<PAGE>
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
For the fiscal year ended December 31, 1997 .
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{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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)
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, based on a per share fair market value of $5.688, was approximately
$90,829,288.73 as of March 23, 1998. For this purpose, any officer, director or
5% of the Company is deemed to be an affiliate.
On March 23, 1998, there were 17,942,860 shares of Common Stock and 263,158
shares of Series A Convertible Preferred Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Specifically identified portions of the Annual Report to Shareholders for
the fiscal year ended December 31, 1997 (the "Annual Report to
Shareholders") are incorporated by reference into Parts I and II.
(2) Specifically identified portions of the Company's Definitive Proxy Statement
to be filed in connection with the Company's 1998 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 potential benefits to end
users through the use of the Company's (as defined below) products, the
development future products, the Company's plans and strategy for its business,
statements relating to the sufficiency of cash and cash equivalent balances,
available sources of financing, anticipated expenditures and the intended
effects of the Company's restructuring, sales and marketing, and product
development efforts. 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, the ability of the Company to continue to
sell products to existing customers and attract new customers, the ability of
the Company to enhance existing products and introduce new products on a timely
basis, market acceptance of the Company's products, the success of Switchboard
and the other factors set forth under the caption into "Management's Discussion
and Analysis of Financial Condition and Results of Operations Future Operating
Results" which is incorporated by reference in Part II of this Annual Report on
Form 10-K.
PART I
ITEM 1. BUSINESS
GENERAL
Banyan Systems Incorporated ("Banyan" or the "Company") designs, develops and
markets standards-based networking directory and messaging products that help
people to communicate across enterprise networks, intranets and the Internet.
Since 1985, the Company has been a pioneer in the computer networking field, and
currently offers a wide range of software products and professional services.
The Company's primary software products include StreetTalk for Windows NT(R),
VINES(R), Intelligent Messaging(TM), BeyondMail(TM), and several intranet
solutions. In addition, the Company delivers professional services including
technical support, education and consulting, including network performance,
integration and Year 2000 compliance services. The Company's majority-owned
subsidiary, Switchboard Incorporated, hosts the Internet's leading people-to-
people and business directory services aimed at generating advertising revenues
from major domestic corporations. Banyan's products fall into two major
categories: network operating system products and intranet products.
The Company's flagship network operating system product is based on a global
directory service called StreetTalk(TM). This service allows users to find one
another and access network resources, such as printers, files, mail 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 network operating system products.
These products integrate mainframes, minicomputers, workgroup networks and
personal computers into a unified computing environment that is easy for users
to navigate and administrators to manage.
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Banyan, the Banyan logo, StreetTalk, VINES and BeyondMail are registered
trademarks, and Intelligent Messaging, 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. 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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The Company delivers its network operating system products in several versions,
including StreetTalk for Windows NT(R) and VINES(R). Introduced in September
1996 and enhanced throughout 1997, 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.
Banyan's intranet products enable its customers to utilize Internet standards to
allow people to contact other people and information in a reliable and secure
manner over the Internet. The Intranet Access product brings all the
capabilities of the network operating system to a user of a browser on the
Internet. Banyan's Intranet Protect product helps customers authenticate users
and authorize the user access to web site pages. These are the first products
of Banyan's intranet product initiative.
The Company's service organization includes technical response centers,
education services and consulting. A critical element of the Company's strategy
is to assure that customers are provided with technical support, training and
consulting services required to build, manage and optimize the network
environment using Banyan products. Consulting services are generally offered as
customized consulting services and in certain cases as packaged services. When
combined with other third party product and services, they are positioned as
solution offerings. The Company provides services through regional offices
located in the Americas, Europe, Asia Pacific and Australia.
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, 1997,
these companies held in the aggregate approximately a 7.9% equity interest in
Switchboard Incorporated. See Note P to the Company's Consolidated Financial
Statements, which is incorporated herein by reference to the Company's Annual
Report to Shareholders.
In the second quarter of 1997, the Company announced a reorganization of its
operations. As a result of the reorganization, the Company recorded net pre-tax
restructuring and other charges in 1997 of $8.0 million. The restructuring and
other charges are expected to reduce cash flow by approximately $3.1 million, of
which $2.7 million had been expended through December 31, 1997. During 1997,
the restructuring resulted in 78 employee separations.
In the third quarter of 1997, the Company entered into a $15.0 million line of
credit agreement (the "Credit Agreement") with Foothill Capital Corporation
("Foothill"), replacing the Company's prior $10.0 million credit facility which
expired in May 1997. In general, the Company's obligations under the Credit
Agreement bear interest at the variable base rate per annum of Norwest Bank
Minnesota, National Association. The Credit Agreement has a three-year initial
term and is renewable thereafter for successive one year periods. Each year
during the initial term of the Credit Agreement, Foothill will be granted
warrants to purchase 75,000 shares of the Company's common stock at the then
current fair market value. There were no amounts outstanding under the line of
credit agreements during the years ended December 31, 1997 and 1996.
On March 6, 1998, the Company received a $10.0 million equity investment from
HarbourVest Partners LLC. Under the terms of the purchase agreement, HarbourVest
purchased convertible preferred stock and warrants to acquire additional
convertible preferred stock. In the event the Company's stockholders do not
approve an increase in the number of shares of common stock authorized for
issuance from 25,000,000 to 35,000,000 by June 30, 1998, the Company may be
required to repurchase 40% of the HarbourVest preferred stock and warrants for
$4.0 million. Proceeds from the equity investment are available for working
capital requirements.
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BANYAN ARCHITECTURE AND TECHNOLOGY
The Company bases 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), the
Internet and other proprietary computer environments into a single enterprise
network.
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.
Banyan has expanded this architecture to include the capability to easily access
these services through the Internet. From a browser, anywhere on the Internet,
a user can gain access to their printer, file and mail services. In addition,
for web servers in a corporate intranet, this architecture provides the means to
authenticate users and protect web pages.
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.
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The Company also believes that it was the first company to offer global
directory services and that it continues to offer among the most comprehensive
and technically advanced set of enterprise directory services in the industry.
Banyan is upgrading its product architecture to comply with Year 2000 standards.
Product changes are being made and delivery to customers is expected to occur
beginning in the first half of 1998. Failure to deliver these product changes
in a timely manner could have a material adverse effect on the Company.
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.
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The capabilities of the StreetTalk Access product are now included among the
features of StreetTalk for Windows NT. Running natively in Windows NT
environments, StreetTalk for Windows NT is designed to integrate Microsoft's
Windows NT operating system into their existing corporate networks. In June
1997, the Company announced the availability of StreetTalk for Windows NT 7.5,
which offers improved support for TCP/IP standards, new management tools,
including additional support for remote management, speedier disaster recovery,
and a new version of Banyan's integrated messaging services. Additionally, the
Company offers Intelligent Messaging for Windows NT, which delivers highly
scalable enterprise message storage and transport capabilities, providing a
secure foundation for organizational communications.
KEY NETWORK OPERATING SYSTEM PRODUCTS
The Company's key network operating system 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.
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
numerous security features.
VINES
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 December 1997, the Company
introduced VINES 8.0, which offers improved performance and features.
BEYONDMAIL
A full-featured e-mail product, the Company believes BeyondMail is among the
most advanced software available for managing electronic mail. 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 clients and takes full advantage of StreetTalk and
Intelligent Messaging capabilities. In August 1997, the Company introduced
BeyondMail 3.0 for Intelligent Messaging, which offers improved performance and
features including enhanced mobile support.
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.
INTERNET PRODUCTS AND SERVICES
As a result of the Company's focus on Internet technology development, in 1997,
the Company released products for Internet 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.
In addition to its traditional, directory-based networking and messaging
solutions, the Company is developing a suite of intranet offerings that enable
organizations to create corporate intranets which broaden the scope of their
networks through the Internet. In the second quarter of 1997, the Company
introduced Banyan Intranet Connect, the first of the Company's new intranet
product initiatives, intranet server software that provides a flexible and cost-
effective way to access network files, printers and e-mail, using a standard web
browser. In the fourth quarter of 1997, the Company delivered Banyan Intranet
Protect, a web server solution that enables organizations to protect and share
intranet information.
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YEAR 2000 COMPLIANCE
In 1997, Banyan made investments in upgrading its products to be Year 2000
compliant. All the Company's current products are scheduled to be upgraded by
the end of 1998. In addition, the Company will offer customer services to
assist in the planning and implementing organizations' Year 2000 network
upgrades.
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 that 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
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 for emerging industry standards, the Company
believes that it will greatly expand the number of applications available to its
customers.
SERVICES
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 maintains technical response centers in Westboro, Massachusetts;
Crawley, England; Tokyo, Japan; 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 Professional Services organization includes the consulting services function
and the education services business. Consulting is a growing segment of
Banyan's business that offers customers and partners services for network
optimization, transition and implementation. These services are generally
offered as customized consulting services and in certain cases as packaged
services. When combined with other third party product and services, they are
positioned as solution offerings.
The Company offers a wide range of training programs for partners and end users.
Training is offered at the Westboro headquarters, as well as various regional
sites. On-site training classes are also offered at partner's sites as well as
end user locations. In addition, there are 56 worldwide Banyan Certified
Education Centers, which conduct training classes for users and administrators
of Banyan products.
CUSTOMERS
The Company estimates that it has approximately 7,000 customers with more than
8.0 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.
For the year ended 1997, Ingram Micro Inc. accounted for approximately 11% of
the Company's revenue. For the years ended 1996 and 1995, Inacom Corporation
accounted for approximately 11% and 16% of the Company's revenue respectively.
In 1997, 1996 or 1995, no other customer or reseller accounted for more than
10% of the Company's revenues. The loss of any significant customer could have
a material adverse effect on the Company.
SWITCHBOARD INCORPORATED
The Company's majority-owned Switchboard subsidiary, the exclusive directory for
America Online's 11 million customers, reinforced its position as the Internet's
top-rated directory in 1997. 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. This product is available at no charge to the user. Switchboard
generates revenues 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.
During the year, Switchboard enhanced its functionality, traffic and advertising
base. To improve the Switchboard site's appeal, Switchboard added a unique web
site search capability called SideClick, software for creating customized
advertisements, and a suite of free software programs that includes e-mail and
web site design tools. Switchboard became the Internet's 10th most frequently
web site in January 1998, according to Media Metrix, an increase from #23 at the
end of 1996.
Today, leading businesses such as Sprint, IBM, Barnes & Noble, and Microsoft(R)
market their products and services on Switchboard. To build traffic in 1998,
Switchboard established a strategic relationship in late 1997 to attract users
of the popular AltaVista(TM) search engine to the Switchboard site.
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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 60%,
80% and 90% of the Company's revenues in 1997, 1996 and 1995, respectively,
which when combined with certain services and Switchboard sales has increased
the share of the Company's direct business over each of the last two years. 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, 1997
include three aggregators and 865 channel partner sales sites. Banyan has
established authorization levels (Premier Network Integrator and Authorized
Network Integrator, as well as authorization levels for 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
is 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.
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, 1997. International sales
accounted for 29%, 24% and 23% of the Company's revenues in 1997, 1996 and 1995,
respectively. 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 information as to the Company's revenues attributable to each
of the Company's geographic areas during the past three fiscal years.
During 1997, 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, 1997, these Japanese companies
held a 33% equity interest in Nippon Banyan Systems Kabushiki Kaisha (NBSKK), a
majority-owned 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
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
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activities from its principal offices in Westboro, Massachusetts as well as 26
other North American sales offices and 10 international offices located in
Australia, Belgium, France, Germany, Hong Kong, Japan, Malaysia, The Netherlands
and the United Kingdom. As of December 31, 1997, the Company's sales and
marketing organization consisted of 182 employees, of which 123 were in the
North American group and 59 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, 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.
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, 1997 and December 31, 1996 was immaterial.
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 products. The Company's development efforts are currently focused on
enhancing the performance and functionality of its existing StreetTalk for
Windows
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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 Switchboard. In addition,
the Company anticipates expending significant resources in the continued
translation and localization of its product offerings in 1998.
As of December 31, 1997, Banyan had approximately 98 employees engaged in
research and development, test and quality assurance and technical
documentation. In 1997, 1996 and 1995, Banyan's product development expenditures
totaled $15.9 million, $21.9 million and $24.5 million, respectively. During
1998, the Company anticipates continued significant investment in product
development.
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 Microsoft, Netscape and Novell,
which have substantially greater development, marketing, sales and financial
resources, distribution infrastructure, customer support organizations and name
recognition than those of the Company. The services business is highly
fragmented with no dominant set of networking integration or consulting
competitors worldwide that the Company directly competes against.
The Company has invested significant resources to develop products to bring the
Company's directory capabilities to Internet users. In 1996, the Company,
through a majority-owned subsidiary, introduced Switchboard, a directory service
for Internet users. In the first quarter of 1998, Switchboard, was rated by
Media Metrix as the Internet's tenth most frequently visited web site.
Switchboard expects to increase promotion and seek additional strategic
partnerships. The Company success will depend in part on its ability to enter
into strategic alliances with other Internet providers.
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
-10-
<PAGE>
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, 1997, the Company employed 410 persons, including 182 in sales,
marketing and related activities, 98 in research and development, 53 in
customer support and education, 15 in manufacturing, and 62 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.
-11-
<PAGE>
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, 2002 through July 31, 2005, with an
aggregate annual base rent of approximately $932,000. The Company subleases
approximately 49,000 square feet of its principal Westboro, Massachusetts
facilities under leases that expire on July 31, 2000 and September 31, 2000,
with an aggregate annual base rental income of approximately $594,000. The
Company leases and occupies sales offices in 30 additional locations throughout
the United States, Canada, South America, Europe, Asia, Japan and Australia.
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 the 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.
EXECUTIVE OFFICERS OF THE REGISTRANT
The Company's executive officers as of March 26, 1998 were as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
William P. Ferry 45 President and Chief Executive Officer
Robert D. Burke 43 Senior Vice President, Worldwide Sales and Service
William E. Warner, Jr. 54 Senior Vice President, Product Mgmt. and Development
Anthony J. Bellantuoni 46 Vice President, Human Resources
Richard M. Spaulding 38 Vice President and Chief Financial Officer,
Treasurer and Clerk
</TABLE>
Mr. Ferry, President and Chief Executive Officer, joined the Company in February
1997. He is also 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.
-12-
<PAGE>
Mr. Warner joined the Company in April 1997 as the senior vice president of
product management and development. Prior to joining the Company, Mr. Warner
was Vice President and General Manger of SystemSoft's Platform Software business
from 1996 to 1997. Mr. Warner held a variety of management and executive
positions at IBM from 1969 to 1995.
Mr. Bellantuoni joined the Company in July 1997 as vice president of Human
Resources. Prior to joining the Company, Mr. Bellantuoni was vice president of
Human Resources at Wang Laboratories, Inc. from 1993 to 1997. Mr. Bellantuoni
also held various senior management positions at Wang Laboratories, Inc. from
1979 to his appointment as vice president in 1993.
Mr. Spaulding, Vice President and Chief Financial Officer, Treasurer and Clerk,
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.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Information with respect to this item may be found in the section captioned
"Quarterly Financial Information" appearing in the Annual Report to
Shareholders. Such information is incorporated herein by reference.
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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information with respect to this item may be found 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
None.
-13-
<PAGE>
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 1998 Annual Meeting of
Stockholders (the "1998 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 1998 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 "Certain Relationships and Related
Transactions" appearing in the 1998 Proxy Statement. Such information is
incorporated herein by reference.
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 1998 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 "Certain
Relationships and Related Transactions" appearing in the 1998 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 included in Consolidated Financial Statements and
Consolidated Financial Statement Schedules, filed as a part of this Annual
Report on Form 10-K are as follows: Consolidated Balance Sheet, at December
31, 1997 and 1996, Consolidated Statements of Operations for the years
ended December 31, 1997, 1996 and 1995, Consolidated Statements of
Shareholder's Equity at December 31, 1997, 1996 and 1995, Consolidated
Statements of Cash Flows for the years ended December 31, 1997, 1996 and
1995, the notes to the Consolidated Financial Statements and the
Supplementary Data.
2. The financial statement schedule, valuation and qualifying accounts, 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.
-14-
<PAGE>
(b) Reports on Form 8-K: On December 8, 1997, the Company filed a Form 8-K
regarding the Company's continued listing on the Nasdaq National Market
pursuant to Item 5 of Form 8-K. No other reports on Form 8-K were filed by
the Company during the last quarter of the year ended December 31, 1997
SCHEDULE II
BANYAN SYSTEMS INCORPORATED
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS
BEGINNING OF CHARGED TO COSTS BALANCE AT
DESCRIPTION PERIOD AND EXPENSES DEDUCTIONS END OF PERIOD
----------- ------ --------------- ---------- -------------
<S> <C> <C> <C> <C>
Year ended December 31, 1997:
Reserve for price, sales and $ 7,168 $ 2,448 $ 5,895 $ 3,721
doubtful account allowance
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
</TABLE>
-15-
<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 30
of the 1997 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 27, 1998
except as to the information presented in
Note Q, for which the date is March 6, 1998
-16-
<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 26, 1998 BANYAN SYSTEMS INCORPORATED
/s/ Richard M. Spaulding
------------------------
By: Richard M. Spaulding
Vice President, Chief Financial Officer and Treasurer
(Principal Financial and 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 Chairman, Chief Executive Officer and President March 26, 1998
- -------------------- (Principal Executive Officer)
William P. Ferry
/s/ Richard M. Spaulding Vice President, Chief Financial Officer March 26, 1998
- ------------------------ and Treasurer
Richard M. Spaulding (Principal Financial and Accounting Officer)
/s/ G. Leonard Baker, Jr. Director March 26, 1998
- -------------------------
G. Leonard Baker, Jr.
/s/ John F. Burton Director March 26, 1998
- ------------------
John F. Burton
/s/ A. Peter Hamilton Director March 26, 1998
- ---------------------
A. Peter Hamilton
/s/ David C. Mahoney Director March 26, 1998
- --------------------
David C. Mahoney
/s/ Fontaine K. Richardson Director March 26, 1998
- --------------------------
Fontaine K. Richardson
/s/ David N. Strohm Director March 26, 1998
- -------------------
David N. Strohm
/s/ Robert M. Wadsworth Director March 26, 1998
- -----------------------
Robert M. Wadsworth
</TABLE>
-17-
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER TITLE OF DOCUMENT
- ------ -----------------
3.1(2) Second Amended and Restated Articles of Organization of the
Company.
3.2(1) Amended and Restated By-Laws of the Company.
3.3(10) Certificate of Vote of Directors Establishing a Class or Series of
Stock
10.1+ Second Amended and Restated 1984 Incentive Stock Option Plan.
10.2+ Second Amended and Restated 1984 Non-Qualified Stock Option Plan.
10.3(6)(8)+ 1992 Stock Incentive Plan, as amended.
10.4(1)(8)+ 1992 Director Stock Option Plan, as amended.
10.6(7)+ Consulting Services Agreement dated as of November 11, 1996
between the Company and Burton Technology Partners, Ltd.
10.7(7)(8)+ Employment Agreement dated February 4, 1997 between the Company
and William P. Ferry, as amended.
10.8(1) Real Estate Sublease dated June 19, 1991, as amended to date,
between the Company and Sytron Corporation.
10.9(1) Lease Agreement dated April 21, 1989, as amended to date, between
the Company and CB Westboro C Limited Partnership. a Texas Limited
Partnership.
10.9A(3) Amendment to Lease Agreement dated April 21, 1993 between the
Company and CB Westboro C Limited Partnership, a Texas Limited
Partnership.
10.9B(5) 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).
10.10(1) 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).
10.10A(3) Amendment to Lease Agreement dated April 21, 1993 between the
Company and Aetna Real Estate, L.P. (as assignee of Flanders
Realty Trust).
10.10B Fifth Lease Extension and Modification Agreement made as of
October 15, 1997 between Aetna Real Estate Associates and the
Company.
10.11(1) Lease dated July 26, 1989 among the Company, Banyan Systems (UK)
Limited and Grosvenor Square Properties Developments Limited.
10.13(4) Joint Venture Agreement dated March 22, 1995 between the Company
and Marubeni Corporation.
10.13A(5) Joint Venture Agreement dated June 15, 1995 between and among,
the Company, Marubeni Corporation and NTT Advanced Technology
Corporation.
-18-
<PAGE>
10.14+ Senior Executive Termination Benefits Agreement dated September
15, 1997 between the Company and Richard M. Spaulding.
10.15(9) Loan and Security Agreement dated as of September 4, 1997 by and
between Foothill Capital Corporation and the Company.
10.16 Consent and Amendment to Loan and Security Agreement dated as of
March 5, 1998 by and between Foothill Capital Corporation and the
Company.
10.17(9) Securities Issuance Agreement dated as of September 4 1997 by
and between Foothill Capital Corporation and the Company.
10.18(9) Form of Warrant issued by and to be issued by the Company to
Foothill Capital Corporation.
10.18(10) Preferred Stock and Warrant Purchase Agreement dated as of
March 5, 1998 between the Company and HarbourVest Partners
V--Direct Fund L.P. ("HarbourVest").
10.19(10) Warrant to purchase shares of Series B Convertible Preferred
Stock issued by the Company to HarbourVest as of March 5, 1998.
10.20(10) Warrant to purchase shares of Series C Convertible Preferred
Stock issued by the Company to HarbourVest as of March 5, 1998.
10.21+ Separation Agreement and Release and Waiver of Claims dated as of
May 31, 1997 between the Company and David C. Mahoney.
10.22+ Employment Letter dated as of May 31, 1997 between the Company and
Robert D. Burke.
10.23+ Employment Letter dated as of May 31, 1997 between the Company and
William E. Warner, Jr.
13 Selected portions of Annual Report to Shareholders for the year
ended December 31, 1997 (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.
27.1 Financial Data Schedule.
27.2 Restated Financial Data Schedule for the nine months ended
September 30, 1997.
27.3 Restated Financial Data Schedule for the six months ended
June 30, 1997.
27.4 Restated Financial Data Schedule for the three months ended
March 31, 1997.
27.5 Restated Financial Data Schedule for the fiscal year ended
December 31, 1996.
27.6 Restated Financial Data Schedule for the nine months ended
September 30, 1996.
27.7 Restated Financial Data Schedule for the six months ended
June 30, 1996.
27.8 Restated Financial Data Schedule for the three months ended
March 31, 1996.
-19-
<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-1 (File No. 33-49194).
(2) Incorporated herein by reference to the exhibits to the Company's
Registration statement on Form S-8 (File No. 33-54140).
(3) 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.
(4) 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.
(5) 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.
(6) 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.
(7) Incorporated herein by reference to the exhibits to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996.
(8) Incorporated herein by reference to the exhibits to the Company's Quarterly
Report on Form 10-Q for the fiscal year ended June 30, 1997.
(9) Incorporated herein by reference to the exhibits to the Company's Quarterly
Report on Form 10-Q for the fiscal year ended September 30, 1997.
(10) Incorporated herein by reference to the exhibits to the Company's Current
Report on Form 8-K dated March 5, 1998.
-20-
<PAGE>
EXHIBIT 10.1
BANYAN SYSTEMS INCORPORATED
SECOND AMENDED AND RESTATED
1984 INCENTIVE STOCK OPTION PLAN
Effective as of June 23, 1992
-----------------------------
1. Purpose. The purpose of this Plan is to advance the interests of
-------
Banyan Systems Incorporated (the "Company") by strengthening the ability of the
Company to attract, retain and motivate key employees by providing them with an
opportunity to purchase stock of the Company or otherwise share in the
appreciation of such stock. It is intended that this purpose will be effected
by the granting of "incentive stock options" ("options") as described in Section
422 of the Internal Revenue Code of 1986, as it may be amended (the "Code").
2. Effective Date. This Plan originally became effective on September 5,
--------------
1984, the date it was adopted by the Board of Directors of the Company. The
further amendments to the Plan made by this second amendment and restatement are
effective as of June 23, 1992. Notwithstanding any other provision contained
herein, no further grants of options under this Plan shall be made after June
23, 1992.
3. Stock Subject to the Plan. The shares with respect to which options
-------------------------
may be granted under this Plan shall not exceed in the aggregate 5,113,841
shares of the $.0l par value, Common Stock of the Company (the "Shares");
provided however, that said maximum number shall be reduced by the number of any
shares of Common Stock of the Company which are made subject to options (and
which have not subsequently expired prior to exercise or have not been exercised
and repurchased by the Company) pursuant to the Banyan Systems Incorporated 1984
Non-Qualified Common Stock Option Plan; provided further, however, that the
<PAGE>
number of shares subject to options issued hereunder from time to time shall not
exceed the sum of the number of shares of the Company's Common Stock which are
authorized but unissued, and the number of shares of the Company's Common Stock
held in its treasury. Any Shares subject to an option which for any reason
expires or is terminated unexercised as to such Shares may again be the subject
of an option under the Plan. In addition, any shares purchased by an optionee
upon exercise of an option which are subsequently repurchased by the Company
pursuant to the terms of such option may again be the subject of an option under
the Plan. The Shares delivered upon exercise of options under this Plan may, in
whole or in part, be either authorized but unissued Shares or issued Shares
reacquired by the Company.
4. Administration. This Plan shall be administered by the Board of
--------------
Directors of the Company or, to the extent delegated by the Board of Directors,
a compensation or stock option committee. Subject to the provisions of this
Plan, the Board of Directors or such a committee shall have full power to
construe and interpret the Plan and to establish, amend and rescind rules and
regulation for its administration. Any decisions made with respect thereto shall
be final and binding on the Company, the optionees and all other persons.
5. Eligible Employees. Stock options may be granted to such key
------------------
employees of the Company or of any of its present or future subsidiaries,
including members of the Board of Directors who are also employees of the
Company or any of its subsidiaries as are selected by the Board of Directors of
the Company (or a
2
<PAGE>
committee to which it has delegated such authority).
6. Duration of the Plan. This Plan shall terminate ten (10) years from
--------------------
the original effective date hereof, unless terminated earlier pursuant to
paragraph 12 hereafter, and no options may be granted thereafter.
7. Restrictions on Options. Options granted under this Plan shall be
-----------------------
subject to the following restrictions:
(a) Limitation on Number of Shares. Prior to January 1, 1987, the
------------------------------
aggregate fair market value, determined as of the date the option is granted, of
the Shares for which an employee may be granted incentive stock options in any
calendar year shall not exceed $100,000 plus any "unused limit carryovers," as
that term is defined under Section 422A(c)(4) of the Code (as in effect
immediately prior to its amendment by the Tax Reform Act of 1986). After January
1, 1987, the aggregate fair market value, determined as of the date the option
is granted, of the Shares which may be granted as incentive stock options to any
employee and which become exercisable in any calendar year shall not exceed
$100,000. in the event that such employee is eligible to participate in any
other incentive stock option plans of the Company or its parent or a subsidiary
which are also intended to comply with the provisions of Section 422 of the
Code, such annual limitations shall apply to the aggregate number of Shares for
which options may be granted or exercised under all such plans.
(b) 10% Shareholder. If any employee to whom an incentive stock
---------------
option is granted pursuant to the provisions of the Plan is on the date of grant
the
3
<PAGE>
owner of stock (as determined under Section 424(d) of the Code) possessing
more than 10% of the total combined voting power of all classes of stock of the
Company or its present and future subsidiaries then the following special
provisions shall be applicable to the incentive stock option granted to such
individual:
(i) The option price per Share subject to such option shall not be less
than 110% of the fair market value of one Share on the date of grant;
and
(ii) The incentive stock option shall not have a term in excess of five (5)
years from the date of grant.
(c) Effect of Other Outstanding Options. No incentive stock option
-----------------------------------
granted hereunder before January 1, 1987 shall be exercisable by any optionee
while there is "outstanding," within the meaning of Section 422A(c)(7) of the
Code (as in effect immediately prior to its amendment by the Tax Reform Act of
1986), any incentive stock option which was granted to the optionee before the
granting of the option under this Plan and which permits the optionee to
purchase stock in (i) the Company, (ii) a corporation which (at the time of the
granting of the option under this Plan) is a parent or subsidiary of the
Company, or (iii) a predecessor corporation of any of such corporations.
8. Terms and Conditions of Options. Options granted under this Plan
-------------------------------
shall be evidenced by stock option agreements in such form and containing such
terms and conditions as the Board of Directors of the Company (or a committee to
which it has delegated such authority) shall determine; provided, however, that
such agreements shall evidence among their terms and conditions the following:
(a) Price. Subject to the condition of subsection (b) of Paragraph 7,
-----
if
4
<PAGE>
applicable, the purchase price per Share payable upon the exercise of each
option granted hereunder shall be determined by the Board of Directors of the
Company (or a committee to which it has delegated such authority) at the time
the option is granted and shall not be less than 100% of the fair market value
of one Share on the date of the grant.
(b) Number of Shares. Each option agreement shall specify the number
----------------
of Shares to which it pertains.
(c) Exercise of Options. Each option shall be exercisable for the
-------------------
full amount or for any part thereof and at such intervals or in such
installments as the Board of Directors of the Company (or a committee to which
it has delegated such authority) may determine at the time it grants such
option; provided, however, that no option shall be exercisable with respect to
any Shares later than ten (10) years after the date of the grant of such option.
(d) Notice of Exercise and Payment. An option shall be exercisable
------------------------------
only by delivery of a written notice to the Company's Treasurer, or any other
officer of the Company designated by the Board of Directors of the Company (or a
committee to which it has delegated such authority) to accept such notices on
its behalf, specifying the number of Shares for which it is exercised. If said
Shares are not at that time effectively registered under the Securities Act of
1933, as amended, the optionee shall include with such notice a letter, in form
and substance satisfactory to the Company, confirming that the Shares are being
purchased for the optionee's own account for investment and not with a view to
distribution. Payment shall be made in full at the time the option is
exercised. Payment shall be
5
<PAGE>
made either by (i) cash, (ii) cashier's or certified check, (iii) if permitted
by the Board of Directors of the Company (or a committee to which it has
delegated such authority), by delivery and assignment to the Company of shares
of Company stock having a fair market value (as determined by the Board of
Directors of the Company (or a committee to which it has delegated such
authority)) equal to the exercise price, (iv) if permitted by the Board of
Directors of the Company (or a committee to which it has delegated such
authority), by promissory note, (v) delivery of an irrevocable undertaking by a
broker to deliver promptly to the Company sufficient funds to pay the exercise
price or delivery of irrevocable instructions to a broker to deliver promptly to
the Company cash or a check sufficient to pay the exercise price, or (vi) by a
combination of (i), (ii), (iii), (iv) or (v).
(e) Non-Transferability. No option shall be transferable by the
-------------------
optionee otherwise than by will or the laws of descent or distribution, and each
option shall be exercisable during his lifetime only by him.
(f) Termination of Options. Each option shall terminate and may no
----------------------
longer be exercised if the optionee ceases for any reason to be an employee of
the Company, or its parent or a subsidiary, in accordance with the following
provisions:
(i) if the optionee's employment shall have been terminated by
designation or other voluntary action, or if such employment shall
have been terminated involuntarily for cause, the option shall
terminate and may no longer be exercised;
(ii) if the optionee's employment shall have been terminated for any
reason other than cause, resignation or other voluntary action
before he is eligible to retire, disability or death, he may at
any
6
<PAGE>
time within a period of three (3) months after such
termination of employment exercise his option to the extent that
the option was exercisable by him on the date of termination of
his employment;
(iii) if the optionee's employment shall have been terminated because of
disability within the meaning of Section 105(d)(4) of the
Code, he may at any time within a period of one (1) year after
such termination of employment exercise his option to the
extent that the option was exercisable by him on the date of
termination of his employment; and
(iv) if the optionee dies at a time when he might have exercised the
option, then his estate, personal representative or beneficiary to
whom it has been transferred pursuant to paragraph 7(e) hereof may
at any time within a period of one (1) year after the optionee's
death exercise the option to the extent the optionee might have
exercised it at the time of his death;
provided, however, that no option may be exercised to any extent by anyone after
the date of expiration of the option.
(g) Rights as Shareholder. The optionee shall have no rights as a
---------------------
shareholder with respect to any Shares covered by his option until the date of
issuance of a stock certificate to him for such Shares.
9. Stock Dividends; Stock Splits; Stock Combination; Recapitalizations.
-------------------------------------------------------------------
Appropriate adjustment shall be made by the Board of Directors of the Company
(or a committee to which it has delegated such authority) in the maximum number
of Shares subject to the Plan and in the number, kind, and option price of
Shares covered by the outstanding options granted hereunder to give effect to
any stock dividends, stock splits, stock combinations, recapitalizations and
other similar changes in the capital structure of the Company after the
effective date of the Plan.
7
<PAGE>
10. Merger; Sale of Assets; Dissolution. In the event of a change of the
-----------------------------------
Shares resulting from a merger or similar reorganization as to which the Company
is the surviving corporation, the number and kind of shares which thereafter may
be optioned and sold under the Plan, and the number and kind of shares then
subject to options granted hereunder and the option price per share thereof
shall be appropriately adjusted in such manner as the Board of Directors of the
Company (or a committee to which it has delegated such authority) may deem
equitable to prevent substantial dilution or enlargement of the rights available
or granted hereunder. Except as otherwise determined by the Board of Directors
of the Company, a merger or a similar reorganization which the Company does not
survive, or a sale of all or substantially all of the assets of the Company,
shall cause every option outstanding hereunder to terminate, to the extent not
then exercised, unless any surviving entity agrees to assume the obligations
hereunder.
11. Definitions.
-----------
(a) The term "employee" shall have, for purposes of this Plan, the
meaning ascribed to it under Section 3401(c) of the Code and the regulations
promulgated thereunder; the term "key employees" refers to those executive,
technical, administrative or managerial employees who are determined by the
Board of Directors of the Company (or a committee to which it has delegated such
authority) to be eligible for options under this Plan.
(b) The term "optionee" means a key employee to whom an option is
granted under this Plan.
8
<PAGE>
(c) The term "parent" shall have, for purposes of this plan, the
meaning ascribed to it under Section 424(e) of the Code and the regulations
promulgated thereunder.
(d) The term "subsidiary" shall have, for purposes of this Plan, the
meaning ascribed to it under Section 424(f) of the Code and the regulations
promulgated thereunder.
12. Termination or Amendment of Plan. The Board of Directors may at any
--------------------------------
time terminate the Plan or make such changes in or additions to the Plan as it
deems advisable without further action on the part of the shareholders of the
Company, provided:
(a) that no such termination or amendment shall adversely affect or
impair any then outstanding option without the consent of the optionee holding
such option; and
(b) that no such amendment which increases the maximum number of
Shares subject to this Plan shall be effective unless it is approved by the
shareholders of the Company within twelve (12) months before or after the
adoption of said amendment.
9
<PAGE>
EXHIBIT 10.2
BANYAN SYSTEMS INCORPORATED
SECOND AMENDED AND RESTATED
1984 NON-QUALIFIED COMMON STOCK OPTION PLAN
Effective as of June 23, 1992
-----------------------------
1. Purpose. The purpose of this Plan is to advance the interests of
-------
Banyan Systems Incorporated (the "Company") by providing an opportunity to
selected employees, consultants, and directors of the Company and its
subsidiaries to purchase common stock of the Company through the exercise of
options granted under this Plan. By encouraging such stock ownership, the
Company seeks to attract, retain and motivate employees, consultants, and
directors of training, experience and ability. It is intended that this purpose
will be effected by the granting of non-qualified stock options as provided
herein.
2. Effective Date. This Plan originally became effective on September 5,
--------------
1984, the date it was adopted by the Board of Directors of the Company. The
further amendments to the Plan made by this second amendment and restatement are
effective as of June 23, 1992. Notwithstanding any other provision contained
herein, no further grants options under this Plan shall be made after June 23,
1992.
3. Stock Subject to the Plan. The shares with respect to which options
-------------------------
may be granted under this Plan shall not exceed in the aggregate 5,113,841
shares of the $.0l par value, common stock ("Common Stock") of the Company;
provided however, that said maximum number shall be reduced by the number of any
shares of Common Stock which are made subject to options (and which have not
subsequently expired prior to exercise or have not been exercised and
repurchased by the
<PAGE>
Company) pursuant to the Banyan Systems Incorporated 1984 Incentive Stock Option
Plan; provided further however, that the number of shares subject to options
issued hereunder from time to time shall not exceed the sum of the number of
shares of the Company's Common Stock which are authorized but unissued, and the
number of shares of the Company's Common Stock held in its treasury. Any shares
subject to an option which for any reason expires or is terminated unexercised
as to such shares may again be the subject of an option under the Plan. In
addition, any shares purchased by the optionee upon exercise of an option which
are subsequently repurchased by the Company pursuant to the terms of such option
may again be the subject of an option under the Plan. The shares delivered upon
exercise of options under this Plan may, in whole or in part, be either
authorized but unissued shares or issued shares reacquired by the Company.
4. Administration. This Plan shall be administered by the Board of
--------------
Directors of the Company (the "Board of Directors") or, to the extent delegated
by the Board of Directors, a compensation or stock option committee. Subject to
the provisions of this Plan, the Board of Directors or such a committee shall
have full power to construe and interpret the Plan and to establish, amend and
rescind rules and regulations for its administration. Any decisions made with
respect thereto shall be final and binding on the Company, the optionee and all
other persons.
5. Eligible Participants. Options may be granted to such employees,
---------------------
directors and consultants of the Company or of any of its subsidiaries, as are
selected
2
<PAGE>
by the Board of Directors (or a committee if the Board of Directors has
delegated such authority).
6. Duration of the Plan. This Plan shall terminate ten (10) years from
--------------------
the original effective date hereof, unless terminated earlier pursuant to
Paragraph 11 hereof, and no options may be granted thereafter.
7. Terms and Conditions of Options. Options granted under this Plan
-------------------------------
shall be evidenced by stock option agreements in such form and not inconsistent
with the Plan as the Board of Directors (or a committee if the Board of
Directors had delegated such authority) shall approve from time to time, which
agreements shall evidence the following terms and conditions:
(a) Price. The purchase price per share of stock payable upon the
-----
exercise of each option granted hereunder shall be determined by the Board of
Directors (or a committee if the Board of Directors has delegated such
authority) at the time such option is granted.
(b) Number of Shares. Each option agreement shall specify the number
----------------
of shares to which it pertains.
(c) Exercise of Options. Each option shall be exercisable for the
-------------------
full amount or for any part thereof and at such intervals or in such
installments as the Board of Directors (or a committee if the Board of Directors
has delegated such authority) may determine at the time such option is granted.
(d) Notice of Exercise and Payment. An option shall be exercisable
------------------------------
only by delivery of a written notice to the Company's Treasurer or any other
officer
3
<PAGE>
of the Company designated by the Board of Directors (or a committee if the Board
of Directors has delegated such authority) to accept such notices on its behalf,
specifying the number of shares for which it is exercised. If said shares are
not at that time effectively registered under the Securities Act of 1933, as
amended, the optionee shall include with such notice a letter, in form and
substance satisfactory to the Company, confirming that the shares are being
purchased for the optionee's own account for investment and not with a view to
distribution. Payment shall be made in full at the time the option is exercised.
Payment shall be made by (i) cash, (ii) check, (iii) if permitted by vote of the
Board of Directors (or a committee if the Board of Directors has delegated such
authority), by delivery and assignment to the Company of shares of Company stock
having a fair market value (as determined by the Board of Directors (or a
committee if the Board of Directors has delegated such authority)) equal to the
option price, or (iv) if permitted by vote of the Board of Directors (or a
committee if the Board of Directors has delegated such authority), by promissory
note, (v) delivery of an irrevocable undertaking by a broker to deliver promptly
to the Company sufficient funds to pay the exercise price or delivery of
irrevocable instructions to a broker to deliver promptly to the Company cash or
a check sufficient to pay the exercise price, or (vi) by a combination of (i),
(ii), (iii), (iv) or (v).
(e) Termination of Options. Each option shall terminate and may no
----------------------
longer be exercised if the optionee ceases for any reason to perform services
for the Company as an employee, consultant, or director of the Company, or its
parent or a subsidiary, in accordance with the following provisions:
4
<PAGE>
(i) if the optionee's services shall have been terminated by resignation
or other voluntary action, or if such services shall have been
terminated involuntarily for cause, the option shall terminate and may
no longer be exercised;
(ii) if the optionee's services shall have been terminated for any reason
other than cause, resignation, or other voluntary action before the
optionee' S eligibility to retire, disability or death, the optionee
may at any time within a period of three (3) months after such
termination of services exercise his option to the extent that the
option was exercisable by him on the date of termination of the
optionee's services;
(iii) if the optionee's services shall have been terminated because of
disability within the meaning of Section 22(e)(3) of the Internal
Revenue Code of 1986, as it may be amended (the "Code"), the optionee
may at any time within a period of one (1) year and one (1) day after
such termination of services exercise his option to the extent that
the option was exercisable by him on the date of termination of the
optionee's services; and
(iv) if the optionee dies at a time when he might have exercised the
option, then his estate, personal representative or beneficiary to
whom it has been transferred pursuant to Paragraph 7(g) hereof may at
any time within a period of one (1) year and one (1) day after the
optionee's death exercise the option to the extent the optionee might
have exercised it at the time of his death;
provided, however, that no option may be exercised to any extent by anyone after
the date of expiration of the option.
(f) Rights as Shareholder. The optionee shall have no rights as a
shareholder with respect to any shares covered by his option until the date of
issuance of a stock certificate to him for such shares.
5
<PAGE>
(g) Non-Transferability. No option shall be transferable by the optionee
otherwise than by will or the laws of descent or distribution, and each option
shall be exercisable during his lifetime only by him.
8. Stock Dividends; Stock Splits; Stock Combinations; Recapitalizations.
--------------------------------------------------------------------
Appropriate adjustment shall be made in the maximum number of shares of Common
Stock subject to the Plan to give effect to any stock dividends, stock splits,
stock combinations, recapitalizations and other similar changes in the capital
structure of the Company after the effective date of the Plan. Appropriate
adjustment shall be made in the number, kind, and option price of shares covered
by any outstanding option hereunder to give effect to any stock dividends, stock
splits, stock combinations, recapitalizations and other similar changes in the
capital structure of the Company after the date such option is granted.
9. Merger; Sale of Assets; Dissolution. In the event of a change of the
-----------------------------------
Common Stock resulting from a merger or similar reorganization as to which the
Company is the surviving corporation, the number and kind of shares which
thereafter may be optioned and sold under the Plan and the number and kind of
shares then subject to options granted hereunder and the price per share thereof
shall be appropriately adjusted in such manner as the Board of Directors may
deem equitable to prevent substantial dilution or enlargement of the rights
available or granted hereunder. Except as otherwise determined by the Board of
Directors, a merger or a similar reorganization which the Company does not
survive, or a sale of all or substantially all of the assets of the Company,
shall cause every option
6
<PAGE>
outstanding hereunder to terminate, to the extent not then exercised, unless any
surviving entity agrees to assume the obligations hereunder.
10. Definitions.
-----------
(a) The term "optionee" means an employee, consultant, or director to
whom an option is granted under this Plan.
(b) The term "subsidiary" shall have, for purposes of this Plan, the
meaning ascribed to it under Section 424(f) of the Internal Revenue Code of
1954, as amended, and the regulations promulgated thereunder.
11. Termination or Amendment of Plan. The Board of Directors of the
--------------------------------
Company may at any time terminate the Plan or make such changes in or additions
to the Plan as it deems advisable; provided, however, that no such termination
or amendment shall adversely affect or impair any then outstanding option
without the consent of the optionee holding such option.
7
<PAGE>
EXHIBIT 10.10B
115 Flanders Road
FIFTH LEASE EXTENSION AND MODIFICATION AGREEMENT
------------------------------------------------
THIS FIFTH LEASE EXTENSION AND MODIFICATION AGREEMENT is made as of October
15, 1997, by and between AETNA REAL ESTATE ASSOCIATES, a Delaware limited
partnership having a mailing address in care of Allegis Realty Investors, LLC.,
242 Trumbull Street, Hartford, CT 06103, Attention: William P. Nikolis
("Landlord"), and BANYAN SYSTEMS, INCORPORATED, a Massachusetts corporation
having its principal place of business at 120 Flanders Road, Westborough, MA
01581-1033 ("Tenant").
W I T N E S S E T H:
WHEREAS, pursuant to certain Lease Agreement (the "Lease Agreement") dated
November 14, 1986 by and between Arthur DiMartino, Jr., Trustee of Flanders
Realty Trust, as landlord ("Flanders"), and Tenant, as tenant, Flanders leased
to Tenant and Tenant hired from Flanders, certain space totalling 64,654
rentable square feet, consisting of all of the rentable area in a building
situated at 115 Flanders Road, Westborough, MA (collectively, the "Premises"),
all as more particularly described in the Lease Agreement;
WHEREAS, said Lease Agreement has been amended as set forth in (i) a Lease
Addendum dated August 28, 1987, (ii) a Lease Addendum dated January 5, 1988,
(iii) a certain undated Lease Extension and Modification Agreement effective as
of January 1, 1992, and (iv) a certain Lease Extension and Modification
Agreement dated April 15, 1993 (said Lease Agreement, as amended, is referred to
as the "Lease");
WHEREAS, pursuant to a certain Assignment of Leases dated February 5, 1988,
Flanders assigned its right, title and interest under the Lease to Landlord;
WHEREAS, the term of the Lease expires on December 31, 1997; and
WHEREAS, Landlord and Tenant desire to extend the term of the Lease and to
further modify the Lease on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the sum of TEN DOLLARS ($10.00), the
receipt and sufficiency of which are mutually acknowledged, Landlord and Tenant
agree as follows:
1. The term of the Lease is hereby extended for sixty (60) months (the
"Extension Term"), from and including January 1, 1998 through and including
December 31, 2002.
2. Effective as of January 1, 1998, the Base Rent for the Premises for
the first calendar year of the Extension Term, shall be increased to $484,905.00
per annum payable in twelve (12)
<PAGE>
equal monthly installments of $40,408.75 on the first day of each and every
month; for the second calendar year of the Extension Term, the Base Rent for the
Premises shall be $517,232 per annum payable in twelve (12) equal monthly
installments of $43,102.67 on the first day of each month; for the third
calendar year of the Extension Term, the Base Rent for the Premises shall be
$614,213 per annum payable in twelve (12) equal monthly installments of
$51,184.42 on the first day of each month; for the fourth year of the Extension
Term, the Base Rent for the Premises shall be $711,194 per annum payable in
twelve (12) equal monthly installments of $59,266.17 on the first day of each
month; for the fifth calendar year of the Extension Term, the Base Rent for the
Premises shall be $775,848 per annum payable in twelve (12) equal monthly
installments of $64,654 on the first day of each month. Tenant shall be
responsible for one hundred percent (100%) of all operating, tax, maintenance
and repair expenses as stated in the Lease, as of January 1, 1998, Tenant's
"proportionate share", as such term is used in the Lease, shall be deemed to be
100%.
3. Provided that, at the time of such exercise, this Lease is still in
full force and effect without default by Tenant beyond applicable grace periods
and Tenant occupies at least seventy-five percent (75%) of the Premises for its
own business purposes, Tenant shall have the right and option (the "Extension
Option") to extend the Term of this Lease for one (1) extended term of three (3)
years (an "Extended Term"). The Extended Term shall commence on January 1, 2003
and shall end on December 31, 2005. Tenant shall exercise its Extension Option
for the Extended Term by giving written notice to Landlord of its desire to do
so not later than March 31, 2002. The giving of such notice by Tenant shall
automatically extend the Term of this Lease for the applicable Extended Term
(except as hereinafter set forth), and no instrument of renewal need be
executed. In the event that Tenant fails to give such notice to Landlord this
Lease shall automatically terminate at the end of the then current Term and
Tenant shall have no further option to extend the Term of this Lease. Landlord
and Tenant agree that they have specifically bargained for such option right and
notice provision, that Landlord requires certainty in order to conduct its
business, that any attempt to exercise said option to renew after March 31,
2002, will operate to the detriment of the Landlord and that termination of this
renewal option after such date shall not operate to the detriment of the Tenant.
Accordingly, both parties agree that time is of the essence hereof and that
Tenant shall not be allowed under any circumstances to exercise it renewal
rights after such date even if such failure was due to honest mistake or
otherwise. The Extended Terms shall be on all the terms and conditions of this
Lease, except (i) during the Extended Term, the extension provisions of this
Section shall not be effective, (ii) during the Extended Term, Base Rent shall
equal the prevalent fair market rent for the space determined at the time of
giving of Tenant's renewal notice. As used in the immediately preceding
sentence, fair market rent means the rent then prevalent for new rentals of
similar space in similar quality buildings in the Westborough/Route 495 area.
Fair Market Rent will be determined as follows:
(a) Landlord and Tenant will have thirty (30) days after Landlord receives
the option notice from Tenant within which to agree on the monthly
rent for the Extended Term based upon the fair market rental value of
the Premises. If they agree on the monthly rent within thirty (30)
days, they will amend this Lease by stating the monthly rent.
2
<PAGE>
(b) If they are unable to agree on the monthly rent for the Extended Term
within thirty (30) days, the Appraisal Process set forth in Subsection
(c) below shall be utilized for the determination of fair market rent.
(c) (c) Within twenty (20) days after the expiration of the thirty (30)
day period set forth in Subsection (a) above, Landlord and Tenant will
each appoint a real estate appraiser with at least five (5) years
full-time commercial appraisal experience in the area in which the
Premises are located to appraise the fair market rental value of the
Premises. If either party does not appoint an appraiser within such
twenty (20) day period and notify the other party in writing of this
selection, the single appraiser appointed will be the sole appraiser
and will set the fair market rental value of the Premises. If two (2)
appraisers are appointed pursuant to this Subsection (c), they will
meet promptly and attempt to set the then fair market rental value of
the Premises. If they are unable to agree within thirty (30) days
after the second appraiser has been appointed, they will attempt to
elect a third appraiser meeting the qualifications stated in this
Subsection (c) within ten (10) days after the end of the aforesaid
thirty-day period. If they are unable to agree on the third
appraiser, either the Landlord or the Tenant, by giving ten (10) days
prior notice to the other, may apply to the then presiding judge of
the local circuit or district court having primary jurisdiction for
civil matters in the area in which the Premises are located for the
selection of a third appraiser who meets the qualifications stated in
this Subsection (c). Landlord and Tenant will each bear one-half (
1/2) of the cost of appointing the third appraiser and of the third
appraiser's fee as well as the cost of their respective appointed
appraisers. The third appraiser, however selected, must be a person
who has not previously acted in any capacity for either Landlord or
Tenant. Within thirty (30) days after the selection of the third
appraiser, a majority of the appraisers will set the then fair market
rental value of the Premises. If a majority of the appraisers are
unable to set the then fair market rental value of the Premises within
thirty (30) days after selection of the third appraiser, the three (3)
appraisals will be averaged and the average will be the then fair
market rental value of the Premises.
Upon determination of the Base Rent for the Extended Term pursuant to the
foregoing, the parties agree to execute an amendment to the Lease acknowledging
the same. The foregoing Extension Option is granted in lieu of any other
Extension Options, rights of first refusal, or rights of first offer in the
Lease, which options and rights are hereby deleted in their entirety.
4. Tenant acknowledges and agrees that Landlord has completed all tenant
improvements required under the Lease and Tenant hereby accepts the Premises
being leased pursuant to this Fifth Lease Extension and Modification Agreement
on an "AS IS" basis. Landlord shall not be obligated to construct any tenant
improvements in connection with this Lease.
3
<PAGE>
5. Tenant's Proportionate Share as used in the Lease and defined in
Section 4B thereof, shall be 100%. Further, Sections 5C and D of the Lease are
modified by deleting the term "54%" and substituting therefor "100%". Tenant
further acknowledges that Tenant, and not Landlord, shall be responsible for the
costs of all maintenance and repairs at the Premises, including costs associated
with snow removal, the lobby, parking areas, sidewalks, driveways, landscaping,
HVAC, and other common areas at the Premises, this Lease being on a completely
net basis except as otherwise set forth herein. Notwithstanding the foregoing,
Landlord shall be responsible for undertaking all building structural repairs
and replacements, including the roof, the exterior walls, the floor slab and the
outside septic system. Tenant shall be responsible for the reimbursement to
Landlord for the costs of all maintenance and repairs. In no event, however,
shall the costs to be shared by Tenant hereunder include (1) any capital
expenditure, as determined by generally accepted accounting principles (except
only such as may be made for the purpose and with the effect of achieving a
corresponding reduction of costs which would otherwise be shared by Tenant,
provided however that any such capital expenditure shall be amortized for the
useful life thereof according to generally accepted accounting principles and
such amortized amount shall be payable by Tenant) and (2) any cost for which
Landlord is otherwise entitled to reimbursement from a third party but only when
and as Landlord receive the same; Landlord agrees to use reasonable efforts to
pursue the same, the reasonable cost of such pursuit to be a Tenant expense
hereunder. Tenant shall be entitled to inspect all books and records of
Landlord reasonably related to the payment of any costs which is to be shared by
Tenant pursuant to the provisions of this Lease.
6. Section 9 of the Lease is amended by adding the following sentence:
Tenant shall be responsible for 100% of costs associated with the provision and
usage of all utilities at the Premises including, without limitation, all
electricity, gas, water, sewage, telephone, and telecommunications services.
7. Section 10 of the Lease is hereby deleted in its entirety and the
following substituted in lieu thereof:
10. ASSIGNMENT AND SUBLETTING.
-------------------------
10.1 Landlord's Consent. Tenant shall not assign this Lease, or
------------------
sublease all or any part of the Premises, or permit the use of the Premises
by any party other than Tenant, without the prior written consent of
Landlord which consent will not be unreasonably withheld, delayed or
conditioned. When Tenant requests Landlord's consent to such assignment or
sublease, it shall notify Landlord in writing of the name and address of
the proposed assignee or subtenant and the nature and character of the
business of the proposed assignee or subtenant and shall provide financial
information including financial statements of the proposed assignee or
subtenant. Landlord shall not be obligated to consent to or permit any
proposed sublet or assignment if Tenant is in default under this Lease at
the time it makes its request for such consent or at the time the
assignment or sublet is to take effect.
4
<PAGE>
10.2 Approved Subleases and Assignments. No consent to any assignment
----------------------------------
or sublease shall constitute a further waiver of the provisions of this
section, and all subsequent assignments or subleases may be made only with
the prior written consent of Landlord. An assignee of Tenant, at the option
of Landlord, shall become directly liable to Landlord for all obligations
of Tenant hereunder, but no sublease or assignment by Tenant shall relieve
Tenant of any liability hereunder. Any assignment or sublease without
Landlord's consent shall be void, and shall, at the option of the Landlord,
constitute a default under this Lease. In the event that Landlord shall
consent to a sublease or assignment hereunder, Tenant shall pay Landlord's
reasonable fees per transaction, incurred in connection with the processing
of documents necessary to the giving of such consent.
10.4 Except as provided below, the provisions of paragraph 10.1 of
this Section shall apply to (i) a single transfer or an orchestrated series
of transfers of a majority of the stock or partnership interests or other
evidences of ownership of or interest in Tenant as if such transfer were an
assignment of this Lease and (ii) to any transfer of such stock or
interests the effect of which would be to constitute an assignment of this
Lease. Notwithstanding the foregoing, the provisions of Section 10.1 shall
not apply to any transactions by Tenant with an entity into or with which
Tenant is merged or consolidated or with an entity to which substantially
all of Tenant's assets are transferred or with any entity which controls or
is controlled by Tenant or is under common control with Tenant or with
which Tenant, directly or indirectly, has a fifty percent (50%) or greater
ownership interest, or which directly or indirectly, has a fifty percent
(50%) or greater interest in Tenant, provided that in any of such events
(x) Landlord is provided with evidence satisfactory to it that the
successor to Tenant has a net worth computed in accordance with generally
accepted accounting principles at least equal to the net worth of Tenant
upon execution of this Lease, and (y) in the case of any assignment of this
Lease, the assignee agrees directly with Landlord, by written instrument in
form reasonably satisfactory to Landlord, to be bound by all the
obligations of Tenant hereunder including, without limitation, the covenant
against further assignment and subletting except in accordance with the
express provisions of this Lease.
8. The provisions of Section 12(iv) of the Lease are modified by changing
the amount of liability insurance required from not less than $1,000,000 per
occurrence, to not less than $3,000,000 per occurrence.
9. Section 22(c) of the Lease is hereby deleted in its entirety and the
following substituted therefor:
Any notice, demand, consent, approval, disapproval, or statement
(collectively, "Notices") from Landlord to Tenant or from Tenant to
Landlord shall be in writing and shall be deemed duly given (a) if mailed
by registered or certified mail, postage prepaid, return receipt requested,
(b) if delivered by recognized national overnight delivery service with
receipt acknowledged, or (c) only in the case of Notices that are
Escalation Statements or bills for
5
<PAGE>
rent, if mailed by first-class mail, postage prepaid, to the address(es)
for Notices set forth in this Section 22. Notices to Tenant shall be sent
to Tenant at 120 Flanders Road, Westborough, MA 01581-1033. Notices to
Landlord shall be sent (i) to the address of Landlord set forth on page 1
of this Lease Amendment or (ii) to such other address as Landlord shall
have last designated by notice in writing to Tenant, with copies to
Trammell Crow Company, 25 First Street, Cambridge, MA 02141, Attention:
Larry Glazer and to James D. Sperling, Esq., Kassler & Feuer, P.C., 101
Arch Street, 18th Floor, Boston, MA 02110. Notice shall be deemed given on
the third business day after depositing same in an office depository of the
United States Postal Service (or successor organization) or, if given by
overnight delivery, upon delivery to Landlord or Tenant, as the case may
be.
10. The amount of Security Deposit set forth in Section 2B of the Lease
shall be changed to One Hundred Three Thousand Four Hundred Forty Six and 40/100
Dollars ($103,446.40), which sum shall be due and payable upon Tenant's
execution of this Amendment. Landlord acknowledges that the current Security
Deposit of $26,802.86 will be credited so that the additional amount of the
Security Deposit to be paid on the date hereof shall be $76,643.54.
11. The Lease, as hereinbefore extended and modified, is hereby ratified
and confirmed.
LANDLORD:
AETNA REAL ESTATE ASSOCIATES,
a Delaware limited partnership
Witness: By: Aetna/AREA Corporation
Its General Partner
/s/ Illegible By: /s/ Illegible
- ------------------------------ -----------------------------------
Its
Hereunto duly authorized
TENANT:
BANYAN SYSTEMS INCORPORATED
By: /s/ Richard M. Spaulding
-----------------------------------
Name: Richard M. Spaulding
-------------------------
Title: Vice President and CFO
--------------------------
6
<PAGE>
CLERK'S CERTIFICATE
-------------------
I, John P. Mitchell , do hereby certify that I am
-----------------------------------------
the Assistant Clerk of BANYAN SYSTEMS CORPORATION, a Delaware corporation (the
"Corporation") with its principal place of business at 120 Flanders Road,
Westborough, MA 01581-1033, and that I have been duly elected and am presently
serving in that capacity in accordance with the Bylaws of the Corporation.
I further certify that by unanimous written consent of the directors of the
Corporation, votes in the form of Exhibit A attached hereto were duly adopted by
---------
all present at a meeting of said directors duly called and as to which notice
was duly given as required by law and the By-laws of the Corporation. The votes
as specified are presently in full force and effect and have not been revoked or
rescinded as of the date hereof.
I further certify that as of this date the following is the current duly
elected and acting officer of the Corporation who is authorized pursuant to the
attached votes.
Name Title
---- -----
Richard M. Spaulding Vice President and Chief Financial Officer
- --------------------------------------------------------------------------
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of the
Corporation this 15th day of October, 1997.
--------
/s/ John P. Mitchell
---------------------------------
John P. Mitchell, Assistant Clerk
[CORPORATE SEAL]
<PAGE>
EXHIBIT 10.14
SENIOR EXECUTIVE TERMINATION BENEFITS AGREEMENT
-----------------------------------------------
AGREEMENT, dated as of the 2nd day of September, 1997, between BANYAN
SYSTEMS INCORPORATED, a Massachusetts corporation ("Banyan" or "the Company"),
and RICHARD SPAULDING, VICE PRESIDENT AND CHIEF FINANCIAL OFFICER (the
"Executive").
RECITALS
--------
A. Banyan considers it essential and in the best interests of the Company
and its stockholders to provide protection to its executive management in the
event of a merger/acquisition or termination. Banyan also considers it
essential and in the best interests of the Company and its stockholders that its
management be encouraged to remain with the Company and to continue to devote
full attention to its business in the event that an effort is made to obtain
control of Banyan through tender offer or otherwise. In this connection, the
Company 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 the Company'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
the Company.
B. The Executive is a key executive of Banyan, and the Company believes
that the Executive has made valuable contributions to the business.
C. In the event that the Company receives any proposal from a third person
concerning a possible business combination with, or acquisition of equity
securities of the Company, the Board believes it imperative that Banyan and the
Board be able to rely upon the Executive to continue in his position and that
the Company be able to receive and rely upon his advice, if so requested, in 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 the Company 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 the Company, 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 the Company, 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 3 will not be applicable.
2. CIRCUMSTANCES TRIGGERING RECEIPT OF SEVERANCE BENEFITS
------------------------------------------------------
Banyan shall provide the Executive with the benefits set forth in Sections
3 and 5 upon any termination of the Executive's employment by Banyan within one
year following a Change in Control or termination of employment for any reason
except the following:
CONFIDENTIAL PAGE 1 OF 5
<PAGE>
(I) Termination by reason of the Executive's death;
(II) 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;
(III) Termination for cause.
(IV) Voluntary termination by the Executive.
3. TERMINATION BENEFITS
--------------------
Subject to the provisions set forth in Section 2, the following benefits
(subject to any applicable taxes required to be withheld) shall be paid monthly,
or in the case of fringe benefits shall continue to be provided monthly, to the
Executive:
(A) PROTECTION IN THE EVENT OF TERMINATION OR MATERIAL REDUCTION IN
---------------------------------------------------------------
RESPONSIBILITIES
----------------
TERMINATION BY BANYAN
If your employment is terminated by Banyan for any reason (including Change in
Control), except For Cause, Banyan will provide you the following payments and
benefits:
. Banyan will pay you on a biweekly basis the difference between any outside
earnings and your Banyan base salary for six months from the effective date
of your termination. Such payments shall be made at the Executive's then
current base, bi-weekly gross salary rate, less applicable deductions for
medical, dental, prescription and life insurance contributions and/or
withholdings for taxes or similar governmental payments or charges.
. Banyan will provide six months of continued medical, dental, and life
insurance for you and your family from the effective date of your
termination, subject to the payment of any applicable employee
contributions.
MATERIAL REDUCTION IN RESPONSIBILITIES
You may, within 60 days from the occurrence of any change in control or
"Material Reduction of Responsibilities" (defined below) and upon 60 days prior
written notice to Banyan, voluntarily terminate your employment with Banyan and
receive the following payments and benefits:
. Banyan will pay you on a biweekly basis the difference between any outside
earnings and your Banyan base salary for six months from the effective date
of your termination.
. Banyan will provide six months of continued medical, dental, and life
insurance for you and your family from the effective date of your
termination, subject to the payment of any applicable employee
contributions.
CONFIDENTIAL PAGE 2 OF 5
<PAGE>
4. CONTRACT TERM
-------------
This contract is valid for the duration of your employment with the Company
subject to a 60-day notice period for termination of employment by either party
via written notification.
FOR PURPOSES OF THIS LETTER, THE FOLLOWING TERMS SHALL HAVE THE FOLLOWING
RESPECTIVE MEANINGS:
1. Termination of employment for cause ("For Cause") shall mean
termination by reasons of (a) any act or omission involving
dishonesty, gross negligence or serious misconduct, or (b) your
conviction of, or the entry of a pleading of guilty or nolo contendere
by you to, any crime involving sexual harassment or any felony.
Termination of Employment For Cause will be presented in writing,
accompanied by a written statement of reasons. Disagreements will be
resolved by a process of binding arbitration.
2. A material reduction in responsibilities ("Material Reduction in
Responsibilities") shall be deemed to occur if: (I) your
responsibilities are reduced, for reasons other than For Cause, from
managing Finance or you are no longer an Officer of the Company; or,
(ii) Banyan removes you from the position of Vice President and Chief
Financial Officer for reasons other than For Cause; or, (iii) Banyan
reduces your base salary and Executive Bonus, for reasons other than
For Cause; or, (iv) you are no longer a direct report of the President
and CEO of Banyan.
3. A change in control ("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 of 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 of consolidation, or
(c) a sale of all or substantially all of the assets of the Company.
5. STOCK OPTIONS
-------------
In the event of a Change in Control, 50% of your unvested incentive and non-
qualified stock options in a given vesting schedule will become fully vested and
immediately available for exercise in accordance with the applicable terms and
conditions of Banyan's 1992 Stock Incentive Plan.
6. 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 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.
CONFIDENTIAL PAGE 3 OF 5
<PAGE>
7. 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: Mr. Richard Spaulding
66 Solon Street
Newton, MA 02161
IF TO BANYAN:
Anthony J. Bellantuoni, Vice President, Human Resources
Banyan Systems Incorporated
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.
8. GOVERNING LAW
-------------
This Agreement is entered into and shall be construed under the laws of the
Commonwealth of Massachusetts. In the event any provision of this Agreement is
determined to be illegal or unenforceable by a duly authorized court of
competent jurisdiction, then the remainder of this Agreement shall not be
affected thereby, it being the intention of the parties that each provision of
this Agreement shall be valid and enforceable to the fullest extent permitted by
law.
9. 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.
10. 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.
11. 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.
CONFIDENTIAL PAGE 4 OF 5
<PAGE>
12. 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 to this Section
Banyan shall have no liability to pay any amount so attempted to be assigned or
transferred.
13. 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,
financial and/or legal advisors.
14. PRIOR AGREEMENTS SUPERCEDED
---------------------------
This agreement supercedes any prior written or oral agreements or
understandings between the parties related to the subject matter hereof,
including your agreement dated as of the 15th day of January, 1997, and any such
agreements or understanding shall be void and of no further effect. This
Agreement specifically supercedes any prior written or oral agreements or
understandings of a similar nature which may have existed between the Executive
and Banyan, and such agreements or understandings shall be void and of no
further effect.
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/ William P. Ferry
-----------------------------
William P. Ferry
President and Chief
Executive Officer
BY: /s/ Richard M. Spaulding
-----------------------------
Richard Spaulding
Vice President and Chief
Financial Officer
CONFIDENTIAL PAGE 5 OF 5
<PAGE>
EXHIBIT 10.16
CONSENT AND AMENDMENT NUMBER ONE TO
LOAN AND SECURITY AGREEMENT
---------------------------
THE CONSENT AND AMENDMENT NUMBER ONE TO LOAN AND SECURITY AGREEMENT (this
"Consent and Amendment") is entered into as of March 5, 1998 (but effective only
in accordance with the terms and conditions of Section 4 of this Consent and
---------
Amendment), by and among FOOTHILL CAPITAL CORPORATION, a California corporation
("Foothill") and BANYAN SYSTEMS INCORPORATED, a Massachusetts corporation (the
"Company"), with reference to the following facts:
A. Foothill and the Company heretofore have entered into that certain
Loan and Security Agreement, dated as of September 4, 1997 (the "Loan
Agreement");
B. Borrower has requested that Foothill consent to the issuance and sale
of 263,158 shares of its Series A Convertible Preferred Stock, par
value $.01 per share (the "Series A Preferred") and the issuance sale
of warrants for the purchase of up to an additional 65,790 shares of
Series B Convertible Preferred Stock, $.01 par value per share (the
"Series B Preferred") and warrants for the purchase of up to an
additional 65,790 shares of Series C Convertible Preferred Stock, $.01
par value per share (the Series C Preferred" and collectively, with
the Series A Preferred and the Series B Preferred, the "Preferred")
(collectively the "Warrants"), to HarbourVest Partners V-Direct Fund,
L.P. (the "Transaction"), and to the amendment of the Loan Agreement
to permit the Company to issue and sell the Preferred Stock having the
powers, preferences and rights set forth in the Company's Certificate
of Designations (the "Certificate") with respect to the Preferred
Stock and to issue the Warrants;
C. Foothill is willing to consent to the Transaction and to amend the
Loan Agreement, in each case, in accordance with the terms and
conditions hereof; and
D. All capitalized terms used but not defined herein shall have the
meanings ascribed to them in the Loan Agreement, as amended hereby.
NOW THEREFORE, in consideration of the above recitals and the mutual
premises contained herein, Foothill and the Company hereby agree as follows:
<PAGE>
1. Amendments to the Loan Agreement
--------------------------------
a. Section 1.1 of the Loan Agreement hereby is amended to
include the following defined terms:
"HarbourVest" means HarbourVest Partners V-Direct Fund, L.P., a
limited partnership.
"HarbourVest Preferred" means, collectively, the 263,158 shares of the
---------------------
Company's Series A Convertible Preferred Stock, par value $.01 per
share (the "Series A Preferred") having the powers, preferences and
rights set forth in the Company's Certificate of Designations, a copy
of which is attached hereto as Exhibit HP-1, and the issuance and sale
------------
of warrants for the purchase of up to an additional 65,790 shares of
Series B Convertible Preferred Stock, $.01 par value per share (the
"Series B Preferred") and warrants for the purchase of up to an
additional 65,790 shares of Series C Convertible Preferred Stock, $.01
par value per share (the "Series C Preferred" and collectively, with
the Series A Preferred and the Series B Preferred, the "Preferred")
(collectively the "Warrants") in substantially the form attached
hereto as Exhibit HP-2, and the Series B Preferred and Series C
------------
Preferred issued upon exercise thereof, all as issued to HarbourVest
pursuant to the HarbourVest Preferred Purchase Agreement.
"HarbourVest Preferred Purchase Agreement" means that certain
Preferred Stock and Warrant Purchase Agreement by the Company in favor
of HarbourVest and accepted and agreed to by HarbourVest, dated March
5, 1998, a copy of which is attached hereto as Exhibit HP-3.
------------
b. Section 7.11 of the Loan Agreement hereby is amended to add
the following as a second sentence to such section:
Notwithstanding the foregoing, the Company may purchase shares from
HarbourVest to the extent mandated by Section 7.7 of the HarbourVest
Preferred Purchase Agreement and Section 4 of the Certificate of
Designations.
c. Section 7.16 of the Loan Agreement is hereby amended to read
in its entirety as follows:
2
<PAGE>
7.16 PREFERRED STOCK. Authorize the issuance of, issue, or any
Preferred Stock, other than Permitted Preferred Stock and the
HarbourVest Preferred.
2. Foothill's Consent. Foothill hereby consents to the Transaction,
------------------
and agrees that the Transaction shall be deemed not to cause any Default or
Event of Default under the Loan Agreement, as amended by this Consent and
Amendment.
3. Representations and Warranties. The Company hereby represents
------------------------------
and warrants to Foothill that (a) the execution, delivery, and performance of
this Consent and Amendment and of the Loan Agreement, as amended by this Consent
and Amendment, are within its corporate powers, have been duly authorized by all
necessary corporate action, and are not in contravention of any law, rule, or
regulation, or any order, judgment, decree, writ, injunction, or award of any
arbitrator, court, or governmental authority, or of the terms of its charter or
bylaws, or of any contract or undertaking to which it is a party or by which any
of its properties may be bound or affected, and (b) this Consent and Amendment
and the Loan Agreement, as amended by this Consent and Amendment, constitute the
Company's legal, valid, and binding obligation, enforceable against the Company
in accordance with its terms.
4. Conditions Precedent to the Effectiveness of this Consent and
-------------------------------------------------------------
Amendment. The effectiveness of this Consent and Amendment is subject to the
- ---------
fulfillment to the satisfaction of Foothill and its counsel, of each of the
following conditions:
a. Foothill shall have received the HarbourVest Preferred
Purchase Agreement and all exhibits and schedules thereto, duly executed, and
the HarbourVest Preferred Purchase Agreement shall be in full force and effect;
b. The representations and warranties in this Consent and
Amendment, the Loan Agreement as amended by this Consent and Amendment, and the
other Loan Documents shall be true and correct in all respects on and as of the
date hereof, as though made on such date (except to the extent that such
representations and warranties relate solely to an earlier date);
c. No Event of Default or event which with the giving of notice
or passage of time would constitute an Event of Default shall have occurred and
be continuing on the date hereof, nor shall result from the consummation of the
transactions contemplated herein; and
3
<PAGE>
d. No injunction, writ, restraining order, or other order of
any nature prohibiting, directly or indirectly, the consummation of the
transactions contemplated herein shall have been issued and remain in force by
any governmental authority against the Company, Foothill, or any of their
Affiliates.
5. Effect on Loan Agreement. The Loan Agreement, as amended hereby,
------------------------
shall be and remain in full force and effect in accordance with its respective
terms and hereby is ratified and confirmed in all respects. The execution,
delivery, and performance of this Consent and Amendment shall not operate as a
waiver of or, except as expressly set forth herein, as an amendment, of any
right, power, or remedy of Foothill under the Loan Agreement, as in effect prior
to the date hereof.
6. Further Assurances. The Company shall execute and deliver all
------------------
agreements, documents, and instruments, in form and substance satisfactory to
Foothill, and take all actions as Foothill may reasonably request from time to
time, to perfect and maintain the perfection and priority of Foothill's security
interests in the Collateral and to fully consummate the transactions
contemplated under this Consent and Amendment and the Loan Agreement, as amended
by this Consent and Amendment.
7. Miscellaneous.
-------------
a. Upon the effectiveness of this Consent and Amendment, each
reference in the Loan Agreement to "this Agreement," "hereunder," "herein,"
"hereof," or words of like import referring to the Loan Agreement shall mean and
refer to the Loan Agreement as amended by this Consent and Amendment.
b. Upon the effectiveness of this Consent and Amendment, each
reference in the Loan Documents to the "Loan Agreement," "thereunder,"
"therein," "thereof," or words of like import referring to the Loan Agreement
shall mean and refer to the Loan Agreement as amended by this Consent and
Amendment.
c. This Consent and Amendment shall be governed by and construed in
accordance with the laws of the State of California.
d. This Consent and Amendment may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereby may execute this Consent and Amendment
by signing any such counterpart.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Consent and
Amendment to be duly executed as of the date first written above.
FOOTHILL CAPITAL CORPORATION,
a California corporation
By: /s/ illegible
-------------------------
Title: Vice President
--------------
BANYAN SYSTEMS INCORPORATED,
a Massachusetts corporation
By: /s/ Richard M. Spaulding
------------------------
Title: V. P. & CFO
------------
5
<PAGE>
SEPARATION AGREEMENT AND
RELEASE AND WAIVER OF CLAIMS
----------------------------
This Separation Agreement and Release and Waiver of Claims (the
"Agreement") is entered into this 31 day of May, 1997, by and between BANYAN
SYSTEMS INCORPORATED, with offices at 120 Flanders Road, Westboro, Massachusetts
01581 ("Banyan") and DAVID C. MAHONEY, a resident of 103 Jimney Drive; Westford,
MA 01886 (the "Undersigned").
For and in consideration of the mutual terms, conditions and covenants
herein, Banyan and the Undersigned agree as follows:
1. RESIGNATION OF EMPLOYMENT. The Undersigned hereby resigns his
-------------------------
position with Banyan as Chairman of the Board and Chief Executive Officer
effective April 1, 1997. The Undersigned shall promptly execute and deliver to
Banyan a separate instrument embodying such resignation.
2. PAYMENT. For and in consideration of the Undersigned's execution of
-------
this Agreement, Banyan shall pay to the Undersigned the amount set forth in
Exhibit A, Section 1, less applicable deductions and/or withholdings for taxes
or similar governmental payments and charges, and further Banyan shall provide
the benefits set forth in Exhibit A, Sections 2-8. In the event that Banyan
fails to provide any of the pay or benefits set forth in Exhibit A hereto, the
Undersigned shall be relieved of all further obligations to Banyan, its
subsidiaries and affiliates.
3. PUBLIC STATEMENT. The Undersigned agrees that he will not
----------------
intentionally make or disclose or cause to be disclosed any negative, adverse or
1
<PAGE>
derogatory comments about Banyan or its management, business, personnel or about
any product or service provided by Banyan, or about Banyan's prospects for the
future. Banyan agrees that its officers, executives, and authorized
spokespersons will not intentionally make or disclose any negative, adverse or
derogatory comments about the Undersigned.
4. NON-COMPETITION AND NON-SOLICITATION. The Undersigned agrees that
------------------------------------
from April 1, 1997 to September 30, 1998, he will not either directly or
indirectly, without Banyan's prior express written consent:
a. solicit or participate in the hiring of, or attempt to solicit or
participate in the hiring of, any employee of Banyan, either for himself or for
any other person or entity, excluding any general solicitation of employment not
specifically directed to employees of Banyan.
b. as an individual proprietor, partner, stockholder, officer,
employee, director, joint venturer, investor, lender, consultant, or in any
other capacity whatsoever (other than as the holder of not more than one percent
of the combined voting power of the outstanding stock of a publicly held
company), develop, design, produce, market, sell or render (or assist any other
person in developing, designing, producing, marketing, selling or rendering)
products or services competitive with those produced, marketed, sold or rendered
by the Company while the Undersigned was employed by the Company; or
c. solicit, divert or take away, or attempt to take away, the
business or patronage of any of the clients, customers or accounts, or
prospective clients,
2
<PAGE>
customers or accounts, of the Company which were contacted, solicited or served
personally by the Undersigned while employed by the Company.
If the Undersigned violates the provisions of this section, the Undersigned
shall continue to be bound by the restrictions set forth in this section until a
period of one year has expired without any violation of such provisions.
5. RELEASE. The Undersigned hereby fully, forever, irrevocably and
-------
unconditionally releases, remises and discharges the Company, its officers,
directors, stockholders, corporate affiliates, agents and employees from any and
all claims, charges, complaints, demands, actions, causes of action, suits,
rights, debts, sums of money, costs, accounts, reckonings, covenants, contracts,
agreements, promises, doings, omissions, damages, executions, obligations,
liabilities, and expenses (including attorneys' fees and costs), of every kind
and nature which he ever had or now has against the Company, whether known or
unknown, its officers, directors, stockholders, corporate affiliates, agents and
employees, including, but not limited to, all claims arising out of his
employment, all employment discrimination claims under Title VII of the Civil
Rights Act of 1964, 42 U.S.C. (S)2000e et seq., the Age Discrimination in
-- ----
Employment Act, 29 U.S.C., (S)621 et seq., the Americans With Disabilities Act,
-- ----
42 U.S.C., (S)12101 et seq., M.G.L. c.151B, (S)1 et seq., all claims arising out
-- ---- -- ----
of the Massachusetts Civil Rights Act, M.G.L. c.12 (S)(S)11H and 11I and the
Massachusetts Equal Rights Act, c.93, (S)102, damages arising out of all
employment discrimination claims, wrongful discharge claims or other common law
claims and damages.
3
<PAGE>
Banyan on it's own behalf and on the behalf of its subsidiaries and
affiliates, hereby fully, forever, irrevocably and unconditionally releases,
remises and discharges the Undersigned, his heirs, executors, administrators,
personal representatives and assigns, from any and all claims, charges,
complaints, demands, actions, causes of action, suits, rights, debts, sums of
money, costs, accounts, reckoning, covenants, contracts, agreements, promises,
doings, omissions, damages, executions, obligations, liabilities, and expenses
(including attorneys' fees and costs), of every kind and nature which Banyan or
any of its subsidiaries or affiliates ever had or now has against the
Undersigned, whether know or unknown.
6. WARRANTY ON LEGAL ACTION. The Undersigned further represents and
------------------------
warrants that he has not filed any complaints, charges or claims for relief
against the Company, its officers, directors, stockholders, corporate
affiliates, agents or employees with any local, state or federal court or
administrative agency which currently are outstanding.
7. REMEDIES. If at any time during the term of this Agreement, either
--------
party believes that the other party has breached any material obligations or
covenants hereunder, the non- breaching party promptly shall give the other
party written notice of the same. In the event that the other party does not
promptly cure such breach (if such breach is susceptible of cure), the non-
breaching party may, at its option, commence an action at law or equity, against
the other party including, but not limited to, injunctive relief.
4
<PAGE>
8. GOVERNING LAW; SEVERABILITY. This Agreement is entered into and shall
---------------------------
be construed pursuant to the laws of The Commonwealth of Massachusetts,
excluding its conflicts of law rules. In the event any provision of this
Agreement is determined to be illegal or unenforceable by a duly authorized
court of competent jurisdiction, then the remainder of this Agreement, or the
application of such provision in circumstances other than those as to which it
is so declared illegal or unenforceable, shall not be affected thereby, and each
provision of this Agreement shall be valid and enforceable to the fullest extent
permitted by law.
9. WAIVERS; AMENDMENTS. The failure of either party to require the
-------------------
performance of any term or obligation of this Agreement, or the waiver by either
party of any breach of this Agreement, shall not prevent any subsequent
enforcement of such term or obligation and shall not be deemed a waiver of any
subsequent breach. No modification or waiver of any provision of this Agreement
shall be effective unless in writing and signed by both parties.
10. NON-ADMISSION. Banyan expressly disclaims any wrongdoing to the
-------------
Undersigned and the Undersigned agrees that by entering into this Agreement
Banyan admits no wrongdoing. The Undersigned expressly disclaims any wrongdoing
to Banyan and Banyan agrees that by entering into this Agreement the Undersigned
admits no wrongdoing.
11. ACKNOWLEDGMENTS. The Undersigned acknowledges that he has been given
---------------
twenty-one (21) days to consider this Agreement and that the Company advised him
to consult with an attorney of his own choosing prior to signing this
5
<PAGE>
Agreement. The Undersigned may revoke this Agreement for a period of seven (7)
days after the execution of this Agreement, and the Agreement shall not be
effective or enforceable until the expiration of this seven (7) day revocation
period. The Undersigned affirms that no other promises or agreements of any kind
have been made to or with him by any person or entity whatsoever to cause him to
sign this Agreement, and that he fully understands the meaning and intent of
this Agreement. The Undersigned states and represents that he has had an
opportunity to fully discuss and review the terms of this Agreement with an
attorney. The Undersigned further states and represents that he has carefully
read this Agreement, understands the contents herein, freely and voluntarily
assents to all of the terms and conditions hereof, and signs his name of his own
free act.
12. CHALLENGE TO VALIDITY OF AGREEMENT. Neither party shall ever bring a
----------------------------------
proceeding to challenge the validity of this Agreement.
13. ENTIRE AGREEMENT. This Agreement and the Exhibits attached hereto set
----------------
forth the full terms of the arrangement between Banyan and the Undersigned and
supersedes any prior oral or written understandings. Notwithstanding the
foregoing, nothing in this Agreement shall be deemed to affect the application
and enforceability of the Employee Patent and Confidential Information Agreement
executed by the Undersigned and all rights of the Undersigned to indemnification
by Banyan, its subsidiaries and affiliates, whether under charter, by-laws or
otherwise, including without limitation indemnification with respect to the
service of the Undersigned as
6
<PAGE>
an officer or director of Banyan, its subsidiaries or affiliates or others
served at Banyan's request and as a fiduciary of Banyan's 401(k) plan.
14. SIGNATURE. This Agreement may be signed on one or more copies, each
---------
of which when so signed will be deemed to be an original, and all of which
together will be one and the same document.
15. CONFIDENTIALITY OF AGREEMENT. The parties agree that the terms of
----------------------------
this Agreement are confidential and shall not be disclosed to any other person,
except that the Undersigned may disclose the terms of this Agreement to his
immediate family, attorney, any tax or other professional advisors, or as
otherwise required by law or regulation, and that Banyan may disclose the terms
of this Agreement to its attorneys, tax or other professional advisors, its
personnel who have a need to know, or as otherwise required by law or
regulation.
16. EFFECTIVE DATE. This Agreement shall become effective immediately
--------------
upon execution by both parties, subject to the Undersigned's right to revoke as
set forth below. The Undersigned may revoke this Agreement within seven (7)
days after it is signed by the Undersigned, and it shall not become effective or
enforceable until this seven (7) day revocation period has expired.
7
<PAGE>
IN WITNESS WHEREOF, THE PARTIES HAVE HEREUNTO SET THEIR NAMES ON MAY 31,1997.
THE UNDERSIGNED HAS BEEN OFFERED THE OPPORTUNITY TO SEEK ADVICE OF COUNSEL PRIOR
TO EXECUTING THIS AGREEMENT. BOTH PARTIES HAVE READ, UNDERSTAND AND AGREE TO BE
BOUND BY THIS AGREEMENT.
DAVID C. MAHONEY BANYAN SYSTEMS INCORPORATED
By: /s/ David C. Mahoney By: /s/ John F. Burton
--------------------------------- ---------------------------------
Date: May 31, 1997 Date: May 31, 1997
8
<PAGE>
DAVID C. MAHONEY
-----------------
EXHIBIT A
---------
SEPARATION AGREEMENT AND RELEASE AND WAIVER OF CLAIMS
-----------------------------------------------------
For and in consideration of the Undersigned's execution of this Agreement,
Banyan shall: (i) pay to the Undersigned, as applicable, the amounts set forth
in Section 1 below, less any applicable withholdings for taxes or similar
governmental payments or charges; and (ii) provide the benefits set forth in
Sections 2 through 8 below.
1. PAYMENT AMOUNT.
--------------
a. Banyan shall provide the Undersigned with a 15-month consulting
fee totaling $312,500.00 for the period of April 1, 1997 through June 30, 1998.
This consulting fee will be paid on normal bi-weekly pay periods at the
Undersigned's base, bi-weekly pay rate of $9,615.38. In addition, the
Undersigned will be compensated at the rate of $2,000.00 per day for specific
consulting assignments requested and scheduled by Banyan (Exhibit B, Consulting
Agreement). The Undersigned shall perform, as an independent contractor and not
as an employee of Banyan, the consulting services described on Exhibit B solely
in accordance with the terms and conditions of the Banyan Consulting Agreement
attached hereto as Exhibit B ("Consulting Agreement"). Nothing in this
Agreement or in the Consulting Agreement shall be construed to mean that the
Undersigned has assumed a "Banyan employee" status by the performance of
consulting services for Banyan. The provisions of the Consulting Agreement are
solely limited to such
9
<PAGE>
Consulting Agreement and shall not apply to this Agreement and the provisions of
the Consulting Agreement shall exclusively govern the provision of consulting
services to Banyan thereunder.
2. MEDICAL DENTAL AND PRESCRIPTION DRUG BENEFITS.
---------------------------------------------
a. The Undersigned may elect to continue coverage of Company-
sponsored health and dental insurance for up to 18 months under the applicable
COBRA statute. Banyan shall assume the full payment of all associated COBRA
expenses for the 18-month period which runs from April 1, 1997 through June 30,
1998. At the end of this period, the Undersigned may elect to continue COBRA at
his expense. The Undersigned shall receive notification of his COBRA rights
immediately following the execution of this Agreement.
b. Banyan will reimburse the Undersigned for insurance premiums
associated with the Undersigned's purchase of up to $1,000,000 of term life
insurance for the period of April 1, 1997 through June 30, 1998.
3 STOCK OPTIONS.
--------------
a. On the date hereof, the Company will (i) cancel the stock options
held by the Employee set forth on Exhibit C hereto and (ii) grant to the
Undersigned a nonqualified stock option (the "Stock Option") to purchase 72,500
shares of Common Stock of the Company ("Common Stock") at a per share exercise
price of $4.00 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 C hereto. The Stock Option shall be fully
exercisable (72,500 shares) on
10
<PAGE>
April 1, 1998 and may be exercised during the period commencing on April 1; 1998
and ending on April 1, 1999.
b. The Undersigned may exercise Incentive Stock Options granted on March
2, 1988 (40,000 shares) and January 1, 1991 (50,000 shares) through the period
ending September 30, 1998. Banyan makes no representation that any Incentive
Stock Options will be treated as Incentive Stock Options for tax and financial
purposes.
4. CHANGE IN CONTROL. For purposes of this Agreement, a Change in
-----------------
Control shall be deemed to have taken place when (i) 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 or
(ii) a person or entity (other than Banyan) becomes a beneficial owner (within
the meaning of Rule 13d-3, as amended, promulgated under the Securities Exchange
Act of 1934), directly or indirectly, of securities representing [20]% or more
of the total number of votes that may be cast for the election of directors of
Banyan. Upon such events, Banyan shall:
a. pay the Undersigned the balance of the 15-month consulting fee in
full, defined in Section 1a;
b. provide equivalent benefits or funding to purchase equivalent
benefits defined in Section 2a; and
c. fully accelerate the vesting of 72,500 shares of Common Stock
defined in Section 3a.
11
<PAGE>
5. VACATION PAY. The Undersigned acknowledges that he has received all
------------
of the vacation pay due him as an employee.
6. DIRECTORS AND OFFICERS LIABILITY INSURANCE. Banyan acknowledges that
------------------------------------------
it has maintained Directors and Officers Liability Insurance coverage under
terms, conditions and policy limits selected by Banyan at its sole discretion
for directors and officers of Banyan during the period of the Undersigned's
employment with Banyan and his directorship with Banyan. Such insurance shall
apply to the extent of the applicable policy terms, conditions and limits to the
Undersigned in the event of a claim against Banyan which names the Undersigned
as an officer of Banyan for any period of time during which the Undersigned was
an officer of Banyan.
7. LEGAL FEES. Banyan agrees to pay the legal fees associated with the
----------
defense of any legal action filed, at any time, against the Undersigned with
respect to his role as Chief Executive Officer, Chairman of the Banyan Board of
Directors, or as a member of the Banyan Board of Directors, as a member of any
other board of directors at the direction or request of Banyan or as a fiduciary
of any employee benefit plan of Banyan, including without limitations its 401(k)
plan.
8. OFFICE AND ADMINISTRATIVE Support. Banyan will reimburse the
---------------------------------
Undersigned for actual office and administrative support or, at his option, for
outplacement services, up to $3,000 per month for the earlier of the period of
April 1, 1997 through June 30, 1998 or when the Undersigned begins regular full-
time employment.
12
<PAGE>
EXHIBIT B
---------
BANYAN SYSTEMS INCORPORATED
CONSULTING AGREEMENT
THIS AGREEMENT is made and entered into as of the 31 day of May, 1997, between
BANYAN SYSTEMS INCORPORATED, a corporation organized under the laws of the
Commonwealth of Massachusetts, having a principal place of business at 120
Flanders Road, Westboro, Massachusetts 01581 (hereinafter referred to "Banyan"),
and DAVID C. MAHONEY, an individual Consultant residing at 103 Jimney Drive;
Westford, MA 01886 (hereinafter referred to as ("Consultant").
1. INDEPENDENT CONSULTING SERVICES. Banyan hereby retains Consultant and
-------------------------------
Consultant hereby agrees to perform the consulting services as assigned and
directed by Banyan's Chief Executive Officer, upon the terms and conditions
contained herein ("Services") for a period of time beginning on April 1,
1997 and ending on June 30, 1998. Banyan agrees that any services to be
provided by consultant hereunder shall not conflict with or limit
Consultant's rights to pursue other full-time business activities.
2. FEES FOR SERVICES.
-----------------
a. in consideration for Consultant's performance of the Services, Banyan
will pay Consultant for the Services as set forth in this Section 2.a.
("Fee(s)").
Fees: $2,000 per day.
b. Consultant shall be responsible for all taxes, levies, and fees which
may be due any governmental taxing authority arising out of
performance of the Services, as well as all insurance premiums,
employee benefits and all other fees and assessments associated and
with respect to such Services, and shall hold Banyan harmless on
account thereof.
c. Banyan shall pay Consultant on a bi-weekly basis commencing on
April 1, 1997, and upon receipt of a correct Consultant invoice,
subject to verification of the appropriate fees and expenses.
d. Consultant shall perform the services as agreed by the parties and
have access to the equipment, facilities and services as outlined in
attached SCHEDULE 1.
----------
e. Banyan agrees to pay the Consultant's consulting company, Falcon, a
retainer fee of $48,076.92 upon execution of this Agreement.
3. RELATIONSHIP BETWEEN THE PARTIES. It is agreed that the relationship of
--------------------------------
Consultant to Banyan is solely that of an independent consultant.
Consultant is not and will not represent that he is an agent(s) and/or
employee(s) of Banyan and shall have no power, express or implied, to bind
Banyan in any manner. Consultant shall
13
<PAGE>
make no representations or warranty whatsoever with regard to Banyan
including but not limited to any warranties or representations relating to
Banyan's products or services, and shall incur no liability, or expense,
nor make any commitments, on behalf of Banyan.
4. LOAN OF BANYAN PROPERTY. In the event that Banyan decides to loan and/or
-----------------------
temporarily license any Banyan property and/or products to Consultant for
use by Consultant in performing the Services, such loan or license shall be
governed by the terms of a separate agreement(s) between Banyan and
Consultant. Unless such agreement(s) states otherwise, all loaned property
and/or licensed products shall be returned to Banyan on completion of
Services or otherwise as requested by Banyan.
5. INTELLECTUAL PROPERTY.
---------------------
a. Confidentiality information. Consultant shall hold confidential all
---------------------------
of Banyan's Confidential information (as defined herein) and shall
not, during or after the term of this Agreement, use any of Banyan's
Confidential Information, or any part thereof, for any purpose other
than those uses specifically permitted in writing by Banyan.
Consultant shall not, during or after the term of this Agreement,
disclose to individuals or entities any of Banyan's Confidential
Information for any reason or purpose whatsoever, except as may be
specifically authorized in writing by Banyan. "Confidential
Information" shall include, but not be limited to, computer programs,
source code, algorithms, drawings, designs, techniques, methodology,
know-how, formulas, swap processes, ideas, inventions (whether
patentable or not), schematics, copyrights, trade secrets and the
intellectual processes and actual expressions and articulations
relating to the Banyan's products; names and expertise of employees
and consultants; information specifically related to research and
development work of Banyan; statistical, technical, engineering and
test data; and any other technical, financial, strategic, marketing or
other information which Consultant learns or receives from Banyan,
whether disclosed orally, in writing or via any other medium.
Consultant agrees that it will not use for its own benefit or,
directly or indirectly, disclose to or use for the benefit of any
third party any such Confidential information without Banyan's prior
written consent.
b. Injunctive Relief. Consultant acknowledges that disclosure of any
-----------------
Confidential Information will give rise to irreparable injury to
Banyan or the owner of such information, inadequately compensable in
damages. Accordingly, Banyan or such other party may seek and obtain
injunctive relief against the breach or threatened breach of the
disclosure of such Confidential Information, in addition to any other
legal remedies which may be available. Consultant further
acknowledges and agrees that the covenants contained herein are
necessary for the protection of Banyan's legitimate business interests
and are reasonable in scope and content.
c. Proprietary Rights. All information and documentation, however
------------------
characterized, which is generated by Consultant in connection with
this Agreement and/or in the course of performing the Services,
including but not
14
<PAGE>
limited to all materials, products, Software code and deliverables, as
well as all intellectual property rights embodied therein, including
ideas, concepts, inventions (whether or not patentable), copyrights,
designs, etc., shall belong solely and exclusively to Banyan,
regardless of the extent to which any of the foregoing may or may not
constitute a work for hire by operation of law (individually and
collectively referred to as "Property"). Title to the Property shall
vest on creation, regardless of the state of completion at any given
point in time. All rights, title and interest to the Property shall
be, and is intended by Consultant to be, hereby irrevocably assigned
to Banyan, without reservation. Unless otherwise requested by Banyan,
upon the completion of the Services, or upon the earlier termination
of this Agreement in accordance with the terms of this Agreement,
Consultant and its employees and/or agents shall immediately turn over
to Banyan all materials and deliverables developed pursuant to this
Agreement. Consultant agrees to execute all documentation (including
assignments) and provide whatever other assistance is necessary in
order for Banyan to be able to perfect and enforce its rights and
interests in the Property.
6. CONSULTANT WARRANTIES. Consultant hereby warrants that Consultant is
---------------------
qualified to perform the Services in accordance with the highest
professional and recognized standards within this industry, and has
extensive experience in performing services which are similar to and/or
essentially the same as the Services.
7. INDEMNIFICATION. Consultant hereby indemnifies and holds Banyan, its
---------------
officers, directors, and employees harmless from and against any and all
claims, losses, costs, expenses, penalties, damages, liabilities, suits for
injury to any person(s) (including Consultant and/or its employees), damage
to or loss of property, including reasonable attorneys' fees, which may be
claimed, alleged or actually incurred by reason, arising out of, or
resulting from any act or omission of Consultant, the performance or any
failure to perform the Services, the presence of Consultant on Banyan
property, or the operation of any Banyan motor vehicle, product, or
equipment, Consultant's negligence and/or intentional wrongdoing in
relation to the terms, conditions and/or subject matter of this Agreement,
or by reason of a determination at any time in the future by the internal
Revenue Service that Consultant was or is an employee(s) and/or agent(s) of
Banyan.
Consultant shall, in addition, provide Banyan with immediate written notice
if Consultant has any reason to believe that any third party has brought or
may bring a claim with regard to any intellectual property provided to
Banyan by Consultant with regard to the Services. Consultant agrees to
indemnify and hereby holds Banyan harmless from all liability arising Out
of any use by Banyan of such intellectual property.
8. TERM AND TERMINATION. This Agreement shall commence on April 1, 1997, and
--------------------
shall continue in full force and effect for a period of 15 months ending on
June 30, 1998, unless earlier terminated in accordance with the provisions
of this Agreement.
15
<PAGE>
In the event of any material breach of this Agreement by either party, the
other party may immediately cancel this Agreement by giving written notice
thereof.
9. NON-RECRUITMENT. Consultant shall not directly or indirectly attempt to
---------------
solicit or induce any employee of Banyan to work for any other person or
company.
10. ASSIGNMENT. Consultant may not assign any of its rights or duties under
----------
this Agreement to a third party without Banyan's prior written
authorization in each instance.
11. NOTICES. All notices, requests, demands and other communications hereunder
-------
shall be in writing and shall be deemed to have been duly given if
personally delivered or if sent by telecopier, or mailed by certified or
registered mail, postage prepaid, to the addresses set forth on the first
page hereof or to such other persons and/or addresses as either party shall
give upon their notice to the other.
12. BINDING EFFECT. This Agreement shall be binding upon and inure to the
--------------
benefit of the parties hereto and their successors and permitted assigns.
13. CHOICE OF LAW. This Agreement shall be governed by and interpreted in
-------------
accordance with the laws of the Commonwealth of Massachusetts with the
exception of its conflicts of law provisions to the extent they would
require that the laws and/or courts of another jurisdiction would apply.
No waiver by any party or breach of any term hereunder shall be construed
as a waiver of any subsequent breach of that term or of any other term of
the same or different nature.
14. GOVERNMENT CONTRACTS. if the Services to be performed by Consultant are in
--------------------
relation to a U.S. Government contract involving Banyan, the Banyan
addendum concerning compliance with 31 USC 1352 and FAR 52.203-11 is
incorporated in this Agreement by reference.
15. LIMITATION OF LIABILITY. IN NO EVENT SHALL BANYAN BE LIABLE FOR ANY
-----------------------
DIRECT, INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES, HOWEVER
CHARACTERIZED, TO THE FULLEST EXTENT THE LAW PERMITS SUCH DISCLAIMER, AND
EVEN IF BANYAN HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. IN NO
EVENT SHALL BANYAN'S CUMULATIVE AGGREGATE LIABILITY, IN CONTRACT AND AT LAW
AND IRRESPECTIVE OF FAULT OR NEGLIGENCE, EXCEED THE FEE PAID BY BANYAN
PURSUANT TO THIS AGREEMENT.
16. ENTIRE AGREEMENT. This Agreement contains the entire agreement between the
----------------
parties relating to the subject matter hereof and supersedes all previous
agreements of the parties, whether oral or written, with respect to the
subject matter hereof. This Agreement may not be modified, altered or
amended except by a writing signed by each of the parties.
17. SURVIVAL. Notwithstanding expiration or earlier termination of this
--------
Agreement, the following provisions shall survive: 3. RELATIONSHIP BETWEEN
--------------------
THE PARTIES, 5. INTELLECTUAL PROPERTY, 6. CONSULTANT WARRANTIES, 7.
----------- --------------------- ---------------------
INDEMNIFICATION, 13. CHOICE OF LAW and 15. LIMITATION OF LIABILITY.
--------------- ------------- -----------------------
16
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement through
their representatives duly authorized as of the date and year first written
above.
BANYAN SYSTEMS INCORPORATED DAVID C. MAHONEY
"Consultant")
By: /s/ John F. Burton By: /s/ David Mahoney
--------------------------------- ---------------------------------
Print Name: John F. Burton Print Name: David Mahoney
Title: Chairman Title:
Date: 5/31/97 Date: 5/31/97
17
<PAGE>
SCHEDULE I
----------
BANYAN SYSTEMS INCORPORATED
CONSULTANT AGREEMENT
1. Continued use of Banyan networking facilities and maintenance of both
Streettalk name (dmahoney@admin@banyan) and Internet ID
([email protected]).
2. Telephone extension 1606 remaining active and attended by voice mail only.
3. Scheduling of company related travel via Banyan travel office.
18
<PAGE>
EXHIBIT C
---------
BANYAN SYSTEMS INCORPORATED
CANCELLED STOCK OPTIONS
<TABLE>
<CAPTION>
Number of Shares Exercise Price Date of Grant
- ------------------------------------------------------------------------
<S> <C> <C>
75,000 $ 7.50 June 23, 1992
- ------------------------------------------------------------------------
40,000 $17.375 February 1, 1995
- ------------------------------------------------------------------------
30,000 $ 8.00 March 18, 1996
- ------------------------------------------------------------------------
</TABLE>
19
<PAGE>
EXHIBIT 10.22
[LETTERHEAD OF BANYAN SYSTEMS INC. APPEARS HERE]
March 19, 1997
Mr. Bob Burke
30 Allen Circle
Boxford, MA 01921
Dear Bob:
It is my pleasure to offer you the position of Senior Vice President, Worldwide
Sales and Service of Banyan Systems Incorporated ("Banyan" or "Company")
reporting to me, and you will be appointed an Officer of Banyan. The Board,
Executive Staff, and I believe your expertise will contribute significantly to
Banyan's ability to attain our goals and realize our full potential.
The following items comprise the details of the offer:
A. Compensation
------------
The base salary will be $9,230.76 biweekly, or $240,000 annualized.
B. Sign-on Stock
-------------
You will receive 20,000 shares of non-qualified stock options, subject to
approval by the Board of Directors and in accordance with the applicable
terms and conditions of Banyan's 1992 Stock Incentive Plan. These options
will be priced at fair market value on the date of approval and will become
fully vested on your first day of employment with Banyan.
C. Executive Bonus and Stretch Bonus
---------------------------------
You will be eligible to participate in an Executive Bonus Plan which is
targeted at an annualized rate of 50% of your base salary, or $120,000.
Payment of this bonus will be based upon a combination of Company
performance and your achievement of your individual objectives which will
be defined by Banyan during your first month of employment. In addition,
there will be opportunity for you to earn an annual Stretch Bonus of
$40,000. Fifty percent of this Stretch Bonus will be paid upon your
completion of an annual set of plans and objectives which are accepted by
Banyan. The remaining 50% of this Stretch Bonus will be paid upon your
successful achievement of such plans and objectives.
D. First Year Guarantee
--------------------
During your first year of employment you will be guaranteed your base
salary ($240,000) plus a portion of your Executive Bonus ($90,000) totaling
$330,000 ("First Year Guarantee"). In the event of separation you will
receive your First Year Guarantee on a prorated basis as of the effective
date of termination.
E. Stock
-----
You will receive the following non-qualified stock options, subject to the
approval of the Board of Directors and in accordance with the applicable
terms and conditions of Banyan's 1992 Stock Incentive
<PAGE>
[LETTERHEAD OF BANYAN SYSTEMS INC. APPEARS HERE]
Mr. Bob Burke Page 2 March 19, 1997
Plan. These options will be priced at fair market value on the date of
approval and will vest in accordance with the following schedule:
. 100,000 non-qualified stock options: 50,000 non-qualified stock options
with a 2-year vesting schedule (i.e. 25,000 non-qualified stock options
after one year of employment and 25,000 non-qualified stock options
after two years of employment) and 50,000 non-qualified stock options
with a 4-year vesting schedule (i.e. 12,500 non-qualified stock options
after years one, two, three and four of employment).
. In the event of a Change in Control, (defined below), 50% of your
unvested non-qualified stock options will become fully vested and
immediately available for exercise in accordance with the applicable
terms and conditions of Banyan's 1992 Stock Incentive Plan.
F. Benefits
--------
. You will be eligible to acquire group medical, dental, disability and
life insurance through the Company. Coverage for you and your
dependents will commence on your first day of employment, subject to
any insurers' eligibility requirements and the payment of any
applicable employee contributions.
. We encourage our executives to take vacation and will make you
immediately eligible for four weeks vacation. You will accrue four
weeks of vacation each year on your anniversary date.
G. Protection in the Event of Termination or Material Reduction in
---------------------------------------------------------------
Responsibilities
----------------
Termination by Banyan
If, either during or after the first year of your employment with Banyan,
your employment is terminated by Banyan for any reason, except For Cause,
Banyan will provide you the following payments and benefits, and any such
payments and benefits shall be in lieu of any other compensation set forth
in this letter:
. Banyan will pay you on a biweekly basis the difference between any
outside earnings and your Banyan base salary for nine months from the
effective date of your termination.
. Banyan will pay you all bonuses you have earned or that are guaranteed
(on a pro-rata basis) as of the effective date of your termination.
. Banyan will provide nine months of continued medical, dental and life
insurance for you and your family from the effective date of your
termination, subject to the payment of any applicable employee
contributions.
. Banyan will accelerate the vesting of those unvested non-qualified
stock options which would have become fully vested within the nine
month period following the effective date of your termination, which
would be available for exercise in accordance with the applicable terms
and conditions of Banyan's Stock Incentive Plan.
Termination by Employee Due to Change or Material Reduction in
Responsibilities
You may, within 60 days from the occurrence of any "Change or Material
Reduction of Responsibilities" (defined in Section G.2.) and upon 30 days
prior written notice to Banyan, voluntarily terminate your employment with
Banyan and receive the following payments and benefits and any such
payments and benefits shall be in lieu of any other compensation set forth
in this letter.
<PAGE>
[LETTERHEAD OF BANYAN SYSTEMS INC. APPEARS HERE]
Mr. Bob Burke Page 3 March 19, 1997
. Banyan will pay you on a biweekly basis the difference between any
outside earnings and your Banyan base salary for nine months from the
effective date of your termination.
. Banyan will pay you all bonuses you have earned or that are guaranteed
(on a pro-rata basis) as of the effective date of your termination.
. Banyan will provide nine months of continued medical, dental and life
insurance for you and your family from the effective date of your
termination, subject to the payment of any applicable employee
contributions.
. Vesting of unvested non-qualified stock options will continue for nine
months from the effective date of your termination.
For purposes of this letter, the following terms shall have the following
respective meanings:
(1) Termination of employment for cause ("For Cause") shall mean
termination by reason of (a) any act involving dishonesty, gross negligence
or serious misconduct, or (b) your conviction of, or the entry of a
pleading of guilty or nolo contendere by you to, any crime involving moral
turpitude or any felony.
(2) A change or material reduction in responsibilities ("Change or Material
Reduction in Responsibilities") shall be deemed to occur if : (i) your
responsibilities are reduced, for reasons other than For Cause, from
managing worldwide sales and service or you are no longer an Officer of the
Company; or, (ii) Banyan removes you from the position of Senior Vice
President, Worldwide Sales and Service for reasons other than For Cause;
or, (iii) Banyan reduces your base salary and Executive Bonus, for reasons
other than For Cause; or, (iv) you are no longer a direct report of W. P.
Ferry; or, (v) if W. P. Ferry is no longer the CEO of Banyan.
(3) A change in control ("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.
H. Contract Term
-------------
This contract is valid for the duration of your employment subject to a 30
day notice period for cancellation by you and a 90 day notice period of
cancellation by Banyan.
Please confirm your acceptance of this offer for employment no later than March
20, 1997, by signing this letter and providing your start date where indicated
below, and by signing the enclosed Employee Patent and Confidential Information
Agreement. Please return both documents to me at your earliest convenience.
In addition, you will be required to provide proof of eligibility to work in the
United States per federal legislation. A listing of required documentation
(Form I-9) is also enclosed.
<PAGE>
[LETTERHEAD OF BANYAN SYSTEMS INC. APPEARS HERE]
Mr. Bob Burke Page 4 March 19, 1997
Bob, I want you to know that I look forward with great excitement to the
prospect of your leading Banyan's Worldwide Sales and Service organization. I am
confident you will be highly successful.
Sincerely,
/s/ William P. Ferry
William P. Ferry
President and Chief Executive Officer
WPF/smc
cc: John F. Burton, Chairman of the Board
Attachments: Employee Patent and Confidential Information Agreement
Form I-9
Accepted:
- --------
/s/ Bob Burke 3/19/97
- ---------------------------------------- -------------------
Bob Burke Start Date
<PAGE>
EXHIBIT 10.23
[LETTERHEAD OF BANYAN SYSTEMS INC. APPEARS HERE]
March 21, 1997
Mr. William E. Warner, Jr.
24 Kendall Drive
Westborough, MA 01581
Dear Bill:
It is my pleasure to offer you the position of Senior Vice President, Product
Management and Development of Banyan Systems Incorporated ("Banyan" or
"Company") reporting to me, and you will be appointed an Officer of Banyan. All
of Product Management and Development will report to you and your job location
will be in Westborough, Massachusetts. The Board, Executive Staff, and I
believe your expertise will contribute significantly to Banyan's ability to
attain our goals and realize our full potential.
The following items comprise the details of the offer:
A. Compensation
------------
The base salary will be $6,538.47 biweekly, or $170,000 annualized.
B. Sign-on Stock
-------------
You will receive 20,000 shares of non-qualified stock options in accordance
with the applicable terms and conditions of Banyan's 1992 Stock Incentive
Plan. These options will be priced at fair market value on March 20, 1997,
which is $2.688 per share, and will become fully vested on your first day
of employment with Banyan.
C. Executive Bonus
---------------
You will be eligible to participate in an Executive Bonus Plan which is
targeted at an annualized rate of $70,000 at 100% achievement. Payment of
this bonus will be based upon a combination of Company performance and your
achievement of your individual objectives which will be defined by you and
Banyan during your first month of employment.
D. Stock
-----
You will receive the following non-qualified stock options in accordance
with the applicable terms and conditions of Banyan's 1992 Stock Incentive
Plan. These options will be priced at fair market value on March 20, 1997,
which is $2.688 per share, and will vest in accordance with the following
schedule:
. 110,000 non-qualified stock options: 50,000 non-qualified stock options
with a 2-year vesting schedule (i.e. 25,000 non-qualified stock options
after one year of employment and 25,000 non-qualified stock options
after two years of employment) and 60,000 non-qualified stock options
with a 4-year vesting schedule (i.e. 15,000 non-qualified stock options
after years one, two, three and four of employment).
. In the event of a Change in Control, (defined below), 50% of your
unvested non-qualified stock options in a given vesting schedule will
become fully vested and immediately available for exercise in
accordance with the applicable terms and conditions of Banyan's 1992
Stock Incentive Plan.
<PAGE>
[LETTERHEAD OF BANYAN SYSTEMS INC. APPEARS HERE]
Mr. William E. Warner, Jr. Page 2 March 21, 1997
E. Benefits
--------
. You will be eligible for group medical, dental, disability and life
insurance through the Company. Coverage for you and your dependents
will commence on your first day of employment, subject to any insurers'
eligibility requirements and the payment of any applicable employee
contributions.
. We encourage our executives to take vacation and will make you eligible
to accrue four weeks vacation each year.
F. Protection in the Event of Termination or Material Reduction in
---------------------------------------------------------------
Responsibilities
----------------
Termination by Banyan
If your employment is terminated by Banyan for any reason (including Change
in Control), except For Cause, Banyan will provide you the following
payments and benefits:
. Banyan will pay you on a biweekly basis the difference between any
outside earnings and your Banyan base salary for six months from the
effective date of your termination.
. Banyan will pay you all bonuses you have earned as of the effective
date of your termination. These bonuses will be paid within two weeks
of your termination.
. Banyan will provide six months of continued medical, dental and life
insurance for you and your family from the effective date of your
termination, subject to the payment of any applicable employee
contributions. If after six months you have not found other employment,
then Banyan will pay the first three months of COBRA.
Termination Due to Material Reduction in Responsibilities
You may, within 60 days from the occurrence of any Material Reduction of
Responsibilities (defined below) and upon 60 days prior written notice to
Banyan, voluntarily terminate your employment with Banyan and receive the
following payments and benefits:
. Banyan will pay you on a biweekly basis the difference between any
outside earnings and your Banyan base salary for six months from the
effective date of your termination.
. Banyan will pay you all bonuses you have earned as of the effective
date of your termination. These bonuses will be paid within two weeks
of your termination.
. Banyan will provide six months of continued medical, dental and life
insurance for you and your family from the effective date of your
termination, subject to the payment of any applicable employee
contributions. If after six months you have not found other employment,
then Banyan will pay the first three months of COBRA.
For purposes of this letter, the following terms shall have the following
respective meanings:
(1) Termination of employment for cause ("For Cause") shall mean
termination by reason of (a) any act or omission involving dishonesty,
gross negligence or serious misconduct, or (b) your conviction of, or
the entry of a pleading of guilty or nolo contendere by you to, any
crime involving sexual harassment or any felony. Termination of
employment For Cause will be presented in writing, accompanied by a
written statement of reasons. Disagreements will be resolved by a
process of binding arbitration.
<PAGE>
[LETTERHEAD OF BANYAN SYSTEMS INC. APPEARS HERE]
Mr. William E. Warner, Jr. Page 3 March 21, 1997
(2) A material reduction in responsibilities ("Material Reduction in
Responsibilities") shall be deemed to occur if: (i) your responsibilities
are reduced, for reasons other than For Cause, from managing product
management and development; or, (ii) Banyan removes you from the position
of Senior Vice President, Product Management and Development for reasons
other than For Cause; or, (iii) Banyan reduces your base salary and
Executive Bonus, for reasons other than For Cause; or, (iv) you are no
longer a direct report of W. P. Ferry; or, (v) if W. P. Ferry is no longer
the CEO of Banyan.
(3) A change in control ("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.
G. Contract Term
This contract is valid for the duration of your employment subject to a 60
day notice period for cancellation by either party.
Please confirm your acceptance of this offer for employment no later than March
21, 1997, by signing this letter and providing your start date where indicated
below, and by signing the enclosed Employee Patent and Confidential Information
Agreement. Please return both documents to me at your earliest convenience.
In addition, you will be required to provide proof of eligibility to work in the
United States per federal legislation. A listing of required documentation
(Form I-9) is also enclosed.
Bill, I want you to know that I look forward with great excitement to the
prospect of your leading Banyan's Product Management and Development
organization. I am confident you will be highly successful.
Sincerely,
/s/ William P. Ferry
William P. Ferry
President and Chief Executive Officer
WPF/smc
cc: John F. Burton, Chairman of the Board
Attachments: Employee Patent and Confidential Information Agreement
Form I-9
Accepted:
- --------
/s/ William E. Warner, Jr. 4/17/97
- ---------------------------------------- --------------------
William E. Warner, Jr. Start Date
<PAGE>
- ------------------
1997 Annual Report
- ------------------
Exhibit 13
<PAGE>
- --------------------------------------------------------------------------------
DISCUSSION and Analysis of Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
Overview
- --------
Banyan designs, develops and markets standards-based networking directory and
messaging products that help people to communicate across enterprise networks,
intranets and the Internet. Since 1985, the Company has been a pioneer in the
computer networking field, and currently offers a wide range of software
products and professional services. The Company's primary software products
include StreetTalk for Windows NT,(R) VINES,(R) Intelligent Messaging,(TM)
BeyondMail(R) and several intranet solutions. In addition, the Company delivers
professional services including technical support, education and consulting,
including network performance, integration and Year 2000 compliance services.
The Company's majority-owned subsidiary, Switchboard Incorporated, hosts the
Internet's leading people-to-people and business directory services aimed at
generating advertising revenues from major domestic corporations. In January
1998, Switchboard was rated by Media Metrix, the PC Meter Company, as the
Internet's tenth most frequently visited web site.
During 1997, Banyan broadened its networking software solutions through the
delivery of several enhanced product offerings and several new intranet
products. In the second quarter of 1997, the Company enhanced its platform
support for its directory and messaging services by delivering StreetTalk for
Windows NT 7.5 and Intelligent Messaging for Windows NT 7.5. Additionally, in
the second quarter of 1997, the Company introduced Banyan Intranet Connect, the
first of the Company's new intranet product initiatives, intranet server
software that provides a flexible and cost-effective way to access network
files, printers and e-mail, using a standard web browser. In the third quarter
of 1997, the Company announced the availability of BeyondMail 3.0 for
Intelligent Messaging which provides enhanced mobile support and extends rules-
based capabilities. In the fourth quarter of 1997, the Company delivered Banyan
Intranet Protect, a web server software solution that enables organizations to
protect and share intranet information securely over their enterprise networks.
Additionally, in the fourth quarter of 1997, the Company introduced the next
major revision of its VINES networking software, VINES 8.0, which provides
corporate networks with increased scalability, ease of management and lower cost
of ownership.
Although Banyan made progress in expanding its network solutions and further
establishing its Internet products identity with the introduction of its
intranet suite of products and expansion of its Switchboard business, the
Company's operating results for 1996 and 1997 were negatively impacted by a
number of factors, including delays in delivery of several products, as well as
translated versions of these products, the introduction of new competitive
product offerings by other vendors, and an effort by the Company to reduce its
worldwide channel inventories. To address these factors, the Company
restructured its operations in the quarter ended December 31, 1996 and
implemented a further reorganization in the quarter ended June 30, 1997,
following the hiring of a new chief executive officer in February 1997. The 1997
reorganization, which was intended to stabilize and rejuvenate the business, and
ultimately achieve sustainable, long-term profitable growth, resulted in a 22%
reduction of its work force, and consolidated facilities and product lines in
order to balance expenses with expected revenues. After incurring net losses in
the first half of 1997, the Company reported net income in the second half of
1997.
Revenues
- --------------------------------------------------------------------------------
Total revenues for 1997 decreased 29% to $74.3 million, compared with $105.4
million in 1996 and $129.7 million in 1995. The decrease in 1997 was primarily
due to lower software revenues. The decrease in 1996 was primarily due to lower
software revenues as well as declines in services revenues. The Company's
software revenues for 1997 decreased 34% to $57.8 million, compared with $87.3
million in 1996 and $105.2 million in 1995. The decline in software revenues in
1997 was primarily due to lower sales of the Company's VINES and messaging
products, as a result of competitive product offerings as well as delays in the
delivery of new versions of BeyondMail IM. In addition, the decline in software
revenues in 1997 was attributable to a decline in third-party products as a
result of the Company's focus on its core product set as part of its
restructuring and other activities in the quarter ended June 30, 1997. The
decline in software revenues in 1996 was attributable primarily to lower
revenues from the Company's VINES offerings and messaging products due to delays
in the delivery of extensions, and new and translated versions of VINES and
BeyondMail, as well as reduced shipments to reseller and other distribution
partners in an effort to reduce worldwide inventories by approximately $15.0
million in 1996. The Company's services revenues for 1997 decreased 4% to $15.8
million, compared with $16.5 million in 1996 and $21.1 million in 1995. The
decrease in services revenues in 1997 was attributable to lower revenues from
education services. The decrease was offset in part by increases in revenues
from consulting services delivered by the Company, particularly in the second
half of 1997. The decline in services revenues in 1996 was primarily
attributable to lower revenues from education services and end-user support
contracts. Hardware revenues declined 59% in 1997 to $0.7 million, compared with
$1.7 million in 1996 and $3.5 million in 1995, due to the phase-out of the
Company's hardware business.
<PAGE>
North American revenues for 1997 decreased 34% to $53.0 million, compared with
$79.9 million in 1996 and $100.0 million in 1995. The decreases in 1997 and 1996
were attributable primarily to lower revenues from the Company's VINES and
messaging products as well as reduced shipments to third-party distribution
partners in an effort to reduce channel inventories. International revenues for
1997 decreased 17% to $21.3 million, compared with $25.6 million in 1996 and
$29.7 million in 1995. The decrease in 1997 was due to lower revenues in Asia
Pacific/Japan primarily due to channel inventory reduction efforts, particularly
in Japan, and delayed purchasing decisions in Southeast Asia due to economic
uncertainty in the region as a result of financial market instability in the
fourth quarter of 1997. The decrease in 1996 was primarily due to lower revenues
in Europe particularly related to sales of VINES products.
Gross Margins
- --------------------------------------------------------------------------------
Gross margins for software in 1997 were 88.5%, or $51.2 million, compared with
87.7%, or $76.5 million, in 1996 and 86.9%, or $91.4 million, in 1995. The
increase in gross margin percentage in 1997 was primarily due to a lower
proportion of product revenues from sales of lower-margin, third-party products
as a result of the Company's focus on its core product set, as well as cost
reduction efforts. The decreases in gross margin dollars in 1997 and 1996 were
due to the decline in software revenues. The increase in gross margin percentage
in 1996 compared with 1995 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. Cost of software revenues
consist of product media, documentation, manufacturing costs and amortization of
capitalized software.
Gross margins for services in 1997 were 32.0%, or $5.1 million, compared with
18.1%, or $3.0 million, in 1996 and 34.8%, or $7.3 million, in 1995. The
increases in gross margin percentages and dollars in 1997 were primarily due to
lower personnel costs as a result of the reduction in force as part of the
Company's reorganizations in the quarters ended December 31, 1996 and June 30,
1997 and the growth in the Company's consulting revenues. The decreases in gross
margin percentages and dollars in 1996 were primarily due to lower revenues from
education classes and end-user support contracts. Cost of services revenues
consists primarily of customer support costs, including Technical Response
Centers, consulting staff and tools, third-party field service costs, costs of
training materials and staff.
Operating Expenses
- --------------------------------------------------------------------------------
Sales and marketing expenses decreased 34% to $40.2 million in 1997, compared
with $60.8 million in 1996 and $80.8 million in 1995. The decrease in 1997 was
primarily due to lower sales and marketing staffing and personnel costs as a
result of the reduction in work force as part of the Company's reorganization
efforts in the quarters ended December 31, 1996 and June 30, 1997, as well as a
redeployment of staff into the Company's expanding consulting activities. In
addition, variable sales costs, including commissions, decreased due to lower
revenues in 1997. 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. Sales and
marketing expenses as a percentage of revenues were 54%, 58% and 62% for 1997,
1996 and 1995, respectively.
Product development expenses decreased 27% to $15.9 million in 1997, compared
with $21.9 million in 1996 and $24.5 million in 1995. The decrease in 1997 was
primarily due to lower staffing and a focus on the Company's core product set as
a result of the Company's reorganization efforts in the quarters ended December
31, 1996 and June 30, 1997. 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 enhancing its existing product offerings. The Company has also
increased its investment in Internet-related product initiatives, including
remote access network capabilities, security protection capabilities, and
Switchboard Incorporated technology and services. Additionally, the Company is
also employing resources to ensure its product offerings will be year 2000
compliant. It is the Company's intention to modify and test all of its offerings
for year 2000 compliance by the end of 1998. During 1997, 1996 and 1995, the
Company capitalized $0.5 million, $2.3 million and $1.9 million of software
costs, which represented 3%, 10% and 7% of total product development
expenditures for the respective years. The decrease in the Company's capitalized
software costs in 1997 related primarily to the reduction in cost of delivering
current year product offerings. The increase in the Company's capitalized
software costs in 1996 related primarily to VINES 7.0 and Windows NT-based
products and localization of its product offerings. Product development expenses
as a percentage of revenues were 21%, 21% and 19% for 1997, 1996 and 1995,
respectively.
<PAGE>
- --------------------------------------------------------------------------------
Discussion and Analysis of Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
General and administrative expenses decreased 21% to $9.1 million in 1997,
compared with $11.5 million in 1996 and $13.2 million in 1995. The decrease in
1997 was primarily due to lower administrative and personnel costs as a result
of the reduction in staffing as part of the Company's reorganization efforts in
the quarters ended December 31, 1996 and June 30, 1997. 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. General and administrative expenses as a percentage of
revenues were 12%, 11% and 10% for 1997, 1996 and 1995, respectively.
In 1997, the Company recorded net pre-tax restructuring and other charges of
$8.0 million composed primarily of $1.4 million for severance costs related to
the reduction of approximately 22% of the Company's work force, $1.7 million for
the write-off of idle assets related to the restructuring, and $4.9 million for
costs related to facility and product line consolidation. As of December 31,
1997, the 1997 restructuring resulted in 78 employee separations. The actions
were substantially completed in 1997.
In 1996, the Company recorded a pre-tax restructuring charge of $5.5 million
composed of $1.4 million for closure or consolidation of leased facilities, $3.2
million for severance and related costs and $0.9 million for the write-off of
idle assets related to the restructuring. During 1996, the restructuring action
resulted in 70 employee separations. The actions related to this restructuring
were substantially completed in 1997.
In 1995, the Company recorded total restructuring and other charges of $15.8
million in connection with 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 other
charges of $8.0 million 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.
Other Income/(Expense)
- --------------------------------------------------------------------------------
Other income/(expense) decreased to $(0.1) million in 1997 compared with $1.1
million in 1996 and $3.7 million in 1995. The decrease in 1997 was due primarily
to foreign exchange losses related to weakened local currencies in Asia
Pacific/Japan subsidiaries and lower levels of available funds invested in
marketable securities. 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.
Income Taxes
- --------------------------------------------------------------------------------
No tax provision, other than that required for foreign income and foreign
withholding taxes, was recorded for 1997 due to the Company's net operating
loss. Losses were not benefited in 1997. The effective tax provision for 1997
was 1.5% compared with a provision of 50% in 1996 and a benefit of 30% in 1995.
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.
Additionally, losses were not benefited in 1996 and certain foreign taxes were
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. 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.
Other Matters
- --------------------------------------------------------------------------------
During the fourth quarter of 1997, the Company was in discussions with The
Nasdaq Stock Market, Inc. ("NSM") concerning the continued listing of the
Company's common stock on the Nasdaq National Market ("NNM"). As a condition to
continued listing, NSM required that the Company achieve a specified minimum
level of net tangible assets. On February 2, 1998, the Company announced that it
was officially informed by NSM that the Company was in compliance with NSM's
continued listing requirements to remain on the NNM.
<PAGE>
In June 1997, Statement of Financial Accounting Standards ("SFAS") 130,
"Reporting Comprehensive Income," was issued which requires businesses to
disclose comprehensive income and its components in general purpose financial
statements, with reclassification of prior period financial statements. SFAS 130
is effective for fiscal periods beginning after December 15, 1997 and its
adoption is not expected to have a material impact on the Company's disclosures.
In June 1997, SFAS 131, "Disclosures about Segments of an Enterprise and Related
Information" was issued which redefines how operating segments are determined
and requires disclosures of certain financial and descriptive information about
a company's operating segments. SFAS 131 is effective for fiscal periods
beginning after December 15, 1997 and its adoption may require additional
disclosure of the Company's historical financial data.
In October 1997, Statement of Position 97-2, "Software Revenue Recognition"
("SOP 97-2"), was issued which provides guidance on applying generally accepted
accounting principles in recognizing revenue on software transactions. SOP 97-2
is effective for transactions entered into in fiscal years beginning after
December 15, 1997. The Company will adopt the guidelines of SOP 97-2 as of
January 1, 1998 and does not expect adoption to have a material impact on the
Company's financial results.
- ------------------------------------------
Factors Affecting Future Operating Results
- ------------------------------------------
Certain of the information contained in this Annual Report, including, without
limitation, information with respect to the Company's plans and strategy for its
business, statements relating to the sufficiency of cash and cash equivalent
balances, available sources of financing, anticipated expenditures and the
intended effects of the Company's restructuring, sales and marketing, and
product development efforts, consists of forward-looking statements. 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," "expects," "anticipates," "plans" and similar expressions are
intended to identify forward-looking statements. Important factors that could
cause actual results to differ materially from the forward-looking statements
include the following:
A majority of the Company's product sales are 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. There can be no assurance
the Company will be successful in its sales and marketing efforts. In addition,
the Company has experienced extended selling cycles due to competitive products
introduced by other vendors, an increase in multi-year customer agreements and
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 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 1996 and 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. In June 1997, the Company introduced StreetTalk
for Windows NT 7.5, which integrates the Windows NT operating system into a
VINES network while providing improved support for TCP/IP standards. In June
1997, the Company introduced Banyan Intranet Connect, the first of the Company's
new intranet product initiatives, intranet server software that provides a
flexible and cost-effective way to access network files, printers and e-mail,
using a standard web browser. In August 1997, the Company introduced BeyondMail
3.0 for Intelligent Messaging which provides enhanced mobile support. In October
1997, the Company delivered Banyan Intranet Protect, a web server software
solution that enables organizations to protect and share intranet information
securely over their enterprise networks. In December 1997, the Company
introduced the next major revision of its VINES networking software, VINES 8.0,
which provides corporate networks with increased scalability, ease of management
and lower cost of ownership. Failure of these products to achieve market
acceptance could have a material adverse effect on the Company's future results
of operations.
<PAGE>
- --------------------------------------------------------------------------------
Discussion and Analysis
of Financial Condition and 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, through a majority-owned subsidiary, 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 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 increased 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.
During the past three years, the Company's operating results were negatively
impacted by a number of factors, including delays in delivery of several
products, as well as translated versions of these products, the introduction of
new competitive product offerings by other vendors, and an effort by the Company
to reduce its worldwide channel inventories. To address these factors, the
Company has undertaken a series of restructuring and other activities. 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 further reorganization of its operations. As a result of the
reorganization, the Company recorded net pre-tax restructuring and other charges
of $8.0 million for the year ended December 31, 1997. The restructuring and
other charges provided for severance costs related to the reduction of
approximately 22% of the Company's work force and costs related to facility and
product line consolidations. There can be no assurance the steps taken by the
Company to reorganize its operations will produce the intended benefits. In
addition, 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 is currently engaged in a significant product development investment
to ensure its product offerings will be year 2000 compliant. It is the Company's
intention to modify and test all of its offerings for year 2000 compliance by
the end of 1998. Failure to timely deliver this capability could have a material
adverse effect on the Company's future results of operations. The Company is
also engaged in ensuring its internal operating systems are year 2000 compliant.
The Company has a formal plan to address the matter and believes costs
associated with this effort are immaterial.
Because of the foregoing factors, the Company believes that period-to-period
comparisons of its financial results are not necessarily meaningful and expects
that its results of operations may fluctuate from period-to-period in the
future.
<PAGE>
- -------------------------------
Liquidity and Capital Resources
- -------------------------------
At December 31, 1997, cash and cash equivalents combined with marketable
securities were $10.9 million, compared with $19.2 million at December 31, 1996.
Cash and cash equivalents decreased $3.9 million from December 31, 1996,
resulting in a cash balance of $6.7 million at December 31, 1997. The decrease
was due principally to the net loss from operations for the year, a $4.1 million
decrease in accounts payable and accrued compensation and expenses, and a $3.5
million decrease in accrued costs for restructuring and other charges, offset by
$7.8 million of depreciation and amortization, $5.8 million in non-cash
restructuring charges, $4.4 million of proceeds from marketable securities, a
$2.5 million decrease in accounts receivable, and various other operating,
financing and investing activities. Working capital decreased from a $1.5
million deficit at December 31, 1996 to a $2.7 million deficit at December 31,
1997.
In April 1997, the Company announced a reorganization of its operations. As a
result of the reorganization, the Company recorded net pre-tax restructuring and
other charges of $8.0 million. The restructuring and other charges are expected
to reduce cash flow by approximately $3.1 million, of which $2.7 million had
been expended through December 31, 1997. 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 $3.8 million, of which
$3.3 million had been expended through December 31, 1997. Management believes
that remaining accrued balances are adequate to cover future expenditures
associated with the 1997 and 1996 restructuring and other changes.
On September 4, 1997, the Company entered into a $15.0 million line of credit
agreement (the "Credit Agreement") with Foothill Capital Corporation
("Foothill"), replacing the Company's prior $10.0 million credit facility which
expired in May 1997. In general, the Company's obligations under the Credit
Agreement bear interest at the variable base rate per annum of Norwest Bank
Minnesota, National Association. The Credit Agreement has a three-year initial
term and is renewable thereafter for successive one year periods. Each year
during the initial term of the Credit Agreement, Foothill will be granted
warrants to purchase 75,000 shares of the Company's common stock at the then
current fair market value. There were no amounts outstanding under the line of
credit agreements during the years ended December 31, 1997 and 1996.
On March 6, 1998, the Company received a $10.0 million equity investment from
HarbourVest Partners LLC. Under the terms of the purchase agreement, HarbourVest
purchased convertible preferred stock and has warrants to acquire additional
convertible preferred stock. In the event the Company's stockholders do not
approve an increase in the number of shares of common stock authorized for
issuance from 25,000,000 to 35,000,000 by June 30, 1998, the Company may be
required to repurchase 40% of the HarbourVest preferred stock and warrants for
$4.0 million. On March 6, 1998, the Company received $10.0 million in proceeds
from the sale of preferred stock which are available for working capital
requirements.
The Company believes that existing cash and marketable securities, combined with
cash expected to be generated from operations and the availability of the line
of credit, will be sufficient to fund the Company's operations through at least
December 31, 1998.
<PAGE>
- --------------------------------------------------------------------------------
Balance Sheets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, 1997 1996
- ----------------------------------------------------------------------------------------------------------------------
(in thousands, except share amounts)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 6,674 $ 8,314
Restricted cash and cash equivalents (Note P) - 2,299
Marketable securities 4,202 4,139
Accounts receivable, less allowances of $3,721 and $7,168 16,960 19,754
Inventories 1,023 2,863
Software licenses - 3,016
Other current assets 3,113 3,368
------------------------------------------------------------------------------------------------------------------
Total current assets 31,972 43,753
Property and equipment, net 5,810 13,565
Marketable securities - 4,436
Other assets, net of accumulated amortization of $3,770 and $5,661 5,146 7,778
- ----------------------------------------------------------------------------------------------------------------------
Total assets $ 42,928 $ 69,532
===========================================================================================================
Liabilities
Current liabilities:
Accounts payable $ 2,039 $ 3,633
Accrued compensation 5,222 6,338
Accrued expenses 6,165 7,629
Accrued costs for restructuring and other charges (Note F) 939 4,908
Income taxes payable 270 212
Software license payable, current portion - 1,581
Note payable 1,139 1,079
Deferred revenue 18,930 19,886
------------------------------------------------------------------------------------------------------------------
Total current liabilities 34,704 45,266
Commitments and contingencies (Notes H and P)
Software license payable, non-current 590 590
Minority interests in consolidated subsidiaries 2,557 3,354
Shareholders' Equity
Common stock, $.01 par value; authorized 25,000,000 shares;
issued and outstanding 19,346,677 and 18,996,882 shares, respectively 193 190
Preferred stock, $.01 par value; authorized 1,000,000 shares;
none issued and outstanding - -
Additional paid-in capital 66,020 64,581
Accumulated deficit (32,700) (15,792)
Treasury stock at cost; 1,848,000 shares (28,564) (28,564)
Foreign currency translation adjustment 136 (23)
Unrealized loss on investments (8) (70)
--------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 5,077 20,322
-------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 42,928 $ 69,532
===========================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
- --------------------------------------------------------------------------------
Statements of Operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended December 31, 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts)
<S> <C> <C> <C>
Revenues:
Software $ 57,849 $ 87,281 $ 105,160
Services 15,796 16,456 21,059
Hardware 697 1,687 3,464
------------------------------------------------------------------------------------------------------------
Total revenues 74,342 105,424 129,683
Cost of Revenues:
Software 6,664 10,758 13,771
Services 10,741 13,470 13,727
Hardware 275 574 2,064
------------------------------------------------------------------------------------------------------------
Total cost of revenues 17,680 24,802 29,562
----------------------------------------------------------------------------------------------------------
Gross margin 56,662 80,622 100,121
Operating Expenses:
Sales and marketing 40,236 60,811 80,810
Product development 15,909 21,875 24,502
General and administrative 9,069 11,521 13,208
Restructuring and other charges (Note F) 8,000 5,500 15,802
------------------------------------------------------------------------------------------------------------
Total operating expenses 73,214 99,707 134,322
----------------------------------------------------------------------------------------------------------
Loss from operations (16,552) (19,085) (34,201)
Other (Expense)/Income
Gain on sale of equity investment -- -- 2,036
Interest income 482 1,088 1,812
Minority interest 847 571 594
Interest expense (96) (80) (90)
Other, net (1,334) (511) (666)
------------------------------------------------------------------------------------------------------------
Total other (expense)/income (101) 1,068 3,686
----------------------------------------------------------------------------------------------------------
Loss before taxes (16,653) (18,017) (30,515)
Provision/(benefit) for income taxes 255 9,013 (9,155)
- --------------------------------------------------------------------------------------------------------------
Net loss $ (16,908) $ (27,030) $ (21,360)
==============================================================================================================
Net Loss Per Share:
Basic and diluted $ (0.97) $ (1.59) $ (1.27)
==========================================================================================================
Weighted average number of common shares outstanding:
Basic and diluted 17,367 16,947 16,797
==========================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
- --------------------------------------------------------------------------------
Statements of Shareholders Equity
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three years ended December 31, 1997
---------------------------------------------------------------------------------------------
Common Stock Treasury Stock (Accumulated Foreign
--------------------------------------------- Additional Deficit)/ Currency
Number of Par Number of Paid-in Retained Translation
Shares Value Shares Cost Capital Earnings Adjustment
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
(in thousands, except share amounts)
Balance, December 31, 1994 18,030,643 $180 (1,000,000) $(15,878) $57,432 $32,598 $(378)
Issuance of stock under
stock and option
plans including
related tax benefits 592,511 6 4,915
Purchase of treasury stock (848,000) (12,686)
Net loss (21,360)
Foreign currency
translation adjustment (490)
Change in net
unrealized gain/(loss)
on investments
--------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 18,623,154 186 (1,848,000) (28,564) 62,347 11,238 (868)
Issuance of stock under
stock and option plans 373,728 4 2,234
Net loss (27,030)
Foreign currency
translation adjustment 845
Change in net
unrealized gain/(loss)
on investments
--------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 18,996,882 190 (1,848,000) (28,564) 64,581 (15,792) (23)
Issuance of stock under
stock and option plans 349,795 3 1,439
Net loss (16,908)
Foreign currency
translation adjustment 159
Change in net
unrealized gain/(loss)
on investments
--------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 19,346,677 $193 (1,848,000) $(28,564) $66,020 $(32,700) $136
====================================================================================================================================
<CAPTION>
Three years ended December 31, 1997
------------------------------------
Net
Unrealized Total
Gain/(Loss) on Shareholders'
Investments Equity
------------------------------------
<S> <C> <C>
(in thousands, except share amounts)
Balance, December 31, 1994 $ (75) $ 73,879
Issuance of stock under
stock and option
plans including
related tax benefits 4,921
Purchase of treasury stock (12,686)
Net loss (21,360)
Foreign currency
translation adjustment (490)
Change in net
unrealized gain/(loss)
on investments 78 78
---------------------------------------------------------------------------
Balance, December 31, 1995 3 44,342
Issuance of stock under
stock and option plans 2,238
Net loss (27,030)
Foreign currency
translation adjustment 845
Change in net
unrealized gain/(loss)
on investments (73) (73)
---------------------------------------------------------------------------
Balance, December 31, 1996 (70) 20,322
Issuance of stock under
stock and option plans 1,442
Net loss (16,908)
Foreign currency
translation adjustment 159
Change in net
unrealized gain/(loss)
on investments 62 62
---------------------------------------------------------------------------
Balance, December 31, 1997 $ (8) $ 5,077
===============================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
- --------------------------------------------------------------------------------
Statement of Cash Flows
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended December 31, 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss $(16,908) $(27,030) $(21,360)
Adjustments to reconcile net loss to net cash
(used in) operating activities:
Depreciation and amortization 7,847 8,928 9,957
Restructuring and other charges, noncash portion 5,835 1,852 5,457
Gain on sale of investments - - (2,036)
Changes in operating assets and liabilities:
Decrease in accounts receivable 2,475 4,521 9,156
Decrease/(increase) in inventories 1,335 (292) (883)
Decrease/(increase) in income tax receivable - 6,042 (6,042)
Decrease/(increase) in other current assets 1,214 (576) (1,468)
(Decrease) in accounts payable and accrued
compensation and expenses (4,056) (2,893) (1,496)
(Decrease)/increase in accrued costs for restructuring
and other charges (3,549) (5,149) 9,007
Decrease/(increase) in software license payable, net (244) 964 586
Increase/(decrease) in income taxes payable 58 121 (1,712)
Decrease/(increase) in deferred taxes - 9,926 (3,078)
(Decrease)/increase in deferred revenue (921) (2,448) 872
(Decrease)/increase in other liabilities (787) (211) 124
Decrease in other noncurrent assets 195 68 500
------------------------------------------------------------------------------------------------------------------------------
Net cash (used in) operating activities (7,506) (6,177) (2,416)
Cash Flows from Investing Activities:
Capital expenditures (1,328) (5,683) (9,616)
(Purchases of)/proceeds from investments in unconsolidated affiliates - (2,001) 2,536
Acquisition of software licenses (150) (1,125) (1,314)
Capitalization of software costs (549) (2,314) (1,919)
Proceeds from marketable securities, net 4,435 10,217 9,675
----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by/(used in) investing activities 2,408 (906) (638)
Cash Flows from Financing Activities:
Proceeds from stock plan purchases, stock options
and warrants and related tax benefits 944 2,238 4,921
Minority interest equity investments 50 3,095 1,444
Purchase of treasury stock - - (12,686)
----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by/(used in) financing activities 994 5,333 (6,321)
Effect of exchange rate changes on cash and cash equivalents 165 (35) (460)
- ------------------------------------------------------------------------------------------------------------------------------------
Net (decrease) in cash and cash equivalents (3,939) (1,785) (9,835)
Cash and cash equivalents at beginning of the year 10,613 12,398 22,233
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of the year $ 6,674 $ 10,613 $ 12,398
====================================================================================================================================
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest $ 36 $ 20 $ 30
Income taxes $ 522 $ 688 $ 3,308
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- ------------------------
A. Nature of Business
- ------------------------
Banyan designs, develops and markets standards-based networking directory
and messaging products that help people to communicate across enterprise
networks, intranets and the Internet. Since 1985, the Company has been a
pioneer in the computer networking field, and currently offers a wide range
of software products and professional services.
- ------------------------------------------------
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
---------------------------------------------------------------------------
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 a 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 twelve 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 Development Costs
---------------------------------------------------------------------------
The Company capitalizes costs for internally developed software after
technological feasibility of the product has been established. Costs
incurred prior to the establishment of technological feasibility are
charged to research and development expense. Software costs are amortized,
on a product by product basis, ratably over the estimated economic life of
the product (generally three years), or the ratio of current gross revenues
to total current and expected future gross revenues of the product,
whichever is greater.
The Company evaluates the net realizable value of capitalized software on
an ongoing basis, relying on a number of factors including operating
results, business plans, budgets and economic projections and undiscounted
cash flows. In addition, the Company's evaluation considers non-financial
data such as market trends, project development cycles and changes in
management's market emphasis.
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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.
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.
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. Two of the Company's foreign
subsidiaries, Nihon Banyan Systems Kabushiki Kaisha (NBSKK) and Banyan
Systems Australia Pty. 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, 1997, 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
distributors 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, to date, 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.
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- -----------------
C. Inventories
- -----------------
Inventories consist of the following at:
December 31, 1997 1996
---------------------------------------------------------------------------
(in thousands)
Purchased parts $ 356 $ 989
Work in process 270 313
Finished goods 397 1,561
---------------------------------------------------------------------------
$ 1,023 $ 2,863
==============================
- ----------------------------
D. Property and Equipment
- ----------------------------
Property and equipment consists of the following at:
December 31, 1997 1996
---------------------------------------------------------------------------
(in thousands)
Computer and peripherals $ 23,848 $ 24,885
Equipment 9,587 11,434
Furniture and fixtures 2,725 4,645
Leasehold improvements 2,536 4,655
---------------------------------------------------------------------------
Total cost $ 38,696 $ 45,619
Accumulated depreciation and amortization (32,886) (32,054)
---------------------------------------------------------------------------
$ 5,810 $ 13,565
==============================
Depreciation expense for 1997, 1996 and 1995 was $6,340,000, $7,022,000 and
$8,274,000, respectively.
- ------------------
E. Other Assets
- ------------------
Other assets consist of the following at:
December 31, 1997 1996
---------------------------------------------------------------------------
(in thousands)
Capitalized software costs, net $ 991 $ 2,685
Investment in unconsolidated affiliate 2,001 2,001
Software licenses, net 2,154 2,690
Other - 402
---------------------------------------------------------------------------
$ 5,146 $ 7,778
==============================
During 1997, 1996 and 1995, the Company capitalized $549,000, $2,314,000
and $1,919,000 of software costs, respectively. Amortization expense for
capitalized software costs was $1,453,000, $1,796,000 and $1,683,000 for
1997, 1996 and 1995, respectively. Included in software licenses is
purchased software related to the acquisition of Beyond Incorporated in
February 1994. The Company amortized $114,000, $683,000 and $683,000 of
these purchased software costs during 1997, 1996 and 1995, respectively.
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- -------------------------------------
F. Restructuring and Other Charges
- -------------------------------------
On April 21, 1997, the Company announced a reorganization of its
operations. As a result of the reorganization, the Company recorded net
pre-tax restructuring and other charges of approximately $9,700,000. The
restructuring and other charges were composed of $1,700,000 for severance
costs, $2,100,000 for the write-off of idle assets related to restructuring
and $5,900,000 for costs related to facility and product line
consolidations. These restructuring charges provided for the reduction of
approximately 22% of the Company's work force. In the fourth quarter of
1997, the Company reversed $1,700,000 of previously recorded restructuring
and other charges related to the Company's better-than-expected progress in
consolidating facilities and product lines, completing its severance
programs and selling and redeploying fixed assets.
At December 31, 1997, the Company's cash expenditures for employee
separations related to the 1997 restructuring were approximately
$1,250,000. During 1997, the restructuring action resulted in approximately
78 employee separations. The restructuring and other actions were
substantially completed in 1997. The restructuring and other charges
related to the 1997 restructuring are expected to use cash of $3,100,000 of
which $2,700,000 had been expended through December 31, 1997 while
providing an annual cash flow benefit beginning in 1998.
On November 7, 1996, the Company announced a reorganization of its
operations. 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. This reorganization charge was composed of
$1,400,000 for the closure or consolidation of leased facilities,
$3,200,000 for severance and costs related to the reduction of
approximately 15% of the Company's work force and $900,000 for the
write-off of idle assets related to the restructuring. The November 1996
restructuring resulted in 70 employee separations. The restructuring and
other charges relating to the November 1996 restructuring are expected to
use cash of $3,800,000, of which $3,300,000 had been expended through
December 31, 1997.
For the year ended December 31, 1997, the Company's cash expenditures for
employee separations related to the 1996 restructuring were approximately
$1,800,000. The restructuring and other charges reduced cash flow by
approximately $2,600,000 in 1997 while providing an expected annual cash
flow benefit beginning in 1998.
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. The restructuring action resulted in 96 employee
separations. As part of the 1995 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 by December 31, 1996.
Restructuring costs are accrued and charged to expense in accordance with
an approved management plan, supported by an appropriate level of
specificity for the planned actions. Actual restructuring costs are
recognized as a reduction in the accrued liability in the period incurred.
The remaining reserve balance of approximately $939,000 is adequate to
cover the remaining restructuring and other actions.
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------
G. Line of Credit
- --------------------
In September 1997, the Company entered into a $15,000,000 line of credit
agreement with a commercial lender, replacing the Company's prior
$10,000,000 credit facility which expired in May 1997. There were no
borrowings under the agreement or prior line of credit facility in 1997 or
in 1996. This agreement has a three-year initial term and is renewable
thereafter for successive one-year periods. Each year during the initial
term of the credit agreement, the lender will be granted warrants to
purchase 75,000 shares of the Company's common stock at the then current
fair market value. Outstanding borrowings drawn under this line are
restricted to (a) 85% of the Company's eligible accounts receivable plus
(i) the lower of $2,000,000 or 75% of eligible foreign accounts plus (ii)
the lowest of $3,000,000 or 80% of the aggregate depreciated equipment
value or 50% of the amount of credit availability by the sum of clauses (i)
and (ii), or (b) $15,000,000. The Company is in compliance with all
covenants per the line of credit agreement.
- -----------------------------------
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 $2,857,000, $4,872,000 and
$4,986,000 in 1997, 1996 and 1995, respectively. Under these agreements,
the Company is obligated to pay for utilities, taxes, insurance and
maintenance. The total of sublease income is $376,000 for the year ending
December 31, 1997.
At December 31, 1997, future minimum lease payments under operating leases
with initial terms exceeding one year are as follows:
---------------------------------------------------------------------------
(in thousands)
1998 $ 3,397
1999 2,463
2000 1,896
2001 1,638
2002 1,657
Thereafter 3,822
---------------------------------------------------------------------------
Total future minimum lease payments $ 14,873
===========================================================================
The total of future minimum rentals to be received under non-cancellable
subleases related to the above leases is $1,085,000, $994,000 and $636,000
for the years ending 1998, 1999 and 2000, respectively.
- ------------------
I. Income Taxes
- ------------------
The components of the (benefit)/provision for income taxes are as follows:
Years Ended December 31, 1997 1996 1995
---------------------------------------------------------------------------
(in thousands)
Currently payable:
U.S. Federal $ - $ (1,598) $ (5,723)
State - - (319)
Foreign 255 974 (35)
---------------------------------------------------------------------------
255 (624) (6,077)
Deferred:
U.S. Federal - 9,637 (2,335)
State - - (743)
---------------------------------------------------------------------------
$ 255 $ 9,013 $ (9,155)
========================================
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 that it
is more likely than not that the deferred tax assets will not be
realizable. Accordingly, deferred tax assets as of December 31, 1997 and
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, 1997 and 1996 are as follows:
December 31, 1997 1996
---------------------------------------------------------------------------
(in thousands)
Deferred tax assets:
Net operating loss and other carryforwards $ 10,823 $ 6,322
Purchased research and development 6,072 5,426
Depreciation and amortization 1,801 967
Capitalized software - 2,223
Benefit plans 986 277
Bad debt allowances 663 718
Other 922 1,807
---------------------------------------------------------------------------
Gross deferred tax asset 21,267 17,740
Deferred tax liabilities:
Capitalized software (1,012) (3,395)
-------------------------------------------------------------------------
Gross deferred tax liability (1,012) (3,395)
Less: valuation allowance (20,255) (14,345)
---------------------------------------------------------------------------
Net deferred tax asset $ 0 $ 0
===========================
At December 31, 1997, the Company had net operating loss, research and
experimentation credits and general business carryforwards expiring between
2007 and 2012.
A reconciliation of the statutory U.S. Federal income tax rate and the
effective tax rate is as follows:
Years Ended December 31, 1997 1996 1995
---------------------------------------------------------------------------
Statutory rate (35.0)% (35.0)% (35.0)%
State income taxes, net of U.S. Federal benefit 1.3 - (1.0)
Foreign operations 4.3 5.4 6.6
Valuation allowance 35.5 79.6 -
Research and development credits - - (1.5)
Other (4.6) - 0.9
---------------------------------------------------------------------------
Effective tax rate 1.5% 50.0% (30.0)%
===========================================================================
- ---------------------
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,
1997, there were no shares issued or outstanding.
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- ---------------------------
K. Marketable Securities
- ---------------------------
Marketable securities consisted of the following at December 31, 1997 and
1996:
<TABLE>
<CAPTION>
1997 1996
-------------------------------------------------------------
Aggregate Amortized Aggregate Amortized
Security Type Fair Value Cost Fair Value Cost
----------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
Maturing within one year:
U.S. Treasury Notes $ 4,202 $ 4,210 $ 2,981 $ 3,011
Tax-free municipal bond - - 1,158 1,158
----------------------------------------------------------------------------------------------------------------------
4,202 4,210 4,139 4,169
Maturing after one year through five years:
U.S. Treasury Notes - - 4,296 4,336
Certificate of deposit - - 140 140
----------------------------------------------------------------------------------------------------------------------
- - 4,436 4,476
Totals $ 4,202 $ 4,210 $ 8,575 $ 8,645
======================================================================================================================
</TABLE>
Realized and unrealized gains and losses were immaterial for the years
ended December 31, 1997, 1996 and 1995.
- ------------------------
L. Stock Option Plans
- ------------------------
Under the Company's 1984 stock option plans, the Company granted incentive
and non-qualified stock options to purchase up to an aggregate of 5,113,841
shares of common stock, of which 183,115 options were outstanding at
December 31, 1997. 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, as amended, 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. At December 31, 1997, 1,732,069 options were outstanding under
this plan. 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.
In February 1997, the Company, after approval by the Board of Directors,
offered to reprice all outstanding employee options, other than options
held by certain executive officers, to a price equal to 10% above fair
market value at that date. These options continued to vest according to
their original vesting schedules.
In May 1997, the Company, after approval by the Board of Directors, offered
to cancel all outstanding employee stock options issued under the 1984 and
1992 plans and grant new stock options at a price equal to 20% above fair
market value at that date. The options continued to vest according to their
original vesting schedules, provided that, in exchange for accepting the
new exercise price, the employees were not allowed to exercise any vesting
options until January 1, 1998.
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 200,000 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, 1997, 78,000 options had been granted under the 1992 Director
Plan.
<PAGE>
Under the Company's 1995 Employee Stock Purchase Plan, 750,000 shares of
common stock are available to all full-time employees through semi-annual
offerings. At December 31, 1997, 581,100 shares of common stock have been
purchased under this Plan.
During 1997, in addition to the options described above, options to
purchase an aggregate of 1,300,000 shares were issued to four executive
officers of the Company. The underlying shares were registered with the SEC
and were issued at fair market value. The options generally vest over a
four-year period.
The Company adopted the disclosure provisions of SFAS 123 in 1996.
Accordingly, no compensation cost has been recognized for its stock-based
compensation plans. 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, 1997 and 1996 would
have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996 1995
---------------------------------------------------------------------------------
As Reported Pro Forma As Reported Pro Forma As Reported Pro Forma
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(in thousands)
Net loss $ (16,908) $(21,270) $ (27,030) $ (30,562) $(21,360) $ (23,053)
Basic and diluted net loss per share $ (0.97) $ (1.22) $ (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 1997, 1996 and 1995,
respectively: dividend yield of 0%, 0% and 0%; expected volatility of 70%,
62% and 62%; risk-free interest rates of 6.4%, 6.4% and 6.0%; and expected
lives of 5.0, 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 granted prior to 1995.
A summary of the status of the Company's stock options as of December 31,
1997, 1996 and 1995, and changes during the years ending on those dates is
presented below.
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 2,631 $ 7.02 2,537 $ 8.34 2,497 $ 7.04
Granted 2,289 2.37 1,080 6.32 1,081 12.34
Exercised (31) 2.18 (111) 4.16 (458) 4.59
Cancelled (1,596) 4.84 (875) 9.30 (583) 13.09
----------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 3,293 $ 2.77 2,631 $ 7.02 2,537 $ 8.34
----------------------------------------------------------------------------------------------------------------------
Options exercisable at year-end 705 $ 4.31
-------------------
Weighted-average fair value of options granted
during the year $ 1.69 $ 3.93 $ 5.80
</TABLE>
<PAGE>
The following table summarizes information about the stock options at
December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Number Average Average Number Average
Outstanding at Remaining Exercise Exercisable at Exercise
Range of Exercise Prices December 31, 1997 Contractual Life Price December 31, 1997 Price
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 1.15 - $ 2.25 2,503 8.6 years $ 2.18 268 $ 2.08
$ 2.26 - $ 3.99 348 8.7 years $ 3.28 113 $ 3.76
$ 4.00- $ 7.00 359 6.6 years $ 4.04 241 $ 4.04
$ 7.01 - $ 16.25 83 6.1 years $12.95 83 $ 12.94
----------------------------------------------------------------------------------------------------------------------
3,293 705
========================================================================================
</TABLE>
- -----------------------------------------
M. Basic and Diluted Earnings Per Share
- -----------------------------------------
The Company computes basic and diluted earnings per share in accordance
with SFAS 128, "Earnings Per Share," which the Company adopted as of
December 31, 1997. Basic earnings per share is based upon the weighted
average number of common shares outstanding during the period. Common
equivalent shares have been excluded from the computation of diluted loss
per share, as their effect would have been anti-dilutive. Common equivalent
shares result from the assumed exercise of outstanding stock options and
warrants, the proceeds of which are then assumed to have been used to
repurchase outstanding common stock using the treasury stock method. The
following table reconciles the numerator and denominator of the basic and
diluted earnings per share computations shown on the Consolidated
Statements of Operations:
<TABLE>
<CAPTION>
For the years ended December 31, 1997 1996 1995
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic Earnings per Share
Numerator:
Net loss $ (16,908) $ (27,030) $ (21,360)
Denominator:
Common shares outstanding 17,367 16,947 16,797
---------------------------------------------------------------------------------------------------------------------------
Basic EPS $ (0.97) $ (1.59) $ (1.27)
===========================================================================================================================
Diluted Earnings per Share
Numerator:
Net loss $ (16,908) $ (27,030) $ (21,360)
Denominator:
Common shares outstanding 17,367 16,947 16,797
---------------------------------------------------------------------------------------------------------------------------
Diluted EPS $ (0.97) $ (1.59) $ (1.27)
===========================================================================================================================
</TABLE>
Options to purchase 3,293,000, 2,631,000 and 2,537,000 shares of common
stock outstanding during the years ended December 31, 1997, 1996 and 1995,
respectively, were excluded from the year-to-date calculation of diluted
net loss per share as the effect of their inclusion would have been
anti-dilutive. Earnings per share data have been restated for all periods
presented to reflect the adoption of SFAS 128.
- --------------------------
N. 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 $377,000,
$549,000 and $620,000 in 1997, 1996 and 1995, respectively.
<PAGE>
- ------------------------
Q. Segment Information
- ------------------------
The Company is engaged in one industry segment: the development, marketing
and service of 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, 1997 1996 1995
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(in thousands)
Revenues from unaffiliated customers:
North America
United States $ 47,409 $ 69,746 $ 89,116
Canada 5,616 10,116 10,875
---------------------------------------------------------------------------------------------------------------------------
53,025 79,862 99,991
International
Europe 17,244 17,757 20,833
Other 4,073 7,805 8,859
---------------------------------------------------------------------------------------------------------------------------
21,317 25,562 29,692
----------------------------------------------------
Total revenues $ 74,342 $ 105,424 $ 129,683
===========================================================================================================================
</TABLE>
One customer accounted for 11%, 11% and 16% of revenues in 1997, 1996 and
1995, respectively. The customers included in this percentage vary from
year to year.
- -----------------------
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, Nihon Banyan
Systems Kabushiki Kaisha (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,
1997, 1996 and 1995. The minority interest in the net loss of NBSKK is
deducted from net income. For the year ended December 31, 1997, revenue and
expenses for NBSKK were approximately $1,020,000 and $1,621,000,
respectively. 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, 1997, assets and
liabilities for NBSKK were approximately $1,540,000 and $2,876,000,
respectively. At December 31, 1996, assets and liabilities for NBSKK were
approximately $2,567,000 and $2,233,000, respectively.
In 1996, the Company entered into an agreement with America Online Inc.
(AOL) and Digital City Inc. (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 currently 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 were restricted for use in funding Switchboard
activities. These funds were expended in 1997. AOL and DCI's collective
minority interest in the net loss of Switchboard is deducted from net
income on a pro rata basis. For the year ended December 31, 1997, revenue
and expenses were approximately $709,000 and $5,112,000, respectively. For
the year ended December 31, 1996, revenue and expenses were approximately
$170,000 and $1,479,000, respectively. AOL and DCI's collective minority
interest in Switchboard's assets and liabilities is shown net in the
consolidated balance sheet. At December 31, 1997, assets and liabilities
for Switchboard Incorporated were approximately $1,510,000 and $3,790,000,
respectively. At December 31, 1996, assets and liabilities were
approximately $3,792,000 and $871,000, respectively.
- ---------------------
Q. Subsequent Event
- ---------------------
On March 6, 1998, the Company sold, for proceeds of $10,000,000, 263,158
shares of Series A convertible preferred stock at a price of $38.00 per
share, which represents, at a conversion rate of ten common shares for each
Series A convertible preferred share, a 13 percent ownership interest in
the Company. The Company also granted to the investor warrants to acquire
65,790 shares of Series B convertible preferred stock and 65,790 shares of
Series C convertible preferred stock at an exercise price of $45.00 and
$50.00 per share, respectively, at the same ten-to-one conversion rate.
<PAGE>
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, 1997 and 1996, and the related
consolidated statements of operations, shareholders' equity, and cash flows
for each of the three years in the period ended December 31, 1997. 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, 1997 and 1996, and the consolidated
results of its operations and its cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
January 27, 1998,
except as to the information presented in
Note Q, for which the date is March 6, 1998
<PAGE>
-----------------------
Selected Financial Data
-----------------------
<TABLE>
<CAPTION>
Years Ended December 31, 1997 1996 1995 1994 1993
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(in thousands, except per share amounts)
Statement of operations data:
Revenues:
Software $ 57,849 $ 87,281 $ 105,160 $ 118,899 $ 94,231
Services 15,796 16,456 21,059 20,444 18,559
Hardware 697 1,687 3,464 10,770 14,980
- ---------------------------------------------------------------------------------------------------------------------------
Total revenues 74,342 105,424 129,683 150,113 127,770
(Loss)/income from operations (16,552) (19,085) (34,201) 5,541 19,630
Net (loss)/income (16,908) (27,030) (21,360) 4,987 12,962
Net (loss)/income per share:/1/
Basic $ (0.97) $ (1.59) $ (1.27) $ 0.29 $ 0.76
Diluted $ (0.97) $ (1.59) $ (1.27) $ 0.27 $ 0.70
Balance sheet data:
Working capital $ (2,732) $ (1,513) $ 9,534 $ 30,602 $ 50,477
Total assets 42,928 69,532 106,309 124,960 121,984
Long-term obligations, less current maturities - - - 61 -
Total shareholders' equity 5,077 20,322 44,342 73,879 79,412
<CAPTION>
-------------------------------------------
Quarterly Financial Information (unaudited)
-------------------------------------------
1997 Quarter Ended Dec. 31 Sept. 30 June 30 March 31
---------------------------------------------------------------------------------------------------------------------------
Revenues:
Software $ 13,278 $ 14,614 $ 13,692 $ 16,265
Services 4,931 3,996 3,216 3,653
Hardware 187 232 165 113
---------------------------------------------------------------------------------------------------------------------------
Total revenues 18,396 18,842 17,073 20,031
Income/(loss) from operations/2/,/3/ 2,641 888 (13,693) (6,388)
Net income/(loss)/2/,/3/ 2,380 769 (13,665) (6,392)
Net income/(loss) per share:/1/
Basic $ 0.14 $ 0.04 $ (0.79) $ (0.37)
Diluted $ 0.13 $ 0.04 $ (0.79) $ (0.37)
Stock prices:/4/
High $ 3.94 $ 2.75 $ 2.38 $ 5.56
Low $ 2.44 $ 1.97 $ 1.22 $ 2.06
1996 Quarter Ended Dec. 31 Sept. 30 June 30 March 31
---------------------------------------------------------------------------------------------------------------------------
Revenues:
Software $ 12,688 $ 23,917 $ 25,745 $ 24,931
Services 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/5/ (18,127) (1,442) 135 349
Net (loss)/income/5/ (26,802) (783) 186 369
Net (loss)/income per share:/1/
Basic $ (1.56) $ (0.05) $ 0.01 $ 0.02
Diluted $ (1.56) $ (0.05) $ 0.01 $ 0.02
Stock prices:/4/
High $ 6.16 $ 7.56 $ 10.44 $ 11.25
Low $ 3.63 $ 5.13 $ 6.50 $ 7.38
</TABLE>
1. Earnings per share data have been restated for all periods presented to
reflect the adoption of SFAS 128, "Earnings per Share," as of December 31,
1997.
2. In the second quarter of 1997, the Company recorded a charge of $9,700
related to restructuring the Company.
3. In the fourth quarter of 1997, the Company recorded a benefit, reversing
$1,700 of unneeded restructuring reserves from prior charges.
4. 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.
5. In the fourth quarter of 1996, the Company recorded a charge of $5,500
related to restructuring the Company, and wrote off deferred tax assets of
$8,038.
The Company has not paid cash dividends on its common stock and has
historically retained earnings for use in its business. The Company's
current line of credit prohibits the payment of cash dividends without the
consent of the lender. The Company has no present intention to pay
dividends. The Company intends to review its policy with respect to the
payment of dividends from time to time; however, there can be no assurance
that any dividends will be paid in the future.
On December 31, 1997, the Company had 9,517 shareholders.
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
------------------------------
<TABLE>
<CAPTION>
Jurisdiction of
Company Incorporation
------- ---------------
<S> <C>
1. Banyan Systems International Incorporated Massachusetts
2. Banyan Securities Corporation Massachusetts
3. Banyan Systems Asia-Pacific Incorporated Massachusetts
4. Banyan Systems (UK) Ltd. England
5. Banyan Systems (Holland) B.V. Holland
6. Banyan Systems (Deutschland) Germany
7. Banyan Systems (France) S.A.R.L. France
8. Beyond Incorporated Delaware
9. Banyan Systems S.A. de C.V Mexico
10. Banyan Systems Asia Pacific Ltd. Hong Kong
11. Banyan Systems (Taiwan), Incorporated Massachusetts
12. Nihon Banyan Systems K.K. Japan
13. Banyan Systems (Korea) Co., Ltd. Korea
14. Banyan Systems do Brasil Ltda. Brazil
15. Banyan Enterprise Networks South Africa
16. Coordinate.com Incorporated Delaware
17. Switchboard Incorporated Delaware
</TABLE>
<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, 333-22631, 333-26857, 333-
28745, 333-28675, 333-40671 and 333-46259) of our reports dated January 27,
1998, except as to the information presented in Note Q, for which the date is
March 5, 1998, on our audits of the consolidated financial statements and
financial statement schedule of Banyan Systems Incorporated as of December 31,
1997 and 1996, and for each of the three years in the period ended December 31,
1997, 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 30, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> DEC-31-1997 DEC-31-1996
<CASH> 6,674 10,613
<SECURITIES> 4,202 4,139
<RECEIVABLES> 20,681 26,922
<ALLOWANCES> 3,721 7,168
<INVENTORY> 1,023 2,863
<CURRENT-ASSETS> 31,972 43,753
<PP&E> 38,696 45,619
<DEPRECIATION> 32,886 32,054
<TOTAL-ASSETS> 42,928 69,532
<CURRENT-LIABILITIES> 34,704 45,266
<BONDS> 0 0
0 0
0 0
<COMMON> 193 190
<OTHER-SE> 4,884 20,132
<TOTAL-LIABILITY-AND-EQUITY> 42,928 69,532
<SALES> 58,546 88,968
<TOTAL-REVENUES> 74,342 105,424
<CGS> 6,939 11,332
<TOTAL-COSTS> 90,894 124,509
<OTHER-EXPENSES> 1,334 511
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 96 80
<INCOME-PRETAX> (16,653) (18,017)
<INCOME-TAX> 255 9,013
<INCOME-CONTINUING> (16,908) (27,030)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (16,908) (27,030)
<EPS-PRIMARY> (0.97) (1.59)
<EPS-DILUTED> (0.97) (1.59)
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> SEP-30-1997 SEP-30-1996
<CASH> 5,281 10,613
<SECURITIES> 5,702 8,575
<RECEIVABLES> 15,689 26,922
<ALLOWANCES> 3,619 7,169
<INVENTORY> 1,148 2,863
<CURRENT-ASSETS> 27,085 43,753
<PP&E> 38,411 45,619
<DEPRECIATION> 31,910 32,054
<TOTAL-ASSETS> 39,183 69,532
<CURRENT-LIABILITIES> 33,907 45,266
<BONDS> 0 0
0 0
0 0
<COMMON> 193 190
<OTHER-SE> 1,814 20,132
<TOTAL-LIABILITY-AND-EQUITY> 39,183 69,532
<SALES> 45,081 76,103
<TOTAL-REVENUES> 55,946 88,262
<CGS> 5,637 8,447
<TOTAL-COSTS> 75,139 89,220
<OTHER-EXPENSES> 180 219
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 71 57
<INCOME-PRETAX> (19,055) (356)
<INCOME-TAX> (233) (128)
<INCOME-CONTINUING> (19,228) (228)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (19,228) (228)
<EPS-PRIMARY> (1.12) (0.01)
<EPS-DILUTED> (1.12) (0.01)
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> JUN-30-1997 JUN-30-1996
<CASH> 6,699 10,613
<SECURITIES> 5,857 8,575
<RECEIVABLES> 16,737 26,922
<ALLOWANCES> 5,095 7,168
<INVENTORY> 1,203 2,863
<CURRENT-ASSETS> 28,282 43,753
<PP&E> 42,998 45,619
<DEPRECIATION> 35,073 32,054
<TOTAL-ASSETS> 42,159 69,352
<CURRENT-LIABILITIES> 37,699 45,266
<BONDS> 0 0
0 0
0 0
<COMMON> 192 190
<OTHER-SE> 678 20,132
<TOTAL-LIABILITY-AND-EQUITY> 42,159 69,532
<SALES> 30,235 51,769
<TOTAL-REVENUES> 37,104 60,133
<CGS> 4,129 5,601
<TOTAL-COSTS> 57,185 59,649
<OTHER-EXPENSES> (235) (420)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 50 38
<INCOME-PRETAX> (19,896) 866
<INCOME-TAX> 161 311
<INCOME-CONTINUING> (20,057) 555
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (20,057) 555
<EPS-PRIMARY> (1.16) 0.03
<EPS-DILUTED> (1.16) 0.03
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<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>
<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>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> SEP-30-1996 SEP-30-1995
<CASH> 8,511 12,398
<SECURITIES> 980 7,729
<RECEIVABLES> 36,283 29,924
<ALLOWANCES> 9,264 5,636
<INVENTORY> 3,021 3,664
<CURRENT-ASSETS> 49,802 67,405
<PP&E> 44,689 39,892
<DEPRECIATION> 30,079 25,296
<TOTAL-ASSETS> 91,886 106,309
<CURRENT-LIABILITIES> 42,537 57,871
<BONDS> 0 0
0 0
0 0
<COMMON> 190 186
<OTHER-SE> 45,777 44,156
<TOTAL-LIABILITY-AND-EQUITY> 91,886 106,309
<SALES> 76,103 85,935
<TOTAL-REVENUES> 88,262 101,706
<CGS> 8,447 11,784
<TOTAL-COSTS> 89,220 109,682
<OTHER-EXPENSES> 219 60
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 57 27
<INCOME-PRETAX> (356) (6,667)
<INCOME-TAX> (128) (2,615)
<INCOME-CONTINUING> (228) (4,052)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (228) (4,052)
<EPS-PRIMARY> (0.01) (0.24)
<EPS-DILUTED> (0.01) (0.24)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> JUN-30-1996 JUN-30-1995
<CASH> 12,734 12,398
<SECURITIES> 966 7,729
<RECEIVABLES> 34,888 29,924
<ALLOWANCES> 6,031 5,636
<INVENTORY> 2,809 3,664
<CURRENT-ASSETS> 55,507 67,405
<PP&E> 42,769 39,892
<DEPRECIATION> 28,333 25,296
<TOTAL-ASSETS> 97,308 106,309
<CURRENT-LIABILITIES> 48,699 57,871
<BONDS> 0 0
0 0
0 0
<COMMON> 187 186
<OTHER-SE> 44,994 44,156
<TOTAL-LIABILITY-AND-EQUITY> 97,308 106,309
<SALES> 51,769 59,976
<TOTAL-REVENUES> 60,133 70,503
<CGS> 5,601 8,179
<TOTAL-COSTS> 59,649 71,109
<OTHER-EXPENSES> (420) (912)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 38 16
<INCOME-PRETAX> 866 290
<INCOME-TAX> 311 25
<INCOME-CONTINUING> 555 265
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 555 265
<EPS-PRIMARY> 0.03 0.02
<EPS-DILUTED> 0.03 0.01
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> MAR-31-1996 MAR-31-1995
<CASH> 9,220 12,398
<SECURITIES> 954 7,729
<RECEIVABLES> 32,259 29,924
<ALLOWANCES> 5,547 5,636
<INVENTORY> 3,311 3,664
<CURRENT-ASSETS> 62,363 67,405
<PP&E> 41,190 39,892
<DEPRECIATION> 26,715 25,296
<TOTAL-ASSETS> 103,679 106,309
<CURRENT-LIABILITIES> 55,195 57,871
<BONDS> 0 0
0 0
0 0
<COMMON> 186 186
<OTHER-SE> 44,505 44,156
<TOTAL-LIABILITY-AND-EQUITY> 103,679 106,309
<SALES> 25,463 35,031
<TOTAL-REVENUES> 29,932 40,349
<CGS> 2,698 4,480
<TOTAL-COSTS> 26,885 30,822
<OTHER-EXPENSES> (248) (486)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 21 8
<INCOME-PRETAX> 576 5,525
<INCOME-TAX> 207 1,968
<INCOME-CONTINUING> 369 3,557
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 369 3,557
<EPS-PRIMARY> 0.02 0.21
<EPS-DILUTED> 0.02 0.20
</TABLE>
