<PAGE>
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
[_] Confidential, for Use of the
Check the appropriate box: Commission Only (as Permitted by
Rule 14a-6(e)(2))
[_] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
BANYAN SYSTEMS INCORPORATED
-----------------------------------------------------
(Name of Registrant as Specified In Its Charter)
-----------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1)Amount Previously Paid:
------------------------------------------------------
(2)Form, Schedule or Registration Statement no.:
------------------------------------------------------
(3)Filing Party:
------------------------------------------------------
(4)Date Filed:
------------------------------------------------------
<PAGE>
BANYAN SYSTEMS INCORPORATED
120 Flanders Road
Westboro, Massachusetts 01581
Notice of Annual Meeting of Stockholders to be Held
on Thursday, May 13, 1999
The Annual Meeting of Stockholders of Banyan Systems Incorporated (the
"Company") will be held at the Westboro Marriott, 5400 Computer Drive,
Westboro, Massachusetts on Thursday, May 13, 1999, at 2:00 p.m., local time,
to consider and act upon the following matters:
1. To elect two Class I Directors to serve for the ensuing three years.
2. To ratify and approve an amendment to the Company's 1992 Stock
Incentive Plan, as amended, increasing from 3,500,000 to 4,450,000
the number of shares of Common Stock of the Company authorized for
issuance under such plan.
3. To ratify the selection by the Board of Directors of
PricewaterhouseCoopers LLP as the Company's independent accountants
for the current fiscal year.
4. To transact such other business as may properly come before the
meeting or any adjournment or adjournments thereof.
Stockholders of record at the close of business on April 1, 1999 will be
entitled to notice of and to vote at the meeting or any adjournment or
adjournments thereof. The stock transfer books of the Company remain open.
All stockholders are cordially invited to attend the meeting.
By Order of the Board of Directors,
RICHARD M. SPAULDING, Vice President
and Chief Financial Officer,
Treasurer and Clerk
Westboro, Massachusetts
April 16, 1999
Whether or not you expect to attend the meeting, please complete, date and
sign the enclosed proxy and mail it promptly in the enclosed envelope in order
to ensure representation of your shares. No postage need be affixed if the
proxy is mailed in the United States.
<PAGE>
BANYAN SYSTEMS INCORPORATED
120 Flanders Road
Westboro, Massachusetts 01581
Proxy Statement for the Annual Meeting of Stockholders
To Be Held on Thursday, May 13, 1999
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors (the "Board of Directors" or the "Board") of
Banyan Systems Incorporated (the "Company") for use at the Annual Meeting of
Stockholders to be held at the Westboro Marriott, 5400 Computer Drive,
Westboro, Massachusetts on Thursday, May 13, 1999 at 2:00 p.m., local time,
and at any adjournment or adjournments of the meeting (the "Annual Meeting").
All proxies will be voted in accordance with the stockholders' instructions,
and if no choice is specified, the proxies will be voted in favor of the
matters set forth in the accompanying Notice of Meeting. Any proxy may be
revoked by a stockholder at any time before its exercise by delivery of
written revocation or a subsequently dated proxy to the Clerk of the Company
or by voting in person at the Annual Meeting.
At the close of business on April 1, 1999, the record date for the
determination of stockholders entitled to vote at the Annual Meeting, there
were outstanding and entitled to vote an aggregate of 19,531,630 shares of
Common Stock, $0.01 par value per share (the "Common Stock"), and 263,158
shares of Series A Convertible Preferred Stock, $0.01 par value per share (the
"Series A Preferred"). Holders of shares of Common Stock are entitled to one
vote per share. Holders of shares of Series A Preferred are entitled to one
vote for each share of Common Stock issuable as of the date of such vote upon
conversion of each share of Preferred Stock held on the record date
(currently, ten votes per share of Series A Preferred, or 2,631,580 votes).
The holders of Common Stock and Series A Preferred will vote together as a
class for purposes of all matters submitted to the stockholders at the Annual
Meeting.
The Company's Annual Report for 1998 was mailed to stockholders, along with
these proxy materials, on or about April 16, 1999.
The Company will, upon written request of any stockholder, provide without
charge a copy of its Annual Report on Form 10-K, including financial
statements and financial statement schedules, as filed with the Securities and
Exchange Commission on March 31, 1999. Requests should be addressed to the
Treasurer of the Company, 120 Flanders Road, Westboro, Massachusetts 01581.
Votes Required
Under the Company's Amended and Restated By-laws (the "By-laws"), the
holders of a majority of the number of votes represented by shares of capital
stock issued, outstanding and entitled to vote on any matter shall constitute
a quorum with respect to that matter at the Annual Meeting. Shares of capital
stock present in person or represented by proxy (including shares which
abstain or do not vote with respect to one or more of the matters presented
for stockholder approval) will be counted for purposes of determining whether
a quorum is present.
The affirmative vote of the holders of a plurality of the votes cast by the
stockholders entitled to vote at the Annual Meeting is required for the
election of directors. The affirmative vote of the holders of a majority of
the shares of capital stock present or represented and voting on the matter is
required for the approval of all other matters being presented for stockholder
approval at the Annual Meeting.
1
<PAGE>
Shares which abstain from voting as to a particular matter, and shares held
in "street name" by brokers or nominees who indicate on their proxies that
they do not have discretionary authority to vote such shares as to a
particular matter, will not be voted in favor of such matter, and will also
not be counted as votes cast or shares voting on such matter. Accordingly,
abstentions and "broker non-votes" will have no effect on the voting on the
matters being presented for stockholder approval at the Annual Meeting.
Beneficial Ownership of Common Stock
The following table sets forth certain information, as of January 31, 1999
(except as otherwise specified), with respect to the beneficial ownership of
the Common Stock by (i) each person known by the Company to beneficially own
more than 5% of the outstanding shares of Common Stock, (ii) each director and
nominee for director of the Company, (iii) each executive officer of the
Company during 1998 named in the Summary Compensation Table set forth under
the caption "Executive Compensation" below and (iv) all directors and
executive officers of the Company as of January 31, 1999 as a group:
<TABLE>
<CAPTION>
Number of Shares of
Common Stock Percentage of
Beneficially Common Stock
Beneficial Owner Owned (1) Outstanding (2)
---------------- ------------------- --------------
<S> <C> <C>
HarbourVest Partners V-Direct Fund, L.P.
(3)
c/o HarbourVest Partners, LLC
One Financial Center, 44th Floor
Boston, Massachusetts 02111............... 3,947,380 17.1%
Dimensional Fund Advisors Inc. (4)
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401............ 977,000 5.1%
Microsoft Corporation (5)
One Microsoft Way
Redmond, Washington 98052................. 1,750,000 8.4%
G. Leonard Baker (6)....................... 235,689 1.2%
Anthony J. Bellantuoni (7)................. 55,000 *
Robert D. Burke (8)........................ 117,500 *
John F. Burton (9)......................... 138,000 *
William P. Ferry (10)...................... 741,658 3.8%
David C. Mahoney (11)...................... 494,397 2.6%
Fontaine K. Richardson (12)................ 44,944 *
Richard M. Spaulding (13).................. 63,435 *
David N. Strohm (14)....................... 98,000 *
Robert M. Wadsworth (15)................... 3,951,130 17.1%
William E. Warner, Jr...................... 0 *
All directors and executive officers as a
group (12 persons)(16).................... 5,973,160 24.8%
</TABLE>
- --------
* Less than 1%
(1) The inclusion herein of any shares of Common Stock deemed beneficially
owned does not constitute an admission of beneficial ownership of those
shares. Unless otherwise indicated, each person listed above has sole
voting and investment power with respect to the shares listed. For
purposes of this table, each person is deemed to beneficially own any
shares subject to stock options, warrants or other securities convertible
into
2
<PAGE>
Common Stock, held by such person which are currently exercisable (or
convertible) or exercisable (or convertible) within 60 days after January
31, 1999.
(2) Number of shares deemed outstanding includes 19,156,315 shares issued and
outstanding as of January 31, 1999 plus any shares subject to stock
options, warrants or other securities convertible into Common Stock, held
by the referenced beneficial owner(s).
(3) On February 11, 1999 HarbourVest Partners, LLC filed a Schedule 13G with
the Securities Exchange Commission reporting beneficial ownership of a
total of 3,947,380 shares, consisting of (i) 2,631,580 shares issuable
upon conversion of 263,158 shares of Series A Preferred, (ii) 657,900
shares issuable upon conversion of 65,790 shares of the Company's Series B
Convertible Preferred Stock, $0.01 par value per share (the "Series B
Preferred"), which such shares of Series B Preferred are issuable upon
exercise of a warrant, (iii) 657,900 shares issuable upon conversion of
65,790 shares of the Company's Series C Convertible Preferred Stock, $0.01
par value per share (the "Series C Preferred"), which such shares of
Series C Preferred are issuable upon exercise of a warrant, and sole
voting and dispositive power with respect to all of such shares.
HarbourVest Partners V-Direct Fund L.P. ("HarbourVest Fund") is the record
and ultimate owner of such shares. Such information is reported herein in
reliance upon such filing.
(4) Based on information provided to the Company by Dimensional Fund Advisors
Inc. ("Dimensional"), (i) all shares of Common Stock beneficially owned by
Dimensional, a registered investment advisor, are held in portfolios of
DFA Investment Dimensions Group Inc., a registered open-end investment
company ("DFA Group Inc."), or in series of The DFA Investment Trust
Company ("DFA Trust Company), a Delaware business trust, or the DFA Group
Trust and DFA Participating Group Trust ("DFA Group Trust") investment
vehicles for qualified employee benefit plans, for all of which
Dimensional serves as investment manager, (ii) Dimensional exercises sole
voting power over 977,000 shares of Common Stock, (iii) Dimensional
exercises sole dispositive power over 977,000 shares of Common Stock and
(iv) certain officers of Dimensional who also serve as officers of DFA
Group Inc. and DFA Trust Company exercise voting power over an aggregate
of 329,000 shares of Common Stock in their respective capacities as
officers of DFA Group Inc. and DFA Trust Company. On February 10, 1998
Dimensional filed a Schedule 13G with the Securities and Exchange
Commission reporting beneficial ownership of a total of 977,000 shares of
Common Stock as of December 31, 1997. Dimensional disclaims beneficial
ownership of all shares reported in this Proxy Statement.
(5) On January 28, 1999, Microsoft Corporation ("Microsoft") filed a Schedule
13G/A with the Securities and Exchange Commission reporting, as of January
8, 1999, beneficial ownership of a total of 1,750,000 shares issuable upon
exercise of a warrant and sole voting and dispositive power with respect
to such shares. Such information is reported herein in reliance upon such
filing.
(6) Includes 39,950 shares of Common Stock held at BancBoston Robertson
Stephens Inc. in the name of G. Leonard Baker, Jr., 18,000 shares issuable
upon exercise of stock options held by Mr. Baker and 8,890 shares held of
record by Saunders Holdings, L.P. with respect to which Mr. Baker
exercises shared voting and dispositive power. Mr. Baker disclaims
beneficial ownership of such shares except as to his proportionate
pecuniary interest therein.
(7) Consists of 25,000 shares issuable upon exercise of stock options held by
Mr. Bellantuoni and 30,000 shares subject to the Company's right to
repurchase all or part of such shares at their purchase price in the event
that conditions specified by the Board are not satisfied prior to
specified dates, which dates may be accelerated in the Board's discretion
("Restricted Stock").
(8) Consists of 57,500 shares issuable upon exercise of stock options held by
Mr. Burke and 60,000 shares of Restricted Stock.
(9) Consists of 138,000 shares issuable upon exercise of stock options held by
Mr. Burton.
3
<PAGE>
(10) Consists of 541,658 shares issuable upon exercise of stock options held
by Mr. Ferry and 200,000 shares of Restricted Stock.
(11) Consists of 122,500 shares issuable upon exercise of stock options held
by Mr. Mahoney and 371,897 shares held jointly by Mr. Mahoney and his
wife.
(12) Includes 18,000 shares issuable upon exercise of stock options held by
Mr. Richardson.
(13) Consists of 29,435 shares issuable upon exercise of stock options held by
Mr. Spaulding and 34,000 shares of Restricted Stock.
(14) Consists of 70,000 shares held by a living trust of which Mr. Strohm is a
beneficiary, 10,000 shares held in a charitable remainder trust of which
Mr. Strohm is a beneficiary, and 18,000 shares issuable upon exercise of
stock options held by Mr. Strohm.
(15) Includes 3,947,380 shares beneficially owned by HarbourVest Fund, as more
fully described in note (3) above. Mr. Wadsworth is a managing director
of HarbourVest Partners, LLC, which is the managing member of HVP V-
Direct Associates, L.L.C., a general partner of HarbourVest Fund. Mr.
Wadsworth disclaims beneficial ownership of all shares owned by
HarbourVest Fund. Also includes 3,750 shares issuable upon exercise of
stock options held by Mr. Wadsworth.
(16) Includes the shares and shares issuable upon exercise of stock options
listed in Notes (6)-(15) above. In addition, includes 1,407 shares of
Common Stock and 32,000 shares of Restricted Stock held by one other
executive officer of the Company.
4
<PAGE>
1. ELECTION OF DIRECTORS
The By-laws provide that the Board of Directors is classified into three
classes (designated Class I Directors, Class II Directors and Class III
Directors), with members of each class holding office for staggered three-year
terms. At the time of the Annual Meeting there will be two Class I Directors,
whose terms expire at the Annual Meeting, two Class II Directors, whose terms
expire at the 2000 Annual Meeting of Stockholders, and two Class III
Directors, whose terms expire at the 2001 Annual Meeting of Stockholders (in
all cases subject to the election and qualification of their successors and to
their earlier death, resignation or removal). In addition, the Company's
Second Restated Articles of Organization, as amended, provide that the holders
of Series A Preferred are entitled to elect one additional member of the
Board.
The persons named in the enclosed proxy will vote to elect G. Leonard Baker,
Jr. and David C. Mahoney as Class I Directors to serve for the ensuing three
years, unless authority to vote for the election of either or both is withheld
by marking the proxy to that effect. Both of the nominees are currently Class
I Directors of the Company. Each of the nominees has indicated his willingness
to serve, if elected, but if either should be unable or unwilling to serve,
proxies may be voted for a substitute nominee designated by the Board.
Directors and Nominees
The following table sets forth, for each director of the Company (including
the two nominees for Class I Director), his name and age, his positions with
the Company, his principal occupation and business experience during the past
five years, the names of the other public reporting corporations for which he
serves as a director and the year during which he first became a director of
the Company:
Nominees for Class I Directors
G. Leonard Baker, Jr., 56, has been a director of the Company since its
inception in 1983. He has been a managing director of Sutter Hill Ventures, a
venture capital firm, since 1974.
David C. Mahoney, 54, a founder of the Company, has been a director of the
Company since the Company's inception in 1983 and a director of Switchboard
Incorporated, a majority-owned subsidiary of the Company ("Switchboard"),
since its inception in April 1996. He served as Chairman of the Board and
Chief Executive Officer of the Company from its inception until November 1996
and served as President of the Company from its inception until April 1987,
from May 1989 until June 1992 and from January 1995 to February 1997. He is a
director of Applix, Inc. and Dataware Technologies Inc.
Class II Directors (Terms expire at 2000 Annual Meeting)
John F. Burton, 47, has been a director of the Company since 1991. From
November 1996 to October 1997 he served as Chairman of the Board. Mr. Burton
has been the President of Burton Technology Partners, Ltd., an investment and
strategic planning company, since October 1996. Since March 1997 Mr. Burton
has also been a Managing Director at Updata Capital, Inc., an investment
banking firm. From September 1995 until October 1996, he served as the
President and Chief Executive Officer of NatSystems International, Inc., a
software company. From March 1984 until February 1995, he was the President,
Chief Executive Officer and a director of LEGENT Corporation, a public systems
management software company. He is a director of AXENT Technologies, Inc.,
MapInfo Corporation, Netrix, Inc. and TREEV, Inc.
5
<PAGE>
Fontaine K. Richardson, 57, has been a director of the Company since 1984. He
has been a General Partner of Eastech Management Company, a private venture
capital firm, since 1983. He is a director of Mentor Graphics Corporation.
Class III Directors (Terms expire at 2001 Annual Meeting)
David N. Strohm, 50, has been a director of the Company since its inception
in 1983 and a director of Switchboard since February 1998. He has been a
general partner of Greylock Management Corporation, a venture capital group
("Greylock"), since 1980, and he is a general partner of several venture
capital funds affiliated with Greylock. He is a director of DoubleClick Inc.,
Legato Systems, Inc. and Internet Security Systems, Inc.
William P. Ferry, 46, has been Chairman of the Board since October 1997. He
has been a director of the Company and served as President and Chief Executive
Officer since February 1997 and Chairman of the Board of Directors of
Switchboard since March 1997. From August 1990 to February 1997, he served in
various management capacities at Wang Laboratories, Inc., including President,
Services Division from July 1994 until February 1997 and Senior Vice President
and General Manager, North American Operations from January 1993 until July
1994.
Series A Preferred Director
Robert M. Wadsworth, 38, has been a director of the Company since March
1998. He has been a managing director of HarbourVest Partners, LLC, a venture
capital management company, since December 1988. He joined Hancock Venture
Partners, the predecessor of HarbourVest Partners, LLC, in July 1986. He is a
director of Concord Communications, Inc., GSS Holdings, Inc., Outsourcing
Services Group, Inc. and several private companies. Mr. Wadsworth is a general
partner of several private equity funds managed by HarborVest.
Board and Committee Meetings
The Company has a standing Audit Committee of the Board of Directors, which
reviews the Company's internal accounting control policies and procedures,
considers and recommends the selection of the Company's independent
accountants, reviews and approves any major accounting policy changes
affecting the Company's operating results and provides the opportunity for
direct contact between the Company's independent accountants and the Board.
The Audit Committee met five times during 1998. The current Audit Committee
members are Messrs. Baker and Richardson.
The Company has a standing Compensation Committee of the Board of Directors,
which provides recommendations to the Board regarding compensation programs of
the Company and administers certain of the Company's employee benefit plans.
The Compensation Committee met three times during 1998. The current members of
the Compensation Committee are Messrs. Burton, Richardson and Strohm.
The Company has a standing Nominating Committee of the Board, which provides
recommendations to the Board with respect to candidates for directors of the
Company. The Nominating Committee considers nominees recommended by
stockholders of the Company. Any stockholder may submit such a recommendation
in writing to the Nominating Committee by addressing it to the attention of
the Clerk of the Company. The Nominating Committee did not meet during 1998.
The current members of the Nominating Committee are Messrs. Burton, Ferry and
Richardson.
6
<PAGE>
The Board of Directors met six times during 1998. Each director attended at
least 75% of the aggregate of the number of Board meetings and the number of
meetings held by all committees on which he then served.
Director Compensation
Members of the Board of Directors who are not employees of the Company are
paid a retainer of $4,000 per year. In addition, the Company reimburses all of
its directors for their out-of-pocket expenses in connection with performing
their duties as directors of the Company.
Under the terms of the Company's 1992 Director Stock Option Plan, as amended
(the "Director Plan"), directors of the Company who are not officers or
employees of the Company or of any subsidiary of the Company, on the date of
each annual meeting of Stockholders, receive nonstatutory options to purchase
3,000 shares of Common Stock. During 1998, Messrs. Baker, Burton, Mahoney,
Richardson, Strohm and Wadsworth were each granted such a stock option for
3,000 shares of Common Stock at an exercise price of $9.88 per share. In
addition, on March 5, 1998, pursuant to the Director Plan and in connection
with his initial election as a Director, Mr. Wadsworth received an option to
purchase 15,000 shares of Common Stock at an exercise price of $4.00 per
share. On the date of the Annual Meeting, each of the Company's non-employee
directors will receive a stock option to purchase 3,000 shares of Common Stock
at an exercise price equal to the fair market value on the date of grant.
Executive Compensation
Summary Compensation
The following table sets forth certain information concerning the
compensation of (i) the Company's Chief Executive Officer (ii) the Company's
three other executive officers during the year ended December 31, 1998 who
were serving as executive officers of the Company on December 31, 1998 and
whose individual total salary and bonus exceeded $100,000 during such year and
(iii) one former executive officer of the Company whose individual total
salary and bonus exceeded $100,000 during such year but was not serving as an
executive officer of the Company on December 31, 1998 (collectively with the
executive officers of the Company described in the immediately preceding
clauses (i) and (ii), the "Named Executive Officers").
7
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
(1) Awards
--------------------- -----------------------
Securities
Restricted Underlying All Other
Name and Principal Stock Options Compensation
Position (2) Year Salary($) Bonus($)(3) Awards($)(4) (#)(5) ($)(6)
------------------ ---- --------- ----------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
William P. Ferry (7).... 1998 $363,462 $810,900(8) $686,000 0 $2,018
Chairman of the Board, 1997 286,731 700,000(9) 1,000,000 1,066
President and Chief
Executive
Officer
Robert D. Burke (10).... 1998 $249,231 $155,000 $205,800 30,000 $1,594
Senior Vice President, 1997 178,154 120,000 120,000 1,003
Worldwide Sales and
Service
Richard M. Spaulding.... 1998 $175,538 $ 81,000 $116,620 24,000 $1,281
Vice President and 1997 136,769 70,000 30,000 953
Chief Financial
Officer, 1996 120,000 19,680 5,000 954
Treasurer and Clerk
Anthony J. Bellantuoni
(11)................... 1998 $150,577 $ 58,500 $102,900 15,000 $1,024
Vice President, Human 1997 58,558 25,000 50,000 0
Resources
William E. Warner, Jr.
(12)................... 1998 $121,615 $ 13,563 $ 0 15,000 $2,843
Senior Vice President,
Product 1997 111,154 50,000 130,000 1,623
Management and
Development
</TABLE>
- --------
(1) Excludes perquisites and other personal benefits because the aggregate
amount of such compensation was in all cases less than the lesser of
either $50,000 or 10% of the total of annual salary and bonus for the
Named Executive Officer.
(2) Unless otherwise noted, lists the principal position with the Company as
of December 31, 1998.
(3) Unless otherwise noted, represents amounts awarded as annual incentive
bonuses.
(4) Represents the fair market value of the award of Restricted Stock
(calculated by multiplying the per share fair market value of the Common
Stock on the date of grant by the number of shares of Restricted Stock
subject to the award, minus the amount paid by the Named Executive Officer
for such Restricted Stock). As of December 31, 1998 William P. Ferry held
200,000 shares of Restricted Stock at a value of $1,774,000, Robert D.
Burke held 60,000 shares of Restricted Stock at a value of $532,200,
Richard M. Spaulding held 34,000 shares of Restricted Stock at a value of
$301,580, Anthony J. Bellantuoni held 30,000 shares of Restricted Stock at
a value of $266,100, and William E. Warner, Jr. held no shares of
Restricted Stock. The preceding values of such holdings are calculated
based on the fair market value of the Common Stock on December 31, 1998
($8.88) minus the amount paid by the Named Executive Officer for such
Restricted Stock. With respect to the Restricted Stock held by Mr. Ferry,
36% vests on October 16, 1999, 32% vests on October 16, 2000 and 32% vests
on October 16, 2001. With respect to the Restricted Stock held by all
Named Executive Officers other than Mr. Ferry, 40% vests on October 16,
2000 and 60% vests on October 16, 2001. The foregoing vesting schedules
are subject to acceleration in part upon the achievement of specified
targets for the fair market value of the Common Stock. In the event of
certain terminations of a
8
<PAGE>
Named Executive Officer's employment with the Company related to a change
in control (as defined), all of such Named Executive Officer's Restricted
Stock would vest. Each Named Executive Officer is entitled to the same
dividends with respect to his shares of Restricted Stock as are paid to
holders of unrestricted shares of Common Stock.
(5) Reflects the grant of options to purchase Common Stock. The Company has
never granted stock appreciation rights.
(6) Represents Company contributions to the Company's 401(k) Plan.
(7) Mr. Ferry joined the Company as an executive officer in February 1997.
(8) Includes a stock bonus of 160,000 shares of Common Stock, with an
aggregate fair market value on the date of grant of $498,400, granted by
the Company to Mr. Ferry on January 2, 1998 pursuant to the terms of Mr.
Ferry's Employment Agreement with the Company, as amended.
(9) Includes a $400,000 sign-on bonus granted pursuant to Mr. Ferry's
Employment Agreement with the Company, as amended.
(10) Mr. Burke joined the Company as an executive officer in March 1997.
(11) Mr. Bellantuoni joined the Company as an executive officer in July 1997.
(12) Mr. Warner served as an executive officer of the Company from April 1997
to August 1998.
Option Grants, Exercises and Year-End Values
The following tables set forth certain information concerning option grants
and exercises during the fiscal year ended December 31, 1998 to or by the
Named Executive Officers and the number and value of the unexercised options
held by such persons on December 31, 1998.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
--------------------------------------
Number of Potential Realizable Value
Securities Percent of At Assumed Annual Rates of
Underlying Total Exercise or Stock Price Appreciation
Options Options Granted Base Price for Option Term (3)
Granted to Employees Per Share Expiration ---------------------------
Name (#)(1) in Fiscal Year ($/sh)(2) Date 5% 10%
---- ---------- --------------- ----------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
William P. Ferry........ 0 0.00% -- -- -- --
Robert D. Burke......... 30,000 2.45% $6.50 4/13/08 $ 122,636 $ 310,780
Richard M. Spaulding.... 24,000 1.96% 6.50 4/13/08 98,108 248,624
Anthony J. Bellantuoni.. 15,000 1.22% 6.50 4/13/08 61,318 155,390
William E. Warner, Jr... 15,000 1.22% 6.50 4/13/08 61,318 155,390
</TABLE>
- --------
(1) Unless otherwise indicated, each option grants a right to purchase shares
of Common Stock which vests in three approximately equal annual
installments beginning one year after the date of grant. Vesting of
certain of the options is accelerated under specified circumstances. See
"Certain Relationships and Related Transactions."
(2) Equal to the per share fair market value of the underlying shares of
Common Stock on the date of grant.
(3) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock appreciation of 5% and 10% compounded
annually from the date the respective options were granted to their
expiration date. Actual gains, if any, on stock option exercises will
depend on the future performance of the Common Stock and the date on which
the options are exercised. No gain to the optionees is possible without an
appreciation in stock price, which will benefit all stockholders
commensurately.
9
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEARAND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised In-
Shares Options at Fiscal the-Money Options at
Acquired on Value Year-End(#) Fiscal Year-End ($)(2)
Exercise Realized ------------------------ --------------------------
Name (#) ($)(1) Exercisable/Unexercisable Exercisable/Unexercisable
---- ----------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
William P. Ferry........ 0 -- 458,326/541,674 $3,038,701/$3,591,299
Robert D. Burke......... 0 -- 57,500/92,500 $ 381,225/$ 485,775
Richard M. Spaulding.... 15,000 $113,445 29,435/47,144 $ 199,804/$ 215,215
Anthony J. Bellantuoni.. 0 -- 25,000/40,000 $ 165,750/$ 201,450
William E. Warner, Jr... 60,000 $157,500 0/0 $ 0/$ 0
</TABLE>
- --------
(1) Represents the difference between the aggregate fair market value of the
underlying shares of Common Stock on the date of exercise and the
aggregate exercise price.
(2) Based on the aggregate fair market value of the underlying shares of
Common Stock on December 31, 1998 ($8.88 per share), less the aggregate
option exercise price.
Compensation Committee Interlocks and Insider Participation
Messrs. Burton, Richardson and Strohm served as members of the Compensation
Committee during the Company's last fiscal year.
Certain Relationships and Related Transactions
Mr. Ferry's Employment Agreement
In February 1997, the Company entered into an Employment Agreement with Mr.
Ferry, which was amended in June 1997 and October 1998. Pursuant to the terms
of the Employment Agreement, as amended, Mr. Ferry is employed by the Company
as its Chairman of the Board, President and Chief Executive Officer, is paid a
minimum annual salary of $400,000 and earns a minimum annual bonus of
$200,000, based upon the achievement of certain performance objectives
determined by the Board. Mr. Ferry is also eligible to receive an additional
bonus of a minimum of $150,000, based upon the achievement of specified
financial goals detailed in the Employment Agreement. The Employment Agreement
contains confidentiality and noncompetition provisions.
In addition, pursuant to the terms of the Employment Agreement, Mr. Ferry
was granted (i) a stock option to purchase 1,000,000 shares of Common Stock at
a per share exercise price of $2.25, (ii) a one-time cash bonus of $400,000,
(iii) an award of 160,000 shares of Common Stock at par value and (iv) an
award of 200,000 restricted shares of Common Stock at par value. The 200,000
restricted shares are subject to the Company's right of repurchase which
expires as to 72,000 of such shares on October 16, 1999, an additional 64,000
of such shares on April 16, 2000, and an additional 64,000 of such shares on
October 16, 2000.
The Company may terminate the Employment Agreement upon six months written
notice to Mr. Ferry. In the event of such a termination, Mr. Ferry will be
entitled to receive a cash payment from the Company equal to the greater of
$500,000 or the sum of salary and bonus which would have been paid to Mr.
Ferry in the year of such termination if all performance related criteria to
his bonus payments had been met. Mr. Ferry may terminate
10
<PAGE>
the Employment Agreement for good reason upon notice given within 60 days of
the occurrence of certain specified events generally relating to diminished
responsibility with the Company (or notice given within one year if such
events occur due to a change in control of the Company). Upon a change in
control of the Company, 50% of the unvested portion of the stock option
granted to Mr. Ferry under the Employment Agreement immediately becomes vested
and 100% of all shares of Restricted Stock held by Mr. Ferry become fully
vested and no longer subject to the Company's right of repurchase.
Other Employment Arrangements
In March 1997, the Company entered into Employment Letters with Messrs.
Burke and Warner, pursuant to which the Company agreed to employ Messrs. Burke
and Warner as its Senior Vice President, Worldwide Sales and Service, and
Senior Vice President, Product Management and Development, respectively. These
Employment Letters provide for annual base salaries and stock options to
purchase shares of Common Stock for Messrs. Burke and Warner, respectively, as
follows: $240,000 and 120,000 shares and $170,000 and 130,000 shares. These
stock options have an exercise price of $2.25. The Employment Letters also
contemplate annual bonus targets for Messrs. Burke and Warner in the amounts
of $160,000 and $70,000, respectively. Mr. Warner ceased to be employed with
the Company effective August 1998.
In June 1997, the Company entered into an Employment Letter with Mr.
Bellantuoni pursuant to which the Company agreed to employ Mr. Bellantuoni as
its Vice President Human Resources. This Employment Letter provides for an
annual salary of $145,000 and stock options to purchase 50,000 shares of
Common Stock. These stock options have an exercise price of $2.25. Mr.
Bellantuoni's Employment Letter also contemplates an annual bonus target of
$45,000.
Executive Retention Agreements
In October 1999, the Company entered into an Executive Retention Agreement
with each of Mr. Burke, Mr. Spaulding and Mr. Bellantuoni. These Executive
Retention Agreements contain provisions addressing compensation and benefits
payable upon or relating to a change in control of the Company and certain
terminations of employment by the Company. In his Executive Retention
Agreement, each executive officer agrees to certain confidentiality provisions
and to remain in the employ of the Company upon certain events relating to a
change in control.
In connection with the Executive Retention Agreements, the Company granted
awards of Restricted Stock to each of Mr. Burke, Mr. Spaulding and Mr.
Bellantuoni in the following amounts, respectively, 60,000, 34,000 and 30,000.
These restricted shares are subject to the Company's right of repurchase which
expires as to 20% of such shares on October 16, 1999, an additional 40% of
such shares on April 16, 2000, and an additional 40% of such shares on October
16, 2000.
The Executive Retention Agreements provide generally that in the event of a
change in control of the Company, 50% of all unvested stock options held by
the executive officer vest immediately and 100% of all restricted shares of
Common Stock held by the executive officer become fully vested and no longer
subject to the Company's right of repurchase. In addition, if subsequent to a
change in control of the Company, the executive officer is terminated by the
Company without cause or resigns for good reason, such executive officer will
receive a minimum of one year of severance pay (including bonuses calculated
at a level assuming achievement of relevant targets), a minimum of one year of
continuation of benefits and the remainder of his stock options will vest.
11
<PAGE>
The Executive Retention Agreements also provide for benefits specific to
each of Mr. Burke, Mr. Spaulding and Mr. Bellantuoni upon the termination of
employment (other than relating to a change in control) by the Company for
death, disability or cause or by such executive officer for a material
reduction in responsibilities (each, a "Termination"). In the event of a
Termination, Mr. Burke will receive nine months of severance pay (including
bonuses) and benefits. The vesting of Mr. Burke's nonqualified stock options
will also be accelerated in the event of certain Terminations. Upon a
Termination other than by Mr. Burke for a material reduction in
responsibilities, the vesting of all of Mr. Burke's options that would have
vested in the succeeding nine months will be immediately accelerated, and upon
a Termination by Mr. Burke for a material reduction in responsibilities, the
vesting of Mr. Burke's nonqualified stock options will continue for the
succeeding nine months (unless such options terminate earlier). Mr. Spaulding
and Mr. Bellantuoni will receive six months of severance pay (including
bonuses) and benefits upon a Termination.
HarbourVest Investment
In March 1998, HarbourVest Partners V-Direct Fund, L.P. ("HarbourVest Fund")
purchased from the Company 263,158 shares of the Company's Series A Preferred,
warrants to purchase 65,790 shares of the Company's Series B Preferred and
warrants to purchase 65,790 shares of the Company's Series C Preferred, for an
aggregate purchase price of $10,000,000. As of March 30, 1999, such shares of
Series A Preferred and the shares of Series B and Series C Convertible
Preferred Stock issuable upon exercise of such warrants were convertible into
3,947,380 shares of Common Stock. Mr. Wadsworth, the Series A Preferred
Director of the Company, is a managing director of HarbourVest Partners, LLC,
which is the managing member of HVP-V Direct Associates, L.L.C., a general
partner of HarbourVest Fund.
Section 16(a) Beneficial Ownership Reporting Compliance
Based solely on its review of copies of reports filed by reporting persons
of the Company ("Reporting Persons") pursuant to Section 16(a) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or written
representations from certain Reporting Persons that no Form 5 filing was
required for such person, the Company believes that during 1998, all filings
required to be made by its Reporting Persons were timely made in accordance
with the requirements of the Exchange Act.
REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Company's executive compensation program is administered by the
Compensation Committee, which is currently comprised of three directors who
are not employees of the Company. The Compensation Committee is responsible
for determining the compensation of each executive officer and recommending
such compensation to the Board of Directors.
The Company's executive compensation program is designed to align executive
compensation with the Company's business objectives and individual performance
and to enable the Company to attract, retain and reward executive officers who
contribute, and are expected to continue to contribute, to the Company's long-
term success. In establishing executive compensation, the Compensation
Committee is generally guided by the following principles: (i) the total
compensation payable to executive officers should be competitive with the
compensation paid by comparable companies for officers in comparable
positions; (ii) individual compensation should include components that reflect
the performance of the individual, teamwork and the achievement of corporate
objectives; and (iii) the Company should strive to achieve equitable
relationships both between the compensation of individual officers and between
the compensation of officers and other employees throughout the organization.
12
<PAGE>
The compensation of the Company's executive officers, including the Chief
Executive Officer and the other Named Executive Officers, consists of a
combination of base salary, annual incentive bonuses, equity-based
compensation and long-term incentives.
Base Salary. The Compensation Committee subjectively determines the base
salary for all executives, including the Chief Executive Officer, by reviewing
the salaries for competitive positions in the Company's industry, the
historical compensation levels of the executives, the individual performance
of the executives in the preceding year and salary levels required by any
applicable employment agreements. In addition, officers whose primary
responsibilities are in the areas of sales and marketing are entitled to
receive commissions based on sales. In fixing the base salary of all executive
officers in 1998, the Compensation Committee reviewed a survey prepared for
the Company by an outside consultant showing salary data for companies with
revenues comparable to those of the Company. The survey contained information
obtained from a broad set of participating companies, including certain
companies contained in the CRSP Nasdaq Total Return Index for Nasdaq Computer
& Data Processing Service Stocks. The Compensation Committee considered the
data in such survey as a basis for its subjective assessment that the salaries
established by it for 1998, including the base salary of Mr. Ferry, were
comparable to the median salaries of executive officers of companies with
revenues similar to those of the Company.
Annual Incentive Awards. In 1998, the Company awarded annual incentive
bonuses under the Company's Executive Bonus Plan. Bonuses under the Executive
Bonus Plan are subjectively determined by the Compensation Committee based
upon the achievement of specified Company financial and executive personal
goals, in relation to an executive's annual salary. With respect to all
executive officers other than Mr. Ferry, the Compensation Committee works with
Mr. Ferry and other senior management to establish appropriate financial
targets for the Company and personal goals for each executive officer upon
which to base bonus compensation under the Executive Bonus Plan. The
Compensation Committee establishes the specific objectives for Mr. Ferry. In
1998, such objectives were weighted evenly between financial targets for
operating profit and cash management. The weighting between total Company
financial goals versus personal and team goals varied by position based upon
the subjective determinations of the Compensation Committee.
Stock-Based Compensation. Awards of stock options under the Company's stock
option plans are designed to more fully align the long-term interests of the
Company's executives and its stockholders and to assist in the retention of
executives. The Compensation Committee selects the executive officers, if any,
to receive stock options and subjectively determines the number of shares
subject to each option. The size of option grants is generally intended by the
Compensation Committee to reflect the executive's position with the Company
and his contributions to the Company. The Compensation Committee considered
options awarded in prior years when determining options for 1998. Options are
generally granted at market value and thus will have value to an executive
only if the Company's stock price increases.
The Compensation Committee also believes that, at times and based upon an
executive officer's position with the Company, it is appropriate to grant
stock awards to an executive officer. In so doing, the Compensation Committee
attempts to structure the size of the stock award so as to afford the
executive officer the important incentives relating to an equity interest in
the Company while matching the executive officer's relative impact on the
long-term interests of the Company. In 1998, pursuant to the terms of his
employment agreement with the Company, Mr. Ferry was granted a stock award
based upon his remaining in the employ of the Company through December 1997.
The Company has also adopted the 1995 Employee Stock Purchase Plan, which is
available to all eligible employees of the Company, including executive
officers. This Plan generally permits employees, including
13
<PAGE>
executive officers, to purchase shares of Common Stock, through payroll
deductions, at a price equal to 85% of the fair market value of the Common
Stock at the beginning or end of the applicable purchase period, whichever is
lower.
Long Term Incentive Program. The Company recognizes that, as is the case
with many publicly held corporations, the possibility of a change in control
of the Company exists and that such possibility, and the uncertainty and
questions which it may raise among key personnel, may result in the departure
or distraction of key personnel to the detriment of the Company and its
stockholders. Consequently, in 1998 the Board of Directors implemented a Long
Term Incentive Program designed to reinforce and encourage the continued
employment and dedication of the Company's key personnel without distraction
from the possibility of a change in control of the Company and related events
and circumstances.
The Long Term Incentive Program is implemented in two parts. The first is an
Executive Retention Agreement providing for certain benefits upon a change in
control. The second is the grant of shares of Restricted Stock to certain
executives. The Restricted Stock awards are structured so as to provide each
executive with a long-term incentive to remain with the Company, as they are
subject to the Company's right of repurchase in the event of termination of
employment prior to specified dates. The lapse of such repurchase right is
accelerated if the fair market value of the Common Stock achieves specified
targets. The size of each executive's Restricted Stock award is subjectively
determined by the Compensation Committee and is generally intended to reflect
the executive's position with and contributions to the Company. In 1998, the
Board determined that the terms of Mr. Ferry's Employment Agreement with the
Company, as amended, satisfy the role of the Executive Retention Agreement in
the Long Term Incentive Program. Based upon Mr. Ferry's position in the
Company and his ability to direct and contribute to the Company's future
performance, Mr. Ferry was granted a Restricted Stock award of 200,000 shares.
Compliance with Internal Revenue Code Section 162(m). Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code"), generally disallows a
tax deduction to public companies for compensation in excess of $1 million
paid to the company's Chief Executive Officer and four other most highly
compensated executive officers. Certain performance-based compensation is
excluded from this limitation. The Committee periodically reviews the
potential consequences of Section 162(m) and may structure the performance-
based portion of its executive compensation to comply with certain exemptions
in Section 162(m). However, the Committee reserves the right to use its
judgement to authorize compensation payments that do not comply with the
exemptions in Section 162(m) of the Code when the Committee believes that such
payments are appropriate and in the best interests of the stockholders, after
taking into consideration changing business conditions or the officer's
performance.
John F. Burton
Fontaine K. Richardson
David N. Strohm
14
<PAGE>
COMPARATIVE STOCK PERFORMANCE
The following graph compares the cumulative total shareholder return on the
Company's Common Stock with the cumulative return of (i) the CRSP Total Return
Index for the Nasdaq National Market (U.S.) (the "CRSP Nasdaq Index") and (ii)
the CRSP Nasdaq Total Return Industry Index for Nasdaq Computer & Data
Processing Service Stocks (the "CRSP Computer & Data Index"). This graph
assumes the investment of $100 on December 31, 1993, the date on which the
Company's Common Stock was first publicly traded, in the Company's Common
Stock, the CRSP Nasdaq Index and the CRSP Computer & Data Index and assumes
dividends are reinvested. Measurement points are the last trading days for the
fiscal years ending December 31, 1993, 1994, 1995, 1996, 1997 and 1998.
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Fiscal Year Ending
-----------------------------------------
1993 1994 1995 1996 1997 1998
Company/Index/Market ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Banyan Systems........................ 100.00 119.17 68.33 30.00 19.58 59.17
Peer Group............................ 100.00 121.44 184.92 228.24 280.39 501.76
NASDAQ Market Index................... 100.00 104.99 136.18 169.23 207.00 291.96
</TABLE>
15
<PAGE>
2. RATIFICATION AND APPROVAL OF AMENDMENT
TO 1992 STOCK INCENTIVE PLAN
The Board of Directors believes that the continued growth and profitability
of the Company depends, in large part, upon the ability of the Company to
maintain a competitive position in attracting and retaining key personnel.
Pursuant to an amendment adopted at the 1998 Annual Meeting of Stockholders,
the Company is currently authorized to issue under its 1992 Stock Incentive
Plan, as amended (the "1992 Plan"), a total of 3,500,000 shares of Common
Stock (subject to adjustment for certain changes in the Company's
capitalization). As of December 31, 1998, the number of shares available for
future grant under the 1992 Plan was 652,671. Accordingly, on March 4, 1999
the Board adopted, subject to stockholder ratification and approval, an
amendment to the 1992 Plan increasing the number of shares of Common Stock
available for issuance under the 1992 Plan from 3,500,000 to 4,450,000 shares
(subject to adjustment for certain changes in the Company's capitalization).
The Board of Directors believes that the amendment to the 1992 Plan is in
the best interests of the Company and its stockholders and recommends a vote
FOR this proposal.
The following is a brief summary of the provisions of the 1992 Plan. This
summary is qualified in all respects by reference to the full text of the 1992
Plan, copies of which are available upon request to the Treasurer of the
Company.
On June 23, 1992, the Board of Directors adopted, and on July 24, 1992 the
stockholders approved, the 1992 Plan. The 1992 Plan provides for the grant of
incentive stock options, nonstatutory stock options, stock appreciation
rights, performance shares and awards of restricted stock and unrestricted
stock ("Awards"). No Awards other than incentive stock options, nonstatutory
stock options and restricted stock have been granted under the 1992 Plan. No
Award may be made under the 1992 Plan after June 23, 2002, but Awards
previously granted may extend beyond that date. The 1992 Plan may be sooner
terminated by the Board of Directors, which has the power to amend or
terminate the 1992 Plan.
Administration
The 1992 Plan is administered by the Board of Directors and the Compensation
Committee. The Board has the authority to adopt, amend and repeal the
administrative rules, guidelines and practices relating to the 1992 Plan and
to interpret the provisions of the 1992 Plan. Pursuant to the terms of the
1992 Plan, the Board has appointed the Compensation Committee to administer
certain aspects of the 1992 Plan. No amendment to the 1992 Plan may be made
without stockholder approval if such approval is necessary to comply with any
applicable tax or regulatory requirement, including any requirements for
compliance with Rule 16b-3 promulgated under the Exchange Act.
Incentive Stock Options and Nonstatutory Options.
Optionees receive the right to purchase a specified number of shares of
Common Stock at some time in the future at an option price and subject to such
terms and conditions as are specified at the time of the grant. The 1992 Plan
provides that the number of shares of Common Stock with respect to which
options may be granted to any employee may not exceed 300,000 during any two
consecutive calendar year period. Incentive stock options and options which
the Board or Compensation Committee intends to qualify as performance-based
compensation under Section 162(m) of the Code may not be granted at an
exercise price less than the fair market value of the Common Stock on the date
of grant (or less than 110% of the fair market value in the case of incentive
stock options granted to optionees holding more than 10% of the voting power
of the Company). All other options may be granted at an exercise price which
may be less than, equal to or greater than the fair market value of the Common
Stock on the date of grant.
16
<PAGE>
Restricted Stock.
Awards of shares of Common Stock may be granted under the 1992 Plan which
are subject to the Company's right of repurchase at their purchase price in
the event that conditions specified in the applicable Award are not satisfied
prior to specified dates, which dates may be accelerated in the Board's
discretion ("Restricted Stock Awards"). Conditions for repurchase may be based
on continuing employment or service or achievement of pre-established
performance or other goals and objectives. The purchase price for each share
of Restricted Stock Awards is determined by the Board, but may not be less
than the par value of the Common Stock.
Eligibility.
All of the employees, officers, directors, consultants and advisors of the
Company and its subsidiaries who are expected to contribute to the Company's
future growth and success are eligible to participate in the 1992 Plan.
Incentive stock options, however, may only be granted to persons eligible to
receive incentive stock options under the Code. As of December 31, 1998, the
Company had 428 employees. On March 25, 1999, the closing sale price of the
Company's Common Stock on the Nasdaq National Market was $11.625.
The granting of Awards under the 1992 Plan is discretionary, and the Company
cannot now determine the number or type of Awards to be granted in the future
to any particular person or group. The following table, however, sets forth
the benefits received under the 1992 Plan during 1998 by (i) the Named
Executive Officers, individually, (ii) all current executive officers, as a
group (the "Executive Group"), (iii) all current directors who are not
executive officers, as a group (the "Non-Executive Director Group"), and (iv)
all employees, including all current officers who are not executive officers,
as a group (the "Non-Executive Officer Employee Group").
NEW PLAN BENEFITS
Plan Benefits in 1998 Under the 1992 Plan
<TABLE>
<CAPTION>
Name and Position (1) Dollar Value ($)(2) Number of Shares
- --------------------- ------------------- ----------------
<S> <C> <C>
William P. Ferry.......................... $ 686,000 200,000(3)
Chairman of the Board, President
and Chief Executive Officer
Robert D. Burke........................... $ 205,800 90,000(4)
Senior Vice President,
Worldwide Sales and Service
Richard M. Spaulding ..................... $ 116,620 58,000(5)
Vice President and Chief Financial
Officer,
Treasurer and Clerk
William R. Warner, Jr. (6)................ $ 0 15,000(7)
Senior Vice President, Product Management
and Development
Anthony J. Bellantuoni.................... $ 102,900 45,000(8)
Vice President, Human Resources
Executive Group........................... $1,111,320 393,000(9)
Non-Executive Director Group.............. $ 0 18,000(10)
Non-Executive Officer Employee Group...... $ 246,960 783,650(11)
</TABLE>
17
<PAGE>
- --------
(1) Unless otherwise noted, lists principal position with the Company as of
December 31, 1998.
(2) Represents the sum of (i) the fair market value of Restricted Stock
Awards, calculated by multiplying the per share fair market value of the
Common Stock on the date of grant by the number of shares of Restricted
Stock subject to the award, minus the amount paid by the Named Executive
Officer for such Restricted Stock, and (ii) the fair market value of
option grants, calculated by subtracting the exercise price of the
options from the fair market value of the underlying shares of Common
Stock on the date of grant.
(3) Consists of 200,000 shares of Restricted Stock.
(4) Consists of 60,000 shares of Restricted Stock and 30,000 shares of
Common Stock issuable upon exercise of stock options.
(5) Consists of 34,000 shares of Restricted Stock and 24,000 shares of Common
Stock issuable upon exercise of stock options.
(6) Mr. Warner served the Company as an executive officer from April 1997 to
August 1998.
(7) Consists of 15,000 shares of Common Stock issuable upon exercise of stock
options. Such options were cancelled when Mr. Warner's employment
terminated in August 1998.
(8) Consists of 30,000 shares of Restricted Stock and 15,000 shares of Common
Stock issuable upon exercise of stock options.
(9) Consists of 324,000 shares of Restricted Stock and 69,000 shares of
Common Stock issuable upon exercise of stock options.
(10) Consists of 18,000 shares of Common stock issuable upon exercise of stock
options.
(11) Consists of 72,000 shares of Restricted Stock and 711,650 shares of
Common Stock issuable upon exercise of stock options.
Federal Income Tax Consequences
The following is a summary of the United States federal income tax
consequences that generally will arise with respect to Awards that have been
granted under the 1992 Plan and with respect to the sale of Common Stock
acquired under the 1992 Plan.
Incentive Stock Options. In general, a participant will not recognize
taxable income upon the grant or exercise of an incentive stock option.
Instead, a participant will recognize taxable income with respect to an
incentive stock option only upon the sale of Common Stock acquired through the
exercise of the option ("ISO Stock"). The exercise of an incentive stock
option, however, may subject the participant to the alternative minimum tax.
Generally, the tax consequences of selling ISO Stock will vary with the
length of time that the participant has owned the ISO Stock at the time it is
sold. If the participant sells ISO Stock after having owned it for at least
two years from the date the option was granted (the "Grant Date") and one year
from the date the option was exercised (the "Exercise Date"), then the
participant will recognize long-term capital gain in an amount equal to the
excess of the sale price of the ISO Stock over the exercise price.
If the participant sells ISO Stock for more than the exercise price prior to
having owned it for at least two years from the Grant Date and one year from
the Exercise Date (a "Disqualifying Disposition"), then all or a portion of
the gain recognized by the participant will be ordinary compensation income
and the remaining gain, in any, will be a capital gain. This capital gain will
be a long-term capital gain if the participant has held the ISO Stock for more
than one year prior to the date of sale.
18
<PAGE>
If a participant sells ISO Stock for less than the exercise price, then the
participant will recognize capital loss in an amount equal to the excess of
the exercise price over the sale price of the ISO Stock. This capital loss
will be a long-term capital loss if the participant has held the ISO Stock for
more than one year prior to the date of sale.
Nonstatutory Stock Options. As in the case of an incentive stock option, a
participant will not recognize taxable income upon the grant of a nonstatutory
stock option. Unlike the case of an incentive stock option, however, a
participant who exercises a nonstatutory stock option generally will recognize
ordinary compensation income in an amount equal to the excess of the fair
market value of the Common Stock acquired through the exercise of the option
("NSO Stock") on the Exercise Date over the exercise price.
With respect to any NSO Stock, a participant will have a tax basis equal to
the exercise price plus any income recognized upon the exercise of the option.
Upon selling NSO Stock, a participant generally will recognize capital gain or
loss in an amount equal to the difference between the sale price of the NSO
Stock and the participant's tax basis in the NSO Stock. This capital gain or
loss will be a long-term capital gain or loss if the participant has held the
NSO Stock for more than one year prior to the date of the sale.
Restricted Stock. A participant will not recognize taxable income upon the
grant of a restricted stock Award unless the participant makes an election
under Section 83(b) of the Code (a "Section 83(b) Election"). If the
participant makes a Section 83(b) Election within 30 days of the date of the
grant, then the participant will recognize ordinary compensation income, for
the year in which the Award is granted, in an amount equal to the difference
between the fair market value of the Common Stock at the time the Award is
granted and the purchase price paid for the Common Stock. If a Section 83(b)
Election is not made, then the participant will recognize ordinary
compensation income, at the time that the forfeiture provisions or
restrictions on transfer lapse, in an amount equal to the difference between
the fair market value of the Common Stock at the time of such lapse and the
original purchase price paid for the Common Stock. The participant will have a
tax basis in the Common Stock acquired equal to the sum of the price paid and
the amount of ordinary compensation income recognized.
Upon the disposition of the Common Stock acquired pursuant to a restricted
stock Award, the participant will recognize a capital gain or loss in an
amount equal to the difference between the sale price of the Common Stock and
the participant's tax basis in the Common Stock. This capital gain or loss
will be a long-term capital gain or loss if the shares are held for more than
one year. For this purpose, the holding period shall begin just after the date
on which the forfeiture provisions or restrictions lapse if a Section 83(b)
Election is not made, or just after the Award is granted if a Section 83(b)
Election is made.
Tax Consequences to the Company. The grant of an Award under the 1992 Plan
will have no tax consequences to the Company. Moreover, in general, neither
the exercise of an incentive stock option nor the sale of any Common Stock
acquired under the 1992 Plan will have any tax consequences to the Company.
The Company generally will be entitled to a business-expense deduction,
however, with respect to any ordinary compensation income recognized by a
participant under the 1992 Plan, including in connection with a restricted
stock Award or as a result of the exercise of a nonstatutory stock option or a
Disqualifying Disposition. Any such deduction will be subject to the
limitations of Section 162(m) of the Code.
19
<PAGE>
3. RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS
The Board of Directors, at the recommendation of the Audit Committee, has
selected the firm of PricewaterhouseCoopers LLP as the Company's independent
accountants for the current fiscal year. The firm of Coopers & Lybrand L.L.P.
served as the Company's independent accountants since its inception. On July
1, 1998, Price Waterhouse LLP and Coopers & Lybrand L.L.P. merged to become
PricewaterhouseCoopers LLP. The Company has decided to retain the surviving
entity, PricewaterhouseCoopers LLP, as its accountants. Although stockholder
approval of the Board's selection of PricewaterhouseCoopers LLP is not
required by law, the Board believes that it is advisable to give stockholders
an opportunity to ratify this selection. If this proposal is not approved at
the Annual Meeting, the Board will reconsider its selection of
PricewaterhouseCoopers LLP.
Representatives of PricewaterhouseCoopers LLP are expected to be present at
the Annual Meeting and will have the opportunity to make a statement if they
desire to do so and will also be available to respond to appropriate questions
from stockholders.
The Board of Directors believes that the ratification of
PricewaterhouseCoopers LLP as the Company's independent accountants for the
fiscal year 1999 is in the best interests of the Company and its stockholders
and recommends a vote FOR this proposal.
STOCKHOLDER PROPOSALS
Written notice of proposals of stockholders submitted outside the processes
of Rule 14a-8 under the Exchange Act for consideration at the Annual Meeting
must have been received by the Company on or before February 20, 1999, and for
consideration at the 2000 Annual Meeting of Stockholders must be received on
or before March 2, 2000, in order to be considered timely for purposes of Rule
14a-4 under the Exchange Act. The persons designated in the Company's proxy
card will be granted discretionary authority with respect to any stockholder
proposal with respect to which the Company does not receive timely notice.
Stockholder proposals submitted pursuant to Rule 14a-8 under the Exchange Act
for inclusion in the Company's proxy materials for its 2000 Annual Meeting of
Stockholders must be received by the Clerk of the Company at the principal
offices of the Company no later than December 18, 1999.
20
<PAGE>
OTHER MATTERS
The Board of Directors does not know of any other matters which may come
before the Annual Meeting. However, if any other matters are properly
presented to the Annual Meeting, it is the intention of the persons named in
the accompanying proxy to vote, or otherwise act, in accordance with their
judgment on such matters.
All costs of solicitation of proxies will be borne by the Company. In
addition to solicitations by mail, the Company's directors, officers and
regular employees, without additional remuneration, may solicit proxies by
telephone, telegraph and personal interviews. In addition, the Company retains
the right to engage outside agencies to assist in the solicitation of proxies
for the Annual Meeting. Brokers, custodians and fiduciaries will be requested
to forward proxy soliciting material to the owners of stock held in their
names, and, as required by law, the Company will, at their request, reimburse
them for their out-of-pocket expenses in this regard.
By Order of the Board of Directors,
RICHARD M. SPAULDING, Vice President
and Chief Financial Officer,
Treasurer and Clerk
April 16, 1999
The Board of Directors hopes that stockholders will attend the Annual
Meeting. Whether or not you plan to attend, you are urged to complete, date,
sign and return the enclosed proxy in the accompanying envelope. Stockholders
who attend the Annual Meeting may vote their stock personally even though they
have sent in their proxies.
21
<PAGE>
APPENDIX A
----------
<TABLE>
<S> <C>
[X] PLEASE MARK VOTES 1. Election of two class I Directors to For All With- For All
AS IN THIS EXAMPLE serve for the ensuing three years. Nominees hold Except
G. Leonard Baker, Jr. [_] [_] [_]
--------------------------- David C. Mahoney
BANYAN SYSTEMS INCORPORATED
--------------------------- If you do not wish your shares voted "For" a particular nominee, mark the
Please read the reverse side of this card. "For All Except" box and strike a line through the name of the nominee.
A vote FOR each proposal is recommended by the Your shares will be voted for the remaining nominee.
Board of Directors.
For Against Abstain
2. Ratification and approval of the [_] [_] [_]
amendment to the Company's
1992 Stock Incentive Plan, as
amended, increasing from 3,500,000
to 4,450,000 the number of shares of
Common Stock of the Company authorized
for issuance under such plan.
For Against Abstain
3. Ratification of the selection by [_] [_] [_]
RECORD DATE SHARES: the Board of Directors of
PricewaterhouseCoopers LLP as the
Company's independent accountants for
the current fiscal year.
Mark box at right if an address change or comment has been [_]
noted on the reverse side of this card.
</TABLE>
--------
Please be sure to sign and date this Proxy. Date
- ------------------------------------------------------
- ------------------------------------------------------
Stockholder sign here Co-owner sign here
- ------------------------------------------------------
DETACH CARD DETACH CARD
BANYAN SYSTEMS INCORPORATED
Dear Stockholder:
Please take note of the important information enclosed with this Proxy. There
are a number of issues related to the management and operation of your Company
that require your immediate attention and approval. These are discussed in the
enclosed proxy materials.
Your vote counts, and you are strongly encouraged to exercise your right to vote
your shares.
Please mark the boxes on this proxy card to indicate how your shares will be
voted, then sign the card, detach it and return it in the enclosed postage-paid
envelope.
Your vote must be received prior to the Annual Meeting of Stockholders to be
held on May 13, 1999.
Thank you in advance for your prompt consideration of these matters.
Sincerely,
Banyan Systems Incorporated
<PAGE>
BANYAN SYSTEMS INCORPORATED
PROXY SOLICITED BY THE BOARD OF DIRECTORS
Annual Meeting of Stockholders
May 13, 1999
The undersigned, revoking all prior proxies, hereby appoint(s) William P. Ferry
and Richard M. Spaulding, and each or either of them, with full power of
substitution, as proxies for the undersigned to act and to vote at the 1999
Annual Meeting of Stockholders of Banyan Systems Incorporated and at any
adjournment or adjournments thereof as designated herein upon all matters
referred to on the reverse side and as described in the Proxy Statement for the
Meeting and, in their discretion, upon any other matters that may properly come
before the Meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED HEREIN BY THE
UNDERSIGNED STOCKHOLDER(S). IF NO DIRECTION IS MADE, THE PROXIES WILL VOTE FOR
THE ELECTION OF THE DIRECTOR NOMINEES AND FOR PROPOSALS 2 AND 3.
- --------------------------------------------------------------------------------
PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN
PROMPTLY IN THE ENCLOSED ENVELOPE
- --------------------------------------------------------------------------------
Please sign exactly as name(s) appear(s) hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian, please
give full title as such. If a corporation or partnership, please sign by
authorizing person.
- --------------------------------------------------------------------------------
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
APPENDIX B
----------
Banyan Systems Incorporated
1992 Stock Incentive Plan
-------------------------
Section 1. Purpose
-------
The purpose of this Stock Incentive Plan (the "Plan") is to advance the
interests of Banyan Systems Incorporated by enhancing its ability to attract and
retain key employees, consultants and others who are in a position to contribute
to the Company's future growth and success.
Section 2. Definitions
-----------
"Award" means any Option, Stock Appreciation Right, Performance Share,
Restricted Stock or Unrestricted Stock awarded under the Plan.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended from time to time.
"Committee" means a committee of not less than two members of the Board
appointed by the Board to administer the Plan, provided that if and when the
Common Stock is registered under Section 12 of the Securities Exchange Act of
1934, each member of the Committee shall be a "disinterested person" within the
meaning of Rule 16b-3 under the Securities Exchange Act of 1934 ("Rule 16b-3").
"Common Stock" or "Stock" means the Common Stock, $.01 par value per share, of
the Company.
"Company" means Banyan Systems Incorporated and, except where the content
otherwise requires, all present and future subsidiaries of the Company as
defined in Sections 424(f) of the Code.
"Designated Beneficiary" means the beneficiary designated by a Participant, in
a manner determined by the Board, to receive amounts due or exercise rights of
the Participant in the event of the Participant's death. In the absence of an
effective designation by a Participant, Designated Beneficiary shall mean the
Participant's estate.
<PAGE>
"Fair Market Value" means, with respect to Common Stock or any other property,
the fair market value of such property as determined by the Board in good faith
or in the manner established by the Board from time to time.
"Incentive Stock Option" means an option to purchase shares of Common Stock
awarded to a Participant under Section 6 which is intended to meet the
requirements of Section 422 of the Code or any successor provision.
"Nonstatutory Stock Option" means an option to purchase shares of Common Stock
awarded to a Participant under Section 6 which is not intended to be an
Incentive Stock Option.
"Option" means an Incentive Stock Option or a Nonstatutory Stock Option.
"Participant" means a person selected by the Board to receive an Award under
the Plan.
"Performance Shares" mean shares of Common Stock which may be earned by the
achievement of performance goals awarded to a Participant under Section 8.
"Reporting Person" means a person subject to Section 16 of the Securities
Exchange Act of 1934 or any successor provision.
"Restricted Period" means the period of time selected by the Board during
which shares subject to a Restricted Stock Award may be repurchased by or
forfeited to the Company.
"Restricted Stock" means shares of Common Stock awarded to a Participant under
Section 9.
"Stock Appreciation Right" or "SAR" means a right to receive any excess in
Fair Market Value of shares of Common Stock over the exercise price awarded to a
Participant under Section 7.
"Unrestricted Stock" means shares of Common Stock awarded to a Participant
under Section 9(c).
Section 3. Administration
--------------
The Plan will be administered by the Board. The Board shall have authority to
make Awards and to adopt, amend and repeal such administrative rules, guidelines
and practices relating to the Plan as it shall deem advisable from time to time,
and to interpret the provisions of the Plan. The Board's decisions shall be
final and binding. No member of the Board shall be liable for any action or
determination relating to
B-2
<PAGE>
the Plan made in good faith. To the extent permitted by applicable law, the
Board may delegate to one or more executive officers of the Company the power to
make Awards to Participants who are not Reporting Persons and all determinations
under the Plan with respect thereto, provided that the Board shall fix the
maximum amount of such Awards to be made by such executive officers and a
maximum amount for any one Participant. To the extent permitted by applicable
law, the Board may appoint a Committee to administer the Plan and, in such
event, all references to the Board in the Plan shall mean such Committee or the
Board. All decisions by the Board or the Committee pursuant to the Plan shall be
final and binding on all persons having or claiming any interest in the Plan or
in any Award.
Section 4. Eligibility
-----------
All of the Company's employees, officers, directors, consultants and advisors
who are expected to contribute to the Company's future growth and success, other
than persons who have irrevocably elected not to be eligible, are eligible to be
Participants in the Plan. Incentive Stock Options may be awarded only to
persons eligible to receive Incentive Stock Options under the Code.
Section 5. Stock Available for Awards
--------------------------
(a) Subject to adjustment under subsection (b) below, Awards may be made under
the Plan for up to 1,000,000 shares of Common Stock. If any Award in respect of
shares of Common Stock expires or is terminated unexercised or is forfeited for
any reason or settled in a manner that results in fewer shares outstanding than
were initially awarded, the shares subject to such Award or so surrendered, as
the case may be, to the extent of such expiration, termination, forfeiture or
decrease, shall again be available for award under the Plan, subject, however,
in the case of Incentive Stock Options, to any limitation required under the
Code. Shares issued under the Plan may consist in whole or in part of
authorized but unissued shares or treasury shares.
(b) In the event that the Board, in its sole discretion, determines that any
stock dividend, extraordinary cash dividend, recapitalization, reorganization,
merger, consolidation, split-up, spin-off, combination or other similar
transaction affects the Common Stock such that an adjustment is required in
order to preserve the benefits or potential benefits intended to be made
available under the Plan, then the Board, subject, in the case of Incentive
Stock Options, to any limitation required under the Code, shall equitably adjust
any or all of (i) the number and kind of shares in respect of which Awards may
be made under the Plan, (ii) the number and kind of shares subject to
outstanding Awards, and (iii) the award, exercise or conversion price with
respect to any of the foregoing, and if considered appropriate, the Board may
make provision for a cash payment with respect to an outstanding Award, provided
that the number of shares subject to any Award shall always be a whole number.
B-3
<PAGE>
(c) The Board may grant Awards under the Plan in substitution for stock and
stock based awards held by employees of another corporation who concurrently
become employees of the Company as a result of a merger or consolidation of the
employing corporation with the Company or a Subsidiary or the acquisition by the
Company or a subsidiary of property or stock of the employing corporation. The
substitute Awards shall be granted on such terms and conditions as the Board
considers appropriate in the circumstances. The shares which may be delivered
under such substitute Awards shall be in addition to the maximum number of
shares provided for in Section 5(a) only to the extent that the substitute
Awards are both (i) granted to persons whose relationship to the Company does
not make (and is not expected to make) them Reporting Persons; and (ii) granted
in substitution for awards issued under a plan approved, to the extent then
required under Rule 16b-3, by the stockholders of the entity which issued such
predecessor awards.
Section 6. Stock Options
-------------
(a) General.
-------
(i) Subject to the provisions of the Plan, the Board may award Incentive
Stock Options and Nonstatutory Stock Options, and determine the number of shares
to be covered by each Option, the option price therefor and the conditions and
limitations applicable to the exercise of the Option. The terms and conditions
of Incentive Stock Options shall be subject to and comply with Section 422 of
the Code, or any successor provision, and any regulations thereunder.
(ii) The Board shall establish the exercise price at the time each Option
is awarded. In the case of Incentive Stock Options, such price shall not be
less than 100% of the Fair Market Value of the Common Stock on the date of
award.
(iii) Each Option shall be exercisable at such times and subject to such
terms and conditions as the Board may specify in the applicable Award or
thereafter. The Board may impose such conditions with respect to the exercise of
Options, including conditions relating to applicable federal or state securities
laws, as it considers necessary or advisable.
(iv) Options granted under the Plan may provide for the payment of the
exercise price by delivery of cash or check in an amount equal to the exercise
price of such Options or, to the extent permitted by the Board at or after the
award of the Option, by (A) delivery of shares of Common Stock owned by the
optionee for at least six months (or such shorter period as is approved by the
Board), valued at their Fair Market Value, (B) delivery of a promissory note of
the optionee to the Company on terms determined by the Board, (C) 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
B-4
<PAGE>
cash or a check sufficient to pay the exercise price, (D) payment of such other
lawful consideration as the Board may determine, or (E) any combination of the
foregoing.
(v) The Board may provide for the automatic award of an Option upon the
delivery of shares to the Company in payment of the exercise price of an Option
for up to the number of shares so delivered.
(vi) The Board may at any time accelerate the time at which all or any
part of an Option may be exercised.
(b) Incentive Stock Options.
-----------------------
Options granted under the Plan which are intended to be Incentive Stock
Options shall be subject to the following additional terms and conditions:
(i) All Incentive Stock Options granted under the Plan shall, at the time
of grant, be specifically designated as such in the option agreement covering
such Incentive Stock Options. The Option exercise period shall not exceed ten
years from the date of grant.
(ii) If any employee to whom an Incentive Stock Option is to be granted
under the Plan is, at the time of the grant of such option, the owner of stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company (after taking into account the attribution of stock
ownership rule of Section 424(b) and of the Code), then the following special
provisions shall be applicable to the Incentive Stock Option granted to such
individual:
(x) The purchase price per share of the Common Stock subject to such
Incentive Stock Option shall not be less than 110% of the Fair Market Value of
one share of Common Stock at the time of grant; and
(y) The option exercise period shall not exceed five years from the
date of grant.
(iii) For so long as the Code shall so provide, options granted to any
employee under the Plan (and any other incentive stock option plans of the
Company) which are intended to constitute Incentive Stock Options shall not
constitute Incentive Stock Options to the extent that such options, in the
aggregate, become exercisable for the first time in any one calendar year for
shares of Common Stock with an aggregate Fair Market Value (determined as of the
respective date or dates of grant) of more than $100,000.
B-5
<PAGE>
(iv) No Incentive Stock Option may be exercised unless, at the time of
such exercise, the Participant is, and has been continuously since the date of
grant of his or her Option, employed by the Company, except that:
(x) an Incentive Stock Option may be exercised within the period of
three months after the date the Participant ceases to be an employee of the
Company (or within such lesser period as may be specified in the applicable
option agreement), provided, that the agreement with respect to such Option
--------
may designate a longer exercise period and that the exercise after such three-
month period shall be treated as the exercise of a Nonstatutory Stock Option
under the Plan;
(y) if the Participant dies while in the employ of the Company, or
within three months after the Participant ceases to be such an employee, the
Incentive Stock Option may be exercised by the Participant's Designated
Beneficiary within the period of one year after the date of death (or within
such lesser period as may be specified in the applicable Option agreement);
and
(z) if the Participant becomes disabled (within the meaning of Section
22(e)(3) of the Code or any successor provision thereto) while in the employ
of the Company, the Incentive Stock Option may be exercised within the period
of one year after the date of death (or within such lesser period as may be
specified in the Option agreement).
For all purposes of the Plan and any Option granted hereunder, "employment"
shall be defined in accordance with the provisions of Section 1.421-7(h) of the
Income Tax Regulations (or any successor regulations). Notwithstanding the
foregoing provisions, no Incentive Stock Option may be exercised after its
expiration date.
Section 7. Stock Appreciation Rights
-------------------------
(a) The Board may grant Stock Appreciation Rights entitling recipients on
exercise of the SAR to receive an amount, in cash or Stock or a combination
thereof (such form to be determined by the Board), determined in whole or in
part by reference to appreciation in the Fair Market Value of the Stock between
the date of the Award and the exercise of the Award. A Stock Appreciation Right
shall entitle the Participant to receive, with respect to each share of Stock as
to which the SAR is exercised, the excess of the share's Fair Market Value on
the date of exercise over its Fair Market Value on the date the SAR was granted.
The Board may also grant Stock Appreciation Rights that provide that, following
a change in control of the Company (as defined by the Board at the time of the
Award), the holder of such SAR will be entitled to receive, with respect to each
share of Stock subject to the SAR, an amount equal to the excess of a specified
value (which may include an average of values) for a share of Stock during a
period preceding such change in control over the Fair Market Value of a share of
Stock on the date the SAR was granted.
B-6
<PAGE>
(b) Stock Appreciation Rights may be granted in tandem with, or independently
of, Options granted under the Plan. A Stock Appreciation Right granted in
tandem with an Option which is not an Incentive Stock Option may be granted
either at or after the time the Option is granted. A Stock Appreciation Right
granted in tandem with an Incentive Stock Option may be granted only at the time
the Option is granted.
(c) When Stock Appreciation Rights are granted in tandem with Options, the
following provisions will apply:
(i) The Stock Appreciation Right will be exercisable only at such time or
times, and to the extent, that the related Option is exercisable and will be
exercisable in accordance with the procedure required for exercise of the
related Option.
(ii) The Stock Appreciation Right will terminate and no longer be
exercisable upon the termination or exercise of the related Option, except that
a Stock Appreciation Right granted with respect to less than the full number of
shares covered by an Option will not be reduced until the number of shares as to
which the related Option has been exercised or has terminated exceeds the number
of shares not covered by the Stock Appreciation Right.
(iii) The Option will terminate and no longer be exercisable upon the
exercise of the related Stock Appreciation Right.
(iv) The Stock Appreciation Right will be transferable only with the
related Option.
(v) A Stock Appreciation Right granted in tandem with an Incentive Stock
Option may be exercised only when the market price of the Stock subject to the
Option exceeds the exercise price of such option.
(d) A Stock Appreciation Right not granted in tandem with an Option will
become exercisable at such time or times, and on such conditions, as the Board
may specify.
(e) The Board may at any time accelerate the time at which all or any part of
the SAR may be exercised.
B-7
<PAGE>
Section 8. Performance Shares
------------------
(a) The Board may make Performance Share Awards entitling recipients to
acquire shares of Stock upon the attainment of specified performance goals. The
Board may make Performance Share Awards independent of or in connection with the
granting of any other Award under the Plan. The Board in its sole discretion
shall determine the performance goals applicable under each such Award, the
periods during which performance is to be measured, and all other limitations
and conditions applicable to the awarded Performance Shares; provided, however,
that the Board may rely on the performance goals and other standards applicable
to other performance plans of the Company in setting the standards for
Performance Share Awards under the Plan.
(b) Performance Share Awards and all rights with respect to such Awards may
not be sold, assigned, transferred, pledged or otherwise encumbered.
(c) A Participant receiving a Performance Share Award shall have the rights of
a stockholder only as to shares actually received by the Participant under the
Plan and not with respect to shares subject to an Award but not actually
received by the Participant. A Participant shall be entitled to receive a stock
certificate evidencing the acquisition of shares of Stock under a Performance
Share Award only upon satisfaction of all conditions specified in the agreement
evidencing the Performance Share Award.
(d) The Board may at any time accelerate or waive any or all of the goals,
restrictions or conditions imposed under any Performance Share Award.
Section 9. Restricted and Unrestricted Stock
---------------------------------
(a) The Board may grant Restricted Stock Awards entitling recipients to
acquire shares of Stock, subject to the right of the Company to repurchase all
or part of such shares at their purchase price (or to require forfeiture of such
shares if purchased at no cost) from the recipient in the event that conditions
specified by the Board in the applicable Award are not satisfied prior to the
end of the applicable Restricted Period or Restricted Periods established by the
Board for such Award. Conditions for repurchase (or forfeiture) may be based on
continuing employment or service or achievement of pre-established performance
or other goals and objectives.
(b) Shares of Restricted Stock may not be sold, assigned, transferred, pledged
or otherwise encumbered, except as permitted by the Board, during the applicable
Restricted Period. Shares of Restricted Stock shall be evidenced in such manner
as the Board may determine. Any certificates issued in respect of shares of
Restricted Stock shall be registered in the name of the Participant and, unless
otherwise determined by the Board, deposited by the Participant, together with a
stock power endorsed in blank, with the Company (or its designee). At the
expiration of the Restricted Period, the Company (or such designee) shall
deliver such certificates to the Participant or if the Participant has died, to
the Participant's Designated Beneficiary.
B-8
<PAGE>
(c) The Board may, in its sole discretion, grant (or sell at a purchase price
determined by the Board, which shall not be lower than 85% of Fair Market Value
on the date of sale) to Participants shares of Stock free of any restrictions
under the Plan ("Unrestricted Stock").
(d) The purchase price for each share of Restricted Stock and Unrestricted
Stock shall be determined by the Board of Directors and may not be less than the
par value of the Common Stock. Such purchase price may be paid in the form of
past services or such other lawful consideration as is determined by the Board.
(e) The Board may at any time accelerate the expiration of the Restricted
Period applicable to all, or any particular, outstanding shares of Restricted
Stock.
Section 10. General Provisions Applicable to Awards
---------------------------------------
(a) Applicability of Rule 16b-3. Those provisions of the Plan which make an
---------------------------
express reference to Rule 16b-3 shall apply to the Company only at such time as
the Company's Common Stock is registered under the Securities Exchange Act of
1934, or any successor provision, and then only to Reporting Persons.
(b) Reporting Person Limitations. Notwithstanding any other provision of the
----------------------------
Plan, to the extent required to qualify for the exemption provided by Rule 16b-
3, (i) any Option, SAR, Performance Share Award or other similar right related
to an equity security issued under the Plan to a Reporting Person shall not be
transferable other than by will or the laws of descent and distribution or
pursuant to a qualified domestic relations order as defined by the Code or Title
I or the Employee Retirement Income Security Act ("ERISA"), or the rules
thereunder, and shall be exercisable during the Participant's lifetime only by
the Participant or the Participant's guardian or legal representative, and (ii)
the selection of a Reporting Person as a Participant and the terms of his or her
Award shall be determined only in accordance with the applicable provisions of
Rule 16b-3.
(c) Documentation. Each Award under the Plan shall be evidenced by an
-------------
instrument delivered to the Participant specifying the terms and conditions
thereof and containing such other terms and conditions not inconsistent with the
provisions of the Plan as the Board considers necessary or advisable. Such
instruments may be in the form of agreements to be executed by both the Company
and the Participant, or certificates, letters or similar documents, acceptance
of which will evidence agreement to the terms thereof and of this Plan.
B-9
<PAGE>
(d) Board Discretion. Each type of Award may be made alone, in addition to or
----------------
in relation to any other type of Award. The terms of each type of Award need
not be identical, and the Board need not treat Participants uniformly. Except
as otherwise provided by the Plan or a particular Award, any determination with
respect to an Award may be made by the Board at the time of award or at any time
thereafter.
(e) Termination of Status. Subject to the provisions of Section 6(b)(iv), the
---------------------
Committee shall determine the effect on an Award of the disability, death,
retirement, authorized leave of absence or other termination of employment or
other status of a Participant and the extent to which, and the period during
which, the Participant's legal representative, guardian or Designated
Beneficiary may exercise rights under such Award.
(f) Mergers, Etc. In the event of a consolidation, merger or other
------------
reorganization in which all of the outstanding shares of Common Stock are
exchanged for securities, cash or other property of any other corporation or
business entity (as "Acquisition") or in the event of a liquidation of the
Company, the Board of Directors of the Company, or the board of directors of any
corporation assuming the obligations of the Company, may, in its discretion,
take any one or more of the following actions as to outstanding Awards: (i)
provide that such Awards shall be assumed, or substantially equivalent Awards
shall be substituted, by the acquiring or succeeding corporation (or an
affiliate thereof) on such terms as the Board determines to be appropriate, (ii)
upon written notice to Participants, provide that all unexercised Options or
SARs will terminate immediately prior to the consummation of such transaction
unless exercised by the Participant within a specified period following the date
of such notice, (iii) in the event of an Acquisition under the terms of which
holders of the Common Stock of the Company will receive upon consummation
thereof a cash payment for each share surrendered in the Acquisition (the
"Acquisition Price"), make or provide for a cash payment to Participants equal
to the difference between (A) the Acquisition Price times the number of shares
of Common Stock subject to outstanding Options or SARs (to the extent then
exercisable at prices not in excess of the Acquisition Price) and (B) the
aggregate exercise price of all such outstanding Options or SARs in exchange for
the termination of such Options and SARs, and (iv) provide that all or any
outstanding Awards shall become exercisable or realizable in full prior to the
effective date of such Acquisition.
(g) Withholding. The Participant shall pay to the Company, or make provision
-----------
satisfactory to the Board for payment of, any taxes required by law to be
withheld in respect of Awards under the Plan no later than the date of the event
creating the tax liability. In the Board's discretion, and subject to such
conditions as the Board may establish, such tax obligations may be paid in whole
or in part in shares of Common Stock, including shares retained from the Award
creating the tax obligation, valued at their Fair Market Value. The Company
may, to the extent permitted by law, deduct any such tax obligations from any
payment of any kind otherwise due to the Participant.
B-10
<PAGE>
(h) Foreign Nationals. Awards may be made to Participants who are foreign
-----------------
nationals or employed outside the United States on such terms and conditions
different from those specified in the Plan as the Board considers necessary or
advisable to achieve the purposes of the Plan or comply with applicable laws.
(i) Amendment of Award. The Board may amend, modify or terminate any
------------------
outstanding Award, including substituting therefor another Award of the same or
a different type, changing the date of exercise or realization and converting an
Incentive Stock Option to a Nonstatutory Stock Option, provided that the
Participant's consent to such action shall be required unless the Board
determines that the action, taking into account any related action, would not
materially and adversely affect the Participant.
(j) Cancellation and New Grant of Options. The Board of Directors shall have
-------------------------------------
the authority to effect, at any time and from time to time, with the consent of
the affected optionees, (i) the cancellation of any or all outstanding Options
under the Plan and the grant in substitution therefor of new Options under the
Plan covering the same or different numbers of shares of Common Stock and having
an option exercise price per share which may be lower or higher than the
exercise price per share of the cancelled Options or (ii) the amendment of the
terms of any and all outstanding Options under the Plan to provide an option
exercise price per share which is higher or lower than the then current exercise
price per share of such outstanding Options.
(k) Conditions on Delivery of Stock. The Company will not be obligated to
-------------------------------
deliver any shares of Stock pursuant to the Plan or to remove restrictions from
shares previously delivered under the Plan (i) until all conditions of the Award
have been satisfied or removed, (ii) until, in the opinion of the Company's
counsel, all applicable federal and state laws and regulations have been
complied with, (iii) if the outstanding Stock is at the time listed on any stock
exchange, until the shares to be delivered have been listed or authorized to be
listed on such exchange upon official notice of notice of issuance, and (iv)
until all other legal matters in connection with the issuance and delivery of
such shares have been approved by the Company's counsel. If the sale of Stock
has not been registered under the Securities Act of 1933, as amended, the
Company may require, as a condition to exercise of the Award, such
representations or agreements as the Company may consider appropriate to avoid
violation of such Act and may require that the certificates evidencing such
Stock bear an appropriate legend restricting transfer.
B-11
<PAGE>
Section 11. Miscellaneous
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(a) No Right To Employment or Other Status. No person shall have any claim or
--------------------------------------
right to be granted an Award, and the grant of an Award shall not be construed
as giving a Participant the right to continued employment or service for the
Company. The Company expressly reserves the right at any time to dismiss a
Participant free from any liability or claim under the Plan, except as expressly
provided in the applicable Award.
(b) No Rights As Stockholder. Subject to the provisions of the applicable
------------------------
Award, no Participant or Designated Beneficiary shall have any rights as a
stockholder with respect to any shares of Common Stock to be distributed under
the Plan until he or she becomes the record holder thereof.
(c) Exclusion from Benefit Computations. No amounts payable upon exercise of
-----------------------------------
Awards granted under the Plan shall be considered salary, wages or compensation
to Participants for purposes of determining the amount or nature of benefits
that Participants are entitled to under any insurance, retirement or other
benefit plans or programs of the Company.
(d) Effective Date and Term. Subject to the approval of the stockholders of
-----------------------
the Company, the Plan shall be effective on June 23, 1992. Prior to such
approval, Awards may be made under the Plan expressly subject to such approval.
No Award may be made under the Plan after June 23, 2002, but Awards previously
granted may extend beyond that date.
(e) Amendment of Plan. The Board may amend, suspend or terminate the Plan or
-----------------
any portion thereof at any time, provided that no amendment shall be made
without stockholder approval if such approval is necessary to comply with any
applicable tax or regulatory requirement, including any requirements for
compliance with Rule 16b-3. Prior to any such approval, Awards may be made
under the Plan expressly subject to such approval.
(f) Governing Law. The provisions of the Plan shall be governed by and
-------------
interpreted in accordance with the laws of the Commonwealth of Massachusetts.
Adopted by the Board of Directors
on June 23, 1992
Approved by the stockholders
on July 24, 1992
B-12
<PAGE>
AMENDMENTS TO THE 1992 STOCK INCENTIVE PLAN
OF BANYAN SYSTEMS INCORPORATED
Subsection 5(a) of the 1992 Stock Incentive Plan (the "Plan") of Banyan
Systems Incorporated is hereby amended, subject to stockholder approval, to
increase from 1,000,000 to 1,850,000 the number of shares of Common Stock
authorized for issuance under the Plan.
Subsection 6(a)(i) of the Plan is hereby amended and restated in its entirety,
subject to stockholder approval, to provide as follows:
(i) Subject to the provisions of the Plan, the Board may award Incentive
Stock Options and Nonstatutory Stock Options, and determine the number of shares
to be covered by each Option, the option price therefor and the conditions and
limitations applicable to the exercise of the Option. The terms and conditions
of Incentive Stock Options shall be subject to and comply with Section 422 of
the Code, or any successor provisions, and any regulations thereunder. Subject
to adjustment as provided in Subsection 5(b) above, the maximum number of shares
with respect to which Options may be granted to any employee under the Plan
shall not exceed 300,000 shares of Common Stock during any two consecutive
calendar year period. For purposes of calculating such maximum number, (a) an
Option shall continue to be treated as outstanding notwithstanding its
repricing, cancellation or expiration and (b) the repricing of an outstanding
Option or the issuance of a new Option in substitution for a cancelled Option
shall be deemed to constitute the grant of a new additional Option separate from
the original grant of the Option that is repriced or cancelled.
Adopted by the Board of
Directors on March 28, 1994
Approved by the Stockholders on
May 9, 1994
B-13
<PAGE>
AMENDMENT NO. 2 TO THE 1992 STOCK INCENTIVE PLAN
OF BANYAN SYSTEMS INCORPORATED
Subsection 5(a) of the 1992 Stock Incentive Plan (the "Plan") of Banyan
Systems Incorporated is hereby amended, subject to stockholder approval, to
increase from 1,850,000 to 2,700,000 the number of shares of Common Stock
authorized for issuance under the Plan.
Adopted by the Board of
Directors on February 2, 1995
Approved by the Stockholders on
May 9, 1995
B-14
<PAGE>
AMENDMENT NO. 3 TO THE 1992 STOCK INCENTIVE PLAN
OF BANYAN SYSTEMS INCORPORATED
The definition of "Committee" contained in Subsection 2 of the 1992 Stock
Incentive Plan (the "Plan") of Banyan Systems Incorporated is hereby amended and
restated in its entirety to read as follows"
"'Committee' means a committee of not less than two members of the Board
appointed by the Board to administer the Plan, provided that if and when the
Common Stock is registered under the Section 12 of the Securities Exchange Act
of 1934, each member of the Committee shall be a 'Non-Employee Director,' as
such term is defined in Rule 16b-3 under the Securities Act of 1934 ("Rule 16b-
3"), and an 'Outside Director,' as such term is defined in the Code."
Adopted by the Board of Directors on
January 17, 1997
B-15
<PAGE>
AMENDMENT NO. 4 TO THE 1992 STOCK INCENTIVE PLAN
OF BANYAN SYSTEMS INCORPORATED
Subsection 5(a) of the 1992 Stock Incentive Plan, as amended (the "Plan"), of
Banyan Systems Incorporated is hereby amended, subject to stockholder approval,
to increase from 2,700,000 to 3,500,000 the number of shares of Common Stock,
$.01 par value per share, authorized for issuance under the Plan.
Adopted by the Board of Directors on
February 11, 1998
Approved by the Stockholders on May 12, 1998
B-16
<PAGE>
AMENDMENT NO. 5 TO THE 1992 STOCK INCENTIVE PLAN
OF BANYAN SYSTEMS INCORPORATED
Subsection 5(a) of the 1992 Stock Incentive Plan, as amended (the "Plan"), of
Banyan Systems Incorporated is hereby amended, subject to stockholder approval,
to increase from 3,500,000 to 4,450,000 the number of shares of Common Stock,
$.01 par value per share, authorized for issuance under the Plan.
Adopted by the Board of Directors on March 4, 1999
B-17
