Paragraph 17 (Quick Ratio),
Paragraph 18 (Minimum Profitability), Paragraph 19 (Tangible Net Worth) and
Paragraph 20 (Tangible Capital Base) of Schedule II for the fiscal quarter
ending on December 31, 1996.
I. Effective Date.
--------------
This Agreement shall become effective as of the date first set forth above
when the Bank shall have received two copies of this Agreement, duly executed
by the Borrower (provided that in no event shall this Agreement become
effective until signed by an authorized officer of the
<PAGE>
Bank in California). By the signature of its authorized officer below, the
Borrower is hereby representing that, as of the date hereof, it has no defenses
against its obligations to pay any amounts under the Commitment Letter and the
other Loan Documents.
I. Continuing Validity.
-------------------
Upon the effectiveness hereof, each reference in each Security Instrument
or other Loan Document to "the Commitment Letter", "thereunder", "thereof",
"therein", or words of like import referring to the Commitment Letter, shall
mean and be a reference to the Commitment Letter, as amended hereby. Except as
specifically set forth above, the Commitment Letter shall remain in full force
and effect and is hereby ratified and confirmed. Each of the other Loan
Documents is in full force and effect and is hereby ratified and confirmed.
The modifications set forth above (i) do not constitute a waiver or
modification of any term, condition or covenant of the Commitment Letter or any
other Loan Document, other than as expressly set forth herein, and (ii) shall
not prejudice any rights which the Bank may now or hereafter have under or in
connection with the Commitment Letter, as modified hereby, or the other Loan
Documents, and shall not obligate the Bank to assent to any further
modifications.
I. Miscellaneous.
-------------
A. This Agreement may be signed in one or more counterparts
each of which taken together shall constitute one and the same document.
A. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS.
A. THE BORROWER ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS
PROPERTIES, UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF ANY STATE OR
FEDERAL COURT OF COMPETENT JURISDICTION IN THE COMMONWEALTH OF MASSACHUSETTS IN
ANY ACTION, SUIT, OR PROCEEDING OF ANY KIND AGAINST IT WHICH ARISES OUT OF OR
BY REASON OF THIS LOAN MODIFICATION AGREEMENT; PROVIDED, HOWEVER, THAT IF FOR
ANY REASON LENDER CANNOT AVAIL ITSELF OF THE COURTS OF THE COMMONWEALTH OF
MASSACHUSETTS, THEN VENUE SHALL LIE IN SANTA CLARA COUNTY, CALIFORNIA.
A. The Borrower agrees to promptly pay on demand all costs and
expenses of the Bank in connection with the preparation, reproduction,
execution and delivery of this letter amendment and the other instruments and
documents to be delivered hereunder, including the reasonable fees and out-of-
pocket expenses of Sullivan & Worcester LLP, special counsel for the Bank with
respect thereto.
<PAGE>
IN WITNESS WHEREOF, the Bank and the Borrower have caused this Agreement to
be signed under seal by their respective duly authorized officers as of the
date set forth above.
SILICON VALLEY EAST, a Division
of Silicon Valley Bank
By:_____________________________
Name: Joan S. Parsons
Title: Senior Vice President
SILICON VALLEY BANK
By:______________________________
Name:
Title:
(signed in Santa Clara, CA)
BANYAN SYSTEMS INCORPORATED
By:______________________________
Name:
Title:
<PAGE>
EXHIBIT A
TO SCHEDULE II
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
FROM: BANYAN SYSTEMS INCORPORATED
The undersigned authorized officer of Banyan Systems Incorporated hereby
certifies that in accordance with the terms and conditions of the Commitment
Letter dated as of June 5, 1992 between Borrower and Bank as amended through
the date hereof (the "Agreement"), (i) Borrower is in complete compliance for
the period ending with all required covenants except as noted
below and (ii) all representations and warranties of Borrower stated in the
Agreement are true and correct in all material respects as of the date hereof.
Attached herewith are the required documents supporting the above
certification. The Officer further certifies that these are prepared in
accordance with Generally Accepted Accounting Principles (GAAP) and are
consistently applied from one period to the next except as explained in an
accompanying letter or footnotes. The Officer expressly acknowledges that no
borrowings may be requested by the Borrower at any time or date of
determination that Borrower is not in compliance with any of the terms of the
Agreement, and that such compliance is determined not just at the date this
certificate is delivered.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES" COLUMN.
<TABLE>
<CAPTION>
REPORTING COVENANT REQUIRED COMPLIES
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Quarterly financial statements Quarterly within 45 days Yes No
Compliance Certificate Quarterly within 45 days Yes No
(except for Quick Ratio)
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
- ----------------------------------------------------------------------------------------
Maintain on a Quarterly Basis:
Minimum Tangible Capital Base $37,500,000 $ _______ Yes No
Maximum Debt/Tangible Net Worth
(less Deferred Revenue). 1.0:1.0 _____:1.0 Yes No
Profitability Quarterly No two $ _______ Yes No
consecutive
loss quarters
Annually $1.00 $ _______ Yes No
Maintain on a Monthly Basis:
Minimum Quick Ratio (less
Deferred Revenue) 1.5:1.0 _____:1.0 Yes No
</TABLE>
COMMENTS REGARDING EXCEPTIONS: See Attached.
Sincerely,
_______________________
Signature
Title
Date::_________________
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MARCH 31,
1997 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> MAR-31-1997 MAR-31-1996
<CASH> 5,676 10,613
<SECURITIES> 7,226 4,139
<RECEIVABLES> 24,762 26,922
<ALLOWANCES> 6,385 7,168
<INVENTORY> 1,831 2,863
<CURRENT-ASSETS> 38,685 43,753
<PP&E> 45,429 45,619
<DEPRECIATION> 33,587 32,054
<TOTAL-ASSETS> 58,249 69,532
<CURRENT-LIABILITIES> 39,305 45,266
<BONDS> 0 0
0 0
0 0
<COMMON> 194 190
<OTHER-SE> 15,052 20,132
<TOTAL-LIABILITY-AND-EQUITY> 58,249 69,532
<SALES> 16,378 25,463
<TOTAL-REVENUES> 20,031 29,932
<CGS> 2,598 2,698
<TOTAL-COSTS> 26,419 29,583
<OTHER-EXPENSES> 32 87
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 24 21
<INCOME-PRETAX> (6,302) 576
<INCOME-TAX> 90 207
<INCOME-CONTINUING> (6,392) 369
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (6,392) 369
<EPS-PRIMARY> (0.37) 0.02
<EPS-DILUTED> (0.37) 0.02
</TABLE>
