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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998.
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-20364
BANYAN SYSTEMS INCORPORATED
(Exact Name of Registrant as Specified in Its Charter)
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<S> <C>
MASSACHUSETTS 04-2798394
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
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120 FLANDERS ROAD
WESTBORO, MASSACHUSETTS 01581
(Address and Zip Code of Principal Executive Offices)
Registrant's telephone number, including area code: 508-898-1000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of the voting stock held by non-affiliates of the
registrant, based on a per share fair market value of $12.688, was
approximately $220,143,106 as of March 22, 1999. For this purpose, any
officer, director or 5% stockholder of the Company is deemed to be an
affiliate. The registrant has no shares of non-voting Common Stock authorized
or outstanding.
On March 22, 1999, there were 19,348,027 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Specifically identified portions of the Annual Report to Shareholders for
the fiscal year ended December 31, 1998 (the "Annual Report to
Shareholders") are incorporated by reference into Parts I and II of this
Annual Report on Form 10-K.
(2) Specifically identified portions of the Company's Definitive Proxy
Statement, to be filed with the Securities and Exchange Commission within
120 days after December 31, 1998 in connection with the Company's 1999
annual meeting of stockholders, are incorporated by reference into Part
III of this Annual Report on Form 10-K.
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This Annual Report on Form 10-K contains forward-looking statements,
including without limitation information with respect to the potential
benefits to end users through the use of the Company's (as defined below)
products, the development of future products, the Company's plans and strategy
for its business, statements relating to the sufficiency of cash and cash
equivalent balances, available sources of financing, anticipated expenditures
and the intended effects of the Company's restructuring, sales and marketing,
and product development efforts. For this purpose, any statements contained
herein that are not statements of historical fact may be deemed to be forward-
looking statements. Without limiting the foregoing, the words "believes,"
"anticipates," "plans," "expects" and similar expressions are intended to
identify forward-looking statements. There are a number of important factors
that could cause actual events or the Company's actual results to differ
materially from those indicated by such forward-looking statements. These
factors include, without limitation, the ability of the Company to continue to
sell products to existing customers and attract new customers, the ability of
the Company to enhance existing products and introduce new products on a
timely basis, market acceptance of the Company's products, the success of
Switchboard and other factors set forth under the caption into "Management's
Discussion and Analysis of Financial Condition and Results of Operations
Future Operating Results" which is incorporated by reference in Part II of
this Annual Report on Form 10-K.
PART I
ITEM 1. BUSINESS
General
Banyan Systems Incorporated ("Banyan" or the "Company") designs, develops
and markets networking, directory and messaging products and services that
help people to communicate across enterprise networks, intranets and the
Internet. Since 1985, the Company has been a pioneer in the computer
networking field, and currently offers a wide range of software products and
professional services. The Company's three lines of business are Networking
Software, Network Services and Switchboard. The Company's primary Networking
Software products include StreetTalk for Windows NT(R), VINES(R), Intelligent
Messaging(TM), BeyondMail(TM), Banyan Intranet Connect(R), and several
intranet solutions. In addition, the Company provides co-existence and
migration services, secure and remote access for business applications and
tools to deploy and manage intranets, directories and messaging. The Company's
primary Network Services offerings include network consulting, management and
integration services; directory planning, design and integration, network
monitoring and support; and technical support and education. The Company's
majority-owned subsidiary, Switchboard Incorporated, hosts an Internet people-
to-people and business directory services aimed at generating advertising
revenues from major domestic corporations and local merchants.
The Company's network operating system product is based on a global
directory service called StreetTalk(TM). This service allows users to find one
another and access network resources, such as printers, files, mail and
applications, regardless of physical location. Banyan's other enterprise
directory services include messaging, management and security. Together, these
services make up the foundation for Banyan's Network Software products. These
products integrate mainframes, minicomputers, workgroup networks and personal
computers into a unified computing environment that is easy for users to
navigate and administrators to manage. The Company delivers its network
operating system products in several versions, including StreetTalk for
Windows NT(R) and VINES(R). Introduced in September 1996 and enhanced
throughout 1997 and 1998 Banyan's StreetTalk for Windows NT provides Banyan's
premier enterprise directory capabilities running natively on Microsoft(R)
Windows NT, an emerging standard for corporate networks. VINES is Banyan's
well proven, UNIX(R) based
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Banyan, the Banyan logo, StreetTalk, VINES and BeyondMail are registered
trademarks, and Intelligent Messaging, Switchboard, Banyan Enterprise Network
Solutions and EBR are trademarks of Banyan Systems Incorporated. StreetTalk is
a product of Banyan Systems Incorporated and not a product of McCarthy,
Crisanti & Maffei, Inc. UNIX is a registered trademark of Novell, Inc. in the
United States and in other countries licensed exclusively through X/Open
Company Ltd. IBM and OS/2 are registered trademarks of International Business
Machines Corporation. Microsoft, Windows NT and Windows are registered
trademarks of Microsoft Corporation. Macintosh is a registered trademark of
Apple Computer, Inc. Other product, company or organization names cited in
this Form 10-K are trademarks or registered trademarks of their respective
companies or organizations.
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networking software, which combines file and print sharing with the StreetTalk
directory, messaging, network management and security services. The Company's
Intelligent Messaging(R) option, available for both VINES and Windows NT
environments, provides an enterprise solution for reliably storing and
transporting electronic messages. Banyan's intranet products enable its
customers to utilize Internet standards to allow people to contact other
people and information in a reliable and secure manner over the Internet. The
Intranet Access product brings all the capabilities of the network operating
system to a user of a browser on the Internet.
The Company's Network Services organization includes network and messaging
consulting, network management, help desk, technical support and education. A
critical element of the Company's strategy is to assure that customers are
provided with technical support, training and consulting services required to
build, manage and optimize the network environment using multi-vendor
products. Consulting services are generally offered on a customized basis and
in certain cases are packaged with other services. When combined with other
third party products and services, they are positioned as solution offerings.
The Company provides services through regional offices located in the
Americas, Europe, Asia Pacific and Australia.
The Company's majority-owned subsidiary, Switchboard Incorporated, hosts one
of the Internet's leading people-to-people and business directory services
which is aimed at generating revenues from major domestic corporations and
local merchants. Switchboard has been consistently among the 40 most active
Web destinations according to Media Metrix, the foremost Internet traffic
monitoring service. Switchboard is the on-line directory selected by
AltaVista, Bell Atlantic and GeoCities.
Network Software Development Initiatives
The Company's Networking Software business is in the process of
transitioning from a sole focus on the development of proprietary networking
and messaging products to development of middleware and application software
that makes use of Internet standards and technologies. In order to facilitate
this transition, the Company has organized its development group into three
focus areas: Networking Software, Integration Products and Internet Products.
The Networking Software group is charged with maintaining and improving the
Company's network operating system products (VINES(TM) and StreetTalk(TM) for
Windows NT(R)) and its messaging products (BeyondMail(TM) mail client,
Intelligent Messaging(TM) and Internet Messaging Suite mail servers). The
focus of this development effort is to improve interoperability with industry
standard networking platforms such as Microsoft Windows NT/2000 and industry
leading mail systems such as Microsoft Outlook(TM) and Exchange(TM) through
the careful support of standards such as TCP/IP networking, and LDAP directory
access.
The Integration Products group is focused on building tools, technologies,
and products that directly support the growth and requirements of the Banyan
Network Services business. As a result of the Company's recently announced
alliance with Microsoft Corporation(R) ("Microsoft"), this group is focused on
delivering interoperability and migration tools that support network
expansions and migrations from VINES and StreetTalk for Windows NT to Windows
NT 4.0 and Windows 2000(TM)/Active Directory as well as from BeyondMail/IM to
Microsoft Exchange. In addition, the Integration Products development group is
tasked with developing directory synchronization and management tools that
increase the value of an installed Banyan directory (StreetTalk) to users and
developers of Internet-based applications. The product development model is
principally a value-added OEM strategy and has resulted in new product
offerings such as Banyan SiteMinder and directory/migration tools from third
party vendors such as Lightspeed and Fastlane.
The Internet Products group is focused on building a family of products that
are positioned in the emerging Enterprise Information Portal (EIP) market
space. These products would provide end users and web administrators with a
rapid application deployment framework that uses directory and personalization
technology to increase productivity while providing fast, customized access to
existing web-accessible corporate data. These products would further improve
end user productivity by remembering the user's preferences and favorites for
their repetitive use of their desktop web browser. In addition, these products
will provide e-mail alerting and consolidation of multiple e-mail boxes,
requiring only a web browser to provide secure access.
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Banyan Architecture and Technology
The Company bases its networking and messaging software products on a
modular architecture, specifically designed to serve computing environments
with multiple servers in multiple locations. This architecture enables the
delivery of a set of sophisticated network services that integrate workgroup
LANs (Local Area Networks), the Internet and other proprietary computer
environments into a single enterprise network.
Banyan's enterprise directory services consist of software modules, each
providing a different service that may be shared by users across the network.
At the core of these services is Banyan's StreetTalk directory. StreetTalk
enables network administrators to assign location-independent "StreetTalk" IDs
or names to each user, computer, printer, server or other resource in the
network. These names remain consistent throughout the network, allowing a user
to access any network resource without regard to the physical location of the
user or the resource. The name, network location and characteristics of each
resource are stored in the StreetTalk database. StreetTalk's database is used
by all of the other services and integrated applications to locate and
transparently access resources throughout the network.
Banyan has expanded this architecture to include the capability to easily
access these services through the Internet. From a browser, anywhere on the
Internet, a user can gain access to their printer, file and mail services. In
addition, for web servers in a corporate intranet, this architecture provides
the means to authenticate users and protect web pages.
Banyan has released versions of all of its current networking and messaging
products that it believes are Year 2000 compliant. All new products developed
during 1998 were inherently designed and tested for Year 2000 compliance.
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WINDOWS NT Integration
In anticipation of the emergence of Microsoft Corporation's Windows NT
operating system and the Windows 2000 server product line that is currently in
beta testing, the Company has released products that allow corporations to
integrate Windows NT/2000 into their existing corporate networks.
Running natively in Windows NT environments, StreetTalk for Windows NT is
designed to integrate Microsoft's Windows NT operating system into their
existing corporate networks. In July 1998, the Company announced the
availability of StreetTalk for Windows NT version 8.5, which offers improved
support for TCP/IP standards, new management tools, including additional
support for remote management, speedier disaster recovery, and a new version
of Banyan's integrated messaging services. Additionally, the Company
introduced the Internet Messaging Suite for Windows NT during 1998, which
delivers support for the IMAP Internet messaging standard for users of
StreetTalk for Windows NT that wish to deploy standards-based mail clients
such as Microsoft Outlook or Netscape Messenger.
Primary Network Software Products
The Company's key network operating system products include StreetTalk for
Windows NT, VINES, Intelligent Messaging, Internet Messaging Suite, and
BeyondMail. In addition, the Company markets a broad range of complementary
products and options for these base products.
StreetTalk for Windows NT
StreetTalk for Windows NT provides directory capabilities that extend beyond
individual server communities--encompassing every item and activity in the
enterprise. This simplifies access to all network resources, regardless of
location. The combination of Windows NT and StreetTalk for Windows NT supplies
an enterprise-wide application platform and networking solution that scales to
any size, including tens of thousands of users. StreetTalk also includes
numerous security features. In April 1998, the Company introduced StreetTalk
for Windows NT 8.5, a Year 2000-compliant release.
VINES
VINES integrates Banyan's StreetTalk directory and a full suite of
enterprise network services such as security and management into one package.
VINES installs on PC servers and clients and permits users of the leading PC
desktop systems--Windows 95(R) and 98, and Windows NT--to share information
and computing resources with each other and with host computing environments
through out the enterprise. In March 1998, the Company introduced VINES 8.5,
which offered improved performance and features and was Year 2000 compliant.
BeyondMail
A full-featured e-mail product, the Company believes BeyondMail is among the
most advanced software available for managing electronic mail. With its unique
rules-based agent technology, BeyondMail helps people manage information with
e-mail, classifying messages intuitively in folders for instant recall and
filtering out junk mail. When BeyondMail's intelligent agents are combined
with easy-to-customize forms, businesses are able to automate complex
procedures, such as producing database reports and routing purchase orders for
approval. BeyondMail supports Windows clients and takes full advantage of
StreetTalk and Intelligent Messaging capabilities. The Company offered
numerous maintenance releases of BeyondMail during 1998.
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Intelligent Messaging and the Internet Messaging Suite
Intelligent Messaging is an enterprise-wide, client/server-based solution
for storing and transporting messages. Tightly integrated with StreetTalk
directory services, Intelligent Messaging eases use, reduces costs and
facilitates the deployment of large-scale messaging networks. New releases of
the Intelligent Messaging Server software were issued in conjunction with the
VINES and StreetTalk for Windows NT 8.5 releases during 1998.
The Internet Messaging Suite was released in April 1998 and provided for
support of standards-compliant mail clients such as Microsoft Outlook and
Netscape Messenger when used in conjunction with StreetTalk for Windows NT and
the Intelligent Messaging server on Windows NT. IMS provided the Company's
large customers with a choice of mail clients from a wide variety of vendors.
When used in conjunction with the StreetTalk for Windows NT LDAP service, the
IMS IMAP service provides a great deal of flexibility in expanding mail
networks with additional client and server technology.
Network Product Application Suite
Banyan sells and supports several network applications programs that are
integrated with its enterprise network services. A GUI-based management tool
called StreetTalk Explorer is available for StreetTalk for Windows NT and
VINES products. MNET, which is sold with Banyan's network management services,
is a utility program that monitors the network in real-time and allows for
review of network-wide operational and performance characteristics from any
networked PC, workstation or server. The VINES assistant suite of utilities
automates routine tasks of network administration, such as renaming a user or
changing security privileges for a group of users or services.
Banyan Intranet Connect
In addition to its traditional, directory-based networking and messaging
solutions, the Company has developed a suite of intranet offerings that enable
organizations to create corporate intranets. In April and October of 1998, the
Company introduced two new versions of Banyan Intranet Connect. The Intranet
Connect product is intranet server software that provides a flexible and cost-
effective way to access network files, printers and e-mail using a standard
Web browser.
Third Party Products
During 1998, the Company developed relationships with independent software
vendors such as Netegrity, Oblix, Lightspeed, Fastlane, and Commvault. The
relationships were formed to supply value-added software products quickly to
both new and existing Banyan customers and support the expansion of the
Company's Network Services business.
Banyan SiteMinder
Banyan SiteMinder is a secure user management system that provides
centralized control, distributed management, and single sign-on capability for
all Web sites and applications that are a part of a customer's Internet
implementation. It is designed specifically for organizations doing business
on the Internet who need to provide secure, personalized content to customers,
partners, and employees and whose Web sites are built on multi-vendor open
systems.
Oblix Products
Following the signing of a value-added reseller agreement at the end of
1998, Banyan plans to offer the Oblix product line to enterprise customers
during 1999 as part of a solution that maximizes the value of their installed
and planned directory assets. As part of the Oblix CSA solution, the Oblix
Corporate Service Center(TM)
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and Oblix Corporate Directory(TM) are two web-based applications that create,
publish and maintain a Digital Persona and automate the process of providing
corporate services. A Digital Persona(TM) is a complete digital profile of an
employee that can be used to provide and track valuable corporate resources
such as an address, physical resources such as laptop computers and the
individual's relationship to the organization.
Internet Products
The Internet Products Group is focused on building a family of products that
are positioned in the emerging Enterprise Information Portal (EIP) market
space. These products will provide a personalized browser start page that
brings together corporate intranets, file servers, e-mail servers, directories
databases, line of business applications, and Internet resources. These
products will provide each user with a number of tools that can search the
enterprise-wide network for information and incorporates links to line-of-
business applications and can provide links to relevant industry
organizations, competitors and trading partners. Most importantly, these
products will provide a framework that organizes a user's common tasks into a
form that is accessible from a browser.
A major part of this initiative is the ability to customize the intranet
portal on both a corporate and personal level. Customization at the corporate
level allows a customer to brand the software with both company name and logo
and to set a style using company color schemes, graphics and font treatments.
In this way the portal can maintain the same look and feel as other corporate
applications.
Year 2000 Compliance
All the Company's current products have been upgraded to become Year 2000
compliant. In addition, the Company will offer customer services to assist in
the planning and implementing organizations' Year 2000 network upgrades.
Upgrades and Subscriptions
Banyan offers upgrade and subscription programs that enable its customers to
migrate cost-effectively to enhanced versions of StreetTalk for Windows NT,
VINES, BeyondMail and other product offerings as they become available.
Customers are encouraged to purchase, for a fixed annual fee, a subscription
contract for their installed Banyan products.
Network Services Business
The Network Services includes the consulting services function and the
support services business. Consulting is a growing segment of Banyan's
business that offers customers and partners services for network optimization,
transition and implementation. These services are generally offered as
customized consulting services and in certain cases as packaged services. When
combined with other third party product and services, they are positioned as
solution offerings.
As part of the recent strategic initiative, the Company is increasingly
focused on its Network Services business. A key element of the Company's
strategy is to assure that customers are provided with the technical support,
training and consulting services required to build, manage and optimize the
network environment using Banyan products. The Company maintains technical
response centers in North America, Europe, Asia and Australia. These centers
provide technical telephone support, on-line access and, to a lesser extent,
on-site support. In addition, pre-sales and post-sales support for partners
and end users is provided through field systems consultants.
The Company offers a wide range of training programs for partners and end
users. Training is offered at the Westboro headquarters, as well as various
regional sites. On-site training classes are also offered at partner's
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sites as well as end user locations. In addition, there are 36 worldwide
Banyan Certified Education Centers, which conduct training classes for users
and administrators of Banyan products.
Customers
In early 1999, Banyan established a global alliance with Microsoft
Corporation to deliver greater business value and increase competitive
advantage for enterprise customers. The two companies plan to develop new
services and software tools that increase the interoperability, connectivity
and integration among their products. As part of the alliance, Banyan plans to
expand its Microsoft certified network services organization over the next
three years, establish Customer Solutions Centers and work with Microsoft to
develop worldwide sales and marketing programs. Under the agreement, Microsoft
will provide $10 million to Banyan over a three-year period for training at
least 500 professionals, marketing and product development as well as the
purchase of 1,750,000 common stock warrants.
In 1998, Banyan initiated a number of new consulting engagements at leading
organizations such as the Public Service Enterprise Group, GTE, EMC, Nike, the
United Nations and Dutch Rail. During the year the Company broadened the scope
of network consulting management and integration services. In addition to the
Company's new Year 2000 Readiness Program initiative, it introduced Directory
Advantage Services. These services address directory planning, design and
integration challenges in enterprise and Web-based environments. Going
forward, the Company believes Internet-related network services will be
particularly important to customers that desire to cost-effectively, securely
and reliably extend the reach of their key business applications via the Web.
The Company estimates that it has approximately 7,000 software and services
customers with more than 8.0 million users worldwide. Banyan's customers,
which include nearly one-half of the Fortune 500 companies, typically are
medium to large-size businesses, financial institutions, professional
organizations, universities, government entities and not-for-profit
organizations with multiple sites dispersed over wide geographic areas.
For the year ended December 31, 1998, no one customer accounted for more
than 10% of the Company's revenue. For the year ended 1997, Ingram Micro Inc.
accounted for approximately 11% of the Company's revenues. For the year ended
1996, Inacom Corporation accounted for approximately 11% of the Company's
revenues. In 1997 and 1996, no other customer or reseller accounted for more
than 10% of the Company's revenues. The loss of any significant customer could
have a material adverse effect on the Company.
Switchboard Incorporated
The Company's majority-owned Switchboard subsidiary is an Internet-based
directory service that allows any individual with a Web browser to look up the
names and street addresses of more than 140 million individuals and businesses
in the United States. This product is available at no charge to the user.
Switchboard generates revenues through display advertisements that are
integrated with its business listings, categorized to match a user's search
criteria similar to traditional Yellow Pages telephone directories.
During the year, Switchboard made investments to enhance its functionality.
In May 1998, Switchboard acquired the technology and Web site of MapsOnUs(R),
and Internet street mapping and directions service, from Lucent Technologies.
Switchboard integrated the mapping and direction service into its
www.switchboard.com Web site. In the second half of 1998, Switchboard
introduced its designed user interface and searching tool, "What's
Nearby(TM)", which integrates local content from its people and business
directories.
In the second half of 1998, Switchboard announced that it was not renewing
its white and yellow pages agreement with America Online. Those arrangements
represented approximately 45% of the overall traffic and 30% of the total
advertising revenue for Switchboard in 1998.
Today, leading businesses such as Ford Motor Company, Visa, Barnes & Noble,
and Microsoft market their products and services on Switchboard.
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Marketing, Sales and Distribution
The Company's marketing and distribution strategy focuses most of the
Company's field staff on direct consultative sales to key decision makers to
create product awareness and achieve design wins. Demand fulfillment is
primarily accomplished through Banyan's direct sales force. The Company's
remarketing partners include system integrators (organizations that integrate
third party products into complete systems for sale to customers) and systems
vendors (hardware manufacturers that integrate third party products into their
own systems for sale to customers) that are qualified to install and support
the Company's products as part of a complete network solution for the
customer, as well as aggregators (master value-added resellers that typically
resell to other resellers). Sales of products through remarketing partners
accounted for approximately 30%, 60% and 80% of the Company's revenues in
1998, 1997 and 1996, respectively, which when combined with certain services
and Switchboard sales has increased the share of the Company's direct business
over each of the last two years.
The Company's remarketing partners in the Americas as of December 31, 1998
include three aggregators and 720 channel partner sales sites. Banyan has
established authorization levels (Premier Network Integrator and Authorized
Network Integrator, as well as authorization levels for messaging resellers)
to distinguish each reseller organization's expertise in working with the
Company's products, as well as their overall network design, certified support
centers, training, and global support. The Company's aggregators are Inacom
Corporation, Ingram Micro and Information Access Inc.
The Company's international sales currently are made primarily through
distributors in 75 countries. These distributors provide products, technical
support and follow-on service to local resellers, which in turn serve end-user
customers. The Company estimates that its resellers had approximately 300
international sales sites as of December 31, 1998. International sales
accounted for 31%, 29% and 24% of the Company's revenues in 1998, 1997 and
1996, respectively. See Note O to the Company's Consolidated Financial
Statements, which are incorporated herein by reference to the Company's Annual
Report to Shareholders, for information as to the Company's revenues
attributable to each of the Company's geographic areas during the past three
fiscal years.
During 1998, the Company's international distribution activities continued
to be augmented by a joint venture in Japan as well as two OEM agreements.
During 1995, the Company had entered into a joint venture with Marubeni
Corporation and Nippon Telegraph and Telephone. At December 31, 1998, these
Japanese companies held a 30% equity interest in Nippon Banyan Systems
Kabushiki Kaisha (NBSKK), a majority-owned subsidiary of the Company. See Note
P to the Company's Consolidated Financial Statements, which are incorporated
herein by reference to the Company's Annual Report to Shareholders. In
addition, the Company has OEM relationship with Hitachi, which includes
development and support.
The Company actively supports its resellers and other partners with its own
experienced sales and marketing organization. The Company's sales staff
solicits prospective customers, provides technical advice with respect to
Banyan's products and works closely with the particular Banyan reseller
through which the customer desires to purchase its networking products. The
Company believes that the active participation of its sales staff in the
selling process, in conjunction with the efforts of its resellers, is
necessary in order to provide customers with the level of support required for
the implementation of enterprise networks. Banyan conducts its sales and
marketing activities from its principal offices in Westboro, Massachusetts as
well as 26 other North American sales offices and 9 international offices
located in Australia, Belgium, France, Germany, Japan, Malaysia, The
Netherlands and the United Kingdom. As of December 31, 1998, the Company's
sales and marketing organization consisted of 146 employees, of which 87 were
in the North American group and 59 were in the international group.
The Company also has entered into sales and support alliances with various
system vendors, including Hewlett Packard, Microsoft Corporation, Commvault
Systems, FastLane Technologies, Tally Systems and Checkpoint Systems Inc.
These vendors resell and support Banyan's products within their customer base.
Companies with which Banyan has established support arrangements include
Cabletron, Dell, Hewlett Packard,
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IBM, Oracle, Compaq, Cisco and Microsoft. Under these alliances, Banyan and
its partners exchange regularly updated technical information and offer mutual
access to technical support centers, training and advanced technical engineers
in order to facilitate problem resolution for customers with multi-vendor
networks.
Delivery lead times for the Company's products are typically short and,
consequently, substantially all of the Company's revenues in each quarter
result from orders received in that quarter. Accordingly, the Company does not
maintain any significant backlog and believes that its backlog at any given
point in time is not a reliable indicator of future sales or earnings. The
absence of significant backlog may contribute to unpredictability in the
Company's results of operations. The Company's backlog of product orders at
December 31, 1998 and December 31, 1997 was immaterial.
Product Development
The Company believes that its future success will depend in large part on
its ability to deliver solutions that are based on professional service
offerings and differentiating product offerings that meet the evolving needs
of the enterprise computing market. The Company plans to resell, OEM, and
develop and deliver new open standards-based product offerings, including
Internet-related products.
As of December 31, 1998, Banyan had approximately 78 employees engaged in
research and development, test and quality assurance and technical
documentation. In 1998, 1997 and 1996, Banyan's product development
expenditures totaled $10.9 million, $15.9 million and $21.9 million,
respectively. During 1999, the Company anticipates a similar level of
investment in product development, as compared to 1998.
Manufacturing
The Company's software products are distributed as object code on CD-ROM and
standard magnetic diskettes. Included with the software products are security
codes and documentation, which is available on CD-ROM as well as in print. In
general, the Company duplicates all software diskettes in house. Most of the
CD-ROM replication is done by outside vendors, with the ability to produce
smaller volume production runs in-house. From its Manufacturing & Distribution
facility in Westboro, Massachusetts, Banyan ships products worldwide through
authorized network integrators, resellers and international distributors.
Competition
The networking software industry is highly competitive and is characterized
by rapidly changing technology and evolving industry standards. The Company
competes with a number of companies, including Novell, which have
substantially greater development, marketing, sales and financial resources,
distribution infrastructure, customer support organizations and name
recognition than those of the Company. The services business is highly
fragmented and increasingly competitive with no dominant set of networking
integration or consulting competitors worldwide that the Company directly
competes against.
The Company has invested significant resources to develop products to bring
the Company's directory capabilities to Internet users. In 1996, the Company,
through a majority-owned subsidiary, introduced Switchboard, a directory
service for Internet users. In the second half of 1998, Switchboard announced
that it was not renewing its white and yellow pages agreement with America
Online(R). Those arrangements represented approximately 45% of the overall
traffic and 30% of the total advertising revenue for Switchboard in 1998. The
Company success will depend in part on its ability to enter into strategic
alliances with other Internet providers and its ability to enhance its
offering to attract local merchant customers.
The Company believes principal competitive factors affecting the market for
its products include product functionality, performance, quality, reliability
and ease of use; quality of customer training and support; vendor reputation;
and price. The Company believes that competition in the industry is likely to
intensify as current competitors expand their product lines and new companies
enter the market. The Company's future success will
10
<PAGE>
depend in part on its ability to respond promptly and effectively to the
challenges of technological change, evolving standards and its competitors'
innovations by continually enhancing its own product and services offerings,
as well as its marketing programs.
The Company is evolving its strategic focus, seeking to decrease its
reliance on its traditional networking software products while devoting
additional resources to its network services business. As part of this
strategy, on January 11, 1999, the Company announced a strategic alliance with
Microsoft to deliver integrated messaging, networking and Internet solutions
and the collaboration on the design and implementation of packaged services,
solutions and support offerings based on Microsoft's enterprise platform. The
agreement contains various obligations and milestones that must be met by the
Company, including the certification of 500 Microsoft-trained professionals.
The failure of the Company to meet such obligations and milestones could
result in the termination of the agreement, which could have a material
adverse effect on the Company. In addition, the Company's future success will
depend in part upon its ability to continue to grow its Network Services
business, acquire additional network services customers and adapt to changing
technologies and customer requirements. Any failure to do so could have a
material adverse effect on the Company. There can be no assurance the Company
will be successful in its new strategic focus.
Proprietary Rights and Licenses
The Company does not currently hold any patents and currently relies upon a
combination of copyright, trademark and trade secret laws and contractual
provisions to establish and maintain its proprietary rights to its products.
The Company believes that because of the rapid pace of technological change in
the networking and computer industries, the legal protections for its products
are less significant factors in the Company's success than the knowledge,
ability and experience of the Company's employees, the frequency of product
enhancements, and the timeliness and quality of support services provided by
the Company.
Employees
At December 31, 1998, the Company employed 428 persons, including 146 in
sales, marketing and related activities, 78 in research and development, 126
in customer support and education, 14 in manufacturing, and 64 in finance,
administration, and human resources. The Company has no collective bargaining
agreement with its employees. The Company believes that its relations with its
employees are good.
ITEM 2. PROPERTIES
The Company's principal administrative, sales and marketing, research and
development, manufacturing and support facilities are located in Westboro,
Massachusetts and consist of approximately 170,000 square feet under leases
that expire at various times from December 31, 2002 through July 31, 2005,
with an aggregate annual base rent of approximately $941,000. The Company
subleases approximately 49,000 square feet of its principal Westboro,
Massachusetts facilities under leases that expire on July 31, 2000 and
September 31, 2000, with an aggregate annual base rental income of
approximately $594,000. The Company leases and occupies sales offices in 30
additional locations throughout the United States, Canada, Europe, Asia, Japan
and Australia.
ITEM 3. LEGAL PROCEEDINGS
There are no legal proceedings, other than ordinary routine litigation
incidental to its business, to which the Company or any of its subsidiaries is
a party or of which any of their property is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
11
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The Company's executive officers as of March 26, 1999 were as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
William P. Ferry 46 President and Chief Executive Officer
Senior Vice President, Worldwide Sales and
Robert D. Burke 44 Service
Vice President and Chief Financial Officer,
Richard M. Spaulding 39 Treasurer and Clerk
Anthony J. Bellantuoni 47 Vice President, Human Resources
Vice President of Development and Chief
Alexander D. Crosett III 41 Technology Officer
</TABLE>
Mr. Ferry, President and Chief Executive Officer, joined the Company in
February 1997. He is also a Director of the Company. Prior to joining Banyan,
Mr. Ferry was President of Wang Laboratories, Inc.'s Services Division. During
his six years at Wang, Mr. Ferry's other positions included Senior Vice
President and General Manager of Wang's North American Operations, Senior Vice
President and General Manager of Europe, Africa and Middle East Operations,
Senior Vice President and General Manager of the OFFICE 2000 Business Unit and
Senior Vice President of Applications and Professional Services. Mr. Ferry's
professional experience also includes executive positions at Digital Equipment
Corporation and Texas Instruments.
Mr. Burke, Senior Vice President, Worldwide Sales and Service, joined the
Company in March 1997. Prior to joining Banyan, Mr. Burke served as Vice
President, Worldwide Systems Integration, of Digital Equipment Corporation's
System Integration Business. During his twenty-one years at Digital, Mr.
Burke's other positions included Vice President, Systems Integration Practice,
Vice President, Digital Consulting U.S. Group, Vice President, U.S.
Professional Services/Systems Integration and Vice President, Digital
Services.
Mr. Spaulding, Vice President and Chief Financial Officer, Treasurer and
Clerk, joined the Company in September 1990. Prior to joining Banyan, he
served in a number of senior financial management positions with C. R. Bard,
Inc., a medical products provider, from June 1985 to September 1990. From June
1983 to June 1985, Mr. Spaulding was a Certified Public Accountant with Arthur
Andersen & Company.
Mr. Bellantuoni joined the Company in July 1997 as vice president of Human
Resources. Prior to joining the Company, Mr. Bellantuoni was vice president of
Human Resources at Wang Laboratories, Inc. from 1993 to 1997. Mr. Bellantuoni
also held various senior management positions at Wang Laboratories, Inc. from
1979 to his appointment as vice president in 1993.
Mr. Crosett, Vice President of Development and Chief Technology Officer,
joined the company in February 1998. Prior to joining Banyan, Mr. Crosett
served as chief technology officer at Planet Direct from 1996 - 1998 and vice
president of development at CompuServe from 1994 - 1996. Mr. Crosett has also
held several senior-level technical and marketing management positions at
Lotus Development Corporation and Interactive Data Corporation, and was
founder and president of two successful medical imaging and software
companies.
12
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Information with respect to this item may be found in the section captioned
"Supplementary Data" appearing in the Annual Report to Shareholders. Such
information is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
Information with respect to this item may be found in the section captioned
"Supplementary Data" appearing in the Annual Report to Shareholders. Such
information is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Information with respect to this item may be found in the section captioned
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing in the Annual Report to Shareholders. Such information
is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information with respect to this item may be found in the section captioned
"Supplementary Data" appearing in the Annual Report to shareholders and in the
consolidated financial statements and schedules referred to in the Index to
Consolidated Financial Statements and Consolidated Financial Statement
Schedules filed as part of this 10-K. Such information is incorporated herein
by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
13
<PAGE>
PART III
The information required by Part III is omitted from this Annual Report on
Form 10-K, and incorporated herein by reference to the definitive proxy
statement, pursuant to Regulation 14A, with respect to the 1999 Annual Meeting
of Stockholders (the "1999 Proxy Statement") which the Company will file with
the Securities and Exchange Commission not later than 120 days after the end
of the fiscal year covered by this Annual Report on Form 10-K.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Except as provided below, information with respect to this item will appear
in the sections captioned "Election of Directors" and "Section 16(a)
Beneficial Ownership Reporting Compliance" appearing in the 1999 Proxy
Statement, and such information is incorporated herein by reference.
Information required by this item with respect to Executive Officers of the
Company may be found under the section captioned "Executive Officers of the
Registrant" in Part I of this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to this item will appear in the sections captioned
"Executive Compensation," "Director Compensation," "Compensation Committee
Interlocks and Insider Participation" and "Certain Relationships and Related
Transactions" appearing in the 1999 Proxy Statement. Such information is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to this item will appear in the section captioned
"Beneficial Ownership of Common Stock" appearing in the 1999 Proxy Statement.
Such information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to this item will appear in the sections captioned
"Compensation Committee Interlocks and Insider Participation" and "Certain
Relationships and Related Transactions" appearing in the 1999 Proxy Statement.
Such information is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of or are included in this
Annual Report on Form 10-K:
1. Financial Statements:
. Consolidated Balance Sheets as of December 31, 1998 and 1997.
. Consolidated Statements of Operations for the years ended December
31, 1998, 1997, and 1996.
. Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1998, 1997 and 1996.
. Consolidated Statements of Cash Flows for the years ended December
31, 1998, 1997 and 1996.
. Notes to Consolidated Financial Statements.
. Report of Independent Accountants for the years ended December 31,
1998, 1997 and 1996.
. Selected Financial Data for the years ended December 31, 1998, 1997,
1996, 1995, and 1994.
14
<PAGE>
2. Financial Statement Schedules:
. Report of Independent Accountants for the years ended December 31,
1998, 1997 and 1996.
. Schedule II--Valuation and Qualifying Accounts.
. Schedules other than the one listed above have been omitted since
they are either not required, not applicable or the information is
otherwise included.
3. Listing of Exhibits:
. The Exhibits filed as part of this Annual Report on Form 10-K are
listed in the Exhibit Index immediately preceding such Exhibits and
are incorporated herein by reference.
(b) No other reports on Form 8-K were filed by the Company during the last
quarter of the year ended December 31, 1998.
15
<PAGE>
SCHEDULE II
BANYAN SYSTEMS INCORPORATED
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Additions
Balance at Charged to Balance at
Beginning Costs and End
Description of Period Expenses Deductions of Period
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Year ended December 31, 1998:
Reserve for price, sales and
doubtful account allowance...... $3,721 $1,177 $1,981 $2,917
Year ended December 31, 1997:
Reserve for price, sales and
doubtful account allowance...... $7,168 $2,448 $5,895 $3,721
Year ended December 31, 1996:
Reserve for price, sales and
doubtful account allowance...... $5,636 $8,712 $7,180 $7,168
</TABLE>
16
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENTS SCHEDULE
To the Board of Directors
of Banyan Systems Incorporated:
Our audits of the consolidated financial statements referred to in our
report dated January 26, 1999 appearing on page 37 of the 1998 Annual Report
to Shareholders of Banyan Systems Incorporated (which report and consolidated
financial statements are incorporated by reference in this Annual Report on
Form 10-K) also included an audit of the financial statement schedule noted in
Item 14(a)(2) of this Form 10-K. In our opinion, this financial statement
schedule presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements.
/s/ PricewaterhouseCoopers LLP
-------------------------------------
PricewaterhouseCoopers LLP
January 26, 1999
17
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Title of Document
------- -----------------
<C> <S>
3.1(2) Second Amended and Restated Articles of Organization of the
Company.
3.2(1) Amended and Restated By-Laws of the Company.
3.3(10) Certificate of Vote of Directors Establishing a Class or Series of
Stock
10.1+(11) Second Amended and Restated 1984 Incentive Stock Option Plan.
10.2+(11) Second Amended and Restated 1984 Non-Qualified Stock Option Plan.
10.3(12)+ 1992 Stock Incentive Plan, as amended.
10.4(1)(8)+ 1992 Director Stock Option Plan, as amended.
10.5(7)+ Consulting Services Agreement dated as of November 11, 1996
between the Company and Burton Technology Partners, Ltd.
10.6(7)(8)+ Employment Agreement dated February 4, 1997 between the Company
and William P. Ferry, as amended.
10.6A+ Amendment No. 2 dated as of October 16, 1998 to Employment
Agreement between the Company and William P. Ferry.
10.7(1) Real Estate Sublease dated June 19, 1991, as amended to date,
between the Company and Sytron Corporation.
10.8(1) Lease Agreement dated April 21, 1989, as amended to date, between
the Company and CB Westboro C Limited Partnership, a Texas Limited
Partnership.
10.8A Amendment to Lease Agreement dated April 21, 1993 between the
Company and CB Westboro C Limited Partnership, a Texas Limited
Partnership.
10.8B(5) Amendment to Lease Agreement dated April 21, 1993 between the
Company and Commonwealth Westboro Limited Partnership, a
Massachusetts Limited Partnership (as successor in interest to CB
Westboro C Limited Partnership, a Texas Limited Partnership).
10.9(1) Lease Agreement dated November 14, 1986, as amended to date,
between the Company and Aetna Real Estate Associated, L.P. (as
assignee of Flanders Realty Trust).
10.9A Amendment to Lease Agreement dated April 1, 1993 between the
Company and Aetna Real Estate, L.P. (as assignee of Flanders
Realty Trust).
10.9B(11) Fifth Lease Extension and Modification Agreement made as of
October 15, 1997 between Aetna Real Estate Associates and the
Company.
10.10(9) Loan and Security Agreement dated as of September 4, 1997 by and
between Foothill Capital Corporation and the Company.
10.10A(11) Consent and Amendment to Loan and Security Agreement dated as of
March 5, 1998 by and between Foothill Capital Corporation and the
Company.
10.11(9) Securities Issuance Agreement dated as of September 4, 1997 by and
between Foothill Capital Corporation and the Company.
10.12(9) Form of Warrant issued by and to be issued by the Company to
Foothill Capital Corporation.
10.13(10) Preferred Stock and Warrant Purchase Agreement dated as of March
5, 1998 between the Company and HarbourVest Partners V--Direct
Fund L.P. ("HarbourVest").
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Title of Document
------- -----------------
<C> <S>
10.14(10) Warrant to purchase shares of Series B Convertible Preferred
Stock issued by the Company to HarbourVest as of March 5,
1998.
10.15(10) Warrant to purchase shares of Series C Convertible Preferred
Stock issued by the Company to HarbourVest as of March 5,
1998.
10.16 +(11)(13) Separation Agreement and Release and Waiver of Claims dated as
of May 31, 1997 between the Company and David C. Mahoney, as
amended.
10.17+ Executive Retention Agreement dated as of October 16, 1998
between The Company and Robert D. Burke.
10.18+ Executive Retention Agreement dated as of October 16, 1998
between the Company and Richard M. Spaulding.
10.19+ Executive Retention Agreement dated as of October 16, 1998
between the Company and Anthony J. Bellantuoni.
10.20+ Executive Officer Restricted Stock Agreement dated October 16,
1998 between the Company and William P. Ferry.
10.21+ Executive Officer restricted Stock Agreement dated October 16,
1998 between the Company and Robert D. Burke.
10.22+ Executive Officer Restricted Stock Agreement dated October 16,
1998 between the Company and Richard M. Spaulding.
10.23+ Executive Officer Restricted Stock Agreement dated October 16,
1998 between the Company and Anthony J. Bellantuoni.
13 Selected portions of Annual Report to Shareholders for the
year ended December 31, 1997 (which is not deemed to be
"filed" except to the extent that portions thereof are
expressly incorporated by reference in this Annual Report on
Form 10-K).
21(11) Subsidiaries of the Company.
23 Consent of PricewaterhouseCoopers LLP.
27 Financial Data Schedule.
</TABLE>
- --------
+ Management contract or compensation plan or arrangement required to be
filed as an exhibit pursuant to Item 14(c) of Form 10-K.
(1) Incorporated herein by reference to the exhibits to the Company's
Registration statement on Form S-1 (File No. 33-49194).
(2) Incorporated herein by reference to the exhibits to the Company's
Registration statement on Form S-8 (File No. 33-54140).
(3) Incorporated herein by reference to the exhibits to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1993.
(4) Incorporated herein by reference to the exhibits to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended March 31,
1995.
(5) Incorporated herein by reference to the exhibits to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended September 30,
1995.
2
<PAGE>
(6) Incorporated herein by reference to the exhibits to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995.
(7) Incorporated herein by reference to the exhibits to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996.
(8) Incorporated herein by reference to the exhibits to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1997.
(9) Incorporated herein by reference to the exhibits to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended September 30,
1997.
(10) Incorporated herein by reference to the exhibits to the Company's
Current Report on Form 8-K dated March 5, 1998.
(11) Incorporated herein by reference to the exhibits to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1997.
(12) Incorporated herein by reference to the exhibits to the Company's
Registration Statement on Form S-8 (File No. 333-53705).
(13) Incorporated herein by reference to the exhibits to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended September 30,
1998.
3
<PAGE>
EXHIBIT 10.6A
AMENDMENT NO. 2
TO EMPLOYMENT AGREEMENT
This Amendment No. 2 (this "Amendment") to Employment Agreement (the
"Agreement") made as of the 4th day of February, 1997 between Banyan Systems
Incorporated, a Massachusetts corporation (the "Company"), and William P. Ferry
(the "Employee") is effective as of the 16th day of October 1998. Capitalized
terms used and not otherwise defined herein shall have the meanings ascribed to
them in the Agreement.
The parties hereto agree that the Agreement is hereby amended as follows:
1. The first sentence of Section 2(a) of the Agreement is amended to
provide that the Employee shall serve as Chairman of the Board,
President and Chief Executive Officer of the Company, as elected at
the October 14, 1997 meeting of the Board, reporting to the Board.
2. Section 3.1 of the Agreement is amended to provide that the Company
shall, effective January 1, 1999, pay the Employee, in bi-weekly
installments, a minimum base salary of Four Hundred Thousand Dollars
($400,000) per year. Such base salary shall be subject to adjustment,
from time to time but not later than, one year subsequent to the date
hereof, as determined by the Board.
3. Section 3.2(a) of the Agreement, which relates to the Employee's
"target bonus," is amended to provide that the Employee shall be
eligible to receive a minimum target bonus of Two Hundred Thousand
Dollars ($200,000) following the end of each calendar year beginning
with 1999, based on the achievement of performance objectives (based
primarily on operating profit and cash flow objectives or other
mutually acceptable objectives) as determined by the Board. Section
3.2(a) is further amended to provide that, beginning in 1999, 50% of
the target bonus shall be paid to the Employee as an advance against
such year's target bonus in quarterly installments of Twenty-Five
Thousand Dollars ($25,000) in each of March, June, September and
December of such year. The balance of the target bonus for 1999, if
any, shall be paid at the conclusion of the audit for such year
(typically sixty (60) days after the end of the year). The Employees
target bonus and any advances thereon paid by the Company shall be
subject to adjustment, from time to time but not later than, one year
subsequent to the date hereof, as determined by the Board.
<PAGE>
4. Section 3.2(b) of the Agreement, which relates to the Employee's
"stretch bonus," is amended to provide that the Employee shall be
eligible to receive such bonus for the year 1999 under the same terms
applicable to 1997 and 1998. Section 3.2(b) of the Agreement is
further amended to provide that the Employee's stretch bonus shall be
subject to adjustment, from time to time but not later than, one year
subsequent to the date hereof, as determined by the Board.
5. On the date hereof, the Company and the Employee shall enter into and
execute the Restricted Stock Agreement attached hereto as Annex A (the
-------
"Stock Agreement"), pursuant to which, and subject to the terms and
restrictions therein, the Company shall issue and sell to the Employee
Two Hundred Thousand (200,000) shares (the "Shares") of the Company's
Common Stock at a per share purchase price of $0.01. If the Employee
is unwilling to sell or unable, due to restrictions imposed by the
Securities Act of 1933, as amended ("SEC Restrictions"), or the Stock
Agreement ("Stock Restrictions"), to sell a sufficient number of
Shares to satisfy his federal and state tax obligations with respect
to the issuance to him of the Shares (including his obligation to pay
to the Company any withholding taxes upon such issuance), the Company
shall lend to the Employee such amounts as are necessary to satisfy
such obligations. Such loans shall bear no interest until the SEC
Restrictions and the Stock Restrictions, if any such restrictions
exist, lapse and shall bear interest at the prime rate less one
percent (1%) after such SEC Restrictions and Stock Restrictions lapse
or if no such restrictions exist but the Employee is unwilling to
sell. Such loans shall be due and payable one (1) year after the date
hereof, provided that the after-tax proceeds of any earlier sale of
the Shares shall be used to prepay such loans.
6. Upon the occurrence of a Change in Control, each outstanding
restricted stock award, including, without limitation, the Shares,
held by the Employee shall be deemed to be fully vested and no longer
subject to a right of repurchase by the Company. For the avoidance of
doubt, this paragraph 6 shall not apply to stock options.
7. Effective as of the date hereof, and at no additional cost to the
Employee, the Company shall increase the Employee's Company-provided
term life insurance benefit from two (2) times the Employee's annual
base salary to five (5) times the Employee's annual base salary.
8. For the purposes of Section 10 of the Agreement, and until the
Employee shall designate a different address to the Company pursuant
to Section 10 of the Agreement, the address of the Employee shall be:
P.O. Box 638,
-2-
<PAGE>
Hyannis, MA 02601-0638.
To the extent any provision of this Amendment is inconsistent with any
provision of the Agreement, such provision of the Agreement is hereby modified
and superseded by the terms hereof. Any term of the Agreement not so modified
or superseded shall remain in full force and effect.
-3-
<PAGE>
EXECUTED as of the 16th day of October 1998.
COMPANY:
BANYAN SYSTEMS INCORPORATED
By: /s/ Richard M. Spaulding
-------------------------------
Name: Richard M. Spaulding
Title: Vice President and
Chief Financial Officer
EMPLOYEE:
/s/ William P. Ferry
--------------------
William P. Ferry
-4-
<PAGE>
EXHIBIT 10.8A
120 Flanders Road
SECOND LEASE ADDENDUM
THIS AGREEMENT is made this 21st day of April, 1993 and shall amend that certain
Lease Agreement dated April 21, 1989 (the "Original Lease") between CB
Westborough C Limited Partnership, a Texas Limited Partnership d/b/a Trammell
Crow Company (hereinafter "Landlord"), and Banyan Systems Incorporated a
Massachusetts corporation (hereinafter "Tenant"), as amended by a Lease Addendum
(the "First Addendum") dated December 31, 1991 (the Original Lease and the First
Addendum are hereinafter together referred to as the "Lease").
WHEREAS, Tenant currently leases from Landlord approximately 62,274 net rentable
square feet of office/R&D space located at 120 Flanders Road consisting of
45,049 rentable square feet rented pursuant to the Original Lease (the "Original
Premises") and 17,225 rentable square feet rented pursuant to the First Addendum
(the "Training Room Premises"), in a building that contains a total of
approximately 79,203 net rentable square feet,
WHEREAS, Tenant desires and Landlord agrees to amend the Lease as hereinafter
set forth.
NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, Landlord and Tenant agree as follows:
1. The term of the Lease is hereby extended for forty-three (43) months
from June 1, 1994 through and including December 31, 1997.
2. Effective as of January 1, 1993 (a) Base Rent for the Original Premises
shall be Two Hundred Eighty-One Thousand Five Hundred Fifty-Six Dollars
($281,556.00) per annum payable in twelve (12) equal monthly
installments of Twenty-Three Thousand Four Hundred Sixty-Three Dollars
($23,463.00) each, and (b) Base Rent for the Training Room Premises
shall be Ninety Thousand Four Hundred Thirty-One Dollars ($90,431.00)
per annum payable in twelve (12) equal monthly installments of Seven
Thousand Five Hundred Thirty-Six Dollars ($7,536.00) each.
3. Provided that the Lease is in full force and effect and provided further
that Tenant is then occupying the Original Premises and the Training
Room Premises and has not sublet any of such premises or assigned this
Lease, and provided further that Tenant is not in default beyond any
applicable cure and grace periods under the Lease, Tenant shall have
<PAGE>
the options to lease the premises shown and designated on Exhibit A
---------
attached hereto and made a part hereof, consisting of approximately
16,929 rentable square feet (the "Additional Space") under the following
terms and conditions:
(a) It is understood that the Additional Space is currently leased to a
tenant (the "Existing Tenant") pursuant to a lease which expires on
November 31, 1994. If the Existing Tenant vacates the Additional
Space prior to November 31, 1994, Tenant shall have a one-time first
right of offer (the "Right of First Offer") on the Additional Space
until November 31, 1994 on the terms and conditions hereinafter set
forth. Landlord shall notify Tenant of any offer by a bona fide
prospective tenant to lease the Additional Space, which notice shall
constitute an offer to Tenant to lease the Additional Space pursuant
to the terms hereof. Tenant may exercise its Right of First Offer by
notifying Landlord within seven (7) business days after receipt of
such notice of Tenant's election to lease the Additional Space. If
Tenant elects to lease the Additional Space within the period
provided, the lease of the Additional Space shall commence thirty
(30) days after Tenant's exercise of such election and shall expire
on December 31, 1997. Subject to the terms of the Lease regarding
construction on the Premises, Tenant may enter the Additional Space
during the thirty (30) day period following Tenant's election to
lease the Additional Space for the purpose of making tenant
improvements to the Additional Space, such use to be at no rental
cost to Tenant; provided however that if Tenant occupies the
Additional Space for its intended purpose, the commencement date or
the term for such Additional Space shall be deemed instead to be the
occupancy date. If Tenant fails to elect timely to lease the
Additional Space, Landlord shall be entitled at any time thereafter
and from time to time to lease the Additional Space to any party
without need of notifying Tenant or reoffering the Additional Space
to Tenant. If Landlord delivers a first right to offer to Tenant and
Tenant does not timely exercise its Right of First Offer to lease
the Additional Space, then Tenant's Fixed Option set forth in
Section (b) below shall terminate and be of no further force and
effect.
(b) Provided Tenant has not had an opportunity to exercise the right of
first offer described in subparagraph (a) above, Tenant shall have
an option (the "Fixed Option") to lease the Additional Space as of
December 1, 1994. Tenant may exercise its Fixed Option as
hereinafter set forth by delivering written notice to Landlord no
-2-
<PAGE>
later than November 1, 1994. If Tenant timely exercises its Fixed
Option, Landlord shall deliver the Additional Space to Tenant
commencing on December 1, 1994 (provided the Existing Tenant has
vacated) and the lease of the Additional Space shall expire on
December 31, 1997. If Tenant does not deliver written notice to
Landlord on or before November 1, 1994 of its election to lease the
Additional Space, this Fixed Option shall terminate and be of no
further force. If the Existing Tenant has not vacated by December 1,
1994, at Tenant's election exercised by February 1, 1995, Tenant
shall have the right to revoke its exercise of the Fixed Option, in
which event the Fixed Option shall terminate and be of no further
force and effect and Tenant shall not have any further liability
with respect to the Additional Space. If the Tenant's exercise of
the Fixed Option is not so revoked, Tenant agrees to lease the
Additional Space when it become available upon the terms and
conditions specified above, provided only that such space become
available by June 1, 1995. The Fixed Option shall be of no force and
effect and Tenant shall have no obligation to rent the Additional
Space if the Additional Space is not available for any reason by
June 1, 1995.
(c) Any lease of Additional Space to Tenant pursuant to subparagraphs
(a) or (b) above shall be upon all of the terms and conditions of
the Lease as modified hereby except that (i) Tenant's Proportionate
Share as defined in the Lease, shall become 100% as of the
commencement date of Tenant's lease of the Additional Space, and
(ii) Base Rent for the Additional Space shall be Eighty-Eight
Thousand Eight Hundred Seventy-Seven Dollars ($88,877.00) per annum
payable in twelve (12) equal monthly installments of Seven Thousand
Four Hundred Six Dollars ($7,406.00) each, such Base Rent shall be
payable on the first day of each and every month and shall be
prorated if the lease of the Additional Space commences on other
than the first day of the month. The Additional Space shall be
delivered to Tenant in broom-clean condition, but otherwise shall be
delivered "AS IS".
4. Provided that, at the time of such exercise, this Lease is still in full
force and effect without default by Tenant beyond applicable grace
periods and Tenant occupies at least seventy-five percent (75%) of the
Premises for its own business purposes, Tenant shall have the right and
option (the "Extension Options") to extend the Term of this Lease for
two (2) extended terms of three (3) years each (each an "Extended
Term"). Each Extended Term shall commence on the day immediately
succeeding the
-3-
<PAGE>
expiration date of the then existing Term and shall end on the day
immediately preceding the third anniversary of the first day of such
Extended Term. Tenant shall exercise its Extension Option for the
Extended Term by giving written notice to Landlord of its desire to do
so not later than six (6) months prior to the expiration date of the
then existing Term. The giving of such notice by Tenant shall
automatically extend the Term of this Lease for the applicable Extended
Term (except as hereinafter set forth), and no instrument of renewal
need be executed. In the event that Tenant fails to give such notice to
Landlord this Lease shall automatically terminate at the end of the then
current Term and Tenant shall have no further option to extend the Term
of this Lease. The Extended Terms shall be on all the terms and
conditions of this Lease, except (i) during any Extended Term, the
extension provisions of this Section relative to the Extended Term then
in effect shall not be effective, (ii) during the first Extended Term,
Base Rent shall equal one hundred twenty-five percent (125%) of the Base
Rent in effect during the last year of the preceding Term of this Lease
and (iii) during the second Extended Term, Base Rent shall equal ninety-
five percent (95%) of fair market rent for the space but in any event
not less than the Base Rent payable during the last year of the first
Extended Term. Landlord and Tenant shall attempt to agree on the fair
market rent for the Premises for a period of thirty (30) days following
Tenant's notice to Landlord of its desire to exercise its Extension
Option. If Landlord and Tenant fail to agree on the fair market rent
within such thirty (30) day period, this Lease shall automatically
terminate at the end of their current term unless both Landlord and
Tenant, within ten (10) days following expiration of such thirty day
period, elect to follow the Appraisal Process for the determination of
fair market rent. If the Appraisal Process is so elected by both
parties, within twenty (20) days after the expiration of the thirty (30)
day period set forth above, Landlord and Tenant will each appoint a real
estate appraiser with at least five (5) years full-time commercial
appraisal experience in the area in which the Premises are located to
appraise the fair market rental value of the Premises. If either party
does not appoint an appraiser within such twenty (20) day period and
notify the other party in writing of this selection, the single
appraiser appointed will be the sole appraiser and will set the fair
market rental value of the Premises. If two (2) appraisers are appointed
pursuant to this paragraph, they will meet promptly and attempt to set
the then fair market rental value of the Premises. If they are unable to
agree within thirty (30) days after the second appraiser has been
appointed, they will attempt to elect a third appraiser meeting the
qualifications stated in this paragraph within ten (10) days after the
end of the aforesaid thirty-day period. If they are unable to agree on
the third appraiser, either the Landlord or the
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<PAGE>
Tenant, by giving ten (10) days prior notice to the other, may apply to
the then presiding judge of the local circuit or district court having
primary jurisdiction for civil matters in the area in which the Premises
are located for the selection of a third appraiser who meets the
qualifications stated in this paragraph. Landlord and Tenant will each
bear one-half (1/2) of the cost of appointing the third appraiser and of
the third appraiser's fee as well as the cost of their respective
appointed appraisers. The third appraiser, however selected, must be a
person who has not previously acted in any capacity for either Landlord
or Tenant. Within thirty (30) days after the selection of the third
appraiser, a majority of the appraisers will set the then fair market
rental value of the Premises. If a majority of the appraisers are unable
to set the then fair market rental value of the Premises within thirty
(30) days after selection of the third appraiser, the three (3)
appraisals will be averaged and the average will be the then fair market
rental value of the Premises.
Upon determination of the Base Rent for the second Extended Term
pursuant to the foregoing, the parties agree to execute an amendment
to the Lease acknowledging the same.
5. Paragraph 5 of the First Addendum and paragraphs 24 and 36 of the
Original Lease are hereby deleted in their entirety and are of no
further force or effect.
6. All other terms and conditions of the Lease shall remain in full force
and effect, except as modified hereby or unless modified in writing by
authorized representatives of the parties.
Executed as of the date first set forth above by the authorized representative
of the parties.
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<PAGE>
BANYAN SYSTEMS INCORPORATED CB Westborough C Limited Partnership, a
Partnership Texas Limited Partnership
By: CMANE-BOSTON DEVELOPMENT
COMPANY #2, Inc.
By: /s/ Jeffrey D. Glidden By: /s/ Luke F. Pickett
------------------------------- ---------------------------
Print Name: Jeffrey D. Glidden Print Name: Luke F. Pickett
----------------------- -------------------
Title: VP and CFO Title: Vice President
---------------------------- ------------------------
Witness: Witness: /s/ Donna Gulledge
-------------------------- ----------------------
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<PAGE>
EXHIBIT 10.9A
115 Flanders Road
LEASE EXTENSION AND MODIFICATION AGREEMENT
------------------------------------------
THIS LEASE EXTENSION AND MODIFICATION AGREEMENT is made as of April 1,
1993, by and between AETNA REAL ESTATE ASSOCIATES, L.P., a Delaware limited
partnership having a mailing address in care of Aetna Realty Investors, Inc.,
242 Trumbull Street, Hartford, CT 06156, Attention: Equities Management
("Landlord"), and BANYAN SYSTEMS, INCORPORATED, a Massachusetts corporation
having it's principal place of business at 120 Flanders Road, Westborough, MA
01581-1033 ("Tenant").
W I T N E S S E T H:
WHEREAS, pursuant to certain Lease Agreement (the "Lease Agreement") dated
November 14, 1986 by and between Arthur DiMartino, Jr., Trustee of Flanders
Realty Trust, as landlord ("Flanders"), and Tenant, as tenant, Flanders leased
to tenant and square feet, consisting of approximately 34,960 square feet of
space located on the first and second floor, and the contiguous 22,155 square
feet of space located in the one story section (collectively, the "Premises") of
a building situated at 115 Flanders Road, Westborough, MA, all as more
particularly described in the Lease Agreement.
WHEREAS, said Lease Agreement has been amended as set forth in (i) a Lease
Addendum dated August 28, 1987, (ii) a Lease Addendum dated January 5, 1988, and
(iii) a certain undated Lease Extension and Modification Agreement effective as
of January 1, 1992 (the "Lease Extension"). (said Lease Agreement as amended is
referred to as the "Lease");
WHEREAS, pursuant to a certain Assignment of Leases dated February 5, 1988,
Flanders assigned its right, title and interest under the Lease to Landlord;
WHEREAS, the term of the Lease expires on April 30, 1994; and
WHEREAS, Landlord and Tenant desire to extend the term of the Lease and to
further modify the Lease on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the sum of TEN DOLLARS ($10.00), the
receipt and sufficiency of which are mutually acknowledged, Landlord and Tenant
agree as follows:
1. The term of the Lease is hereby extended for forty-four (44) months,
from April 30, 1994 through and including December 31, 1997.
<PAGE>
2. Effective as of January 1, 1993, the Base Rent for the Premises shall
be reduced from $359,824.50 per annum to $291,286.50 per annum payable in twelve
(12) equal monthly installments of $24,273.00 for the remainder of the Term on
the first day of each and every month. Tenant shall be responsible for eighty
eight and six tenths percent (88.6%) of all operating, tax, maintenance and
repair expenses as stated in the Lease. As of January 1, 1993, Tenant's
"proportionate share", as such term is used in the Lease, shall be deemed to be
88.6%.
3. In addition to the Premises, Tenant shall lease the premises shown and
designated on Exhibit A attached thereto and made a part hereof, consisting of
7,462 rentable square feet, more or less, and located at 115 Flanders Road (the
"Additional Space"), if the present tenant, Failure Analysis, fails to exercise
its option to lease the Additional Space. In the event Tenant is so obligated
to lease the Additional Space, such lease shall be upon the following terms and
conditions.
Landlord shall notify Tenant in writing (the "Expansion Notification") of
the availability of the Additional Space if Failure Analysis fails to exercise
its option with respect to the Additional Space and subsequently vacates such
space. Provided the Additional Space is available for rent by Tenant, Tenant
shall lease the Additional Space commencing on the later to occur of (i) July
31, 1993 or (ii) thirty days after notice of the date of its availability (the
"Additional Space Commencement Date") and expiring on December 31, 1997;
provided, however, that this agreement to lease the Additional Space shall lapse
and be of not force and effect whatsoever unless Tenant shall have been given
prior written notice of the availability of such space by January 15, 1994.
Subject to the terms of the Lease regarding construction in the Premises,
Tenant shall be entitled to enter the Additional of the space outlined in the
Expansion Notification, and the Additional Space Commencement Date for purposes
of making tenant improvements to the Additional Space, such use to be at no
rental cost to Tenant; provided, however, that if Tenant earlier occupies the
Additional Space for its intended purpose, the commencement date of the Lease of
the Additional Space shall be deemed to be such date of occupancy, rather than
the Additional Space Commencement Date as set forth above. The lease of the
Additional Space shall be evidenced by an amendment to Lease and shall be upon
all of the terms and conditions of this Lease except that Tenant's
"proportionate share" of tax, operating, repair and maintenance expenses, as
provided for the Lease shall be increased to 100% and shall not be payable by
tenant from July 1, 1993 through and including the Additional Space Commencement
Date. During the period beginning on the first day following the Additional
Space Commencement Date (subject to the provisions of the previous of the
previous sentence) until December 31, 1997, Base Rent for the Additional Space
shall be Thirty-Eight Thousand Fifty-Six Dollars ($38,056.00) per annum payable
in twelve (12) equal monthly installments of Three Thousand One Hundred Seventy-
One and 33/100 Dollars ($3,171.33) each on the first day of each and every month
(or a pro rata portion if the Additional Space Commencement Date occurs on other
than the first day of the month). The
2
<PAGE>
Additional Space shall be delivered to Tenant in broom-clean condition, but
otherwise shall be delivered "AS IS" without representation or warranty. If the
Additional Space Commencement Date has not occurred by October 31, 1993, Tenant
shall have the following holdover rights. Reference is hereby made to a Sublease
between Sytron Corporation and Tenant date June 19, 1991 of certain premises
(the "Holdover Premises") located at 117 Flanders Road (the "Holdover Lease"),
which lease expires October 31, 1993. In the event that the Additional Space
Commencement Date for the Additional Premises has not occurred by October 31,
1993 as provided herein, Tenant shall have the right to remain on a month to
month tenancy in the Holdover Premises after the expiration of the Holdover
Lease until the earlier of (i) thirty days after notice is given to Tenant of
the Existing Tenant vacating the Additional Premises, or (ii) February 28, 1994
(the "Holdover Period") provided, however that if, pursuant to the foregoing,
such month to month tenancy expires during the month of December, Tenant shall
have the right to extend such month to month tenancy to January 5, 1994. Tenants
occupancy of the Holdover Premises during the Holdover Period shall be upon all
of the terms and conditions of the Holdover Lease except that Base Rent during
such period shall be at a rate of Thirty Eight Thousand Fifty Six Dollars
($38,056.00) ($3,171.33 monthly), and Tenant's proportionate share shall be
ratably adjusted to reflect a change in the square footage of the Holdover
Premises as if the Holdover Premises were 7,462 square feet (except that
electrical charges shall reflect actual usage by Tenant).
4. Provided that, at the time of such exercise, this Lease is still in
full force and effect without default by Tenant beyond applicable grade periods
and Tenant occupies at least seventy-five percent (75%) of the Premises for its
own business purposes, Tenant shall have the right and option (the "Extension
Options") to extend the Term of this Lease for two (2) extended terms and three
(3) years each (each an "Extended Term"). Each Extended Term shall commence on
the day immediately succeeding the expiration date of the then existing Term and
shall end on the day immediately preceding the third anniversary of the first
day of such Extended Term. Tenant shall exercise its Extension Option for the
Extended Term by giving written notice to Landlord of its desire to do so not
later than six (6) months prior to the expiration date of the then existing
Term. The giving of such notice by Tenant shall automatically extend the Term
of this Lease for the applicable Extended Term (except as hereinafter set
forth), and not instrument of renewal need be executed. In the event that
Tenant fails to give such notice to Landlord this lease shall automatically
terminate at the end of the then current Term and Tenant shall have no further
option to extend the Term of this lease. Landlord and Tenant agree that they
have specifically bargained for such option right and notice provision, that
Landlord requires certainty in order to conduct its business, that any attempt
to exercise said option to renew after the date 180 days prior to the expiration
of the Term or first Extended Term, as the case may be, will operate to the
detriment of the Landlord and that termination of this renewal option after such
date shall not operate to the detriment of the Tenant. Accordingly, both
parties agree that Tenant shall not be
3
<PAGE>
allowed under any circumstances to exercise it renewal rights after such date
even if such failure was due to honest mistake or otherwise. The Extended Terms
shall be on all the terms and conditions of this Lease, except (i) during any
Extended Term, the extension provisions of this Section relative to the Extended
Term then in effect shall not be effective, (ii) during the first Extended Term,
Base Rent shall equal one hundred twenty-five percent (125%) of the Base Rent in
effect during the last year of the preceding Term of this Lease, and (iii)
during the second fair market rent for the space but in any event not less than
the Base Rent payable during the last year of the first Extended Term. As used
in the immediately preceding sentence, fair market rent means the rent then
prevalent for new rentals of similar space in similar quality buildings in the
Metro West area. (a) Landlord and Tenant will have thirty (30) days after
Landlord receives the option notice from Tenant within which to agree on the
monthly rent value of the Premises. If they agree on the monthly rent within
thirty (30) day, they will amend this Lease by stating the monthly rent. (b) If
they are unable to agree on the monthly rent for the second Extended Term within
thirty (30) days, this Lease shall automatically terminate at the end of the ten
current term unless both Landlord and Tenant, within ten (10) days following
expiration of such thirty (30) day period, elect to follow the Appraisal Process
set forth in Subsection 9c) below for the determination of fair market rent
within said thirty (30) day period. (c) Within twenty (20) days after the
expiration of the thirty (30) day period set forth in Subsection (a) above,
Landlord and Tenant will each appoint a real estate appraiser with at least five
(5) years full-time commercial appraisal experience in the area in which the
Premises are located to appraise the fair market rental value of the Premises.
If either party does not appoint an appraiser within such twenty (20) day period
and notify the other party in writing of this selection, the single appraiser
appointed will be the sole appraiser and will set the fair market rental value
of the Premises. If two (2) appraisers are appointed pursuant to this Subsection
(c), they will meet promptly and attempt to set the then fair market rental
value of the Premises. If they are unable to agree within thirty (30) days after
the second appraiser has been appointed, they will attempt to elect a third
appraiser meeting the qualifications stated in this Subsection (c) within ten
(10) days after the end of the aforesaid thirty-day period. If they are unable
to agree on the third appraiser, either the Landlord or the Tenant, by giving
ten (10) days prior notice to the other, may apply to the ten presiding judge of
the local circuit or district court having primary jurisdiction for civil
matters in the area in which the Premises are located for the selection of a
third appraiser who meets the qualifications stated in this Subsection (c).
Landlord and Tenant will each bear on-half (1/2) of the cost of appointing the
third appraiser and of the third appraiser's fee as well as the cost of their
respective appointed appraisers. The third appraiser, however selected, must be
a person who has not previously acted in any capacity for either Landlord or
Tenant. Within thirty (30) days after the selection of the third appraiser, a
majority of the appraisers will set the then fair market rental value of the
Premises. If a majority of the appraisers are unable to set the then fair market
rental value of the Premises
4
<PAGE>
within thirty (30) days after selection of the third appraiser, the three (3)
appraisals will be averaged and the average will be the then fair market rental
value of the Premises.
Upon determination of the Base Rent for the second Extended Term pursuant
to the foregoing, the parties agree to execute an amendment to the Lease
acknowledging the same.
5. The provisions of paragraph 24 of the Lease Agreement and, in the
Lease Extension, the last sentence of paragraph 1 and all of paragraph 3, are
hereby deleted in their entirety and are of no further force or effect.
6. The following provision is hereby added to the Lease and shall be
effective notwithstanding anything in the Lease to the contrary:
In the event of any transfer(s) of Landlord's interest in the Premises or
the Building, other than a transfer for security purposes only, the
transferor shall be automatically relieved of any and all obligations and
liabilities on the part of Landlord accruing from and after the date of
such transfer, and Tenant agrees to attorn to the transferee.
7. The following provision is hereby added to the Lease and shall be
effective notwithstanding anything in the Lease to the contrary:
(i) As hereinafter used, the term "Hazardous Material" shall mean any
substance or material which has been determined by any state, federal
or local governmental authority to be capable of posing a risk of
injury to health, safety or property, including all of those materials
and substances designated as hazardous or toxic by the city in which
the Premises are located, the U.S. Environmental Protection Agency, the
Consumer Product Safety Commission, the food and Drug Administration,
and any federal agencies that have overlapping jurisdiction with such
state agencies, or any other governmental agency now or hereafter
authorized to regulate materials and substances in the environment.
(ii) Tenant agrees not to introduce any Hazardous Material in, on or
adjacent to the Premises without complying with all applicable federal,
state and local laws, rules, regulations, policies and authorities
relating to the storage, use or disposal, and clean-up of Hazardous
Materials, including, but not limited to, the obtaining of proper
permits.
(iii) Tenant shall immediately notify Landlord of any inquiry, test,
investigation, or enforcement proceeding against Landlord or the
5
<PAGE>
Premises concerning a Hazardous Material. Tenant acknowledges that
Landlord, as the owner of the Premises, shall have the right, at its
election, in its own name or as Landlord's agent, to negotiate, defend,
approve, and appeal, at Landlord's own expense, any action taken or
order issued with regard to a Hazardous Material by an applicable
governmental authority.
(iv) If Tenant's storage, use or disposal of any Hazardous Material in, on
or adjacent to the Premises results in any contamination of the
Premises, the soil or surface or groundwater (i) requiring remediation
under federal, state or local statutes, ordinances, regulations or
policies, or, (ii) at levels which could materially diminish the value
of the Building or present a safety or health risk to tenants,
employees, licensees, invitees or others on or affected by the property
of which the Premises are a part, Tenant agrees to perform such
remediation as required by the applicable statute, ordinance,
regulation or policies, or as otherwise required by the governmental
agency having jurisdiction over such contamination. Tenant further
agrees to indemnify, defend and hold Landlord harmless from and against
any claims, suits, causes of action, costs, fees, including attorneys'
fees and costs, arising out of or in connection with any such
remediation, or any inquiry or enforcement proceeding in connection
therewith, and any Hazardous Materials currently or hereafter released
or disposed of by Tenant or its agents, employees, contractors or
invitees on or about the Premises.
(v) Notwithstanding any other right of entry granted to Landlord under this
Lease, Landlord shall have the right to enter the Premises or to have
consultants enter the Premises throughout the term of this Lease for
the purpose of determining: (1) whether the Premises are in conformity
with federal, state and local statutes, regulations, ordinances, and
policies including those pertaining to the environmental condition of
the Premises (2) whether Tenant has complied with this paragraph.
Tenant agrees to provide access and reasonable assistance for such
inspections. Such inspections may include, but are limited to, entering
the Premises or adjacent property with drill rigs or other machinery
for the purpose of obtaining laboratory samples. Landlord shall not be
limited in the number of such inspections during the term of this
Lease. The right granted to Landlord herein to inspect the Premises
shall not create a duty on Landlord's part to inspect the Premises, or
liability of Landlord for Tenant's use, storage or disposal of
Hazardous Materials, it being understood that Tenant shall be solely
responsible for all liability in connection therewith. Any inspection
performed by Landlord hereunder shall be conducted only after ten (1))
business days notice to Tenant (such notice not being required in the
event of an emergency),
6
<PAGE>
and shall be performed in such a manner as to not materially interfere
with Tenant's use and enjoyment of the Premises, including without
limitation, the parking areas and driveway serving the Premises.
(vi) Tenant shall surrender the Premises to landlord upon the expiration or
earlier termination of this Lease in compliance with the requirements
of subparagraph 7(iv) above.
(vii) Tenant's obligations under this paragraph shall survive termination of
this Lease.
8. The Lease, as hereinbefore extended and modified, is hereby ratified
and confirmed.
LANDLORD:
AETNA REAL ESTATE ASSOCIATES, L.P.
Witness: /s/ Maria Leblanc By: Aetna/AREA Corporation
Purvis Its: General Partner
By: /s/ David A. Cush
Its: President
Hereunto duly authorized
TENANT:
BANYAN SYSTEMS INCORPORATED
By: /s/ Jeffrey D. Glidden
Name: Jeffrey D. Glidden
Title: Vice President and Chief
Financial Officer
7
<PAGE>
EXHIBIT 10.17
BANYAN SYSTEMS INCORPORATED
EXECUTIVE RETENTION AGREEMENT
This Executive Retention Agreement (this "AGREEMENT") between Banyan
Systems Incorporated, a Massachusetts corporation (the "COMPANY"), and Robert D.
Burke (the "EXECUTIVE") is made as of October 16, 1998 (the "EFFECTIVE DATE").
The Company and the Executive shall, at times, be referred to herein each as, a
"PARTY," and together as, the "PARTIES."
Preliminary Statement
---------------------
A. The Executive presently serves in the employ of the Company as the
Company's Senior Vice President, Worldwide Sales and Service.
B. The Executive and the Company have entered into that certain Offer
Letter dated March 19, 1997 (the "PRIOR AGREEMENT").
C. 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.
D. The Board of Directors of the Company (the "BOARD") has determined
that appropriate steps should be taken 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.
NOW, THEREFORE, as an inducement for and in consideration of the Executive
remaining in its employ, the mutual promises set forth in this Agreement, and
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the Company and the Executive hereby further agree as
follows:
1. Key Definitions.
---------------
As used herein, the following terms shall have the following respective
meanings:
<PAGE>
1.1 "CHANGE IN CONTROL" means an event or occurrence set forth in any
one or more of Section 1.1(a) through 1.1(d) below (including an event or
occurrence that constitutes a Change in Control under one of such Sections but
is specifically exempted from another such Section):
(a) the acquisition by an individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "EXCHANGE ACT")) (a "PERSON") of beneficial ownership of any
capital stock of the Company if, after such acquisition, such Person
beneficially owns (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) 50% or more of either (i) the then-outstanding shares of common
stock of the Company (the "OUTSTANDING COMPANY COMMON STOCK") or (ii) the
combined voting power of the then-outstanding securities of the Company entitled
to vote generally in the election of directors (the "OUTSTANDING COMPANY VOTING
SECURITIES"); provided, however, that for purposes of this Section 1.1(a), the
--------
following acquisitions shall not constitute a Change in Control: (i) any
acquisition directly from the Company (excluding an acquisition pursuant to the
exercise, conversion or exchange of any security exercisable for, convertible
into or exchangeable for common stock or voting securities of the Company,
unless the Person exercising, converting or exchanging such security acquired
such security directly from the Company or an underwriter or agent of the
Company), (ii) any acquisition by the Company, (iii) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the Company
or any corporation controlled by the Company, or (iv) any acquisition by any
corporation pursuant to a transaction which complies with clauses (i) and (ii)
of Section 1.1(c) hereof; or
(b) such time as the Continuing Directors (as defined below) do
not constitute a majority of the Board (or, if applicable, the Board of
Directors of a successor corporation to the Company), where the term "CONTINUING
DIRECTOR" means at any date a member of the Board (i) who was a member of the
Board on the date of the execution of this Agreement or (ii) who was nominated
or elected subsequent to such date by at least a majority of the directors who
were Continuing Directors at the time of such nomination or election or whose
election to the Board was recommended or endorsed by at least a majority of the
directors who were Continuing Directors at the time of such nomination or
election; provided, however, that there shall be excluded from this clause (ii)
-------- -------
any individual whose initial assumption of office occurred as a result of an
actual or threatened election contest with respect to the election or removal of
directors or other actual or threatened solicitation of proxies or consents, by
or on behalf of a person other than the Board; or
(c) the consummation of a merger, consolidation, reorganization,
recapitalization or statutory share exchange involving the Company or
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<PAGE>
a sale or other disposition of all or substantially all of the assets of the
Company (a "BUSINESS COMBINATION"), unless, immediately following such Business
Combination, each of the following two conditions is satisfied: (i) all or
substantially all of the individuals and entities who were the beneficial owners
of the Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such Business Combination beneficially own,
directly or indirectly, more than 50% of the then-outstanding shares of common
stock and the combined voting power of the then-outstanding securities entitled
to vote generally in the election of directors, respectively, of the resulting
or acquiring corporation in such Business Combination (which shall include,
without limitation, a corporation which as a result of such transaction owns the
Company or substantially all of the Company's assets either directly or through
one or more subsidiaries) (such resulting or acquiring corporation is referred
to herein as the "ACQUIRING CORPORATION") in substantially the same proportions
as their ownership, immediately prior to such Business Combination, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities,
respectively; and (ii) no Person (excluding the Acquiring Corporation or any
employee benefit plan (or related trust) maintained or sponsored by the Company
or by the Acquiring Corporation) beneficially owns, directly or indirectly, 50%
or more of the then outstanding shares of common stock of the Acquiring
Corporation, or of the combined voting power of the then-outstanding securities
of such corporation entitled to vote generally in the election of directors
(except to the extent that such ownership existed prior to the Business
Combination); or
(d) approval by the stockholders of the Company of a
complete liquidation or dissolution of the Company.
1.2 "CHANGE IN CONTROL DATE" means the first date during the Term (as
defined in Section 2 hereof) on which a Change in Control occurs. Anything in
this Agreement to the contrary notwithstanding, if (a) a Change in Control
occurs, (b) the Executive's employment with the Company is terminated prior to
the date on which the Change in Control occurs, and (c) it is reasonably
demonstrated by the Executive that such termination of employment (i) was at the
request of a third party who has taken steps reasonably calculated to effect a
Change in Control or (ii) otherwise arose in connection with or in anticipation
of a Change in Control, then for all purposes of this Agreement the "CHANGE IN
CONTROL DATE" shall mean the date immediately prior to the date of such
termination of employment.
1.3 "CAUSE" means:
(a) the Executive's willful and continued failure to
substantially perform his reasonable assigned duties as an officer of the
Company (other than any such failure resulting from incapacity due to physical
or mental illness or any failure after the Executive gives notice of termination
for Good Reason), which failure is not
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<PAGE>
cured within 30 days after a written demand for substantial performance is
received by the Executive from the Chief Executive Officer or the Board (or the
Compensation Committee thereof) which specifically identifies the manner in
which the Chief Executive Officer or the Board (or the Compensation Committee
thereof), respectively, believes the Executive has not substantially performed
the Executive's duties; or
(b) the Executive's willful engagement in illegal conduct or
gross misconduct which is materially and demonstrably injurious to the Company.
For purposes of this Section 1.3, no act or failure to act by the Executive
shall be considered "WILLFUL" unless it is done, or omitted to be done, in bad
faith and without reasonable belief that the Executive's action or omission was
in the best interests of the Company.
1.4 "GOOD REASON" means the occurrence, without the Executive's
written consent, of any of the events or circumstances set forth in clauses (a)
through (g) below. Notwithstanding the occurrence of any such event or
circumstance, such occurrence shall not be deemed to constitute Good Reason if,
prior to the Date of Termination specified in the Notice of Termination (each as
defined in Section 3.2(a) hereof) given by the Executive in respect thereof,
such event or circumstance has been fully corrected and the Executive has been
reasonably compensated for any losses or damages resulting therefrom (provided
that such right of correction by the Company shall only apply to the first
Notice of Termination for Good Reason given by the Executive).
(a) the assignment to the Executive of duties inconsistent in any
material respect with the Executive's position (including status, offices,
titles and reporting requirements), authority or responsibilities in effect
immediately prior to the earliest to occur of (i) the Change in Control Date,
(ii) the date of the execution by the Company of the initial written agreement
or instrument providing for the Change in Control or (iii) the date of the
adoption by the Board of a resolution providing for the Change in Control (with
the earliest to occur of such dates referred to herein as the "MEASUREMENT
DATE"), or any other action or omission by the Company which results in a
diminution in such position, authority or responsibilities;
(b) a reduction in the aggregate of the Executive's annual base
salary and ON TARGET EARNINGS (as defined in the Company's Executive Bonus Plan)
as in effect on the Measurement Date or as the same was or may be increased from
time to time;
(c) the failure by the Company to (i) continue in effect any
material compensation or benefit plan or program (including without limitation
any
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<PAGE>
life insurance, medical, health and accident or disability plan) (a "BENEFIT
PLAN") in which the Executive participates or which is applicable to the
Executive immediately prior to the Measurement Date, unless an equitable
arrangement (embodied in an ongoing substitute or alternative plan) has been
made with respect to such plan or program, (ii) continue the Executive's
participation therein (or in such substitute or alternative plan) on a basis not
materially less favorable, both in terms of the amount of benefits provided and
the level of the Executive's participation relative to other participants, than
the basis existing immediately prior to the Measurement Date or (iii) award cash
bonuses to the Executive in amounts and in a manner substantially consistent
with past practice in light of the Company's financial performance;
(d) a change by the Company in the location at which the
Executive performs his principal duties for the Company to a new location that
is more than 35 miles from the location at which the Executive performed his
principal duties for the Company immediately prior to the Measurement Date;
(e) the failure of the Company to obtain the agreement, in a form
reasonably satisfactory to the Executive, from any successor to the Company to
assume and agree to perform this Agreement, as required by Section 6.1 hereof;
or
(f) any failure of the Company to pay or provide to the Executive
any portion of the Executive's compensation or benefits due under any Benefit
Plan within seven days of the date such compensation or benefits are due, or any
material breach by the Company of any employment agreement with the Executive.
The Executive's right to terminate his employment for Good Reason shall not
be affected by his incapacity due to physical or mental illness.
1.5 "DISABILITY" means the Executive's absence from the full-time
performance of the Executive's duties with the Company for 180 consecutive
calendar days as a result of incapacity due to mental or physical illness which
is determined to be total and permanent by a physician selected by the Company
or its insurers and reasonably acceptable to the Executive or the Executive's
legal representative.
1.6 "MATERIAL REDUCTION IN RESPONSIBILITIES" means the occurrence,
without Cause, of any of the following: (i) the Company removes the Executive
from the position of Senior Vice President, Worldwide Sales and Service or as an
officer of the Company or reduces the responsibilities of the Executive from
managing worldwide sales and service, (ii) the Company assigns an individual
other than William P. Ferry as the person to whom the Executive directly
reports, (iii) William P. Ferry is no longer the Chairman of the Board and Chief
Executive Officer of the Company and (iv) the Company reduces the Executive's
base salary and executive
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<PAGE>
bonus. Any voluntary termination by the Executive of his employment with the
Company for a Material Reduction in Responsibilities must occur within 60 days
of such Material Reduction in Responsibilities, and after giving 30 days prior
written notice to the Company.
2. Term of Agreement. This Agreement, and all rights and obligations of
-----------------
the Parties, shall take effect upon the Effective Date and shall expire upon the
first to occur of (a) the expiration of the Term (as defined below) if a Change
in Control has not occurred during the Term, (b) the date 12 months after the
Change in Control Date, if the Executive is still employed by the Company as of
such later date, or (c) the fulfillment by the Company of all of its obligations
under Sections 4 and 5.2 hereof if the Executive's employment with the Company
terminates within 12 months following the Change in Control Date. "TERM" shall
mean the period commencing as of the Effective Date and continuing in effect
through October 16, 2001; provided, however, that commencing on October 17, 2001
--------
and each October 17 thereafter, the Term shall be automatically extended for one
additional year unless, not later than 90 days prior to the scheduled expiration
of the Term (or any extension thereof), the Company shall have given the
Executive written notice that the Term will not be extended. Notwithstanding the
foregoing, the provisions of Section 3.1 hereof shall remain in full force and
effect for the duration of the Executive's employment with the Company.
3. Employment Status; Termination.
------------------------------
3.1 Employment Status.
-----------------
(a) Not an Employment Contract. The Executive acknowledges that
--------------------------
this Agreement does not constitute a contract of employment or impose on the
Company any obligation to retain the Executive as an employee and that this
Agreement does not prevent the Executive from terminating employment at any
time. Notwithstanding the foregoing, the Executive may be entitled to certain
benefits under Sections 3.1(b) or 4 hereof, if the Executive's employment with
the Company is terminated pursuant to the circumstances described therein. If
the Executive's employment with the Company terminates for any reason and
subsequently a Change in Control shall occur, the Executive shall not be
entitled to any benefits under Section 4 hereof, except as otherwise provided
pursuant to Section 1.2 hereof, in which event, any benefits provided pursuant
to Section 4 hereof shall be net of and not in addition to any benefits provided
pursuant to Section 3.1(b) hereof.
(b) Termination Benefits. Upon the termination of the Executive's
--------------------
employment with the Company for any reason other than (v) the Executive's death,
(w) the Executive's Disability, (x) termination for Cause, (y) voluntary
termination at the election of the Executive other than for a Material Reduction
in Responsibilities or (z) any termination pursuant to which the Executive is
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<PAGE>
entitled to benefits under Section 4.2 hereof, the Executive shall be entitled
to the following benefits:
(i) For the period nine months subsequent to the Date of
Termination (as defined in Section 3.2 hereof), the Company will pay to the
Executive each month a severance amount calculated as the arithmetic average of
the total cash compensation, including all salary and bonuses, paid by the
Company to the Executive each month for the 12 full calendar months preceding
the Date of Termination. The Company shall deduct from such payments any
applicable deductions for medical, dental, prescription and life insurance
contributions and/or withholdings for taxes or similar governmental payments or
charges.
(ii) Within thirty days of the Date of Termination, the
Company will pay to the Executive all bonuses, if any, earned by the Executive
as of the Date of Termination and the pro rata portion of all guaranteed
bonuses, if any, earned by the Executive during his employment by the Company
through the Date of Termination.
(iii) For the period nine months subsequent to the Date of
Termination, the Company will provide continued medical, dental and life
insurance coverage to the Executive and the Executive's family, on terms
substantially as in effect on the Date of Termination, subject to the payment by
the Executive of all applicable employee contributions.
(iv) (A) If this Section 3.1(b)(iv) is applicable due to the
termination of the Executive's employment with the Company for any reason other
than a voluntary termination at the election of the Executive for a Material
Reduction in Responsibilities, each outstanding nonqualified option to purchase
shares of Common Stock of the Company held by the Executive shall become
immediately exercisable as to all shares of Common Stock of the Company subject
to such options for which such option would have become exercisable within the
period nine months subsequent to the Date of Termination; or (B) if this Section
3.1(b)(iv) is applicable due to the termination of the Executive's employment
with the Company due to voluntary termination at the election of the Executive
for a Material Reduction in Responsibilities, the vesting of each outstanding
nonqualified option to purchase shares of Common Stock of the Company held by
the Executive shall, notwithstanding any provisions in such option or the
Company's 1992 Stock Incentive Plan, as amended, to the contrary, continue for
the earlier to occur of (i) the expiration of such option pursuant to its terms
of (II) the date nine months subsequent to the Date of Termination.
(c) Patent and Confidentiality Agreement. The Executive hereby
------------------------------------
ratifies and confirms in all respects his obligations and responsibilities
pursuant to the Employee Patent and Confidential Information Agreement between
the
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<PAGE>
Company and the Executive. Without limiting the generality of the foregoing, the
Executive agrees that all documents, records, techniques, business secrets and
other information which have and will come into his possession from time to time
during his employment with the Company shall be deemed to be confidential and
proprietary to the Company. The Executive shall retain in his confidence any
confidential information known to him concerning the Company and its
subsidiaries and their respective businesses and such information shall not be
disclosed to any person or entity other than employees of the Company and its
subsidiaries who have a need to know such information, nor shall the Executive
use the same for any purpose (other than in the performance of his duties as an
employee of the Company) without written approval by another officer of the
Company, either during or after his employment with the Company, unless and
until such information has become public knowledge without fault by the
Executive.
(d) Services During Certain Events. In the event that a third
------------------------------
person begins a tender or exchange offer with respect to the Outstanding Company
Common Stock, circulates a proxy to the Company's stockholders, or takes other
steps seeking to effect a Change in Control, and until such third person has
abandoned or terminated such efforts to effect a Change in Control or until
after such a Change in Control has been effected, the Executive agrees that he
will not voluntarily leave the employ of the Company and will continue to serve
the Company in all capacities in which he served the Company immediately prior
to the date of the taking of such steps to effect a Change in Control.
3.2 Notice of Termination of Employment.
-----------------------------------
(a) Any termination of the Executive's employment by the Company
or by the Executive during the Term or, if the Change in Control Date occurs
during the Term, within 12 months following the Change in Control Date (other
than due to the death of the Executive) shall be communicated by a written
notice to the other Party (the "NOTICE OF TERMINATION"), given in accordance
with Section 7 hereof. Any Notice of Termination shall: (i) indicate the
specific termination provision (if any) of this Agreement relied upon by the
Party giving such notice, (ii) to the extent applicable, set forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated and (iii) specify
the Date of Termination (as defined below). The effective date of an employment
termination (the "DATE OF TERMINATION") shall be the close of business on the
date specified in the Notice of Termination (which date may not be less than 15
days or more than 120 days after the date of delivery of such Notice of
Termination), in the case of a termination other than one due to the Executive's
death, or the date of the Executive's death, as the case may be.
(b) The failure by the Executive or the Company to set forth in
-8-
<PAGE>
the Notice of Termination any fact or circumstance which contributes to a
showing of Good Reason or Cause shall not waive any right of the Executive or
the Company, respectively, hereunder or preclude the Executive or the Company,
respectively, from asserting any such fact or circumstance in enforcing the
Executive's or the Company's right hereunder.
(c) Any Notice of Termination for Cause given by the Company must
be given within 90 days of the occurrence of the event(s) or circumstance(s)
which constitute(s) Cause. Subsequent to such event(s) or circumstance(s) and
prior to any Notice of Termination for Cause being given (and prior to any
termination for Cause being effective), the Executive shall be entitled to a
hearing before the Board (or the Compensation Committee thereof) at which he
may, at his election, be represented by counsel and at which he shall have a
reasonable opportunity to be heard. Such hearing shall be held on not less than
15 days prior written notice to the Executive stating the Board's intention to
terminate the Executive for Cause and stating in detail the particular event(s)
or circumstance(s) which the Board believes constitutes Cause for termination.
(d) Any Notice of Termination for Good Reason given by the
Executive must be given within 30 days of the occurrence of the event(s) or
circumstance(s) which constitute(s) Good Reason.
4. Change in Control Benefits to Executive.
---------------------------------------
4.1 Change in Control. If the Change in Control Date occurs during
-----------------
the Term, then, effective upon the Change in Control Date, (a) each outstanding
option to purchase shares of Common Stock of the Company held by the Executive
shall become immediately exercisable as to 50% of the then unvested shares
subject to such option, with such immediate vesting applied ratably to such
unvested shares, and (b) each outstanding restricted stock award held by the
Executive shall be deemed to be fully vested and no longer subject to a right of
repurchase by the Company.
4.2 Change in Control and Termination of Employment. If the Change
-----------------------------------------------
in Control Date occurs during the Term and the Executive's employment with the
Company terminates within 12 months following the Change in Control Date, the
Executive shall be entitled to the following benefits:
(a) Termination Without Cause or for Good Reason. If the
--------------------------------------------
Executive's employment with the Company is terminated by the Company (other than
for Cause, Disability or Death) or by the Executive for Good Reason within 12
months following the Change in Control Date, then the Executive shall be
entitled to the following benefits:
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<PAGE>
(i) the Company shall pay to the Executive in a lump sum in
cash within 30 days after the Date of Termination the aggregate of the following
amounts:
(1) the sum of (A) the Executive's earned but unpaid
base salary through the Date of Termination, (B) the product of (x) the annual
bonus paid or payable (including any bonus or portion thereof which has been
earned but deferred) for the most recently completed fiscal year and (y) a
fraction, the numerator of which is the number of days in the current fiscal
year through the Date of Termination, and the denominator of which is 365 and
(C) the amount of any compensation previously earned and deferred by the
Executive, in each case to the extent not previously paid (the sum of the
amounts described in clauses (A), (B), and (C) shall be hereinafter referred to
as the "ACCRUED OBLIGATIONS"); and
(2) the amount equal to the sum of (A) the Executive's
annual base salary for the calendar year in which the Change in Control Date or
the Date of Termination occurred, whichever annual base salary is greater, and
(B) the Executive's bonus under the Company's Executive Bonus Plan for the
calendar year in which the Change in Control Date or the Date of Termination
occurred (in each case, assuming for this purpose that all targets requisite to
qualifying the Executive for 100% of On Target Earnings were met and/or
satisfied in full, whether or not such targets were actually met and/or
satisfied), whichever such bonus is greater.
(ii) (a) each outstanding option to purchase shares of
Common Stock of the Company held by the Executive shall become immediately
exercisable in full and (b) each outstanding restricted stock award granted to
the Executive subsequent to the Change in Control Date shall be deemed to be
fully vested and no longer subject to a right of repurchase by the Company.
(iii) for 12 months after the Date of Termination, the
Company shall continue to provide benefits to the Executive and the Executive's
family at least equal to those which would have been provided to them if the
Executive's employment had not been terminated, in accordance with the
applicable Benefit Plans in effect on the Measurement Date; provided, however,
--------
that if the Executive becomes reemployed with another employer and is eligible
to receive a particular type of benefits (e.g., health insurance benefits) from
such employer on terms at least as favorable to the Executive and his family as
those being provided by the Company, then the Company shall no longer be
required to provide those particular benefits to the Executive and his family;
(iv) to the extent not previously paid or provided, the
Company shall timely pay or provide to the Executive any other amounts or
benefits required to be paid or provided or which the Executive is eligible to
receive following
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<PAGE>
the Executive's termination of employment under any plan, program, policy,
practice, contract or agreement of the Company and its affiliated companies
(such other amounts and benefits shall be hereinafter referred to as the "OTHER
BENEFITS"); and
(v) for purposes of determining eligibility (but not the
time of commencement of benefits) of the Executive for retiree benefits to which
the Executive is entitled, the Executive shall be considered to have remained
employed by the Company until 12 months after the Date of Termination.
(b) Resignation without Good Reason; Termination for Death or
---------------------------------------------------------
Disability. If the Executive voluntarily terminates his employment with the
- ----------
Company within 12 months following the Change in Control Date, excluding a
termination for Good Reason, or if the Executive's employment with the Company
is terminated by reason of the Executive's death or Disability within 12 months
following the Change in Control Date, then the Company shall (i) pay the
Executive (or his estate, if applicable), in a lump sum in cash within 30 days
after the Date of Termination, the Accrued Obligations and (ii) timely pay or
provide to the Executive the Other Benefits.
(c) Termination for Cause. If the Company terminates the
---------------------
Executive's employment with the Company for Cause within 12 months following the
Change in Control Date, then the Company shall (i) pay the Executive, in a lump
sum in cash within 30 days after the Date of Termination, the sum of (A) the
Executive's annual base salary through the Date of Termination and (B) the
amount of any compensation previously deferred by the Executive, in each case to
the extent earned but not previously paid, and (ii) timely pay or provide to the
Executive the Other Benefits.
4.3 Taxes.
-----
(a) Notwithstanding any other provision of this Agreement, except
as set forth in Section 4.3(b) hereof, in the event that the Company undergoes a
"CHANGE IN OWNERSHIP OR CONTROL" (as defined below), the Company shall not be
obligated to provide to the Executive a portion of any "CONTINGENT COMPENSATION
PAYMENTS" (as defined below) that the Executive would otherwise be entitled to
receive to the extent necessary to eliminate any "EXCESS PARACHUTE PAYMENTS" (as
defined in Section 280G(b)(1) of the Internal Revenue Code of 1986, as amended
(the "CODE")) for the Executive. For purposes of this Section 4.3, the
Contingent Compensation Payments so eliminated shall be referred to as the
"ELIMINATED PAYMENTS" and the aggregate amount (determined in accordance with
Proposed Treasury Regulation Section 1.280G-1, Q/A-30 or any successor
provision) of the Contingent Compensation Payments so eliminated shall be
referred to as the "ELIMINATED AMOUNT."
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<PAGE>
(b) Notwithstanding the provisions of Section 4.3(a) hereof, no
such reduction in Contingent Compensation Payments shall be made if (i) the
Eliminated Amount (computed without regard to this sentence) exceeds (ii) 110%
of the aggregate present value (determined in accordance with Proposed Treasury
Regulation Section 1.280G-1, Q/A-31 and Q/A-32 or any successor provisions) of
the amount of any additional taxes that would be incurred by the Executive if
the Eliminated Payments (determined without regard to this sentence) were paid
to him (including, state and federal income taxes on the Eliminated Payments,
the excise tax imposed by Section 4999 of the Code payable with respect to all
of the Contingent Compensation Payments in excess of the Executive's "BASE
AMOUNT" (as defined in Section 280G(b)(3) of the Code, and any payroll taxes).
The override of such reduction in Contingent Compensation Payments pursuant to
this Section 4.3(b) shall be referred to as a "SECTION 4.3(B) OVERRIDE." For
purpose of this Section 4.3(b), the amount of any federal or state income taxes
shall be computed by using the maximum combined federal and state income tax
rate provided by law.
(c) For purposes of this Section 4.3 the following terms shall
have the following respective meanings:
(i) "CHANGE IN OWNERSHIP OR CONTROL" shall mean a change in
the ownership or effective control of the Company or in the ownership of a
substantial portion of the assets of the Company determined in accordance with
Section 280G(b)(2) of the Code.
(ii) "CONTINGENT COMPENSATION PAYMENT" shall mean any
payment (or benefit) in the nature of compensation that is made (or made
available to) a "DISQUALIFIED INDIVIDUAL" (as defined in Section 280G(c) of the
Code) and that is "CONTINGENT" (within the meaning of Section 280G(b)(2)(A)(i)
of the Code) on a Change in Ownership or Control of the Company.
(d) Any payments or benefits otherwise due to the Executive
following a Change in Ownership or Control that could reasonably be
characterized (as determined by the Company) as Contingent Compensation Payments
shall not be made until the dates provided for in this Section 4.3(d). Within 30
days after each date on which the Executive first becomes entitled to receive
(whether or not then due) a Contingent Compensation Payment relating to such
Change in Ownership or Control, the Company shall provide notice to the
Executive setting forth the Company's determination (with reasonable detail
regarding the basis for its determination) of: (i) the Contingent Compensation
Payments, (ii) the Eliminated Amount and (iii) whether the Section 4.3(b)
Override is applicable. Within 30 days after delivery of such notice to the
Executive, the Executive shall deliver a response to the Company (the "EXECUTIVE
RESPONSE") stating either (A) that he agrees with the Company's determination
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<PAGE>
pursuant to the preceding sentence, in which case he shall indicate, if
applicable, which Contingent Compensation Payments, or portions thereof (the
aggregate amount of which, determined in accordance with Proposed Treasury
Regulation Section 1.280G-1, Q/A-30 or any successor provision, shall be equal
to the Eliminated Amount), shall be treated as Eliminated Payments or (B) that
he disagrees with such determination, in which case he shall set forth (i) which
payments or benefits should not be characterized as Contingent Compensation
Payments, (ii) the Eliminated Amount, (iii) whether the Section 4.3(b) Override
is applicable, and, (iv) which (if any) Contingent Compensation Payments, or
portions thereof (the aggregate amount of which, determined in accordance with
Proposed Treasury Regulation Section 1.280G-1, Q/A-30 or any successor
provision, shall be equal to the Eliminated Amount, if any), shall be treated as
Eliminated Payments. In the event that the Executive fails to deliver an
Executive Response on or before the required date, the Company's initial
determination shall be final and the Contingent Compensation Payments that shall
be treated as Eliminated Payments shall be determined by the Company in its
absolute discretion. If the Executive states in the Executive Response that he
agrees with the Company's determination, the Company shall make the Contingent
Compensation Payments to the Executive within three business days following
delivery to the Company of the Executive Response (except for any such
Contingent Compensation Payments which are not due to be made until after such
date, which such Contingent Compensation Payments shall be made on the date on
which they are due). If the Executive states in the Executive Response that he
disagrees with the Company's determination, then, for a period of 60 days
following delivery of the Executive Response, the Executive and the Company
shall use good faith efforts to resolve such dispute. If such dispute is not
resolved within such 60-day period, such dispute shall be settled exclusively by
arbitration in Boston, Massachusetts, in accordance with the rules of the
American Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction. The Company shall, within
three business days following delivery to the Company of the Executive Response,
make to the Executive those Contingent Compensation Payments as to which there
is no dispute between the Company and the Executive regarding whether they
should be made (except for any such Contingent Compensation Payments which are
not due to be made until after such date, which such Contingent Compensation
Payments shall be made on the date on which they are due). The balance of the
Contingent Compensation Payments shall be made within three business days
following the resolution of such dispute. Subject to the limitations contained
in Sections 4.3(a) and (b) hereof, the amount of any payments to be made to the
Executive following the resolution of such dispute shall be increased by
interest thereon computed at the prime rate announced from time to time by
Citibank, N.A., compounded monthly from the date that such payments originally
were due.
(e) The provisions of this Section 4.3 are intended to apply to
any and all payments or benefits available to the Executive under this Agreement
or
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<PAGE>
any other agreement or plan of the Company under which the Executive receives
Contingent Compensation Payments.
4.4 Mitigation. The Executive shall not be required to mitigate the
----------
amount of any payment or benefits provided for in this Section 4 by seeking
other employment or otherwise. Further, except as provided in Section 4.2(a)(ii)
hereof, the amount of any payment or benefits provided for in this Section 4
shall not be reduced by any compensation earned by the Executive as a result of
employment by another employer, by retirement benefits, by offset against any
amount claimed to be owed by the Executive to the Company or otherwise.
5. Disputes.
--------
5.1 Settlement of Disputes; Arbitration. All claims by the Executive
-----------------------------------
for benefits under this Agreement shall be directed to and determined by the
Board (or the Compensation Committee thereof) and shall be in writing. Any
denial by the Board (or the Compensation Committee thereof) of a claim for
benefits under this Agreement shall be delivered to the Executive in writing and
shall set forth the specific reasons for the denial and the specific provisions
of this Agreement relied upon. The Board (or the Compensation Committee
thereof) shall afford a reasonable opportunity to the Executive for a review of
the decision denying a claim. Any further dispute or controversy arising under
or in connection with this Agreement shall be settled exclusively by arbitration
in Boston, Massachusetts, in accordance with the rules of the American
Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction.
5.2 Expenses. The Company agrees to pay as incurred, to the full
--------
extent permitted by law, all legal, accounting and other fees and expenses which
the Executive may reasonably incur as a result of any claim or contest (with
respect to which the Executive is ultimately the prevailing party) by the
Company, the Executive or others regarding the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of performance
thereof (including as a result of any contest by the Executive regarding the
amount of any payment or benefits pursuant to this Agreement), plus in each case
interest on any delayed payment at the applicable Federal rate provided for in
Section 7872(f)(2)(A) of the Code.
6. Successors.
----------
6.1 Successor to Company. The Company shall require any successor
--------------------
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business or assets of the Company expressly to
assume and agree to perform this Agreement to the same extent that the Company
would be required to perform it if no such succession had taken place. Failure
of the Company to
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<PAGE>
obtain an assumption of this Agreement at or prior to the effectiveness of any
succession shall be a breach of this Agreement and shall constitute Good Reason
if the Executive elects to terminate employment, except that for purposes of
implementing the foregoing, the date on which any such succession becomes
effective shall be deemed the Date of Termination. As used in this Agreement,
"Company" shall mean the Company as defined above and any successor to its
business or assets as aforesaid which assumes and agrees to perform this
Agreement, by operation of law or otherwise.
6.2 Successor to Executive. This Agreement shall inure to the
----------------------
benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive should die while any amount would still
be payable to the Executive or his family hereunder if the Executive had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to the executors, personal
representatives or administrators of the Executive's estate.
7. Notice. All notices, instructions and other communications given
------
hereunder or in connection herewith shall be in writing. Any such notice,
instruction or communication shall be sent either (i) by registered or certified
mail, return receipt requested, postage prepaid, or (ii) prepaid via a reputable
nationwide overnight courier service, in each case addressed to the Company at
Vice President, Human Resources, Banyan Systems Incorporated, 120 Flanders Road,
P.O. Box 5013, Westboro, Massachusetts 01581-5013, and to the Executive at
Robert D. Burke, 30 Allen Circle, Boxford, Massachusetts 01921 (or to such
other address as either the Company or the Executive may have furnished to the
other in writing in accordance herewith). Any such notice, instruction or
communication shall be deemed to have been delivered five business days after it
is sent by registered or certified mail, return receipt requested, postage
prepaid, or one business day after it is sent via a reputable nationwide
overnight courier service. Either Party may give any notice, instruction or
other communication hereunder using any other means, but no such notice,
instruction or other communication shall be deemed to have been duly delivered
unless and until it actually is received by the Party for whom it is intended.
8. Miscellaneous.
-------------
8.1 Employment by Subsidiary. For purposes of this Agreement, the
------------------------
Executive's employment with the Company shall not be deemed to have terminated
solely as a result of the Executive continuing to be employed by a majority-
owned subsidiary of the Company.
8.2 Severability. The invalidity or unenforceability of any
------------
provision of this Agreement shall not affect the validity or enforceability of
any other provision of
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<PAGE>
this Agreement, which shall remain in full force and effect.
8.3 Injunctive Relief. The Company and the Executive agree that any
-----------------
breach of this Agreement by the Company is likely to cause the Executive
substantial and irrevocable damage and therefore, in the event of any such
breach, in addition to such other remedies which may be available, the Executive
shall have the right to specific performance and injunctive relief.
8.4 Governing Law. The validity, interpretation, construction and
-------------
performance of this Agreement shall be governed by the internal laws of the
Commonwealth of Massachusetts, without regard to conflicts of law principles.
8.5 Waivers. No waiver by the Executive at any time of any breach
-------
of, or compliance with, any provision of this Agreement to be performed by the
Company shall be deemed a waiver of that or any other provision at any
subsequent time.
8.6 Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed to be an original but both of which together shall
constitute one and the same instrument.
8.7 Tax Withholding. Any payments provided for hereunder shall be
---------------
paid net of any applicable tax withholding required under federal, state or
local law.
8.8 Entire Agreement. This Agreement sets forth the entire agreement
----------------
of the Parties in respect of the subject matter contained herein and supersedes
all prior agreements, promises, covenants, arrangements, communications,
representations or warranties, whether oral or written, by any officer, employee
or representative of any Party, including, without limitation, Section G of the
Prior Agreement; and any prior agreement of the Parties in respect of the
subject matter contained herein, including, without limitation, Section G of the
Prior Agreement, is hereby terminated and canceled.
8.9 Amendments. This Agreement may be amended or modified only by a
----------
written instrument executed by both the Company and the Executive.
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<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
day and year first set forth above.
BANYAN SYSTEMS INCORPORATED
By: /s/ William P. Ferry
-----------------------------------
Name William P. Ferry
Title: Chairman of the Board, President and
Chief Executive Officer
ROBERT D. BURKE
/s/ Robert D. Burke
-------------------
Individually
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<PAGE>
EXHIBIT 10.18
BANYAN SYSTEMS INCORPORATED
EXECUTIVE RETENTION AGREEMENT
This Executive Retention Agreement (this "AGREEMENT") between Banyan
Systems Incorporated, a Massachusetts corporation (the "COMPANY"), and Richard
M. Spaulding (the "EXECUTIVE") is made as of October 16, 1998 (the "EFFECTIVE
DATE"). The Company and the Executive shall, at times, be referred to herein
each as, a "PARTY," and together as, the "PARTIES."
Preliminary Statement
---------------------
A. The Executive presently serves in the employ of the Company as the
Company's Vice President and Chief Financial Officer.
B. The Executive and the Company have entered into that certain Senior
Executive Termination Benefits Agreement dated as of September 2, 1997 (the
"PRIOR AGREEMENT").
C. 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.
D. The Board of Directors of the Company (the "BOARD") has determined
that appropriate steps should be taken 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.
NOW, THEREFORE, as an inducement for and in consideration of the Executive
remaining in its employ, the mutual promises set forth in this Agreement, and
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the Company and the Executive hereby further agree as
follows:
<PAGE>
1. Key Definitions.
---------------
As used herein, the following terms shall have the following respective
meanings:
1.1 "CHANGE IN CONTROL" means an event or occurrence set forth in any
one or more of Section 1.1(a) through 1.1(d) below (including an event or
occurrence that constitutes a Change in Control under one of such Sections but
is specifically exempted from another such Section):
(a) the acquisition by an individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "EXCHANGE ACT")) (a "PERSON") of beneficial ownership of any
capital stock of the Company if, after such acquisition, such Person
beneficially owns (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) 50% or more of either (i) the then-outstanding shares of common
stock of the Company (the "OUTSTANDING COMPANY COMMON STOCK") or (ii) the
combined voting power of the then-outstanding securities of the Company entitled
to vote generally in the election of directors (the "OUTSTANDING COMPANY VOTING
SECURITIES"); provided, however, that for purposes of this Section 1.1(a), the
--------
following acquisitions shall not constitute a Change in Control: (i) any
acquisition directly from the Company (excluding an acquisition pursuant to the
exercise, conversion or exchange of any security exercisable for, convertible
into or exchangeable for common stock or voting securities of the Company,
unless the Person exercising, converting or exchanging such security acquired
such security directly from the Company or an underwriter or agent of the
Company), (ii) any acquisition by the Company, (iii) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the Company
or any corporation controlled by the Company, or (iv) any acquisition by any
corporation pursuant to a transaction which complies with clauses (i) and (ii)
of Section 1.1(c) hereof; or
(b) such time as the Continuing Directors (as defined below) do
not constitute a majority of the Board (or, if applicable, the Board of
Directors of a successor corporation to the Company), where the term "CONTINUING
DIRECTOR" means at any date a member of the Board (i) who was a member of the
Board on the date of the execution of this Agreement or (ii) who was nominated
or elected subsequent to such date by at least a majority of the directors who
were Continuing Directors at the time of such nomination or election or whose
election to the Board was recommended or endorsed by at least a majority of the
directors who were Continuing Directors at the time of such nomination or
election; provided, however, that there shall be excluded from this clause (ii)
-------- -------
any individual whose initial assumption of office occurred as a result of an
actual or threatened election contest with respect to the election or removal of
directors or other actual or threatened solicitation of proxies or consents, by
or on
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<PAGE>
behalf of a person other than the Board; or
(c) the consummation of a merger, consolidation, reorganization,
recapitalization or statutory share exchange involving the Company or a sale or
other disposition of all or substantially all of the assets of the Company (a
"BUSINESS COMBINATION"), unless, immediately following such Business
Combination, each of the following two conditions is satisfied: (i) all or
substantially all of the individuals and entities who were the beneficial owners
of the Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such Business Combination beneficially own,
directly or indirectly, more than 50% of the then-outstanding shares of common
stock and the combined voting power of the then-outstanding securities entitled
to vote generally in the election of directors, respectively, of the resulting
or acquiring corporation in such Business Combination (which shall include,
without limitation, a corporation which as a result of such transaction owns the
Company or substantially all of the Company's assets either directly or through
one or more subsidiaries) (such resulting or acquiring corporation is referred
to herein as the "ACQUIRING CORPORATION") in substantially the same proportions
as their ownership, immediately prior to such Business Combination, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities,
respectively; and (ii) no Person (excluding the Acquiring Corporation or any
employee benefit plan (or related trust) maintained or sponsored by the Company
or by the Acquiring Corporation) beneficially owns, directly or indirectly, 50%
or more of the then outstanding shares of common stock of the Acquiring
Corporation, or of the combined voting power of the then-outstanding securities
of such corporation entitled to vote generally in the election of directors
(except to the extent that such ownership existed prior to the Business
Combination); or
(d) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
1.2 "CHANGE IN CONTROL DATE" means the first date during the Term (as
defined in Section 2 hereof) on which a Change in Control occurs. Anything in
this Agreement to the contrary notwithstanding, if (a) a Change in Control
occurs, (b) the Executive's employment with the Company is terminated prior to
the date on which the Change in Control occurs, and (c) it is reasonably
demonstrated by the Executive that such termination of employment (i) was at the
request of a third party who has taken steps reasonably calculated to effect a
Change in Control or (ii) otherwise arose in connection with or in anticipation
of a Change in Control, then for all purposes of this Agreement the "CHANGE IN
CONTROL DATE" shall mean the date immediately prior to the date of such
termination of employment.
-3-
<PAGE>
1.3 "CAUSE" means:
(a) the Executive's willful and continued failure to
substantially perform his reasonable assigned duties as an officer of the
Company (other than any such failure resulting from incapacity due to physical
or mental illness or any failure after the Executive gives notice of termination
for Good Reason), which failure is not cured within 30 days after a written
demand for substantial performance is received by the Executive from the Chief
Executive Officer or the Board (or the Compensation Committee thereof) which
specifically identifies the manner in which the Chief Executive Officer or the
Board (or the Compensation Committee thereof), respectively, believes the
Executive has not substantially performed the Executive's duties; or
(b) the Executive's willful engagement in illegal conduct or
gross misconduct which is materially and demonstrably injurious to the Company.
For purposes of this Section 1.3, no act or failure to act by the Executive
shall be considered "WILLFUL" unless it is done, or omitted to be done, in bad
faith and without reasonable belief that the Executive's action or omission was
in the best interests of the Company.
1.4 "GOOD REASON" means the occurrence, without the Executive's
written consent, of any of the events or circumstances set forth in clauses (a)
through (g) below. Notwithstanding the occurrence of any such event or
circumstance, such occurrence shall not be deemed to constitute Good Reason if,
prior to the Date of Termination specified in the Notice of Termination (each as
defined in Section 3.2(a) hereof) given by the Executive in respect thereof,
such event or circumstance has been fully corrected and the Executive has been
reasonably compensated for any losses or damages resulting therefrom (provided
that such right of correction by the Company shall only apply to the first
Notice of Termination for Good Reason given by the Executive).
(a) the assignment to the Executive of duties inconsistent in any
material respect with the Executive's position (including status, offices,
titles and reporting requirements), authority or responsibilities in effect
immediately prior to the earliest to occur of (i) the Change in Control Date,
(ii) the date of the execution by the Company of the initial written agreement
or instrument providing for the Change in Control or (iii) the date of the
adoption by the Board of a resolution providing for the Change in Control (with
the earliest to occur of such dates referred to herein as the "MEASUREMENT
DATE"), or any other action or omission by the Company which results in a
diminution in such position, authority or responsibilities;
(b) a reduction in the aggregate of the Executive's annual base
salary and ON TARGET EARNINGS (as defined in the Company's Executive Bonus Plan)
as
-4-
<PAGE>
in effect on the Measurement Date or as the same was or may be increased from
time to time;
(c) the failure by the Company to (i) continue in effect any
material compensation or benefit plan or program (including without limitation
any life insurance, medical, health and accident or disability plan) (a "BENEFIT
PLAN") in which the Executive participates or which is applicable to the
Executive immediately prior to the Measurement Date, unless an equitable
arrangement (embodied in an ongoing substitute or alternative plan) has been
made with respect to such plan or program, (ii) continue the Executive's
participation therein (or in such substitute or alternative plan) on a basis not
materially less favorable, both in terms of the amount of benefits provided and
the level of the Executive's participation relative to other participants, than
the basis existing immediately prior to the Measurement Date or (iii) award cash
bonuses to the Executive in amounts and in a manner substantially consistent
with past practice in light of the Company's financial performance;
(d) a change by the Company in the location at which the
Executive performs his principal duties for the Company to a new location that
is more than 35 miles from the location at which the Executive performed his
principal duties for the Company immediately prior to the Measurement Date;
(e) the failure of the Company to obtain the agreement, in a form
reasonably satisfactory to the Executive, from any successor to the Company to
assume and agree to perform this Agreement, as required by Section 6.1 hereof;
or
(f) any failure of the Company to pay or provide to the Executive
any portion of the Executive's compensation or benefits due under any Benefit
Plan within seven days of the date such compensation or benefits are due, or any
material breach by the Company of any employment agreement with the Executive.
The Executive's right to terminate his employment for Good Reason shall not
be affected by his incapacity due to physical or mental illness.
1.5 "DISABILITY" means the Executive's absence from the full-time
performance of the Executive's duties with the Company for 180 consecutive
calendar days as a result of incapacity due to mental or physical illness which
is determined to be total and permanent by a physician selected by the Company
or its insurers and reasonably acceptable to the Executive or the Executive's
legal representative.
1.6 "MATERIAL REDUCTION IN RESPONSIBILITIES" means the occurrence,
without Cause, of any of the following: (i) the Company removes the Executive
from
-5-
<PAGE>
the position of Vice President and Chief Executive Officer or as an officer of
the Company or reduces the responsibilities of the Executive from managing
finance, (ii) the Company assigns an individual other than the Company's
Chairman of the Board and Chief Executive Officer as the person to whom the
Executive directly reports and (iii) the Company reduces the Executive's base
salary and executive bonus. Any voluntary termination by the Executive of his
employment with the Company for a Material Reduction in Responsibilities must
occur within 60 days of such Material Reduction in Responsibilities, and after
giving 30 days prior written notice to the Company.
2. Term of Agreement. This Agreement, and all rights and obligations of
-----------------
the Parties, shall take effect upon the Effective Date and shall expire upon the
first to occur of (a) the expiration of the Term (as defined below) if a Change
in Control has not occurred during the Term, (b) the date 12 months after the
Change in Control Date, if the Executive is still employed by the Company as of
such later date, or (c) the fulfillment by the Company of all of its obligations
under Sections 4 and 5.2 hereof if the Executive's employment with the Company
terminates within 12 months following the Change in Control Date. "TERM" shall
mean the period commencing as of the Effective Date and continuing in effect
through October 16, 2001; provided, however, that commencing on October 17, 2001
--------
and each October 17 thereafter, the Term shall be automatically extended for one
additional year unless, not later than 90 days prior to the scheduled expiration
of the Term (or any extension thereof), the Company shall have given the
Executive written notice that the Term will not be extended. Notwithstanding the
foregoing, the provisions of Section 3.1 hereof shall remain in full force and
effect for the duration of the Executive's employment with the Company.
3. Employment Status; Termination.
------------------------------
3.1 Employment Status.
-----------------
(a) Not an Employment Contract. The Executive acknowledges that
--------------------------
this Agreement does not constitute a contract of employment or impose on the
Company any obligation to retain the Executive as an employee and that this
Agreement does not prevent the Executive from terminating employment at any
time. Notwithstanding the foregoing, the Executive may be entitled to certain
benefits under Sections 3.1(b) or 4 hereof, if the Executive's employment with
the Company is terminated pursuant to the circumstances described therein. If
the Executive's employment with the Company terminates for any reason and
subsequently a Change in Control shall occur, the Executive shall not be
entitled to any benefits under Section 4 hereof, except as otherwise provided
pursuant to Section 1.2 hereof, in which event, any benefits provided pursuant
to Section 4 hereof shall be net of and not in addition to any benefits provided
pursuant to Section 3.1(b) hereof.
-6-
<PAGE>
(b) Termination Benefits. Upon the termination of the Executive's
--------------------
employment with the Company for any reason other than (v) the Executive's death,
(w) the Executive's Disability, (x) termination for Cause, (y) voluntary
termination at the election of the Executive other than for a Material Reduction
in Responsibilities or (z) any termination pursuant to which the Executive is
entitled to benefits under Section 4.2 hereof, the Executive shall be entitled
to the following benefits for the period six months subsequent to the Date of
Termination (as defined in Section 3.2 hereof):
(i) The Company will pay to the Executive each month a
severance amount calculated as the arithmetic average of the total cash
compensation, including all salary and bonuses, paid by the Company to the
Executive each month for the 12 full calendar months preceding the Date of
Termination. The Company shall deduct from such payments any applicable
deductions for medical, dental, prescription and life insurance contributions
and/or withholdings for taxes or similar governmental payments or charges.
(ii) The Company will provide continued medical, dental and
life insurance coverage to the Executive and the Executive's family, on terms
substantially as in effect on the Date of Termination, subject to the payment by
the Executive of all applicable employee contributions.
(c) Patent and Confidentiality Agreement. The Executive hereby
------------------------------------
ratifies and confirms in all respects his obligations and responsibilities
pursuant to the Employee Patent and Confidential Information Agreement between
the Company and the Executive. Without limiting the generality of the
foregoing, the Executive agrees that all documents, records, techniques,
business secrets and other information which have and will come into his
possession from time to time during his employment with the Company shall be
deemed to be confidential and proprietary to the Company. The Executive shall
retain in his confidence any confidential information known to him concerning
the Company and its subsidiaries and their respective businesses and such
information shall not be disclosed to any person or entity other than employees
of the Company and its subsidiaries who have a need to know such information,
nor shall the Executive use the same for any purpose (other than in the
performance of his duties as an employee of the Company) without written
approval by another officer of the Company, either during or after his
employment with the Company, unless and until such information has become public
knowledge without fault by the Executive.
(d) Services During Certain Events. In the event that a third
------------------------------
person begins a tender or exchange offer with respect to the Outstanding Company
Common Stock, circulates a proxy to the Company's stockholders, or takes other
steps seeking to effect a Change in Control, and until such third person has
abandoned or
-7-
<PAGE>
terminated such efforts to effect a Change in Control or until after such a
Change in Control has been effected, the Executive agrees that he will not
voluntarily leave the employ of the Company and will continue to serve the
Company in all capacities in which he served the Company immediately prior to
the date of the taking of such steps to effect a Change in Control.
3.2 Notice of Termination of Employment.
-----------------------------------
(a) Any termination of the Executive's employment by the Company
or by the Executive during the Term or, if the Change in Control Date occurs
during the Term, within 12 months following the Change in Control Date (other
than due to the death of the Executive) shall be communicated by a written
notice to the other Party (the "NOTICE OF TERMINATION"), given in accordance
with Section 7 hereof. Any Notice of Termination shall: (i) indicate the
specific termination provision (if any) of this Agreement relied upon by the
Party giving such notice, (ii) to the extent applicable, set forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated and (iii) specify
the Date of Termination (as defined below). The effective date of an employment
termination (the "DATE OF TERMINATION") shall be the close of business on the
date specified in the Notice of Termination (which date may not be less than 15
days or more than 120 days after the date of delivery of such Notice of
Termination), in the case of a termination other than one due to the Executive's
death, or the date of the Executive's death, as the case may be.
(b) The failure by the Executive or the Company to set forth in
the Notice of Termination any fact or circumstance which contributes to a
showing of Good Reason or Cause shall not waive any right of the Executive or
the Company, respectively, hereunder or preclude the Executive or the Company,
respectively, from asserting any such fact or circumstance in enforcing the
Executive's or the Company's right hereunder.
(c) Any Notice of Termination for Cause given by the Company must
be given within 90 days of the occurrence of the event(s) or circumstance(s)
which constitute(s) Cause. Subsequent to such event(s) or circumstance(s) and
prior to any Notice of Termination for Cause being given (and prior to any
termination for Cause being effective), the Executive shall be entitled to a
hearing before the Board (or the Compensation Committee thereof) at which he
may, at his election, be represented by counsel and at which he shall have a
reasonable opportunity to be heard. Such hearing shall be held on not less than
15 days prior written notice to the Executive stating the Board's intention to
terminate the Executive for Cause and stating in detail the particular event(s)
or circumstance(s) which the Board believes constitutes Cause for termination.
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<PAGE>
(d) Any Notice of Termination for Good Reason given by the
Executive must be given within 30 days of the occurrence of the event(s) or
circumstance(s) which constitute(s) Good Reason.
4. Change in Control Benefits to Executive.
---------------------------------------
4.1 Change in Control. If the Change in Control Date occurs during
-----------------
the Term, then, effective upon the Change in Control Date, (a) each outstanding
option to purchase shares of Common Stock of the Company held by the Executive
shall become immediately exercisable as to 50% of the then unvested shares
subject to such option, with such immediate vesting applied ratably to such
unvested shares, and (b) each outstanding restricted stock award held by the
Executive shall be deemed to be fully vested and no longer subject to a right of
repurchase by the Company.
4.2 Change in Control and Termination of Employment. If the Change
-----------------------------------------------
in Control Date occurs during the Term and the Executive's employment with the
Company terminates within 12 months following the Change in Control Date, the
Executive shall be entitled to the following benefits:
(a) Termination Without Cause or for Good Reason. If the
--------------------------------------------
Executive's employment with the Company is terminated by the Company (other than
for Cause, Disability or Death) or by the Executive for Good Reason within 12
months following the Change in Control Date, then the Executive shall be
entitled to the following benefits:
(i) the Company shall pay to the Executive in a lump sum in
cash within 30 days after the Date of Termination the aggregate of the following
amounts:
(1) the sum of (A) the Executive's earned but unpaid
base salary through the Date of Termination, (B) the product of (x) the annual
bonus paid or payable (including any bonus or portion thereof which has been
earned but deferred) for the most recently completed fiscal year and (y) a
fraction, the numerator of which is the number of days in the current fiscal
year through the Date of Termination, and the denominator of which is 365 and
(C) the amount of any compensation previously earned and deferred by the
Executive, in each case to the extent not previously paid (the sum of the
amounts described in clauses (A), (B), and (C) shall be hereinafter referred to
as the "ACCRUED OBLIGATIONS"); and
(2) the amount equal to the sum of (A) the Executive's
annual base salary for the calendar year in which the Change in Control Date or
the Date of Termination occurred, whichever annual base salary is greater, and
(B) the Executive's bonus under the Company' s Executive Bonus Plan for the
calendar
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<PAGE>
year in which the Change in Control Date or the Date of Termination occurred (in
each case, assuming for this purpose that all targets requisite to qualifying
the Executive for 100% of On Target Earnings were met and/or satisfied in full,
whether or not such targets were actually met and/or satisfied), whichever such
bonus is greater.
(ii) (a) each outstanding option to purchase shares of
Common Stock of the Company held by the Executive shall become immediately
exercisable in full and (b) each outstanding restricted stock award granted to
the Executive subsequent to the Change in Control Date shall be deemed to be
fully vested and no longer subject to a right of repurchase by the Company.
(iii) for 12 months after the Date of Termination, the
Company shall continue to provide benefits to the Executive and the Executive's
family at least equal to those which would have been provided to them if the
Executive's employment had not been terminated, in accordance with the
applicable Benefit Plans in effect on the Measurement Date; provided, however,
--------
that if the Executive becomes reemployed with another employer and is eligible
to receive a particular type of benefits (e.g., health insurance benefits) from
such employer on terms at least as favorable to the Executive and his family as
those being provided by the Company, then the Company shall no longer be
required to provide those particular benefits to the Executive and his family;
(iv) to the extent not previously paid or provided, the
Company shall timely pay or provide to the Executive any other amounts or
benefits required to be paid or provided or which the Executive is eligible to
receive following the Executive's termination of employment under any plan,
program, policy, practice, contract or agreement of the Company and its
affiliated companies (such other amounts and benefits shall be hereinafter
referred to as the "OTHER BENEFITS"); and
(v) for purposes of determining eligibility (but not the
time of commencement of benefits) of the Executive for retiree benefits to which
the Executive is entitled, the Executive shall be considered to have remained
employed by the Company until 12 months after the Date of Termination.
(b) Resignation without Good Reason; Termination for Death or
---------------------------------------------------------
Disability. If the Executive voluntarily terminates his employment with the
- ----------
Company within 12 months following the Change in Control Date, excluding a
termination for Good Reason, or if the Executive's employment with the Company
is terminated by reason of the Executive's death or Disability within 12 months
following the Change in Control Date, then the Company shall (i) pay the
Executive (or his estate, if applicable), in a lump sum in cash within 30 days
after the Date of Termination, the Accrued Obligations and (ii) timely pay or
provide to the Executive the Other Benefits.
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<PAGE>
(c) Termination for Cause. If the Company terminates the
---------------------
Executive's employment with the Company for Cause within 12 months following the
Change in Control Date, then the Company shall (i) pay the Executive, in a lump
sum in cash within 30 days after the Date of Termination, the sum of (A) the
Executive's annual base salary through the Date of Termination and (B) the
amount of any compensation previously deferred by the Executive, in each case to
the extent earned but not previously paid, and (ii) timely pay or provide to the
Executive the Other Benefits.
4.3 Taxes.
-----
(a) Notwithstanding any other provision of this Agreement, except
as set forth in Section 4.3(b) hereof, in the event that the Company undergoes a
"CHANGE IN OWNERSHIP OR CONTROL" (as defined below), the Company shall not be
obligated to provide to the Executive a portion of any "CONTINGENT COMPENSATION
PAYMENTS" (as defined below) that the Executive would otherwise be entitled to
receive to the extent necessary to eliminate any "EXCESS PARACHUTE PAYMENTS" (as
defined in Section 280G(b)(1) of the Internal Revenue Code of 1986, as amended
(the "CODE")) for the Executive. For purposes of this Section 4.3, the
Contingent Compensation Payments so eliminated shall be referred to as the
"ELIMINATED PAYMENTS" and the aggregate amount (determined in accordance with
Proposed Treasury Regulation Section 1.280G-1, Q/A-30 or any successor
provision) of the Contingent Compensation Payments so eliminated shall be
referred to as the "ELIMINATED AMOUNT."
(b) Notwithstanding the provisions of Section 4.3(a) hereof, no
such reduction in Contingent Compensation Payments shall be made if (i) the
Eliminated Amount (computed without regard to this sentence) exceeds (ii) 110%
of the aggregate present value (determined in accordance with Proposed Treasury
Regulation Section 1.280G-1, Q/A-31 and Q/A-32 or any successor provisions) of
the amount of any additional taxes that would be incurred by the Executive if
the Eliminated Payments (determined without regard to this sentence) were paid
to him (including, state and federal income taxes on the Eliminated Payments,
the excise tax imposed by Section 4999 of the Code payable with respect to all
of the Contingent Compensation Payments in excess of the Executive's "BASE
AMOUNT" (as defined in Section 280G(b)(3) of the Code, and any payroll taxes).
The override of such reduction in Contingent Compensation Payments pursuant to
this Section 4.3(b) shall be referred to as a "SECTION 4.3(B) OVERRIDE." For
purpose of this Section 4.3(b), the amount of any federal or state income taxes
shall be computed by using the maximum combined federal and state income tax
rate provided by law.
(c) For purposes of this Section 4.3 the following terms shall
have the following respective meanings:
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<PAGE>
(i) "CHANGE IN OWNERSHIP OR CONTROL" shall mean a change in
the ownership or effective control of the Company or in the ownership of a
substantial portion of the assets of the Company determined in accordance with
Section 280G(b)(2) of the Code.
(ii) "CONTINGENT COMPENSATION PAYMENT" shall mean any
payment (or benefit) in the nature of compensation that is made (or made
available to) a "DISQUALIFIED INDIVIDUAL" (as defined in Section 280G(c) of the
Code) and that is "CONTINGENT" (within the meaning of Section 280G(b)(2)(A)(i)
of the Code) on a Change in Ownership or Control of the Company.
(d) Any payments or benefits otherwise due to the Executive
following a Change in Ownership or Control that could reasonably be
characterized (as determined by the Company) as Contingent Compensation Payments
shall not be made until the dates provided for in this Section 4.3(d). Within 30
days after each date on which the Executive first becomes entitled to receive
(whether or not then due) a Contingent Compensation Payment relating to such
Change in Ownership or Control, the Company shall provide notice to the
Executive setting forth the Company's determination (with reasonable detail
regarding the basis for its determination) of: (i) the Contingent Compensation
Payments, (ii) the Eliminated Amount and (iii) whether the Section 4.3(b)
Override is applicable. Within 30 days after delivery of such notice to the
Executive, the Executive shall deliver a response to the Company (the "EXECUTIVE
RESPONSE") stating either (A) that he agrees with the Company's determination
pursuant to the preceding sentence, in which case he shall indicate, if
applicable, which Contingent Compensation Payments, or portions thereof (the
aggregate amount of which, determined in accordance with Proposed Treasury
Regulation Section 1.280G-1, Q/A-30 or any successor provision, shall be equal
to the Eliminated Amount), shall be treated as Eliminated Payments or (B) that
he disagrees with such determination, in which case he shall set forth (i) which
payments or benefits should not be characterized as Contingent Compensation
Payments, (ii) the Eliminated Amount, (iii) whether the Section 4.3(b) Override
is applicable, and, (iv) which (if any) Contingent Compensation Payments, or
portions thereof (the aggregate amount of which, determined in accordance with
Proposed Treasury Regulation Section 1.280G-1, Q/A-30 or any successor
provision, shall be equal to the Eliminated Amount, if any), shall be treated as
Eliminated Payments. In the event that the Executive fails to deliver an
Executive Response on or before the required date, the Company's initial
determination shall be final and the Contingent Compensation Payments that shall
be treated as Eliminated Payments shall be determined by the Company in its
absolute discretion. If the Executive states in the Executive Response that he
agrees with the Company's determination, the Company shall make the Contingent
Compensation Payments to the Executive within three business days following
delivery to the Company of the Executive Response (except for any such
Contingent Compensation Payments which
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<PAGE>
are not due to be made until after such date, which such Contingent Compensation
Payments shall be made on the date on which they are due). If the Executive
states in the Executive Response that he disagrees with the Company's
determination, then, for a period of 60 days following delivery of the Executive
Response, the Executive and the Company shall use good faith efforts to resolve
such dispute. If such dispute is not resolved within such 60-day period, such
dispute shall be settled exclusively by arbitration in Boston, Massachusetts, in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction. The Company shall, within three business days following delivery
to the Company of the Executive Response, make to the Executive those Contingent
Compensation Payments as to which there is no dispute between the Company and
the Executive regarding whether they should be made (except for any such
Contingent Compensation Payments which are not due to be made until after such
date, which such Contingent Compensation Payments shall be made on the date on
which they are due). The balance of the Contingent Compensation Payments shall
be made within three business days following the resolution of such dispute.
Subject to the limitations contained in Sections 4.3(a) and (b) hereof, the
amount of any payments to be made to the Executive following the resolution of
such dispute shall be increased by interest thereon computed at the prime rate
announced from time to time by Citibank, N.A., compounded monthly from the date
that such payments originally were due.
(e) The provisions of this Section 4.3 are intended to apply to
any and all payments or benefits available to the Executive under this Agreement
or any other agreement or plan of the Company under which the Executive receives
Contingent Compensation Payments.
4.4 Mitigation. The Executive shall not be required to mitigate the
----------
amount of any payment or benefits provided for in this Section 4 by seeking
other employment or otherwise. Further, except as provided in Section 4.2(a)(ii)
hereof, the amount of any payment or benefits provided for in this Section 4
shall not be reduced by any compensation earned by the Executive as a result of
employment by another employer, by retirement benefits, by offset against any
amount claimed to be owed by the Executive to the Company or otherwise.
5. Disputes.
--------
5.1 Settlement of Disputes; Arbitration. All claims by the Executive
-----------------------------------
for benefits under this Agreement shall be directed to and determined by the
Board (or the Compensation Committee thereof) and shall be in writing. Any
denial by the Board (or the Compensation Committee thereof) of a claim for
benefits under this Agreement shall be delivered to the Executive in writing and
shall set forth the specific reasons for
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<PAGE>
the denial and the specific provisions of this Agreement relied upon. The Board
(or the Compensation Committee thereof) shall afford a reasonable opportunity to
the Executive for a review of the decision denying a claim. Any further dispute
or controversy arising under or in connection with this Agreement shall be
settled exclusively by arbitration in Boston, Massachusetts, in accordance with
the rules of the American Arbitration Association then in effect. Judgment may
be entered on the arbitrator's award in any court having jurisdiction.
5.2 Expenses. The Company agrees to pay as incurred, to the full
--------
extent permitted by law, all legal, accounting and other fees and expenses which
the Executive may reasonably incur as a result of any claim or contest (with
respect to which the Executive is ultimately the prevailing party) by the
Company, the Executive or others regarding the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of performance
thereof (including as a result of any contest by the Executive regarding the
amount of any payment or benefits pursuant to this Agreement), plus in each case
interest on any delayed payment at the applicable Federal rate provided for in
Section 7872(f)(2)(A) of the Code.
6. Successors.
----------
6.1 Successor to Company. The Company shall require any successor
--------------------
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business or assets of the Company expressly to
assume and agree to perform this Agreement to the same extent that the Company
would be required to perform it if no such succession had taken place. Failure
of the Company to obtain an assumption of this Agreement at or prior to the
effectiveness of any succession shall be a breach of this Agreement and shall
constitute Good Reason if the Executive elects to terminate employment, except
that for purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the Date of Termination. As used
in this Agreement, "Company" shall mean the Company as defined above and any
successor to its business or assets as aforesaid which assumes and agrees to
perform this Agreement, by operation of law or otherwise.
6.2 Successor to Executive. This Agreement shall inure to the
----------------------
benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive should die while any amount would still
be payable to the Executive or his family hereunder if the Executive had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to the executors, personal
representatives or administrators of the Executive's estate.
7. Notice. All notices, instructions and other communications given
------
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<PAGE>
hereunder or in connection herewith shall be in writing. Any such notice,
instruction or communication shall be sent either (i) by registered or certified
mail, return receipt requested, postage prepaid, or (ii) prepaid via a reputable
nationwide overnight courier service, in each case addressed to the Company at
Vice President, Human Resources, Banyan Systems Incorporated, 120 Flanders Road,
P.O. Box 5013, Westboro, Massachusetts 01581-5013, and to the Executive at
Richard M. Spaulding, 66 Solon Street, Newton, Massachusetts 02161 (or to such
other address as either the Company or the Executive may have furnished to the
other in writing in accordance herewith). Any such notice, instruction or
communication shall be deemed to have been delivered five business days after it
is sent by registered or certified mail, return receipt requested, postage
prepaid, or one business day after it is sent via a reputable nationwide
overnight courier service. Either Party may give any notice, instruction or
other communication hereunder using any other means, but no such notice,
instruction or other communication shall be deemed to have been duly delivered
unless and until it actually is received by the Party for whom it is intended.
8. Miscellaneous.
-------------
8.1 Employment by Subsidiary. For purposes of this Agreement, the
------------------------
Executive's employment with the Company shall not be deemed to have terminated
solely as a result of the Executive continuing to be employed by a majority-
owned subsidiary of the Company.
8.2 Severability. The invalidity or unenforceability of any
------------
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
8.3 Injunctive Relief. The Company and the Executive agree that any
-----------------
breach of this Agreement by the Company is likely to cause the Executive
substantial and irrevocable damage and therefore, in the event of any such
breach, in addition to such other remedies which may be available, the Executive
shall have the right to specific performance and injunctive relief.
8.4 Governing Law. The validity, interpretation, construction and
-------------
performance of this Agreement shall be governed by the internal laws of the
Commonwealth of Massachusetts, without regard to conflicts of law principles.
8.5 Waivers. No waiver by the Executive at any time of any breach
-------
of, or compliance with, any provision of this Agreement to be performed by the
Company shall be deemed a waiver of that or any other provision at any
subsequent time.
8.6 Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed to be an original but both of which together shall
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constitute one and the same instrument.
8.7 Tax Withholding. Any payments provided for hereunder shall be
---------------
paid net of any applicable tax withholding required under federal, state or
local law.
8.8 Entire Agreement. This Agreement sets forth the entire agreement
----------------
of the Parties in respect of the subject matter contained herein and supersedes
all prior agreements, promises, covenants, arrangements, communications,
representations or warranties, whether oral or written, by any officer, employee
or representative of any Party, including, without limitation, the Prior
Agreement; and any prior agreement of the Parties in respect of the subject
matter contained herein, including, without limitation, the Prior Agreement, is
hereby terminated and canceled.
8.9 Amendments. This Agreement may be amended or modified only by a
----------
written instrument executed by both the Company and the Executive.
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<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
day and year first set forth above.
BANYAN SYSTEMS INCORPORATED
By: /s/ William P. Ferry
-----------------------------
Name: William P. Ferry
Title: Chairman of the Board, President and
Chief Executive Officer
RICHARD M. SPAULDING
/s/ Richard M. Spaulding
-------------------------------
Individually
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<PAGE>
EXHIBIT 10.19
BANYAN SYSTEMS INCORPORATED
EXECUTIVE RETENTION AGREEMENT
This Executive Retention Agreement (this "AGREEMENT") between Banyan
Systems Incorporated, a Massachusetts corporation (the "COMPANY"), and Anthony
J. Bellantuoni (the "EXECUTIVE") is made as of October 16, 1998 (the "EFFECTIVE
DATE"). The Company and the Executive shall, at times, be referred to herein
each as, a "PARTY," and together as, the "PARTIES."
Preliminary Statement
---------------------
A. The Executive presently serves in the employ of the Company as the
Company's Vice President, Human Resources.
B. The Executive and the Company have entered into that certain Offer
Letter dated June 26, 1997 (the "PRIOR AGREEMENT").
C. 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.
D. The Board of Directors of the Company (the "BOARD") has determined
that appropriate steps should be taken 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.
NOW, THEREFORE, as an inducement for and in consideration of the Executive
remaining in its employ, the mutual promises set forth in this Agreement, and
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the Company and the Executive hereby further agree as
follows:
1. Key Definitions.
---------------
As used herein, the following terms shall have the following respective
meanings:
<PAGE>
1.1 "CHANGE IN CONTROL" means an event or occurrence set forth in any
one or more of Section 1.1(a) through 1.1(d) below (including an event or
occurrence that constitutes a Change in Control under one of such Sections but
is specifically exempted from another such Section):
(a) the acquisition by an individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "EXCHANGE ACT")) (a "PERSON") of beneficial ownership of any
capital stock of the Company if, after such acquisition, such Person
beneficially owns (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) 50% or more of either (i) the then-outstanding shares of common
stock of the Company (the "OUTSTANDING COMPANY COMMON STOCK") or (ii) the
combined voting power of the then-outstanding securities of the Company entitled
to vote generally in the election of directors (the "OUTSTANDING COMPANY VOTING
SECURITIES"); provided, however, that for purposes of this Section 1.1(a), the
--------
following acquisitions shall not constitute a Change in Control: (i) any
acquisition directly from the Company (excluding an acquisition pursuant to the
exercise, conversion or exchange of any security exercisable for, convertible
into or exchangeable for common stock or voting securities of the Company,
unless the Person exercising, converting or exchanging such security acquired
such security directly from the Company or an underwriter or agent of the
Company), (ii) any acquisition by the Company, (iii) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the Company
or any corporation controlled by the Company, or (iv) any acquisition by any
corporation pursuant to a transaction which complies with clauses (i) and (ii)
of Section 1.1(c) hereof; or
(b) such time as the Continuing Directors (as defined below) do
not constitute a majority of the Board (or, if applicable, the Board of
Directors of a successor corporation to the Company), where the term "CONTINUING
DIRECTOR" means at any date a member of the Board (i) who was a member of the
Board on the date of the execution of this Agreement or (ii) who was nominated
or elected subsequent to such date by at least a majority of the directors who
were Continuing Directors at the time of such nomination or election or whose
election to the Board was recommended or endorsed by at least a majority of the
directors who were Continuing Directors at the time of such nomination or
election; provided, however, that there shall be excluded from this clause (ii)
-------- -------
any individual whose initial assumption of office occurred as a result of an
actual or threatened election contest with respect to the election or removal of
directors or other actual or threatened solicitation of proxies or consents, by
or on behalf of a person other than the Board; or
(c) the consummation of a merger, consolidation, reorganization,
recapitalization or statutory share exchange involving the Company or
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<PAGE>
a sale or other disposition of all or substantially all of the assets of the
Company (a "BUSINESS COMBINATION"), unless, immediately following such Business
Combination, each of the following two conditions is satisfied: (i) all or
substantially all of the individuals and entities who were the beneficial owners
of the Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such Business Combination beneficially own,
directly or indirectly, more than 50% of the then-outstanding shares of common
stock and the combined voting power of the then-outstanding securities entitled
to vote generally in the election of directors, respectively, of the resulting
or acquiring corporation in such Business Combination (which shall include,
without limitation, a corporation which as a result of such transaction owns the
Company or substantially all of the Company's assets either directly or through
one or more subsidiaries) (such resulting or acquiring corporation is referred
to herein as the "ACQUIRING CORPORATION") in substantially the same proportions
as their ownership, immediately prior to such Business Combination, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities,
respectively; and (ii) no Person (excluding the Acquiring Corporation or any
employee benefit plan (or related trust) maintained or sponsored by the Company
or by the Acquiring Corporation) beneficially owns, directly or indirectly, 50%
or more of the then outstanding shares of common stock of the Acquiring
Corporation, or of the combined voting power of the then-outstanding securities
of such corporation entitled to vote generally in the election of directors
(except to the extent that such ownership existed prior to the Business
Combination); or
(d) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
1.2 "CHANGE IN CONTROL DATE" means the first date during the Term (as
defined in Section 2 hereof) on which a Change in Control occurs. Anything in
this Agreement to the contrary notwithstanding, if (a) a Change in Control
occurs, (b) the Executive's employment with the Company is terminated prior to
the date on which the Change in Control occurs, and (c) it is reasonably
demonstrated by the Executive that such termination of employment (i) was at the
request of a third party who has taken steps reasonably calculated to effect a
Change in Control or (ii) otherwise arose in connection with or in anticipation
of a Change in Control, then for all purposes of this Agreement the "CHANGE IN
CONTROL DATE" shall mean the date immediately prior to the date of such
termination of employment.
1.3 "CAUSE" means:
(a) the Executive's willful and continued failure to
substantially perform his reasonable assigned duties as an officer of the
Company (other than any such failure resulting from incapacity due to physical
or mental illness or any failure after the Executive gives notice of termination
for Good Reason), which failure is not
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<PAGE>
cured within 30 days after a written demand for substantial performance is
received by the Executive from the Chief Executive Officer or the Board (or the
Compensation Committee thereof) which specifically identifies the manner in
which the Chief Executive Officer or the Board (or the Compensation Committe
thereof), respectively, believes the Executive has not substantially performed
the Executive's duties; or
(b) the Executive's willful engagement in illegal conduct or
gross misconduct which is materially and demonstrably injurious to the Company.
For purposes of this Section 1.3, no act or failure to act by the Executive
shall be considered "WILLFUL" unless it is done, or omitted to be done, in bad
faith and without reasonable belief that the Executive's action or omission was
in the best interests of the Company.
1.4 "GOOD REASON" means the occurrence, without the Executive's
written consent, of any of the events or circumstances set forth in clauses (a)
through (g) below. Notwithstanding the occurrence of any such event or
circumstance, such occurrence shall not be deemed to constitute Good Reason if,
prior to the Date of Termination specified in the Notice of Termination (each as
defined in Section 3.2(a) hereof) given by the Executive in respect thereof,
such event or circumstance has been fully corrected and the Executive has been
reasonably compensated for any losses or damages resulting therefrom (provided
that such right of correction by the Company shall only apply to the first
Notice of Termination for Good Reason given by the Executive).
(a) the assignment to the Executive of duties inconsistent in any
material respect with the Executive's position (including status, offices,
titles and reporting requirements), authority or responsibilities in effect
immediately prior to the earliest to occur of (i) the Change in Control Date,
(ii) the date of the execution by the Company of the initial written agreement
or instrument providing for the Change in Control or (iii) the date of the
adoption by the Board of a resolution providing for the Change in Control (with
the earliest to occur of such dates referred to herein as the "MEASUREMENT
DATE"), or any other action or omission by the Company which results in a
diminution in such position, authority or responsibilities;
(b) a reduction in the aggregate of the Executive's annual base
salary and ON TARGET EARNINGS (as defined in the Company's Executive Bonus Plan)
as in effect on the Measurement Date or as the same was or may be increased from
time to time;
(c) the failure by the Company to (i) continue in effect any
material compensation or benefit plan or program (including without limitation
any life insurance, medical, health and accident or disability plan) (a "BENEFIT
PLAN") in
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<PAGE>
which the Executive participates or which is applicable to the Executive
immediately prior to the Measurement Date, unless an equitable arrangement
(embodied in an ongoing substitute or alternative plan) has been made with
respect to such plan or program, (ii) continue the Executive's participation
therein (or in such substitute or alternative plan) on a basis not materially
less favorable, both in terms of the amount of benefits provided and the level
of the Executive's participation relative to other participants, than the basis
existing immediately prior to the Measurement Date or (iii) award cash bonuses
to the Executive in amounts and in a manner substantially consistent with past
practice in light of the Company's financial performance;
(d) a change by the Company in the location at which the
Executive performs his principal duties for the Company to a new location that
is more than 35 miles from the location at which the Executive performed his
principal duties for the Company immediately prior to the Measurement Date;
(e) the failure of the Company to obtain the agreement, in a form
reasonably satisfactory to the Executive, from any successor to the Company to
assume and agree to perform this Agreement, as required by Section 6.1 hereof;
or
(f) any failure of the Company to pay or provide to the Executive
any portion of the Executive's compensation or benefits due under any Benefit
Plan within seven days of the date such compensation or benefits are due, or any
material breach by the Company of any employment agreement with the Executive.
The Executive's right to terminate his employment for Good Reason shall not
be affected by his incapacity due to physical or mental illness.
1.5 "DISABILITY" means the Executive's absence from the full-time
performance of the Executive's duties with the Company for 180 consecutive
calendar days as a result of incapacity due to mental or physical illness which
is determined to be total and permanent by a physician selected by the Company
or its insurers and reasonably acceptable to the Executive or the Executive's
legal representative.
2. Term of Agreement. This Agreement, and all rights and obligations of
-----------------
the Parties, shall take effect upon the Effective Date and shall expire upon the
first to occur of (a) the expiration of the Term (as defined below) if a Change
in Control has not occurred during the Term, (b) the date 12 months after the
Change in Control Date, if the Executive is still employed by the Company as of
such later date, or (c) the fulfillment by the Company of all of its obligations
under Sections 4 and 5.2 hereof if the Executive's employment with the Company
terminates within 12 months following the Change in Control Date. "TERM" shall
mean the period commencing as of the Effective Date and continuing in effect
through October 16, 2001; provided, however,
--------
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<PAGE>
that commencing on October 17, 2001 and each October 17 thereafter, the Term
shall be automatically extended for one additional year unless, not later than
90 days prior to the scheduled expiration of the Term (or any extension
thereof), the Company shall have given the Executive written notice that the
Term will not be extended. Notwithstanding the foregoing, the provisions of
Section 3.1 hereof shall remain in full force and effect for the duration of the
Executive's employment with the Company.
3. Employment Status; Termination.
------------------------------
3.1 Employment Status.
-----------------
(a) Not an Employment Contract. The Executive acknowledges that
--------------------------
this Agreement does not constitute a contract of employment or impose on the
Company any obligation to retain the Executive as an employee and that this
Agreement does not prevent the Executive from terminating employment at any
time. Notwithstanding the foregoing, the Executive may be entitled to certain
benefits under Sections 3.1(b) or 4 hereof, if the Executive's employment with
the Company is terminated pursuant to the circumstances described therein. If
the Executive's employment with the Company terminates for any reason and
subsequently a Change in Control shall occur, the Executive shall not be
entitled to any benefits hereunder except as otherwise provided pursuant to
Section 1.2 hereof.
(b) Termination Benefits. Upon the termination of the Executive's
--------------------
employment with the Company for any reason other than (v) the Executive's death,
(w) the Executive's Disability, (x) termination for Cause, (y) voluntary
termination at the election of the Executive or (z) any termination pursuant to
which the Executive is entitled to benefits under Section 4.2 hereof, the
Executive shall be entitled to the following benefits for the period six months
subsequent to the Date of Termination (as defined in Section 3.2 hereof):
(i) Each month, the Company will pay to the Executive a
severance amount calculated as the arithmetic average of the total cash
compensation, including all salary and bonuses, paid by the Company to the
Executive each month for the 12 full calendar months preceding the Date of
Termination. The Company shall deduct from such payments any applicable
deductions for medical, dental, prescription and life insurance contributions
and/or withholdings for taxes or similar governmental payments or charges.
(ii) The Company will provide continued medical, dental and
life insurance coverage to the Executive and the Executive's family, on terms
substantially as in effect on the Date of Termination, subject to the payment by
the Executive of all applicable employee contributions.
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<PAGE>
(c) Patent and Confidentiality Agreement. The Executive hereby
------------------------------------
ratifies and confirms in all respects his obligations and responsibilities
pursuant to the Employee Patent and Confidential Information Agreement between
the Company and the Executive. Without limiting the generality of the
foregoing, the Executive agrees that all documents, records, techniques,
business secrets and other information which have and will come into his
possession from time to time during his employment with the Company shall be
deemed to be confidential and proprietary to the Company. The Executive shall
retain in his confidence any confidential information known to him concerning
the Company and its subsidiaries and their respective businesses and such
information shall not be disclosed to any person or entity other than employees
of the Company and its subsidiaries who have a need to know such information,
nor shall the Executive use the same for any purpose (other than in the
performance of his duties as an employee of the Company) without written
approval by another officer of the Company, either during or after his
employment with the Company, unless and until such information has become public
knowledge without fault by the Executive.
(d) Services During Certain Events. In the event that a third
------------------------------
person begins a tender or exchange offer with respect to the Outstanding Company
Common Stock, circulates a proxy to the Company's stockholders, or takes other
steps seeking to effect a Change in Control, and until such third person has
abandoned or terminated such efforts to effect a Change in Control or until
after such a Change in Control has been effected, the Executive agrees that he
will not voluntarily leave the employ of the Company and will continue to serve
the Company in all capacities in which he served the Company immediately prior
to the date of the taking of such steps to effect a Change in Control.
3.2 Notice of Termination of Employment.
-----------------------------------
(a) If the Change in Control Date occurs during the Term, any
termination of the Executive's employment by the Company or by the Executive
within 12 months following the Change in Control Date (other than due to the
death of the Executive) shall be communicated by a written notice to the other
Party (the "NOTICE OF TERMINATION"), given in accordance with Section 7 hereof.
Any Notice of Termination shall: (i) indicate the specific termination provision
(if any) of this Agreement relied upon by the Party giving such notice, (ii) to
the extent applicable, set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated and (iii) specify the Date of
Termination (as defined below). The effective date of an employment termination
(the "DATE OF TERMINATION") shall be the close of business on the date specified
in the Notice of Termination (which date may not be less than 15 days or more
than 120 days after the date of delivery of such Notice of Termination), in the
case of a termination other than one due to the Executive's death, or the date
of the
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<PAGE>
Executive's death, as the case may be.
(b) The failure by the Executive or the Company to set forth in
the Notice of Termination any fact or circumstance which contributes to a
showing of Good Reason or Cause shall not waive any right of the Executive or
the Company, respectively, hereunder or preclude the Executive or the Company,
respectively, from asserting any such fact or circumstance in enforcing the
Executive's or the Company's right hereunder.
(c) Any Notice of Termination for Cause given by the Company must
be given within 90 days of the occurrence of the event(s) or circumstance(s)
which constitute(s) Cause. Subsequent to such event(s) or circumstance(s) and
prior to any Notice of Termination for Cause being given (and prior to any
termination for Cause being effective), the Executive shall be entitled to a
hearing before the Board (or the Compensation Committee thereof) of the Company
at which he may, at his election, be represented by counsel and at which he
shall have a reasonable opportunity to be heard. Such hearing shall be held on
not less than 15 days prior written notice to the Executive stating the Board's
intention to terminate the Executive for Cause and stating in detail the
particular event(s) or circumstance(s) which the Board believes constitutes
Cause for termination.
(d) Any Notice of Termination for Good Reason given by the
Executive must be given within 30 days of the occurrence of the event(s) or
circumstance(s) which constitute(s) Good Reason.
4. Change in Control Benefits to Executive.
---------------------------------------
4.1 Change in Control. If the Change in Control Date occurs during
-----------------
the Term, then, effective upon the Change in Control Date, (a) each outstanding
option to purchase shares of Common Stock of the Company held by the Executive
shall become immediately exercisable as to 50% of the then unvested shares
subject to such option, with such immediate vesting applied ratably to such
unvested shares, and (b) each outstanding restricted stock award held by the
Executive shall be deemed to be fully vested and no longer subject to a right of
repurchase by the Company.
4.2 Change in Control and Termination of Employment. If the Change
-----------------------------------------------
in Control Date occurs during the Term and the Executive's employment with the
Company terminates within 12 months following the Change in Control Date, the
Executive shall be entitled to the following benefits:
(a) Termination Without Cause or for Good Reason. If the
--------------------------------------------
Executive's employment with the Company is terminated by the Company (other than
for Cause, Disability or Death) or by the Executive for Good Reason within 12
months
-8-
<PAGE>
following the Change in Control Date, then the Executive shall be entitled to
the following benefits:
(i) the Company shall pay to the Executive in a lump sum in
cash within 30 days after the Date of Termination the aggregate of the following
amounts:
(1) the sum of (A) the Executive's earned but unpaid
base salary through the Date of Termination, (B) the product of (x) the annual
bonus paid or payable (including any bonus or portion thereof which has been
earned but deferred) for the most recently completed fiscal year and (y) a
fraction, the numerator of which is the number of days in the current fiscal
year through the Date of Termination, and the denominator of which is 365 and
(C) the amount of any compensation previously earned and deferred by the
Executive, in each case to the extent not previously paid (the sum of the
amounts described in clauses (A), (B), and (C) shall be hereinafter referred to
as the "ACCRUED OBLIGATIONS"); and
(2) the amount equal to the sum of (A) the Executive's
annual base salary for the calendar year in which the Change in Control Date or
the Date of Termination occurred, whichever annual base salary is greater, and
(B) the Executive's bonus under the Company's Executive Bonus Plan for the
calendar year in which the Change in Control Date or the Date of Termination
occurred (in each case, assuming for this purpose that all targets requisite to
qualifying the Executive for 100% of On Target Earnings were met and/or
satisfied in full, whether or not such targets were actually met and/or
satisfied), whichever such bonus is greater.
(ii) (a) each outstanding option to purchase shares of
Common Stock of the Company held by the Executive shall become immediately
exercisable in full and (b) each outstanding restricted stock award granted to
the Executive subsequent to the Change in Control Date shall be deemed to be
fully vested and no longer subject to a right of repurchase by the Company.
(iii) for 12 months after the Date of Termination, the
Company shall continue to provide benefits to the Executive and the Executive's
family at least equal to those which would have been provided to them if the
Executive's employment had not been terminated, in accordance with the
applicable Benefit Plans in effect on the Measurement Date; provided, however,
--------
that if the Executive becomes reemployed with another employer and is eligible
to receive a particular type of benefits (e.g., health insurance benefits) from
such employer on terms at least as favorable to the Executive and his family as
those being provided by the Company, then the Company shall no longer be
required to provide those particular benefits to the Executive and his family;
-9-
<PAGE>
(iv) to the extent not previously paid or provided, the
Company shall timely pay or provide to the Executive any other amounts or
benefits required to be paid or provided or which the Executive is eligible to
receive following the Executive's termination of employment under any plan,
program, policy, practice, contract or agreement of the Company and its
affiliated companies (such other amounts and benefits shall be hereinafter
referred to as the "OTHER BENEFITS"); and
(v) for purposes of determining eligibility (but not the
time of commencement of benefits) of the Executive for retiree benefits to which
the Executive is entitled, the Executive shall be considered to have remained
employed by the Company until 12 months after the Date of Termination.
(b) Resignation without Good Reason; Termination for Death or
---------------------------------------------------------
Disability. If the Executive voluntarily terminates his employment with the
- ----------
Company within 12 months following the Change in Control Date, excluding a
termination for Good Reason, or if the Executive's employment with the Company
is terminated by reason of the Executive's death or Disability within 12 months
following the Change in Control Date, then the Company shall (i) pay the
Executive (or his estate, if applicable), in a lump sum in cash within 30 days
after the Date of Termination, the Accrued Obligations and (ii) timely pay or
provide to the Executive the Other Benefits.
(c) Termination for Cause. If the Company terminates the
---------------------
Executive's employment with the Company for Cause within 12 months following the
Change in Control Date, then the Company shall (i) pay the Executive, in a lump
sum in cash within 30 days after the Date of Termination, the sum of (A) the
Executive's annual base salary through the Date of Termination and (B) the
amount of any compensation previously deferred by the Executive, in each case to
the extent earned but not previously paid, and (ii) timely pay or provide to the
Executive the Other Benefits.
4.3 Taxes.
-----
(a) Notwithstanding any other provision of this Agreement, except
as set forth in Section 4.3(b) hereof, in the event that the Company undergoes a
"Change in Ownership or Control" (as defined below), the Company shall not be
obligated to provide to the Executive a portion of any "Contingent Compensation
Payments" (as defined below) that the Executive would otherwise be entitled to
receive to the extent necessary to eliminate any "EXCESS PARACHUTE PAYMENTS" (as
defined in Section 280G(b)(1) of the Internal Revenue Code of 1986, as amended
(the "CODE")) for the Executive. For purposes of this Section 4.3, the
Contingent Compensation Payments so eliminated shall be referred to as the
"ELIMINATED PAYMENTS" and the aggregate amount (determined in accordance with
Proposed Treasury Regulation Section 1.280G-1, Q/A-30 or any successor
provision) of the Contingent Compensation Payments so
-10-
<PAGE>
eliminated shall be referred to as the "ELIMINATED AMOUNT."
(b) Notwithstanding the provisions of Section 4.3(a) hereof, no
such reduction in Contingent Compensation Payments shall be made if (i) the
Eliminated Amount (computed without regard to this sentence) exceeds (ii) 110%
of the aggregate present value (determined in accordance with Proposed Treasury
Regulation Section 1.280G-1, Q/A-31 and Q/A-32 or any successor provisions) of
the amount of any additional taxes that would be incurred by the Executive if
the Eliminated Payments (determined without regard to this sentence) were paid
to him (including, state and federal income taxes on the Eliminated Payments,
the excise tax imposed by Section 4999 of the Code payable with respect to all
of the Contingent Compensation Payments in excess of the Executive's "BASE
AMOUNT" (as defined in Section 280G(b)(3) of the Code), and any payroll taxes).
The override of such reduction in Contingent Compensation Payments pursuant to
this Section 4.3(b) shall be referred to as a "SECTION 4.3(B) OVERRIDE." For
purpose of this Section 4.3(b), the amount of any federal or state income taxes
shall be computed by using the maximum combined federal and state income tax
rate provided by law.
(c) For purposes of this Section 4.3 the following terms shall
have the following respective meanings:
(i) "CHANGE IN OWNERSHIP OR CONTROL" shall mean a change in
the ownership or effective control of the Company or in the ownership of a
substantial portion of the assets of the Company determined in accordance with
Section 280G(b)(2) of the Code.
(ii) "CONTINGENT COMPENSATION PAYMENT" shall mean any
payment (or benefit) in the nature of compensation that is made (or made
available to) a "DISQUALIFIED INDIVIDUAL" (as defined in Section 280G(c) of the
Code) and that is "CONTINGENT" (within the meaning of Section 280G(b)(2)(A)(i)
of the Code) on a Change in Ownership or Control of the Company.
(d) Any payments or benefits otherwise due to the Executive
following a Change in Ownership or Control that could reasonably be
characterized (as determined by the Company) as Contingent Compensation Payments
shall not be made until the dates provided for in this Section 4.3(d). Within 30
days after each date on which the Executive first becomes entitled to receive
(whether or not then due) a Contingent Compensation Payment relating to such
Change in Ownership or Control, the Company shall provide notice to the
Executive setting forth the Company's determination (with reasonable detail
regarding the basis for its determination) of: (i) the Contingent Compensation
Payments, (ii) the Eliminated Amount, and (iii) whether the Section 4.3(b)
Override is applicable. Within 30 days after delivery of such notice to
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<PAGE>
the Executive, the Executive shall deliver a response to the Company (the
"EXECUTIVE RESPONSE") stating either (A) that he agrees with the Company's
determination pursuant to the preceding sentence, in which case he shall
indicate, if applicable, which Contingent Compensation Payments, or portions
thereof (the aggregate amount of which, determined in accordance with Proposed
Treasury Regulation Section 1.280G-1, Q / A-30 or any successor provision, shall
be equal to the Eliminated Amount), shall be treated as Eliminated Payments or
(B) that he disagrees with such determination, in which case he shall set forth
(i) which payments or benefits should not be characterized as Contingent
Compensation Payments, (ii) the Eliminated Amount, (iii) whether the Section
4.3(b) Override is applicable, and (iv) which (if any) Contingent Compensation
Payments, or portions thereof (the aggregate amount of which, determined in
accordance with Proposed Treasury Regulation Section 1.280G-1, Q / A-30 or any
successor provision, shall be equal to the Eliminated Amount, if any), shall be
treated as Eliminated Payments. In the event that the Executive fails to deliver
an Executive Response on or before the required date, the Company's initial
determination shall be final and the Contingent Compensation Payments that shall
be treated as Eliminated Payments shall be determined by the Company in its
absolute discretion. If the Executive states in the Executive Response that he
agrees with the Company's determination, the Company shall make the Contingent
Compensation Payments to the Executive within three business days following
delivery to the Company of the Executive Response (except for any such
Contingent Compensation Payments which are not due to be made until after such
date, which such Contingent Compensation Payments shall be made on the date on
which they are due). If the Executive states in the Executive Response that he
disagrees with the Company's determination, then, for a period of 60 days
following delivery of the Executive Response, the Executive and the Company
shall use good faith efforts to resolve such dispute. If such dispute is not
resolved within such 60-day period, such dispute shall be settled exclusively by
arbitration in Boston, Massachusetts, in accordance with the rules of the
American Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction. The Company shall, within
three business days following delivery to the Company of the Executive Response,
make to the Executive those Contingent Compensation Payments as to which there
is no dispute between the Company and the Executive regarding whether they
should be made (except for any such Contingent Compensation Payments which are
not due to be made until after such date, which such Contingent Compensation
Payments shall be made on the date on which they are due). The balance of the
Contingent Compensation Payments shall be made within three business days
following the resolution of such dispute. Subject to the limitations contained
in Sections 4.3(a) and (b) hereof, the amount of any payments to be made to the
Executive following the resolution of such dispute shall be increased by
interest thereon computed at the prime rate announced from time to time by
Citibank, N.A., compounded monthly from the date that such payments originally
were due.
-12-
<PAGE>
(e) The provisions of this Section 4.3 are intended to apply to
any and all payments or benefits available to the Executive under this Agreement
or any other agreement or plan of the Company under which the Executive receives
Contingent Compensation Payments.
4.4 Mitigation. The Executive shall not be required to mitigate the
----------
amount of any payment or benefits provided for in this Section 4 by seeking
other employment or otherwise. Further, except as provided in Section 4.2(a)(ii)
hereof, the amount of any payment or benefits provided for in this Section 4
shall not be reduced by any compensation earned by the Executive as a result of
employment by another employer, by retirement benefits, by offset against any
amount claimed to be owed by the Executive to the Company or otherwise.
5. Disputes.
--------
5.1 Settlement of Disputes; Arbitration. All claims by the Executive
-----------------------------------
for benefits under this Agreement shall be directed to and determined by the
Board (or the Compensation Committee thereof) and shall be in writing. Any
denial by the Board (or the Compensation Committee thereof) of a claim for
benefits under this Agreement shall be delivered to the Executive in writing and
shall set forth the specific reasons for the denial and the specific provisions
of this Agreement relied upon. The Board (or the Compensation Committee
thereof) shall afford a reasonable opportunity to the Executive for a review of
the decision denying a claim. Any further dispute or controversy arising under
or in connection with this Agreement shall be settled exclusively by arbitration
in Boston, Massachusetts, in accordance with the rules of the American
Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction.
5.2 Expenses. The Company agrees to pay as incurred, to the full
--------
extent permitted by law, all legal, accounting and other fees and expenses which
the Executive may reasonably incur as a result of any claim or contest (with
respect to which the Executive is ultimately the prevailing party) by the
Company, the Executive or others regarding the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of performance
thereof (including as a result of any contest by the Executive regarding the
amount of any payment or benefits pursuant to this Agreement), plus in each case
interest on any delayed payment at the applicable Federal rate provided for in
Section 7872(f)(2)(A) of the Code.
6. Successors.
----------
6.1 Successor to Company. The Company shall require any successor
--------------------
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business or assets of the Company expressly to
assume and
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<PAGE>
agree to perform this Agreement to the same extent that the Company would be
required to perform it if no such succession had taken place. Failure of the
Company to obtain an assumption of this Agreement at or prior to the
effectiveness of any succession shall be a breach of this Agreement and shall
constitute Good Reason if the Executive elects to terminate employment, except
that for purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the Date of Termination. As used in
this Agreement, "Company" shall mean the Company as defined above and any
successor to its business or assets as aforesaid which assumes and agrees to
perform this Agreement, by operation of law or otherwise.
6.2 Successor to Executive. This Agreement shall inure to the
----------------------
benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive should die while any amount would still
be payable to the Executive or his family hereunder if the Executive had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to the executors, personal
representatives or administrators of the Executive's estate.
7. Notice. All notices, instructions and other communications given
------
hereunder or in connection herewith shall be in writing. Any such notice,
instruction or communication shall be sent either (i) by registered or certified
mail, return receipt requested, postage prepaid, or (ii) prepaid via a reputable
nationwide overnight courier service, in each case addressed to the Company at
Vice President and Chief Financial Officer, Banyan Systems Incorporated, 120
Flanders Road, P.O. Box 5013, Westboro, Massachusetts 01581-5013, and to the
Executive at Anthony J. Bellantuoni, 37 Woodland Drive, Nashua, New Hampshire
03063-2059 (or to such other address as either the Company or the Executive may
have furnished to the other in writing in accordance herewith). Any such
notice, instruction or communication shall be deemed to have been delivered five
business days after it is sent by registered or certified mail, return receipt
requested, postage prepaid, or one business day after it is sent via a reputable
nationwide overnight courier service. Either Party may give any notice,
instruction or other communication hereunder using any other means, but no such
notice, instruction or other communication shall be deemed to have been duly
delivered unless and until it actually is received by the Party for whom it is
intended.
8. Miscellaneous.
-------------
8.1 Employment by Subsidiary. For purposes of this Agreement, the
------------------------
Executive's employment with the Company shall not be deemed to have terminated
solely as a result of the Executive continuing to be employed by a majority-
owned subsidiary of the Company.
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<PAGE>
8.2 Severability. The invalidity or unenforceability of any
------------
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
8.3 Injunctive Relief. The Company and the Executive agree that any
-----------------
breach of this Agreement by the Company is likely to cause the Executive
substantial and irrevocable damage and therefore, in the event of any such
breach, in addition to such other remedies which may be available, the Executive
shall have the right to specific performance and injunctive relief.
8.4 Governing Law. The validity, interpretation, construction and
-------------
performance of this Agreement shall be governed by the internal laws of the
Commonwealth of Massachusetts, without regard to conflicts of law principles.
8.5 Waivers. No waiver by the Executive at any time of any breach
-------
of, or compliance with, any provision of this Agreement to be performed by the
Company shall be deemed a waiver of that or any other provision at any
subsequent time.
8.6 Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed to be an original but both of which together shall
constitute one and the same instrument.
8.7 Tax Withholding. Any payments provided for hereunder shall be
---------------
paid net of any applicable tax withholding required under federal, state or
local law.
8.8 Entire Agreement. This Agreement sets forth the entire agreement
----------------
of the Parties in respect of the subject matter contained herein and supersedes
all prior agreements, promises, covenants, arrangements, communications,
representations or warranties, whether oral or written, by any officer, employee
or representative of any Party, including, without limitation, Section F of the
Prior Agreement; and any prior agreement of the Parties in respect of the
subject matter contained herein, including, without limitation, Section F of the
Prior Agreement, is hereby terminated and canceled.
8.9 Amendments. This Agreement may be amended or modified only by a
----------
written instrument executed by both the Company and the Executive.
-15-
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
day and year first set forth above.
BANYAN SYSTEMS INCORPORATED
By: /s/ William P. Ferry
--------------------------------
Name: William P. Ferry
Title: Chairman of the Board, President and
Chief Executive Officer
ANTHONY J. BELLANTUONI
/s/ Anthony J. Bellantuoni
--------------------------
Individually
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<PAGE>
EXHIBIT 10.20
Annex A
-------
BANYAN SYSTEMS INCORPORATED
RESTRICTED STOCK AGREEMENT
GRANTED UNDER 1992 STOCK INCENTIVE PLAN
This Restricted Stock Agreement (this "Agreement") is made this 16th day of
October, 1998, between Banyan Systems Incorporated, a Massachusetts corporation
(the "Company"), and William P. Ferry (the "Participant").
For valuable consideration, receipt of which is acknowledged, the Company
and the Participant (each, a "Party" and together, the "Parties") each agree as
follows:
1. Purchase of Shares.
------------------
The Company shall issue and sell to the Participant, and the Participant
shall purchase from the Company, subject to the terms and conditions set forth
in this Agreement and in the Company's 1992 Stock Incentive Plan, as amended
(the "Plan"), an aggregate of 200,000 shares (the "Shares") of common stock,
$0.01 par value per share, of the Company ("Common Stock"), at a purchase price
of $0.01 per share. The aggregate purchase price for the Shares shall be paid
by the Participant by check payable to the order of the Company or such other
method as may be acceptable to the Company. Upon receipt by the Company of
payment for the Shares, the Company shall issue to the Participant one or more
certificates in the name of the Participant for that number of Shares purchased
by the Participant. The Participant agrees that the Shares shall be subject to
the Purchase Option set forth in Section 2 of this Agreement and the
restrictions on transfer set forth in Section 4 of this Agreement.
2. Purchase Option.
---------------
(a) In the event that the Participant ceases to be employed by the Company
for any reason or no reason, with or without cause, or the Participant announces
his intention to terminate his employment with the Company, prior to October 16,
2001, the Company shall have the right and option (the "Purchase Option") to
purchase from the Participant, for a sum of $0.01 per share (the "Option
Price"), any or all of the Unvested Shares (as defined below).
<PAGE>
With respect to 40,000 Shares (the "First 40,000 Shares"), "Unvested
Shares" shall mean the total number of the First 40,000 Shares multiplied by the
Applicable Percentage for the First 40,000 Shares at the time the Purchase
Option becomes exercisable by the Company. The "Applicable Percentage" for the
First 40,000 Shares shall be (y) 100% during the 12-month period ending October
16, 1999 and (z) zero on or after October 16, 1999.
With respect to all Shares other than the First 40,000 Shares, "Unvested
Shares" means the total number of such Shares multiplied by the Applicable
Percentage at the time the Purchase Option becomes exercisable by the Company.
The "Applicable Percentage" for all Shares other than the First 40,000 Shares
shall be (i) 100% during the 24-month period ending October 16, 2000, (ii) 60%
during the 12-month period ending October 16, 2001 and (iii) zero on or after
October 16, 2001. Notwithstanding the foregoing, the Applicable Percentage
referred to in clauses (i) and (ii) above shall each be reduced by one-fifth of
100% and one-third of 60% (e.g., from 100% to 80%, from 60% to 40% and from 20%
to zero), respectively, in accordance with each of the following: (A) on
October 16, 1999, if, at any time after November 30, 1998, the 30 Day Fair
Market Value (as defined below) per share of Common Stock equals or exceeds
$6.00, or, on the first such date after October 16, 1999 when the 30 Day Fair
Market Value per share of Common Stock equals or exceeds $6.00, (B) on April 16,
2000, if, at any time after November 30, 1998, the 30 Day Fair Market Value per
share of Common Stock equals or exceeds $9.00, or, on the first such date after
April 16, 2000 when the 30 Day Fair Market Value per share of Common Stock
equals or exceeds $9.00 and (C) on April 16, 2000, if, any time after November
30, 1998, the 30 Day Fair Market Value per share of Common Stock equals or
exceeds $12.00, or, on the first such date after April 16, 2000 when the 30 Day
Fair Market Value per share of Common Stock equals or exceeds $12.00.
The "30 Day Fair Market Value" per share of Common Stock shall be
determined as follows:
(I) If the Common Stock is listed on a national securities exchange,
the Nasdaq National Market, the Nasdaq system, or another nationally recognized
exchange or trading system as of the date of calculation, the 30 Day Fair Market
Value per share of Common Stock shall be deemed to be the arithmetic average of
the last reported sale price per share of Common Stock thereon for the 30
trading days ended on the trading day immediately preceding the date of
calculation; or, if no such price is reported for each trading day in such 30-
trading day period, the 30 Day Fair Market Value per share of Common Stock shall
be determined pursuant to the following clause (II).
(II) If the Common Stock is not listed on a national securities
exchange, the Nasdaq National Market, the Nasdaq system or another nationally
recognized exchange or trading system as of the date of calculation or for each
trading day in such
-2-
<PAGE>
30-trading day period, the 30 Day Fair Market Value per share of Common Stock
shall be deemed to be the amount most recently determined by the Board of
Directors to represent the fair market value per share of the Common Stock
(including without limitation a determination for purposes of granting Common
Stock options or issuing Common Stock under an employee benefit plan of the
Company); or, if the Board of Directors has not made such a determination within
the two-month period prior to the date of calculation, then the 30 Day Fair
Market Value per share of Common Stock shall be the amount determined by the
Board of Directors in its sole discretion.
(b) In the event the Participant's employment with the Company is
terminated by the Company without cause (as defined in Section 5(b) of the
Employment Agreement dated February 4, 1997 between the Company and the
Participant, as amended), the Company's Purchase Option shall not be exercised
with respect to any Unvested Shares to which the Applicable Percentage would
otherwise be inapplicable as of the date one year subsequent to the
Participant's termination by the Company without cause but for such termination.
Notwithstanding the foregoing, the restrictions on transfer set forth in Section
4 hereof shall remain applicable to any such Unvested Shares until such date as
the Applicable Percentage is reduced in accordance with Section 2(a) hereof so
as to no longer apply to such Shares.
(c) In the event that the Participant's employment with the Company is
terminated by reason of death or disability, the number of the Shares for which
the Purchase Option becomes exercisable shall be fifty percent (50%) of the
number of Unvested Shares for which the Purchase Option would otherwise become
exercisable. For this purpose, "disability" shall mean the Participant's absence
from the full-time performance of the Participants's duties with the Company for
180 consecutive calendar days as a result of incapacity due to mental or
physical illness which is determined to be total and permanent by a physician
selected by the Company or its insurers and reasonably acceptable to the
Participant or the Participant's legal representative.
(d) For purposes of this Agreement, employment with the Company shall
include employment with a parent or subsidiary of the Company.
3. Exercise of Purchase Option and Closing.
---------------------------------------
(a) The Company may exercise the Purchase Option by delivering or mailing
to the Participant (or the Participant's estate), within 60 days after the
termination of the employment of the Participant with the Company, a written
notice of exercise of the Purchase Option. Such notice shall specify the number
of Shares to be purchased. If and to the extent the Purchase Option is not so
exercised by the giving of such a notice within such 60-day period, the Purchase
Option shall automatically expire and terminate effective upon the expiration of
such 60-day period.
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<PAGE>
(b) Within 10 days after delivery to the Participant of the Company's
notice of the exercise of the Purchase Option pursuant to subsection (a) above,
the Participant (or the Participant's estate) shall, pursuant to the provisions
of the Joint Escrow Instructions referred to in Section 8, tender to the Company
at its principal offices the certificate or certificates representing the Shares
which the Company has elected to purchase in accordance with the terms of this
Agreement, duly endorsed in blank or with duly endorsed stock powers attached
thereto, all in form suitable for the transfer of such Shares to the Company.
Promptly following its receipt of such certificate or certificates, the Company
shall pay to the Participant the aggregate Option Price for such Shares
(provided that any delay in making such payment shall not invalidate the
Company's exercise of the Purchase Option with respect to such Shares).
(c) After the time at which any Shares are required to be delivered to the
Company for transfer to the Company pursuant to subsection (b) above, the
Company shall not pay any dividend to the Participant on account of such Shares
or permit the Participant to exercise any of the privileges or rights of a
stockholder with respect to such Shares, but shall, in so far as permitted by
law, treat the Company as the owner of such Shares.
(d) The Option Price may be payable, at the option of the Company, in
cancellation of all or a portion of any outstanding indebtedness of the
Participant to the Company or in cash (by check) or both.
(e) The Company shall not purchase any fraction of a Share upon exercise
of the Purchase Option, and any fraction of a Share resulting from a computation
made pursuant to Section 2 of this Agreement shall be rounded to the nearest
whole Share (with any one-half Share being rounded upward).
(f) The Company may assign its Purchase Option to one or more persons or
entities.
4. Restrictions on Transfer.
------------------------
The Participant shall not sell, assign, transfer, pledge, hypothecate or
otherwise dispose of, by operation of law or otherwise (collectively "transfer")
any Shares, or any interest therein, that are subject to the Purchase Option,
except that the Participant may transfer such Shares to or for the benefit of
any spouse, child, grandchild or any person sharing the Participant's household,
or to a trust for their benefit, provided that such Shares shall remain subject
--------
to this Agreement (including without limitation the restrictions on transfer set
forth in this Section 4 and the Purchase Option), and such permitted transferee
shall, as a condition to such transfer, deliver to the Company a
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<PAGE>
written instrument confirming that such transferee shall be bound by all of the
terms and conditions of this Agreement; or
5. Effect of Prohibited Transfer.
-----------------------------
The Company shall not be required (a) to transfer on its books any of the
Shares which shall have been sold or transferred in violation of any of the
provisions set forth in this Agreement, or (b) to treat as owner of such Shares
or to pay dividends to any transferee to whom any such Shares shall have been so
sold or transferred.
6. Escrow.
------
The Participant shall, upon the execution of this Agreement, execute Joint
Escrow Instructions in the form attached to this Agreement as Appendix A. The
----------
Joint Escrow Instructions shall be delivered to the escrow agent thereunder.
The Participant shall deliver to such escrow agent a stock assignment duly
endorsed in blank and hereby instructs the Company to deliver to such escrow
agent, on behalf of the Participant, the certificate(s) evidencing the Shares
issued hereunder. Such materials shall be held by such escrow agent pursuant to
the terms of such Joint Escrow Instructions.
7. Restrictive Legend.
------------------
All certificates representing Shares shall have affixed thereto a legend in
substantially the following form, in addition to any other legends that may be
required under federal or state securities laws:
"The shares of stock represented by this certificate are subject to
restrictions on transfer and an option to purchase set forth in a
certain Restricted Stock Agreement between the corporation and the
registered owner of these shares (or his predecessor in interest), and
such Agreement is available for inspection without charge at the
office of the Secretary of the corporation."
8. Provisions of the Plan.
----------------------
This Agreement is subject to the provisions of the Plan, a copy of which is
furnished to the Participant with this Agreement.
-5-
<PAGE>
9. Withholding Taxes; Section 83(b) Election.
-----------------------------------------
(a) The Participant acknowledges and agrees that the Company has the right
to deduct from payments of any kind otherwise due to the Participant any
federal, state or local taxes of any kind required by law to be withheld with
respect to the purchase of the Shares by the Participant or the lapse of the
Purchase Option.
(b) The Participant acknowledges that he has been informed of the
availability of making an election in accordance with Section 83(b) of the
Internal Revenue Code of 1986, as amended; that such election must be filed with
the Internal Revenue Service within 30 days of the transfer of shares to the
Participant; and that the Participant is solely responsible for making such
election.
10. Severability.
------------
The invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other provision of this
Agreement, and each other provision of this Agreement shall be severable and
enforceable to the extent permitted by law.
11. Waiver.
------
Any provision for the benefit of the Company contained in this Agreement
may be waived, either generally or in any particular instance, by the Board of
Directors of the Company.
12. Binding Effect.
--------------
This Agreement shall be binding upon and inure to the benefit of the
Company and the Participant and their respective heirs, executors,
administrators, legal representatives, successors and assigns, subject to the
restrictions on transfer set forth in Section 4 of this Agreement.
13. Notice.
------
All notices, instructions and other communications given hereunder or in
connection herewith shall be in writing. Any such notice, instruction or
communication shall be sent either (i) by registered or certified mail, return
receipt requested, postage prepaid, or (ii) prepaid via a reputable nationwide
overnight courier service, in each case addressed to the Company at Vice
President, Human Resources, Banyan Systems Incorporated, 120 Flanders Road, P.O.
Box 5013, Westboro, Massachusetts 01581-5013, and to the Participant at P.O. Box
638, Hyannis, Massachusetts 02601-0638 (or to such other address as either the
Company or the Participant may have furnished to the other
-6-
<PAGE>
in writing in accordance herewith). Any such notice, instruction or
communication shall be deemed to have been delivered five business days after it
is sent by registered or certified mail, return receipt requested, postage
prepaid, or one business day after it is sent via a reputable nationwide
overnight courier service. Either Party may give any notice, instruction or
other communication hereunder using any other means, but no such notice,
instruction or other communication shall be deemed to have been duly delivered
unless and until it actually is received by the Party for whom it is intended.
14. Pronouns.
--------
Whenever the context may require, any pronouns used in this Agreement shall
include the corresponding masculine, feminine or neuter forms, and the singular
form of nouns and pronouns shall include the plural, and vice versa.
15. Entire Agreement.
----------------
This Agreement and the Plan constitute the entire agreement between the
Parties, and supersede all prior agreements and understandings, relating to the
subject matter of this Agreement.
16. Amendment.
---------
This Agreement may be amended or modified only by a written instrument
executed by both the Company and the Participant.
17. Governing Law.
-------------
This Agreement shall be construed, interpreted and enforced in accordance
with the internal laws of the Commonwealth of Massachusetts without regard to
any applicable conflicts of laws.
-7-
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the day
and year first above written.
BANYAN SYSTEMS INCORPORATED
By: /s/ Richard M. Spaulding
------------------------
Name: Richard M. Spaulding
Title: Vice President and
Chief Financial Officer
PARTICIPANT
/s/ William P. Ferry
--------------------
Print Name: William P. Ferry
-8-
<PAGE>
Appendix A
----------
BANYAN SYSTEMS INCORPORATED
JOINT ESCROW INSTRUCTIONS
October 16, 1998
Richard M. Spaulding
Clerk
Banyan Systems Incorporated
120 Flanders Road
P.O. Box 5013
Westboro, Massachusetts 01581-5013
Dear Sir:
As Escrow Agent for Banyan Systems Incorporated, a Massachusetts
corporation (the "Company"), and the undersigned person ("Holder"), you are
hereby authorized and directed to hold the documents delivered to you pursuant
to the terms of that certain Restricted Stock Agreement (the "Agreement") of
even date herewith, to which a copy of these Joint Escrow Instructions is
attached, in accordance with the following instructions:
1. Appointment. Holder irrevocably authorizes the Company to deposit
-----------
with you any certificates evidencing Shares (as defined in the Agreement) to be
held by you hereunder and any additions and substitutions to said Shares.
Holder does hereby irrevocably constitute and appoint you as his attorney-in-
fact and agent for the term of this escrow to execute with respect to such
Shares all documents necessary or appropriate to make such Shares negotiable and
to complete any transaction herein contemplated. Subject to the provisions of
this paragraph 1 and the terms of the Agreement, Holder shall exercise all
rights and privileges of a stockholder of the Company while the Shares are held
by you.
2. Closing of Purchase.
-------------------
(a) Upon any purchase by the Company of the Shares pursuant to the
Agreement, the Company shall give to Holder and you a written notice specifying
the
A-1
<PAGE>
purchase price for the Shares, as determined pursuant to the Agreement, and the
time for a closing hereunder (the "Closing") at the principal office of the
Company. Holder and the Company hereby irrevocably authorize and direct you to
close the transaction contemplated by such notice in accordance with the terms
of said notice.
(b) At the Closing, you are directed (a) to date the stock assignment form
or forms necessary for the transfer of the Shares, (b) to fill in on such form
or forms the number of Shares being transferred, and (c) to deliver same,
together with the certificate or certificates evidencing the Shares to be
transferred, to the Company against the simultaneous delivery to you of the
purchase price for the Shares being purchased pursuant to the Agreement.
3. Withdrawal. The Holder shall have the right to withdraw from this
----------
escrow any Shares as to which the Purchase Option (as defined in the Agreement)
has terminated or expired.
4. Duties of Escrow Agent.
----------------------
(a) Your duties hereunder may be altered, amended, modified or revoked
only by a writing signed by all of the parties hereto.
(b) You shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties.
You shall not be personally liable for any act you may do or omit to do
hereunder as Escrow Agent or as attorney-in-fact of Holder while acting in good
faith and in the exercise of your own good judgment, and any act done or omitted
by you pursuant to the advice of your own attorneys shall be conclusive evidence
of such good faith.
(c) You are hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person or Company, excepting
only orders or process of courts of law, and are hereby expressly authorized to
comply with and obey orders, judgments or decrees of any court. In case you
obey or comply with any such order, judgment or decree of any court, you shall
not be liable to any of the parties hereto or to any other person, firm or
Company by reason of such compliance, notwithstanding any such order, judgment
or decree being subsequently reversed, modified, annulled, set aside, vacated or
found to have been entered without jurisdiction.
(d) You shall not be liable in any respect on account of the identity,
authority or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
A-2
<PAGE>
(e) You shall be entitled to employ such legal counsel and other experts
as you may deem necessary properly to advise you in connection with your
obligations hereunder and may rely upon the advice of such counsel.
(f) Your rights and responsibilities as Escrow Agent hereunder shall
terminate if (i) you cease to be Clerk of the Company or (ii) you resign by
written notice to each party. In the event of a termination under clause (i),
your successor as Clerk shall become Escrow Agent hereunder; in the event of a
termination under clause (ii), the Company shall appoint a successor Escrow
Agent hereunder.
(g) If you reasonably require other or further instruments in connection
with these Joint Escrow Instructions or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.
(h) It is understood and agreed that should any dispute arise with respect
to the delivery and/or ownership or right of possession of the securities held
by you hereunder, you are authorized and directed to retain in your possession
without liability to anyone all or any part of said securities until such
dispute shall have been settled either by mutual written agreement of the
parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
(i) These Joint Escrow Instructions set forth your sole duties with
respect to any and all matters pertinent hereto and no implied duties or
obligations shall be read into these Joint Escrow Instructions against you.
(j) The Company shall indemnify you and hold you harmless against any and
all damages, losses, liabilities, costs, and expenses, including attorneys' fees
and disbursements, for anything done or omitted to be done by you as Escrow
Agent in connection with this Agreement or the performance of your duties
hereunder, except such as shall result from your gross negligence or willful
misconduct.
5. Notice. All notices, instructions and other communications given
------
hereunder or in connection herewith shall be in writing. Any such notice,
instruction or communication shall be sent to each of the other parties
thereunto entitled either (i) by registered or certified mail, return receipt
requested, postage prepaid, or (ii) prepaid via a reputable nationwide overnight
courier service, in each case addressed to the Company at Vice President, Human
Resources, Banyan Systems Incorporated, 120 Flanders Road, P.O. Box 5013,
Westboro, Massachusetts 01581-5013, to the Holder at P.O. Box 638, Hyannis,
Massachusetts 02601-0638 and to you at Clerk, Banyan Systems Incorporated, 120
Flanders Road, P.O. Box 5013, Westboro, Massachusetts 01581-5013 (or to such
other address as a party may have furnished to the other parties in writing
A-3
<PAGE>
in accordance herewith). Any such notice, instruction or communication shall be
deemed to have been delivered five business days after it is sent by registered
or certified mail, return receipt requested, postage prepaid, or one business
day after it is sent via a reputable nationwide overnight courier service. Any
party may give any notice, instruction or other communication hereunder using
any other means, but no such notice, instruction or other communication shall be
deemed to have been duly delivered unless and until it actually is received by
the party for whom it is intended.
6. Miscellaneous.
-------------
(a) By signing these Joint Escrow Instructions, you become a party hereto
only for the purpose of said Joint Escrow Instructions, and you do not become a
party to the Agreement.
(b) This instrument shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns.
Very truly yours,
BANYAN SYSTEMS INCORPORATED
By: /s/ Richard M. Spaulding
------------------------
Name: Richard M. Spaulding
Title: Vice President and
Chief Financial Officer
HOLDER
/s/ William P. Ferry
--------------------
Print Name: William P. Ferry
ESCROW AGENT
/s/ Richard M. Spaulding
- ------------------------
Print Name: Richard M. Spaulding
Print Title: Clerk
A-4
<PAGE>
EXHIBIT 10.21
BANYAN SYSTEMS INCORPORATED
EXECUTIVE OFFICER RESTRICTED STOCK AGREEMENT
GRANTED UNDER 1992 STOCK INCENTIVE PLAN
This Restricted Stock Agreement (this "Agreement") is made this 16th day of
October, 1998, between Banyan Systems Incorporated, a Massachusetts corporation
(the "Company"), and Robert D. Burke (the "Participant").
For valuable consideration, receipt of which is acknowledged, the Company
and the Participant (each, a "Party" and together, the "Parties") each agree as
follows:
1. Purchase of Shares.
------------------
The Company shall issue and sell to the Participant, and the Participant
shall purchase from the Company, subject to the terms and conditions set forth
in this Agreement and in the Company's 1992 Stock Incentive Plan, as amended
(the "Plan"), 60,000 shares (the "Shares") of common stock, $0.01 par value per
share, of the Company ("Common Stock"), at a purchase price of $0.01 per share.
The aggregate purchase price for the Shares shall be paid by the Participant by
check payable to the order of the Company or such other method as may be
acceptable to the Company. Upon receipt by the Company of payment for the
Shares, the Company shall issue to the Participant one or more certificates in
the name of the Participant for that number of Shares purchased by the
Participant. The Participant agrees that the Shares shall be subject to the
Purchase Option set forth in Section 2 of this Agreement and the restrictions on
transfer set forth in Section 4 of this Agreement.
2. Purchase Option.
---------------
(a) In the event that the Participant ceases to be employed by the Company
for any reason or no reason, with or without cause, or the Participant announces
his intention to terminate his employment with the Company, prior to October 16,
2001, the Company shall have the right and option (the "Purchase Option") to
purchase from the Participant, for a sum of $0.01 per share (the "Option
Price"), any or all of the Unvested Shares (as defined below).
<PAGE>
"Unvested Shares" means the total number of Shares multiplied by the
Applicable Percentage at the time the Purchase Option becomes exercisable by the
Company. The "Applicable Percentage" shall be (i) 100% during the 24-month
period ending October 16, 2000, (ii) 60% during the 12-month period ending
October 16, 2001 and (iii) zero on or after October 16, 2001. Notwithstanding
the foregoing, the Applicable Percentage referred to in clauses (i) and (ii)
above shall each be reduced by one-fifth of 100% and one-third of 60% (e.g.,
from 100% to 80%, from 60% to 40% and from 20% to zero), respectively, in
accordance with each of the following: (A) on October 16, 1999, if, at any time
after November 30, 1998, the 30 Day Fair Market Value (as defined below) per
share of Common Stock equals or exceeds $6.00, or, on the first such date after
October 16, 1999 when the 30 Day Fair Market Value per share of Common Stock
equals or exceeds $6.00, (B) on April 16, 2000, if, at any time after November
30, 1998, the 30 Day Fair Market Value per share of Common Stock equals or
exceeds $9.00, or, on the first such date after April 16, 2000 when the 30 Day
Fair Market Value per share of Common Stock equals or exceeds $9.00 and (C) on
April 16, 2000, if, any time after November 30, 1998, the 30 Day Fair Market
Value per share of Common Stock equals or exceeds $12.00, or, on the first such
date after April 16, 2000 when the 30 Day Fair Market Value per share of Common
Stock equals or exceeds $12.00.
The "30 Day Fair Market Value" per share of Common Stock shall be
determined as follows:
(I) If the Common Stock is listed on a national securities exchange,
the Nasdaq National Market, the Nasdaq system, or another nationally recognized
exchange or trading system as of the date of calculation, the 30 Day Fair Market
Value per share of Common Stock shall be deemed to be the arithmetic average of
the last reported sale price per share of Common Stock thereon for the 30
trading days ended on the trading day immediately preceding the date of
calculation; or, if no such price is reported for each trading day in such 30-
trading day period, the 30 Day Fair Market Value per share of Common Stock shall
be determined pursuant to the following clause (II).
(II) If the Common Stock is not listed on a national securities
exchange, the Nasdaq National Market, the Nasdaq system or another nationally
recognized exchange or trading system as of the date of calculation or for each
trading day in such 30-trading day period, the 30 Day Fair Market Value per
share of Common Stock shall be deemed to be the amount most recently determined
by the Board of Directors to represent the fair market value per share of the
Common Stock (including without limitation a determination for purposes of
granting Common Stock options or issuing Common Stock under an employee benefit
plan of the Company); or, if the Board of Directors has not made such a
determination within the two-month period prior to the date of calculation, then
the 30 Day Fair Market Value per share of Common Stock shall be the amount
determined by the Board of Directors in its sole discretion.
-2-
<PAGE>
(b) In the event that the Participant's employment with the Company is
terminated by reason of death or disability, the number of the Shares for which
the Purchase Option becomes exercisable shall be fifty percent (50%) of the
number of Unvested Shares for which the Purchase Option would otherwise become
exercisable. For this purpose, "disability" shall mean the Participant's absence
from the full-time performance of the Participants's duties with the Company for
180 consecutive calendar days as a result of incapacity due to mental or
physical illness which is determined to be total and permanent by a physician
selected by the Company or its insurers and reasonably acceptable to the
Participant or the Participant's legal representative.
(c) For purposes of this Agreement, employment with the Company shall
include employment with a parent or subsidiary of the Company.
3. Exercise of Purchase Option and Closing.
---------------------------------------
(a) The Company may exercise the Purchase Option by delivering or mailing
to the Participant (or the Participant's estate), within 60 days after the
termination of the employment of the Participant with the Company, a written
notice of exercise of the Purchase Option. Such notice shall specify the number
of Shares to be purchased. If and to the extent the Purchase Option is not so
exercised by the giving of such a notice within such 60-day period, the Purchase
Option shall automatically expire and terminate effective upon the expiration of
such 60-day period.
(b) Within 10 days after delivery to the Participant of the Company's
notice of the exercise of the Purchase Option pursuant to subsection (a) above,
the Participant (or the Participant's estate) shall, pursuant to the provisions
of the Joint Escrow Instructions referred to in Section 8, tender to the Company
at its principal offices the certificate or certificates representing the Shares
which the Company has elected to purchase in accordance with the terms of this
Agreement, duly endorsed in blank or with duly endorsed stock powers attached
thereto, all in form suitable for the transfer of such Shares to the Company.
Promptly following its receipt of such certificate or certificates, the Company
shall pay to the Participant the aggregate Option Price for such Shares
(provided that any delay in making such payment shall not invalidate the
Company's exercise of the Purchase Option with respect to such Shares).
(c) After the time at which any Shares are required to be delivered to the
Company for transfer to the Company pursuant to subsection (b) above, the
Company shall not pay any dividend to the Participant on account of such Shares
or permit the Participant to exercise any of the privileges or rights of a
stockholder with respect to such Shares, but shall, in so far as permitted by
law, treat the Company as the owner of such Shares.
-3-
<PAGE>
(d) The Option Price may be payable, at the option of the Company, in
cancellation of all or a portion of any outstanding indebtedness of the
Participant to the Company or in cash (by check) or both.
(e) The Company shall not purchase any fraction of a Share upon exercise of
the Purchase Option, and any fraction of a Share resulting from a computation
made pursuant to Section 2 of this Agreement shall be rounded to the nearest
whole Share (with any one-half Share being rounded upward).
(f) The Company may assign its Purchase Option to one or more persons or
entities.
4. Restrictions on Transfer.
------------------------
The Participant shall not sell, assign, transfer, pledge, hypothecate or
otherwise dispose of, by operation of law or otherwise (collectively "transfer")
any Shares, or any interest therein, that are subject to the Purchase Option,
except that the Participant may transfer such Shares to or for the benefit of
any spouse, child or grandchild, or to a trust for their benefit, provided that
--------
such Shares shall remain subject to this Agreement (including without limitation
the restrictions on transfer set forth in this Section 4 and the Purchase
Option), and such permitted transferee shall, as a condition to such transfer,
deliver to the Company a written instrument confirming that such transferee
shall be bound by all of the terms and conditions of this Agreement; or
5. Effect of Prohibited Transfer.
-----------------------------
The Company shall not be required (a) to transfer on its books any of the
Shares which shall have been sold or transferred in violation of any of the
provisions set forth in this Agreement, or (b) to treat as owner of such Shares
or to pay dividends to any transferee to whom any such Shares shall have been so
sold or transferred.
6. Escrow.
------
The Participant shall, upon the execution of this Agreement, execute Joint
Escrow Instructions in the form attached to this Agreement as Appendix A. The
----------
Joint Escrow Instructions shall be delivered to the escrow agent thereunder.
The Participant shall deliver to such escrow agent a stock assignment duly
endorsed in blank and hereby instructs the Company to deliver to such escrow
agent, on behalf of the Participant, the certificate(s) evidencing the Shares
issued hereunder. Such materials shall be held by such escrow agent pursuant to
the terms of such Joint Escrow Instructions.
-4-
<PAGE>
7. Restrictive Legend.
------------------
All certificates representing Shares shall have affixed thereto a legend in
substantially the following form, in addition to any other legends that may be
required under federal or state securities laws:
"The shares of stock represented by this certificate are subject to
restrictions on transfer and an option to purchase set forth in a
certain Restricted Stock Agreement between the corporation and the
registered owner of these shares (or his predecessor in interest), and
such Agreement is available for inspection without charge at the
office of the Secretary of the corporation."
8. Provisions of the Plan.
----------------------
This Agreement is subject to the provisions of the Plan, a copy of which is
furnished to the Participant with this Agreement.
9. Withholding Taxes; Section 83(b) Election.
-----------------------------------------
(a) The Participant acknowledges and agrees that the Company has the right
to deduct from payments of any kind otherwise due to the Participant any
federal, state or local taxes of any kind required by law to be withheld with
respect to the purchase of the Shares by the Participant or the lapse of the
Purchase Option.
(b) The Participant acknowledges that he has been informed of the
availability of making an election in accordance with Section 83(b) of the
Internal Revenue Code of 1986, as amended; that such election must be filed with
the Internal Revenue Service within 30 days of the transfer of shares to the
Participant; and that the Participant is solely responsible for making such
election.
10. Severability.
------------
The invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other provision of this
Agreement, and each other provision of this Agreement shall be severable and
enforceable to the extent permitted by law.
-5-
<PAGE>
11. Waiver.
------
Any provision for the benefit of the Company contained in this Agreement
may be waived, either generally or in any particular instance, by the Board of
Directors of the Company.
12. Binding Effect.
--------------
This Agreement shall be binding upon and inure to the benefit of the
Company and the Participant and their respective heirs, executors,
administrators, legal representatives, successors and assigns, subject to the
restrictions on transfer set forth in Section 4 of this Agreement.
13. Notice.
------
All notices, instructions and other communications given hereunder or in
connection herewith shall be in writing. Any such notice, instruction or
communication shall be sent either (i) by registered or certified mail, return
receipt requested, postage prepaid, or (ii) prepaid via a reputable nationwide
overnight courier service, in each case addressed to the Company at Vice
President, Human Resources, Banyan Systems Incorporated, 120 Flanders Road, P.O.
Box 5013, Westboro, Massachusetts 01581-5013, and to the Participant at 30 Allen
Circle, Boxford, Massachusetts 01921 (or to such other address as either the
Company or the Participant may have furnished to the other in writing in
accordance herewith). Any such notice, instruction or communication shall be
deemed to have been delivered five business days after it is sent by registered
or certified mail, return receipt requested, postage prepaid, or one business
day after it is sent via a reputable nationwide overnight courier service.
Either Party may give any notice, instruction or other communication hereunder
using any other means, but no such notice, instruction or other communication
shall be deemed to have been duly delivered unless and until it actually is
received by the Party for whom it is intended.
14. Pronouns.
--------
Whenever the context may require, any pronouns used in this Agreement shall
include the corresponding masculine, feminine or neuter forms, and the singular
form of nouns and pronouns shall include the plural, and vice versa.
15. Entire Agreement.
----------------
This Agreement and the Plan constitute the entire agreement between the
Parties, and supersede all prior agreements and understandings, relating to the
subject matter of this Agreement.
-6-
<PAGE>
16. Amendment.
---------
This Agreement may be amended or modified only by a written instrument
executed by both the Company and the Participant.
17. Governing Law.
-------------
This Agreement shall be construed, interpreted and enforced in accordance
with the internal laws of the Commonwealth of Massachusetts without regard to
any applicable conflicts of laws.
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the day
and year first above written.
BANYAN SYSTEMS INCORPORATED
By: /s/ William P. Ferry
--------------------
Name: William P. Ferry
Title: Chairman and
Chief Executive Officer
PARTICIPANT
/s/ Robert D. Burke
-------------------
Print Name: Robert D. Burke
-7-
<PAGE>
Appendix A
----------
BANYAN SYSTEMS INCORPORATED
JOINT ESCROW INSTRUCTIONS
October 16, 1998
Richard M. Spaulding
Clerk
Banyan Systems Incorporated
120 Flanders Road
P.O. Box 5013
Westboro, Massachusetts 01581-5013
Dear Sir:
As Escrow Agent for Banyan Systems Incorporated, a Massachusetts
corporation (the "Company"), and the undersigned person ("Holder"), you are
hereby authorized and directed to hold the documents delivered to you pursuant
to the terms of that certain Restricted Stock Agreement (the "Agreement") of
even date herewith, to which a copy of these Joint Escrow Instructions is
attached, in accordance with the following instructions:
1. Appointment. Holder irrevocably authorizes the Company to deposit
-----------
with you any certificates evidencing Shares (as defined in the Agreement) to be
held by you hereunder and any additions and substitutions to said Shares.
Holder does hereby irrevocably constitute and appoint you as his attorney-in-
fact and agent for the term of this escrow to execute with respect to such
Shares all documents necessary or appropriate to make such Shares negotiable and
to complete any transaction herein contemplated. Subject to the provisions of
this paragraph 1 and the terms of the Agreement, Holder shall exercise all
rights and privileges of a stockholder of the Company while the Shares are held
by you.
2. Closing of Purchase.
-------------------
(a) Upon any purchase by the Company of the Shares pursuant to the
Agreement, the Company shall give to Holder and you a written notice specifying
the
A-1
<PAGE>
purchase price for the Shares, as determined pursuant to the Agreement, and
the time for a closing hereunder (the "Closing") at the principal office of the
Company. Holder and the Company hereby irrevocably authorize and direct you to
close the transaction contemplated by such notice in accordance with the terms
of said notice.
(b) At the Closing, you are directed (a) to date the stock assignment form
or forms necessary for the transfer of the Shares, (b) to fill in on such form
or forms the number of Shares being transferred, and (c) to deliver same,
together with the certificate or certificates evidencing the Shares to be
transferred, to the Company against the simultaneous delivery to you of the
purchase price for the Shares being purchased pursuant to the Agreement.
3. Withdrawal. The Holder shall have the right to withdraw from this
----------
escrow any Shares as to which the Purchase Option (as defined in the Agreement)
has terminated or expired.
4. Duties of Escrow Agent.
----------------------
(a) Your duties hereunder may be altered, amended, modified or revoked
only by a writing signed by all of the parties hereto.
(b) You shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties.
You shall not be personally liable for any act you may do or omit to do
hereunder as Escrow Agent or as attorney-in-fact of Holder while acting in good
faith and in the exercise of your own good judgment, and any act done or omitted
by you pursuant to the advice of your own attorneys shall be conclusive evidence
of such good faith.
(c) You are hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person or Company, excepting
only orders or process of courts of law, and are hereby expressly authorized to
comply with and obey orders, judgments or decrees of any court. In case you
obey or comply with any such order, judgment or decree of any court, you shall
not be liable to any of the parties hereto or to any other person, firm or
Company by reason of such compliance, notwithstanding any such order, judgment
or decree being subsequently reversed, modified, annulled, set aside, vacated or
found to have been entered without jurisdiction.
(d) You shall not be liable in any respect on account of the identity,
authority or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
A-2
<PAGE>
(e) You shall be entitled to employ such legal counsel and other experts
as you may deem necessary properly to advise you in connection with your
obligations hereunder and may rely upon the advice of such counsel.
(f) Your rights and responsibilities as Escrow Agent hereunder shall
terminate if (i) you cease to be Clerk of the Company or (ii) you resign by
written notice to each party. In the event of a termination under clause (i),
your successor as Clerk shall become Escrow Agent hereunder; in the event of a
termination under clause (ii), the Company shall appoint a successor Escrow
Agent hereunder.
(g) If you reasonably require other or further instruments in connection
with these Joint Escrow Instructions or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.
(h) It is understood and agreed that should any dispute arise with respect
to the delivery and/or ownership or right of possession of the securities held
by you hereunder, you are authorized and directed to retain in your possession
without liability to anyone all or any part of said securities until such
dispute shall have been settled either by mutual written agreement of the
parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
(i) These Joint Escrow Instructions set forth your sole duties with
respect to any and all matters pertinent hereto and no implied duties or
obligations shall be read into these Joint Escrow Instructions against you.
(j) The Company shall indemnify you and hold you harmless against any and
all damages, losses, liabilities, costs, and expenses, including attorneys' fees
and disbursements, for anything done or omitted to be done by you as Escrow
Agent in connection with this Agreement or the performance of your duties
hereunder, except such as shall result from your gross negligence or willful
misconduct.
5. Notice. All notices, instructions and other communications given
------
hereunder or in connection herewith shall be in writing. Any such notice,
instruction or communication shall be sent to each of the other parties
thereunto entitled either (i) by registered or certified mail, return receipt
requested, postage prepaid, or (ii) prepaid via a reputable nationwide overnight
courier service, in each case addressed to the Company at Vice President, Human
Resources, Banyan Systems Incorporated, 120 Flanders Road, P.O. Box 5013,
Westboro, Massachusetts 01581-5013, to the Participant at 30 Allen Circle,
Boxford, Massachusetts 01921 and to you at Clerk, Banyan Systems Incorporated,
120 Flanders Road, P.O. Box 5013, Westboro, Massachusetts 01581-5013 (or to such
other address as a party may have furnished to the other parties in writing
A-3
<PAGE>
in accordance herewith). Any such notice, instruction or communication shall be
deemed to have been delivered five business days after it is sent by registered
or certified mail, return receipt requested, postage prepaid, or one business
day after it is sent via a reputable nationwide overnight courier service. Any
party may give any notice, instruction or other communication hereunder using
any other means, but no such notice, instruction or other communication shall be
deemed to have been duly delivered unless and until it actually is received by
the party for whom it is intended.
6. Miscellaneous.
-------------
(a) By signing these Joint Escrow Instructions, you become a party hereto
only for the purpose of said Joint Escrow Instructions, and you do not become a
party to the Agreement.
(b) This instrument shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns.
Very truly yours,
BANYAN SYSTEMS INCORPORATED
By: /s/ William P. Ferry
--------------------
Name: William P. Ferry
Title: Chairman and
Chief Executive Officer
HOLDER
/s/ Robert D. Burke
-------------------
Print Name: Robert D. Burke
ESCROW AGENT
/s/ Richard M. Spaulding
- ------------------------
Print Name: Richard M. Spaulding
Print Title: Clerk
A-4
<PAGE>
EXHBIT 10.22
BANYAN SYSTEMS INCORPORATED
EXECUTIVE OFFICER RESTRICTED STOCK AGREEMENT
GRANTED UNDER 1992 STOCK INCENTIVE PLAN
This Restricted Stock Agreement (this "Agreement") is made this 16th day of
October, 1998, between Banyan Systems Incorporated, a Massachusetts corporation
(the "Company"), and Richard M. Spaulding (the "Participant").
For valuable consideration, receipt of which is acknowledged, the Company
and the Participant (each, a "Party" and together, the "Parties") each agree as
follows:
1. Purchase of Shares.
------------------
The Company shall issue and sell to the Participant, and the Participant
shall purchase from the Company, subject to the terms and conditions set forth
in this Agreement and in the Company's 1992 Stock Incentive Plan, as amended
(the "Plan"), 34,000 shares (the "Shares") of common stock, $0.01 par value per
share, of the Company ("Common Stock"), at a purchase price of $0.01 per share.
The aggregate purchase price for the Shares shall be paid by the Participant by
check payable to the order of the Company or such other method as may be
acceptable to the Company. Upon receipt by the Company of payment for the
Shares, the Company shall issue to the Participant one or more certificates in
the name of the Participant for that number of Shares purchased by the
Participant. The Participant agrees that the Shares shall be subject to the
Purchase Option set forth in Section 2 of this Agreement and the restrictions on
transfer set forth in Section 4 of this Agreement.
2. Purchase Option.
---------------
(a) In the event that the Participant ceases to be employed by the Company
for any reason or no reason, with or without cause, or the Participant announces
his intention to terminate his employment with the Company, prior to October 16,
2001, the Company shall have the right and option (the "Purchase Option") to
purchase from the Participant, for a sum of $0.01 per share (the "Option
Price"), any or all of the Unvested Shares (as defined below).
<PAGE>
"Unvested Shares" means the total number of Shares multiplied by the
Applicable Percentage at the time the Purchase Option becomes exercisable by the
Company. The "Applicable Percentage" shall be (i) 100% during the 24-month
period ending October 16, 2000, (ii) 60% during the 12-month period ending
October 16, 2001 and (iii) zero on or after October 16, 2001. Notwithstanding
the foregoing, the Applicable Percentage referred to in clauses (i) and (ii)
above shall each be reduced by one-fifth of 100% and one-third of 60% (e.g.,
from 100% to 80%, from 60% to 40% and from 20% to zero), respectively, in
accordance with each of the following: (A) on October 16, 1999, if, at any time
after November 30, 1998, the 30 Day Fair Market Value (as defined below) per
share of Common Stock equals or exceeds $6.00, or, on the first such date after
October 16, 1999 when the 30 Day Fair Market Value per share of Common Stock
equals or exceeds $6.00, (B) on April 16, 2000, if, at any time after November
30, 1998, the 30 Day Fair Market Value per share of Common Stock equals or
exceeds $9.00, or, on the first such date after April 16, 2000 when the 30 Day
Fair Market Value per share of Common Stock equals or exceeds $9.00 and (C) on
April 16, 2000, if, any time after November 30, 1998, the 30 Day Fair Market
Value per share of Common Stock equals or exceeds $12.00, or, on the first such
date after April 16, 2000 when the 30 Day Fair Market Value per share of Common
Stock equals or exceeds $12.00.
The "30 Day Fair Market Value" per share of Common Stock shall be
determined as follows:
(I) If the Common Stock is listed on a national securities exchange,
the Nasdaq National Market, the Nasdaq system, or another nationally recognized
exchange or trading system as of the date of calculation, the 30 Day Fair Market
Value per share of Common Stock shall be deemed to be the arithmetic average of
the last reported sale price per share of Common Stock thereon for the 30
trading days ended on the trading day immediately preceding the date of
calculation; or, if no such price is reported for each trading day in such 30-
trading day period, the 30 Day Fair Market Value per share of Common Stock shall
be determined pursuant to the following clause (II).
(II) If the Common Stock is not listed on a national securities
exchange, the Nasdaq National Market, the Nasdaq system or another nationally
recognized exchange or trading system as of the date of calculation or for each
trading day in such 30-trading day period, the 30 Day Fair Market Value per
share of Common Stock shall be deemed to be the amount most recently determined
by the Board of Directors to represent the fair market value per share of the
Common Stock (including without limitation a determination for purposes of
granting Common Stock options or issuing Common Stock under an employee benefit
plan of the Company); or, if the Board of Directors has not made such a
determination within the two-month period prior to the date of calculation, then
the 30 Day Fair Market Value per share of Common Stock shall be the amount
determined by the Board of Directors in its sole discretion.
-2-
<PAGE>
(b) In the event that the Participant's employment with the Company is
terminated by reason of death or disability, the number of the Shares for which
the Purchase Option becomes exercisable shall be fifty percent (50%) of the
number of Unvested Shares for which the Purchase Option would otherwise become
exercisable. For this purpose, "disability" shall mean the Participant's absence
from the full-time performance of the Participants's duties with the Company for
180 consecutive calendar days as a result of incapacity due to mental or
physical illness which is determined to be total and permanent by a physician
selected by the Company or its insurers and reasonably acceptable to the
Participant or the Participant's legal representative.
(c) For purposes of this Agreement, employment with the Company shall
include employment with a parent or subsidiary of the Company.
3. Exercise of Purchase Option and Closing.
---------------------------------------
(a) The Company may exercise the Purchase Option by delivering or mailing
to the Participant (or the Participant's estate), within 60 days after the
termination of the employment of the Participant with the Company, a written
notice of exercise of the Purchase Option. Such notice shall specify the number
of Shares to be purchased. If and to the extent the Purchase Option is not so
exercised by the giving of such a notice within such 60-day period, the Purchase
Option shall automatically expire and terminate effective upon the expiration of
such 60-day period.
(b) Within 10 days after delivery to the Participant of the Company's
notice of the exercise of the Purchase Option pursuant to subsection (a) above,
the Participant (or the Participant's estate) shall, pursuant to the provisions
of the Joint Escrow Instructions referred to in Section 8, tender to the Company
at its principal offices the certificate or certificates representing the Shares
which the Company has elected to purchase in accordance with the terms of this
Agreement, duly endorsed in blank or with duly endorsed stock powers attached
thereto, all in form suitable for the transfer of such Shares to the Company.
Promptly following its receipt of such certificate or certificates, the Company
shall pay to the Participant the aggregate Option Price for such Shares
(provided that any delay in making such payment shall not invalidate the
Company's exercise of the Purchase Option with respect to such Shares).
(c) After the time at which any Shares are required to be delivered to the
Company for transfer to the Company pursuant to subsection (b) above, the
Company shall not pay any dividend to the Participant on account of such Shares
or permit the Participant to exercise any of the privileges or rights of a
stockholder with respect to such Shares, but shall, in so far as permitted by
law, treat the Company as the owner of such Shares.
-3-
<PAGE>
(d) The Option Price may be payable, at the option of the Company, in
cancellation of all or a portion of any outstanding indebtedness of the
Participant to the Company or in cash (by check) or both.
(e) The Company shall not purchase any fraction of a Share upon exercise
of the Purchase Option, and any fraction of a Share resulting from a computation
made pursuant to Section 2 of this Agreement shall be rounded to the nearest
whole Share (with any one-half Share being rounded upward).
(f) The Company may assign its Purchase Option to one or more persons or
entities.
4. Restrictions on Transfer.
------------------------
The Participant shall not sell, assign, transfer, pledge, hypothecate or
otherwise dispose of, by operation of law or otherwise (collectively "transfer")
any Shares, or any interest therein, that are subject to the Purchase Option,
except that the Participant may transfer such Shares to or for the benefit of
any spouse, child or grandchild, or to a trust for their benefit, provided that
--------
such Shares shall remain subject to this Agreement (including without limitation
the restrictions on transfer set forth in this Section 4 and the Purchase
Option), and such permitted transferee shall, as a condition to such transfer,
deliver to the Company a written instrument confirming that such transferee
shall be bound by all of the terms and conditions of this Agreement; or
5. Effect of Prohibited Transfer.
-----------------------------
The Company shall not be required (a) to transfer on its books any of the
Shares which shall have been sold or transferred in violation of any of the
provisions set forth in this Agreement, or (b) to treat as owner of such Shares
or to pay dividends to any transferee to whom any such Shares shall have been so
sold or transferred.
6. Escrow.
------
The Participant shall, upon the execution of this Agreement, execute Joint
Escrow Instructions in the form attached to this Agreement as Appendix A. The
----------
Joint Escrow Instructions shall be delivered to the escrow agent thereunder.
The Participant shall deliver to such escrow agent a stock assignment duly
endorsed in blank and hereby instructs the Company to deliver to such escrow
agent, on behalf of the Participant, the certificate(s) evidencing the Shares
issued hereunder. Such materials shall be held by such escrow agent pursuant to
the terms of such Joint Escrow Instructions.
-4-
<PAGE>
7. Restrictive Legend.
------------------
All certificates representing Shares shall have affixed thereto a legend in
substantially the following form, in addition to any other legends that may be
required under federal or state securities laws:
"The shares of stock represented by this certificate are subject to
restrictions on transfer and an option to purchase set forth in a
certain Restricted Stock Agreement between the corporation and the
registered owner of these shares (or his predecessor in interest), and
such Agreement is available for inspection without charge at the
office of the Secretary of the corporation."
8. Provisions of the Plan.
----------------------
This Agreement is subject to the provisions of the Plan, a copy of which is
furnished to the Participant with this Agreement.
9. Withholding Taxes; Section 83(b) Election.
-----------------------------------------
(a) The Participant acknowledges and agrees that the Company has the right
to deduct from payments of any kind otherwise due to the Participant any
federal, state or local taxes of any kind required by law to be withheld with
respect to the purchase of the Shares by the Participant or the lapse of the
Purchase Option.
(b) The Participant acknowledges that he has been informed of the
availability of making an election in accordance with Section 83(b) of the
Internal Revenue Code of 1986, as amended; that such election must be filed with
the Internal Revenue Service within 30 days of the transfer of shares to the
Participant; and that the Participant is solely responsible for making such
election.
10. Severability.
------------
The invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other provision of this
Agreement, and each other provision of this Agreement shall be severable and
enforceable to the extent permitted by law.
-5-
<PAGE>
11. Waiver.
------
Any provision for the benefit of the Company contained in this Agreement
may be waived, either generally or in any particular instance, by the Board of
Directors of the Company.
12. Binding Effect.
--------------
This Agreement shall be binding upon and inure to the benefit of the
Company and the Participant and their respective heirs, executors,
administrators, legal representatives, successors and assigns, subject to the
restrictions on transfer set forth in Section 4 of this Agreement.
13. Notice.
------
All notices, instructions and other communications given hereunder or in
connection herewith shall be in writing. Any such notice, instruction or
communication shall be sent either (i) by registered or certified mail, return
receipt requested, postage prepaid, or (ii) prepaid via a reputable nationwide
overnight courier service, in each case addressed to the Company at Vice
President, Human Resources, Banyan Systems Incorporated, 120 Flanders Road, P.O.
Box 5013, Westboro, Massachusetts 01581-5013, and to the Participant at 66 Solon
Street, Newton, Massachusetts 02161 (or to such other address as either the
Company or the Participant may have furnished to the other in writing in
accordance herewith). Any such notice, instruction or communication shall be
deemed to have been delivered five business days after it is sent by registered
or certified mail, return receipt requested, postage prepaid, or one business
day after it is sent via a reputable nationwide overnight courier service.
Either Party may give any notice, instruction or other communication hereunder
using any other means, but no such notice, instruction or other communication
shall be deemed to have been duly delivered unless and until it actually is
received by the Party for whom it is intended.
14. Pronouns.
--------
Whenever the context may require, any pronouns used in this Agreement shall
include the corresponding masculine, feminine or neuter forms, and the singular
form of nouns and pronouns shall include the plural, and vice versa.
15. Entire Agreement.
----------------
This Agreement and the Plan constitute the entire agreement between the
Parties, and supersede all prior agreements and understandings, relating to the
subject matter of this Agreement.
-6-
<PAGE>
16. Amendment.
---------
This Agreement may be amended or modified only by a written instrument
executed by both the Company and the Participant.
17. Governing Law.
-------------
This Agreement shall be construed, interpreted and enforced in accordance
with the internal laws of the Commonwealth of Massachusetts without regard to
any applicable conflicts of laws.
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the day
and year first above written.
BANYAN SYSTEMS INCORPORATED
By: /s/ William P. Ferry
--------------------
Name: William P. Ferry
Title: Chairman and
Chief Executive Officer
PARTICIPANT
/s/ Richard M. Spaulding
------------------------
Print Name: Richard M. Spaulding
-7-
<PAGE>
Appendix A
----------
BANYAN SYSTEMS INCORPORATED
JOINT ESCROW INSTRUCTIONS
October 16, 1998
Anthony J. Bellantuoni
Vice President, Human Resources
Banyan Systems Incorporated
120 Flanders Road
P.O. Box 5013
Westboro, Massachusetts 01581-5013
Dear Sir:
As Escrow Agent for Banyan Systems Incorporated, a Massachusetts
corporation (the "Company"), and the undersigned person ("Holder"), you are
hereby authorized and directed to hold the documents delivered to you pursuant
to the terms of that certain Restricted Stock Agreement (the "Agreement") of
even date herewith, to which a copy of these Joint Escrow Instructions is
attached, in accordance with the following instructions:
1. Appointment. Holder irrevocably authorizes the Company to deposit
-----------
with you any certificates evidencing Shares (as defined in the Agreement) to be
held by you hereunder and any additions and substitutions to said Shares.
Holder does hereby irrevocably constitute and appoint you as his attorney-in-
fact and agent for the term of this escrow to execute with respect to such
Shares all documents necessary or appropriate to make such Shares negotiable and
to complete any transaction herein contemplated. Subject to the provisions of
this paragraph 1 and the terms of the Agreement, Holder shall exercise all
rights and privileges of a stockholder of the Company while the Shares are held
by you.
2. Closing of Purchase.
-------------------
(a) Upon any purchase by the Company of the Shares pursuant to the
Agreement, the Company shall give to Holder and you a written notice specifying
the
A-1
<PAGE>
purchase price for the Shares, as determined pursuant to the Agreement, and the
time for a closing hereunder (the "Closing") at the principal office of the
Company. Holder and the Company hereby irrevocably authorize and direct you to
close the transaction contemplated by such notice in accordance with the terms
of said notice.
(b) At the Closing, you are directed (a) to date the stock assignment form
or forms necessary for the transfer of the Shares, (b) to fill in on such form
or forms the number of Shares being transferred, and (c) to deliver same,
together with the certificate or certificates evidencing the Shares to be
transferred, to the Company against the simultaneous delivery to you of the
purchase price for the Shares being purchased pursuant to the Agreement.
3. Withdrawal. The Holder shall have the right to withdraw from this
----------
escrow any Shares as to which the Purchase Option (as defined in the Agreement)
has terminated or expired.
4. Duties of Escrow Agent.
----------------------
(a) Your duties hereunder may be altered, amended, modified or revoked
only by a writing signed by all of the parties hereto.
(b) You shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties.
You shall not be personally liable for any act you may do or omit to do
hereunder as Escrow Agent or as attorney-in-fact of Holder while acting in good
faith and in the exercise of your own good judgment, and any act done or omitted
by you pursuant to the advice of your own attorneys shall be conclusive evidence
of such good faith.
(c) You are hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person or Company, excepting
only orders or process of courts of law, and are hereby expressly authorized to
comply with and obey orders, judgments or decrees of any court. In case you
obey or comply with any such order, judgment or decree of any court, you shall
not be liable to any of the parties hereto or to any other person, firm or
Company by reason of such compliance, notwithstanding any such order, judgment
or decree being subsequently reversed, modified, annulled, set aside, vacated or
found to have been entered without jurisdiction.
(d) You shall not be liable in any respect on account of the identity,
authority or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
A-2
<PAGE>
(e) You shall be entitled to employ such legal counsel and other experts
as you may deem necessary properly to advise you in connection with your
obligations hereunder and may rely upon the advice of such counsel.
(f) Your rights and responsibilities as Escrow Agent hereunder shall
terminate if (i) you cease to be Vice President, Human Resources of the Company
or (ii) you resign by written notice to each party. In the event of a
termination under clause (i), your successor as Vice President, Human Resources
shall become Escrow Agent hereunder; in the event of a termination under clause
(ii), the Company shall appoint a successor Escrow Agent hereunder.
(g) If you reasonably require other or further instruments in connection
with these Joint Escrow Instructions or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.
(h) It is understood and agreed that should any dispute arise with respect
to the delivery and/or ownership or right of possession of the securities held
by you hereunder, you are authorized and directed to retain in your possession
without liability to anyone all or any part of said securities until such
dispute shall have been settled either by mutual written agreement of the
parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
(i) These Joint Escrow Instructions set forth your sole duties with
respect to any and all matters pertinent hereto and no implied duties or
obligations shall be read into these Joint Escrow Instructions against you.
(j) The Company shall indemnify you and hold you harmless against any and
all damages, losses, liabilities, costs, and expenses, including attorneys' fees
and disbursements, for anything done or omitted to be done by you as Escrow
Agent in connection with this Agreement or the performance of your duties
hereunder, except such as shall result from your gross negligence or willful
misconduct.
5. Notice. All notices, instructions and other communications given
------
hereunder or in connection herewith shall be in writing. Any such notice,
instruction or communication shall be sent to each of the other parties
thereunto entitled either (i) by registered or certified mail, return receipt
requested, postage prepaid, or (ii) prepaid via a reputable nationwide overnight
courier service, in each case addressed to the Company at Vice President, Human
Resources, Banyan Systems Incorporated, 120 Flanders Road, P.O. Box 5013,
Westboro, Massachusetts 01581-5013, to the Participant at 66 Solon Street,
Newton, Massachusetts 02161 and to you at Vice President, Human Resources,
Banyan Systems Incorporated, 120 Flanders Road, P.O. Box 5013, Westboro,
A-3
<PAGE>
Massachusetts 01581-5013 (or to such other address as a party may have furnished
to the other parties in writing in accordance herewith). Any such notice,
instruction or communication shall be deemed to have been delivered five
business days after it is sent by registered or certified mail, return receipt
requested, postage prepaid, or one business day after it is sent via a reputable
nationwide overnight courier service. Any party may give any notice,
instruction or other communication hereunder using any other means, but no such
notice, instruction or other communication shall be deemed to have been duly
delivered unless and until it actually is received by the party for whom it is
intended.
6. Miscellaneous.
-------------
(a) By signing these Joint Escrow Instructions, you become a party hereto
only for the purpose of said Joint Escrow Instructions, and you do not become a
party to the Agreement.
(b) This instrument shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns.
Very truly yours,
BANYAN SYSTEMS INCORPORATED
By: /s/ William P. Ferry
--------------------
Name: William P. Ferry
Title: Chairman and
Chief Executive officer
HOLDER
/s/ Richard M. Spaulding
------------------------
Print Name: Richard M. Spaulding
ESCROW AGENT
/s/ Anthony J. Bellantuoni
- --------------------------
Print Name: Anthony J. Bellantuoni
Print Title: Vice President, Human Resources
A-4
<PAGE>
EXHIBIT 10.23
BANYAN SYSTEMS INCORPORATED
EXECUTIVE OFFICER RESTRICTED STOCK AGREEMENT
GRANTED UNDER 1992 STOCK INCENTIVE PLAN
This Restricted Stock Agreement (this "Agreement") is made this 16th day of
October, 1998, between Banyan Systems Incorporated, a Massachusetts corporation
(the "Company"), and Anthony J. Bellantuoni (the "Participant").
For valuable consideration, receipt of which is acknowledged, the Company
and the Participant (each, a "Party" and together, the "Parties") each agree as
follows:
1. Purchase of Shares.
------------------
The Company shall issue and sell to the Participant, and the Participant
shall purchase from the Company, subject to the terms and conditions set forth
in this Agreement and in the Company's 1992 Stock Incentive Plan, as amended
(the "Plan"), 30,000 shares (the "Shares") of common stock, $0.01 par value per
share, of the Company ("Common Stock"), at a purchase price of $0.01 per share.
The aggregate purchase price for the Shares shall be paid by the Participant by
check payable to the order of the Company or such other method as may be
acceptable to the Company. Upon receipt by the Company of payment for the
Shares, the Company shall issue to the Participant one or more certificates in
the name of the Participant for that number of Shares purchased by the
Participant. The Participant agrees that the Shares shall be subject to the
Purchase Option set forth in Section 2 of this Agreement and the restrictions on
transfer set forth in Section 4 of this Agreement.
2. Purchase Option.
---------------
(a) In the event that the Participant ceases to be employed by the Company
for any reason or no reason, with or without cause, or the Participant announces
his intention to terminate his employment with the Company, prior to October 16,
2001, the Company shall have the right and option (the "Purchase Option") to
purchase from the Participant, for a sum of $0.01 per share (the "Option
Price"), any or all of the Unvested Shares (as defined below).
<PAGE>
"Unvested Shares" means the total number of Shares multiplied by the
Applicable Percentage at the time the Purchase Option becomes exercisable by the
Company. The "Applicable Percentage" shall be (i) 100% during the 24-month
period ending October 16, 2000, (ii) 60% during the 12-month period ending
October 16, 2001 and (iii) zero on or after October 16, 2001. Notwithstanding
the foregoing, the Applicable Percentage referred to in clauses (i) and (ii)
above shall each be reduced by one-fifth of 100% and one-third of 60% (e.g.,
from 100% to 80%, from 60% to 40% and from 20% to zero), respectively, in
accordance with each of the following: (A) on October 16, 1999, if, at any time
after November 30, 1998, the 30 Day Fair Market Value (as defined below) per
share of Common Stock equals or exceeds $6.00, or, on the first such date after
October 16, 1999 when the 30 Day Fair Market Value per share of Common Stock
equals or exceeds $6.00, (B) on April 16, 2000, if, at any time after November
30, 1998, the 30 Day Fair Market Value per share of Common Stock equals or
exceeds $9.00, or, on the first such date after April 16, 2000 when the 30 Day
Fair Market Value per share of Common Stock equals or exceeds $9.00 and (C) on
April 16, 2000, if, any time after November 30, 1998, the 30 Day Fair Market
Value per share of Common Stock equals or exceeds $12.00, or, on the first such
date after April 16, 2000 when the 30 Day Fair Market Value per share of Common
Stock equals or exceeds $12.00.
The "30 Day Fair Market Value" per share of Common Stock shall be
determined as follows:
(I) If the Common Stock is listed on a national securities exchange,
the Nasdaq National Market, the Nasdaq system, or another nationally recognized
exchange or trading system as of the date of calculation, the 30 Day Fair Market
Value per share of Common Stock shall be deemed to be the arithmetic average of
the last reported sale price per share of Common Stock thereon for the 30
trading days ended on the trading day immediately preceding the date of
calculation; or, if no such price is reported for each trading day in such 30-
trading day period, the 30 Day Fair Market Value per share of Common Stock shall
be determined pursuant to the following clause (II).
(II) If the Common Stock is not listed on a national securities
exchange, the Nasdaq National Market, the Nasdaq system or another nationally
recognized exchange or trading system as of the date of calculation or for each
trading day in such 30-trading day period, the 30 Day Fair Market Value per
share of Common Stock shall be deemed to be the amount most recently determined
by the Board of Directors to represent the fair market value per share of the
Common Stock (including without limitation a determination for purposes of
granting Common Stock options or issuing Common Stock under an employee benefit
plan of the Company); or, if the Board of Directors has not made such a
determination within the two-month period prior to the date of calculation, then
the 30 Day Fair Market Value per share of Common Stock shall be the amount
determined by the Board of Directors in its sole discretion.
-2-
<PAGE>
(b) In the event that the Participant's employment with the Company is
terminated by reason of death or disability, the number of the Shares for which
the Purchase Option becomes exercisable shall be fifty percent (50%) of the
number of Unvested Shares for which the Purchase Option would otherwise become
exercisable. For this purpose, "disability" shall mean the Participant's absence
from the full-time performance of the Participants's duties with the Company for
180 consecutive calendar days as a result of incapacity due to mental or
physical illness which is determined to be total and permanent by a physician
selected by the Company or its insurers and reasonably acceptable to the
Participant or the Participant's legal representative.
(c) For purposes of this Agreement, employment with the Company shall
include employment with a parent or subsidiary of the Company.
3. Exercise of Purchase Option and Closing.
---------------------------------------
(a) The Company may exercise the Purchase Option by delivering or mailing
to the Participant (or the Participant's estate), within 60 days after the
termination of the employment of the Participant with the Company, a written
notice of exercise of the Purchase Option. Such notice shall specify the number
of Shares to be purchased. If and to the extent the Purchase Option is not so
exercised by the giving of such a notice within such 60-day period, the Purchase
Option shall automatically expire and terminate effective upon the expiration of
such 60-day period.
(b) Within 10 days after delivery to the Participant of the Company's
notice of the exercise of the Purchase Option pursuant to subsection (a) above,
the Participant (or the Participant's estate) shall, pursuant to the provisions
of the Joint Escrow Instructions referred to in Section 8, tender to the Company
at its principal offices the certificate or certificates representing the Shares
which the Company has elected to purchase in accordance with the terms of this
Agreement, duly endorsed in blank or with duly endorsed stock powers attached
thereto, all in form suitable for the transfer of such Shares to the Company.
Promptly following its receipt of such certificate or certificates, the Company
shall pay to the Participant the aggregate Option Price for such Shares
(provided that any delay in making such payment shall not invalidate the
Company's exercise of the Purchase Option with respect to such Shares).
(c) After the time at which any Shares are required to be delivered to the
Company for transfer to the Company pursuant to subsection (b) above, the
Company shall not pay any dividend to the Participant on account of such Shares
or permit the Participant to exercise any of the privileges or rights of a
stockholder with respect to such Shares, but shall, in so far as permitted by
law, treat the Company as the owner of such Shares.
-3-
<PAGE>
(d) The Option Price may be payable, at the option of the Company, in
cancellation of all or a portion of any outstanding indebtedness of the
Participant to the Company or in cash (by check) or both.
(e) The Company shall not purchase any fraction of a Share upon exercise of
the Purchase Option, and any fraction of a Share resulting from a computation
made pursuant to Section 2 of this Agreement shall be rounded to the nearest
whole Share (with any one-half Share being rounded upward).
(f) The Company may assign its Purchase Option to one or more persons or
entities.
4. Restrictions on Transfer.
------------------------
The Participant shall not sell, assign, transfer, pledge, hypothecate or
otherwise dispose of, by operation of law or otherwise (collectively "transfer")
any Shares, or any interest therein, that are subject to the Purchase Option,
except that the Participant may transfer such Shares to or for the benefit of
any spouse, child or grandchild, or to a trust for their benefit, provided that
--------
such Shares shall remain subject to this Agreement (including without limitation
the restrictions on transfer set forth in this Section 4 and the Purchase
Option), and such permitted transferee shall, as a condition to such transfer,
deliver to the Company a written instrument confirming that such transferee
shall be bound by all of the terms and conditions of this Agreement; or
5. Effect of Prohibited Transfer.
-----------------------------
The Company shall not be required (a) to transfer on its books any of the
Shares which shall have been sold or transferred in violation of any of the
provisions set forth in this Agreement, or (b) to treat as owner of such Shares
or to pay dividends to any transferee to whom any such Shares shall have been so
sold or transferred.
6. Escrow.
------
The Participant shall, upon the execution of this Agreement, execute Joint
Escrow Instructions in the form attached to this Agreement as Appendix A. The
----------
Joint Escrow Instructions shall be delivered to the escrow agent thereunder.
The Participant shall deliver to such escrow agent a stock assignment duly
endorsed in blank and hereby instructs the Company to deliver to such escrow
agent, on behalf of the Participant, the certificate(s) evidencing the Shares
issued hereunder. Such materials shall be held by such escrow agent pursuant to
the terms of such Joint Escrow Instructions.
-4-
<PAGE>
7. Restrictive Legend.
------------------
All certificates representing Shares shall have affixed thereto a legend in
substantially the following form, in addition to any other legends that may be
required under federal or state securities laws:
"The shares of stock represented by this certificate are subject to
restrictions on transfer and an option to purchase set forth in a
certain Restricted Stock Agreement between the corporation and the
registered owner of these shares (or his predecessor in interest), and
such Agreement is available for inspection without charge at the
office of the Secretary of the corporation."
8. Provisions of the Plan.
----------------------
This Agreement is subject to the provisions of the Plan, a copy of which is
furnished to the Participant with this Agreement.
9. Withholding Taxes; Section 83(b) Election.
-----------------------------------------
(a) The Participant acknowledges and agrees that the Company has the right
to deduct from payments of any kind otherwise due to the Participant any
federal, state or local taxes of any kind required by law to be withheld with
respect to the purchase of the Shares by the Participant or the lapse of the
Purchase Option.
(b) The Participant acknowledges that he has been informed of the
availability of making an election in accordance with Section 83(b) of the
Internal Revenue Code of 1986, as amended; that such election must be filed with
the Internal Revenue Service within 30 days of the transfer of shares to the
Participant; and that the Participant is solely responsible for making such
election.
10. Severability.
------------
The invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other provision of this
Agreement, and each other provision of this Agreement shall be severable and
enforceable to the extent permitted by law.
-5-
<PAGE>
11. Waiver.
------
Any provision for the benefit of the Company contained in this Agreement
may be waived, either generally or in any particular instance, by the Board of
Directors of the Company.
12. Binding Effect.
--------------
This Agreement shall be binding upon and inure to the benefit of the
Company and the Participant and their respective heirs, executors,
administrators, legal representatives, successors and assigns, subject to the
restrictions on transfer set forth in Section 4 of this Agreement.
13. Notice.
------
All notices, instructions and other communications given hereunder or in
connection herewith shall be in writing. Any such notice, instruction or
communication shall be sent either (i) by registered or certified mail, return
receipt requested, postage prepaid, or (ii) prepaid via a reputable nationwide
overnight courier service, in each case addressed to the Company at Vice
President, Human Resources, Banyan Systems Incorporated, 120 Flanders Road, P.O.
Box 5013, Westboro, Massachusetts 01581-5013, and to the Participant at 37
Woodland Drive, Nashua, New Hampshire 03063 (or to such other address as either
the Company or the Participant may have furnished to the other in writing in
accordance herewith). Any such notice, instruction or communication shall be
deemed to have been delivered five business days after it is sent by registered
or certified mail, return receipt requested, postage prepaid, or one business
day after it is sent via a reputable nationwide overnight courier service.
Either Party may give any notice, instruction or other communication hereunder
using any other means, but no such notice, instruction or other communication
shall be deemed to have been duly delivered unless and until it actually is
received by the Party for whom it is intended.
14. Pronouns.
--------
Whenever the context may require, any pronouns used in this Agreement shall
include the corresponding masculine, feminine or neuter forms, and the singular
form of nouns and pronouns shall include the plural, and vice versa.
15. Entire Agreement.
----------------
This Agreement and the Plan constitute the entire agreement between the
Parties, and supersede all prior agreements and understandings, relating to the
subject matter of this Agreement.
-6-
<PAGE>
16. Amendment.
---------
This Agreement may be amended or modified only by a written instrument
executed by both the Company and the Participant.
17. Governing Law.
-------------
This Agreement shall be construed, interpreted and enforced in accordance
with the internal laws of the Commonwealth of Massachusetts without regard to
any applicable conflicts of laws.
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the day
and year first above written.
BANYAN SYSTEMS INCORPORATED
By: /s/ William P. Ferry
--------------------
Name: William P. Ferry
Title: Chairman and
Chief Executive Officer
PARTICIPANT
/s/ Anthony J. Bellantuoni
--------------------------
Print Name: Anthony J. Bellantuoni
-7-
<PAGE>
Appendix A
----------
BANYAN SYSTEMS INCORPORATED
JOINT ESCROW INSTRUCTIONS
October 16, 1998
Richard M. Spaulding
Clerk
Banyan Systems Incorporated
120 Flanders Road
P.O. Box 5013
Westboro, Massachusetts 01581-5013
Dear Sir:
As Escrow Agent for Banyan Systems Incorporated, a Massachusetts
corporation (the "Company"), and the undersigned person ("Holder"), you are
hereby authorized and directed to hold the documents delivered to you pursuant
to the terms of that certain Restricted Stock Agreement (the "Agreement") of
even date herewith, to which a copy of these Joint Escrow Instructions is
attached, in accordance with the following instructions:
1. Appointment. Holder irrevocably authorizes the Company to deposit
-----------
with you any certificates evidencing Shares (as defined in the Agreement) to be
held by you hereunder and any additions and substitutions to said Shares.
Holder does hereby irrevocably constitute and appoint you as his attorney-in-
fact and agent for the term of this escrow to execute with respect to such
Shares all documents necessary or appropriate to make such Shares negotiable and
to complete any transaction herein contemplated. Subject to the provisions of
this paragraph 1 and the terms of the Agreement, Holder shall exercise all
rights and privileges of a stockholder of the Company while the Shares are held
by you.
2. Closing of Purchase.
-------------------
(a) Upon any purchase by the Company of the Shares pursuant to the
Agreement, the Company shall give to Holder and you a written notice specifying
the
A-1
<PAGE>
purchase price for the Shares, as determined pursuant to the Agreement, and the
time for a closing hereunder (the "Closing") at the principal office of the
Company. Holder and the Company hereby irrevocably authorize and direct you to
close the transaction contemplated by such notice in accordance with the terms
of said notice.
(b) At the Closing, you are directed (a) to date the stock assignment form
or forms necessary for the transfer of the Shares, (b) to fill in on such form
or forms the number of Shares being transferred, and (c) to deliver same,
together with the certificate or certificates evidencing the Shares to be
transferred, to the Company against the simultaneous delivery to you of the
purchase price for the Shares being purchased pursuant to the Agreement.
3. Withdrawal. The Holder shall have the right to withdraw from this
----------
escrow any Shares as to which the Purchase Option (as defined in the Agreement)
has terminated or expired.
4. Duties of Escrow Agent.
----------------------
(a) Your duties hereunder may be altered, amended, modified or revoked only
by a writing signed by all of the parties hereto.
(b) You shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties.
You shall not be personally liable for any act you may do or omit to do
hereunder as Escrow Agent or as attorney-in-fact of Holder while acting in good
faith and in the exercise of your own good judgment, and any act done or omitted
by you pursuant to the advice of your own attorneys shall be conclusive evidence
of such good faith.
(c) You are hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person or Company, excepting
only orders or process of courts of law, and are hereby expressly authorized to
comply with and obey orders, judgments or decrees of any court. In case you
obey or comply with any such order, judgment or decree of any court, you shall
not be liable to any of the parties hereto or to any other person, firm or
Company by reason of such compliance, notwithstanding any such order, judgment
or decree being subsequently reversed, modified, annulled, set aside, vacated or
found to have been entered without jurisdiction.
(d) You shall not be liable in any respect on account of the identity,
authority or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
A-2
<PAGE>
(e) You shall be entitled to employ such legal counsel and other experts as
you may deem necessary properly to advise you in connection with your
obligations hereunder and may rely upon the advice of such counsel.
(f) Your rights and responsibilities as Escrow Agent hereunder shall
terminate if (i) you cease to be Clerk of the Company or (ii) you resign by
written notice to each party. In the event of a termination under clause (i),
your successor as Clerk shall become Escrow Agent hereunder; in the event of a
termination under clause (ii), the Company shall appoint a successor Escrow
Agent hereunder.
(g) If you reasonably require other or further instruments in connection
with these Joint Escrow Instructions or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.
(h) It is understood and agreed that should any dispute arise with respect
to the delivery and/or ownership or right of possession of the securities held
by you hereunder, you are authorized and directed to retain in your possession
without liability to anyone all or any part of said securities until such
dispute shall have been settled either by mutual written agreement of the
parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
(i) These Joint Escrow Instructions set forth your sole duties with respect
to any and all matters pertinent hereto and no implied duties or obligations
shall be read into these Joint Escrow Instructions against you.
(j) The Company shall indemnify you and hold you harmless against any and
all damages, losses, liabilities, costs, and expenses, including attorneys' fees
and disbursements, for anything done or omitted to be done by you as Escrow
Agent in connection with this Agreement or the performance of your duties
hereunder, except such as shall result from your gross negligence or willful
misconduct.
5. Notice. All notices, instructions and other communications given
------
hereunder or in connection herewith shall be in writing. Any such notice,
instruction or communication shall be sent to each of the other parties
thereunto entitled \either (i) by registered or certified mail, return receipt
requested, postage prepaid, or (ii) prepaid via a reputable nationwide overnight
courier service, in each case addressed to the Company at Vice President, Human
Resources, Banyan Systems Incorporated, 120 Flanders Road, P.O. Box 5013,
Westboro, Massachusetts 01581-5013, to the Participant at 37 Woodland Drive,
Nashua, New Hampshire 03063 and to you at Clerk, Banyan Systems Incorporated,
120 Flanders Road, P.O. Box 5013, Westboro, Massachusetts 01581-5013 (or to such
other address as a party may have furnished to the other parties
A-3
<PAGE>
in writing in accordance herewith). Any such notice, instruction or
communication shall be deemed to have been delivered five business days after it
is sent by registered or certified mail, return receipt requested, postage
prepaid, or one business day after it is sent via a reputable nationwide
overnight courier service. Any party may give any notice, instruction or other
communication hereunder using any other means, but no such notice, instruction
or other communication shall be deemed to have been duly delivered unless and
until it actually is received by the party for whom it is intended.
6. Miscellaneous.
-------------
(a) By signing these Joint Escrow Instructions, you become a party hereto
only for the purpose of said Joint Escrow Instructions, and you do not become a
party to the Agreement.
(b) This instrument shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns.
Very truly yours,
BANYAN SYSTEMS INCORPORATED
By: /s/ William P. Ferry
---------------------
Name: William P. Ferry
Title: Chairman and
Chief Executive Officer
HOLDER
/s/ Anthony J. Bellantuoni
--------------------------
Print Name: Anthony J. Bellantuoni
ESCROW AGENT
/s/ Richard M. Spaulding
- ------------------------
Print Name: Richard M. Spaulding
Print Title: Clerk
A-4
<PAGE>
EXHIBIT 13
Management's Discussion and Analysis
of Financial Condition and Results of Operation
- --------------------------------------------------------------------------------
Banyan Systems Incorporated, founded in 1983, is a leading provider of advanced
enterprise solutions that integrate multi-vendor networking environments and
helps people communicate across enterprise networks, intranets and the Internet
by creating highly reliable, easily managed and secure global networks. The
Company's primary software products include StreetTalk for Windows NT,(R)
VINES,(R) Intelligent Messaging,(TM) BeyondMail,(R) Banyan Intranet Connect(R)
and several third-party networking solutions. I addition, the Company provides
co-existence and migration services, secure and remote access for business
applications and tools to deploy and manage intranets, directories and
messaging. The Company's primary service offerings include network consulting,
management and integration services; directory planning, design and integration;
network monitoring and support; and technical support and education. In
addition, the Company's majority-owned subsidiary, Switchboard Incorporated
("Switchboard"), hosts one of the Internet's leading people-to-people and
business directory services aimed at generating advertising revenues from major
domestic corporations and local merchants.
Since 1995, the Company's software revenues have been in a state of decline
primarily due to competitive pressures in the network operating system and
electronic messaging markets. Although the Company made progress in expanding
its network solutions and further establishing its Internet products identity
with the introduction of its intranet suite of products and expansion of its
Switchboard business, the Company's operating results for 1996 and 1997 were
negatively impacted by a number of factors, including the aforementioned
introduction of new competitive product offerings by other vendors, an effort by
the Company to reduce its worldwide channel inventories and delays in delivery
of several products, as well as translated versions of these products. To
address these factors, the Company restructured its operations in the quarter
ended December 31, 1996 and implemented a further reorganization in the quarter
ended June 30, 1997, following the hiring of a new chief executive officer in
February 1997. The 1997 reorganization, which was intended to stabilize and
rejuvenate the business, and ultimately achieve sustainable, long-term
profitable growth, resulted in a 22% reduction of the Company's work force, and
consolidated facilities and product lines in order to balance expenses with
expected revenues. As a result of the reorganization efforts, Banyan finished
1997 by achieving profitability in both the third and fourth quarters, and
continued that trend through 1998. In addition, the Company strengthened its
balance sheet in March 1998 through a $10.0 million equity investment from
HarbourVest Partners to support its efforts to stabilize and rejuvenate its
business.
During 1998, the Company focused its efforts on expanding its network services
business initiatives, ensuring its software product offerings were year 2000-
ready, initiating new vendor relationships to offer new enterprise networking
and intranet solutions, and growing its Switchboard revenues through direct
selling efforts and strategic partnering. As a result of these initiatives, the
Company was able to stabilize its revenue performance in 1998 at $75.2 million
versus revenue of $74.3 million in 1997 by offsetting declines in its
traditional software product revenues with increases in services revenues and
Internet advertising revenues from Switchboard as well as additional software
revenues from its intranet and third-party product offerings. The Company also
reported its first profitable year in 1998 since fiscal 1994. Excluding one-time
charges in 1998 and 1997, net income for the year ended December 31, 1998 was
$2.5 million, or $0.11 per share, as compared to a net loss in 1997 of $8.9
million, or $0.51 per share.
Results of Operations
- ---------------------
Revenues
- --------
Software revenues for 1998 decreased 27% to $43.0 million, compared with $58.5
million in 1997 and $89.0 million in 1996. The decline in software revenues in
1998 was primarily due to lower levels of sales of the Company's VINES and
messaging products, primarily as a result of competitive product offerings,
offset in part by an increase in sales of third-party products. The decline in
software revenues in 1997 was primarily due to lower levels of sales of the
Company's VINES offerings and messaging products as a result of competitive
product offerings as well as delays in the delivery of new versions of
BeyondMail IM. In addition, the decline in software revenues in 1997 was
attributable to a decline in third-party products.
Services revenues for 1998 increased 71% to $25.7 million, compared with $15.1
million in 1997 and $16.3 million in 1996. The increase in services revenues in
1998 was attributable primarily to additional revenues generated from consulting
services and an increase in customer support revenues, offset in part by a
decrease in revenues from education services. The decrease in services revenues
in 1997 was attributable to lower education revenues due to delays in the
delivery of certain new product offerings. The decrease was offset in part by
increases in revenues from consulting services delivered by the Company,
particularly in the second half of 1997.
15
<PAGE>
Management's Discussion and Analysis
of Financial Condition and Results of Operation
- --------------------------------------------------------------------------------
Internet advertising revenues for 1998 increased $5.8 million to $6.5 million,
compared with $0.7 million in 1997 and $0.2 million in 1996. The increase in
Internet advertising revenues in both 1998 and 1997 was primarily due to
increased yellow pages advertising revenues related to major sponsorships
generated by Switchboard.
North American revenues for 1998 decreased 2% to $51.8 million, compared with
$53.0 million in 1997 and $79.9 million in 1996. The decrease in 1998 was
primarily due to a decrease in revenues from the Company's VINES and messaging
products, offset in part by an increase in sales, services and third-party
products. The decrease in 1997 was attributable primarily to lower revenues from
the Company's VINES products and messaging products as well as reduced shipments
to third-party distribution partners in an effort to reduce channel inventories.
International revenues for 1998 increased 10% to $23.4 million, compared with
$21.3 million in 1997 and $25.6 million in 1996. The increase in 1998 was
primarily the result of increased revenues from consulting services and customer
support, offset in part by a decrease in revenues from the Company's VINES and
messaging products, and delayed purchasing decisions in Southeast Asia due to
economic uncertainty in the region from financial market instability. The
decrease in 1997 was due to lower revenues in Asia Pacific/Japan primarily due
to channel inventory reduction efforts, particularly in Japan, and delayed
purchasing decisions in Southeast Asia due to economic uncertainty in the region
from financial market instability in the fourth quarter of 1997.
Gross Margins
- -------------
Gross margins for software in 1998 were 84.3%, or $36.2 million, compared with
88.1%, or $51.6 million, in 1997 and 87.3%, or $77.6 million, in 1996. The
decrease in gross margin percentage in 1998 was primarily due to an increase in
lower-margin, third-party sales and a decrease in sales of higher-margin VINES
and messaging products. The decreases in gross margin dollars in 1998 and 1997
were primarily due to the decline in software revenues. The increase in gross
margin percentage in 1997 was primarily due to a lower proportion of product
revenues from sales of lower-margin, third-party products as well as cost
reduction efforts. Cost of software revenues consist of product media,
documentation, manufacturing costs and amortization of capitalized software.
Gross margins for services in 1998 were 36.9%, or $9.5 million, compared with
34.5%, or $5.2 million, in 1997 and 17.5%, or $2.8 million in 1996. The
increases in gross margin percentage and dollars in 1998 were primarily due to
increased revenues from consulting services and customer support, offset in part
by an increase in delivery personnel and related costs to expand consulting
services. The increases in gross margin percentages and dollars in 1997 were
primarily due to lower personnel costs as a result of the reduction in force as
part of the Company's reorganizations in the quarters ended December 31, 1996
and June 30, 1997. Cost of services revenues consists primarily of customer
support costs, including Technical Response Centers, third-party field service
costs, costs of training materials and personnel.
Gross margins for Internet advertising were 69.3%, or $4.5 million, compared
with $(0.1) million in 1997 and $0.1 million in 1996. The increase in gross
margin dollars and percentage in 1998 was due to an increase in advertising
revenues generated by Switchboard, offset in part by an increase in variable
costs related to advertising arrangements. The decrease in gross margin
percentage and dollars in 1997 was primarily due to an increase in overhead
costs, offset in part by an increase in advertising revenues. Cost of Internet
advertising revenues consists primarily of data communications, labor, and
depreciation expenses related to the operation of the Switchboard Internet Web
site as well as fees for personal and business names and listings.
Operating Expenses
- ------------------
Sales and marketing expenses decreased 23% to $30.8 million in 1998, compared
with $40.2 million in 1997 and $60.8 million in 1996. The decrease in 1998 was
due primarily to lower sales staffing and personnel costs as a result of the
reduction in force as part of the Company's reorganization efforts in the
quarter ended June 30, 1997, as well as redeployment of staff into the Company's
expanded consulting services activities. Partially offsetting these decreases
was increased promotional investment in the Internet advertising segment
intended to increase site traffic. The decrease in 1997 was primarily due to
lower sales and marketing staffing and personnel costs as a result of the
reduction in work force as part of the Company's reorganization efforts in the
quarters ended December 31, 1996 and June 30, 1997. In addition, variable sales
costs, including commissions, decreased due to lower revenues in 1997. Sales and
marketing expenses as a percentage of revenues were 41%, 54% and 58% for 1998,
1997 and 1996, respectively.
Product development expenses decreased 32% to $10.9
million in 1998, compared with $15.9 million in 1997 and $21.9 million in 1996.
The decrease in 1998 was primarily due to lower staffing levels as a result of
the reduction in
16
<PAGE>
Management's Discussion and Analysis
of Financial Condition and Results of Operation
- --------------------------------------------------------------------------------
force as part of the Company's reorganization efforts in the quarter ended June
30, 1997. The decrease in 1997 was primarily due to lower staffing and a focus
on the Company's core product set, as a result of the Company's reorganization
efforts in the quarters ended December 31, 1996 and June 30, 1997. The Company
has focused its product development resources on enhancing its existing product
offerings, Internet-related product initiatives, and Switchboard technology and
services. Additionally, the Company has employed resources to address year 2000
compliance. The Company has modified and tested its current product offerings
for year 2000 compliance issues as of December 31, 1998. During 1997 and 1996,
the Company capitalized $0.5 million and $2.3 million of software costs, which
represented 3% and 10% of total product development expenditures respectively.
There were no amounts capitalized in 1998, as amounts qualifying for
capitalization were not material. Product development expenses as a percentage
of revenues were 14%, 21% and 21% for 1998, 1997 and 1996, respectively.
General and administrative expenses decreased 29% to $6.4 million in 1998,
compared with $9.1 million in 1997 and $11.5 million in 1996. The decrease in
1998 was primarily due to lower staffing levels as a result of the reduction in
force as part of the Company's reorganization efforts in the quarter ended June
30, 1997. The decrease in 1997 was primarily due to lower administrative and
personnel costs as a result of the reduction in staffing as part of the
Company's reorganization efforts in the quarters ended December 31, 1996 and
June 30, 1997. General and administrative expenses as a percentage of revenues
were 9%, 12% and 11% for 1998, 1997 and 1996, respectively.
On May 18, 1998, Switchboard acquired the MapsOnUs Web site and Internet mapping
technology from Lucent Technologies Incorporated. The purchase price of $1.6
million was was composed of $0.5 million in cash paid to Lucent upon closing and
a note payable of $1.1 million to be paid over a two year period. A charge was
recorded based on the Comapny's assessment of the value of the asset at the time
of purchase. The Company was required to incur costs in developing and
integrating the technology into its Switchboard Web site in order to generate
future revenue from the technology.
In 1997, the Company recorded net pre-tax restructuring and other charges of
$8.0 million, composed primarily of $1.4 million for severance costs related to
the reduction of approximately 22% of the Company's work force, $1.7 million for
the write-off of idle assets related to the restructuring, and $4.9 million for
costs related to facility and product line consolidation. As of December 31,
1997, the 1997 restructuring resulted in 78 employee separations. The actions
relating to this restructuring were substantially completed in 1997.
In 1996, the Company recorded a pre-tax restructuring charge of $5.5 million,
composed of $1.4 million for closure or consolidation of leased facilities, $3.2
million for severance and related costs and $0.9 million for the write-off of
idle assets related to the restructuring. During 1996, the restructuring
resulted in 70 employee separations. The actions relating to this restructuring
were substantially completed in 1997.
Other Income/(Expense)
- ----------------------
Other income/(expense) increased to $1.0 million in 1998 compared with $(0.1)
million in 1997 and $1.1 million in 1996. The increase in 1998 was primarily due
to a decrease in foreign exchange losses when compared to 1997, as well as an
increase in available funds invested in marketable securities. The decrease in
1997 was due primarily to foreign exchange losses related to weakened local
currencies in Asia Pacific/Japan subsidiaries.
Income Taxes
- ------------
No tax provision, other than that required for foreign income and foreign
withholding taxes, was recorded for 1998 and 1997 due to the Company's
previously recorded net operating losses. Management of the Company has
evaluated the positive and negative evidence bearing upon the realizability of
its deferred tax assets. Management has considered the Company's recent results
of operations and concluded that it is more likely than not that the deferred
tax assets will not be fully realizable. Accordingly, deferred tax assets as of
December 31, 1998 and 1997 have been fully reserved. Management re-evaluates the
positive and negative evidence on a quarterly basis. The effective tax provision
for 1998 was 34%. The Company's effective income tax provision was 1.5% in 1997,
compared with 50% in 1996. The effective tax rate for 1996 was principally
affected by the establishment of a valuation allowance for previously recorded
deferred tax assets of $8.0 million based upon management's assessment of future
realizability of these assets per Statement of Accounting Standards ("SFAS") No.
109. Management has considered recent results of operations and concluded that
it is more likely than not that the deferred tax assets will not be fully
realizable. Additionally, losses were not benefited in 1996 and certain foreign
taxes were included in the tax provision.
17
<PAGE>
Management's Discussion and Analysis
of Financial Condition and Results of Operation
- --------------------------------------------------------------------------------
Other Matters
- -------------
On January 11, 1999, the Company announced a strategic alliance with
Microsoft(R) Corporation ("Microsoft") to deliver integrated messaging,
networking and Internet solutions and the collaboration on the design and
implementation of packaged services, solutions and support offerings based on
Microsoft's enterprise platform. Under the agreement, Microsoft has committed to
contribute $10.0 million over a three-year period. The first of three payments
to be made by Microsoft to the Company was received in January of 1999 in the
amount of $5.9 million. The funding's intended use is for the training of at
least 500 professionals, marketing and product development as well as the
purchase of 1.75 million common stock warrants. The common stock warrants are
subject to a three-year lock-up provision, subject to continuation of the
alliance, and have an exercise price of $10.00 per share. As of December 31,
1998, the shares of common stock issuable upon the exercise of Microsoft's
warrants represent approximately 7.5 percent ownership in the Company.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The new standard establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. SFAS No.
133 is effective for all fiscal quarters of fiscal years beginning after June
15, 1999. The Company does not expect SFAS No. 133 to have a material effect on
its financial position or results of operations.
In December 1998, the AcSEC issued SoP 98-9, "Modification of SoP 97-2, Software
Revenue Recognition, With Respect to Certain Transactions," which will retain
the limitations of SoP 97-2 on what constitutes vendor specific objective
evidence of fair value. SoP 98-9 will be effective for transactions entered into
in fiscal years beginning after March 15, 1999. The Company does not expect SoP
98-9 to have a material effect on its financial position or results of
operations.
Factors Affecting Future Operating Results
- ------------------------------------------
Certain of the information contained in this Annual Report, including
information with respect to the Company's plans and strategy for its business,
statements relating to the sufficiency of cash and cash equivalent balances,
anticipated expenditures, the intended effects of the Company's restructurings,
sales and marketing, product development efforts and the expected timetable and
costs relating to the Company's Year 2000 readiness (as described below under
the heading "Year 2000 Readiness Disclosure"), consists of forward-looking
statements. Any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "believes," "expects," "anticipates," "plans," and
similar expressions are intended to identify forward-looking statements.
Important factors that could cause actual results to differ materially from the
forward-looking statements include the factors listed under "Year 2000 Readiness
Disclosure," as well as the following factors:
The Company is evolving its strategic focus, seeking to decrease its reliance on
its traditional networking software products while devoting additional resources
to its network services business. As part of this strategy, on January 11, 1999
the Company announced a strategic alliance with Microsoft to deliver integrated
messaging, networking and Internet solutions and the collaboration on the design
and implementation of packaged services, solutions and support offerings based
on Microsoft's enterprise platform. The agreement contains various obligations
and milestones that must be met by the Company, including the certification of
500 Microsoft-trained professionals. The failure of the Company to meet such
obligations and milestones could result in a termination of the agreement, which
could have a material adverse effect on the Company. In addition, the Company's
future success will depend in part upon its ability to continue to grow its
network services business, acquire additional network services customers and
adapt to changing technologies and customer requirements. Any failure to do so
could have a material adverse effect on the Company. There can be no assurance
the Company will be successful in its new strategic focus.
In 1998 and 1997, a majority of the Company's network sales were to existing
customers for upgrade, expansion of their networks, or consulting delivery. The
Company's results will depend on its ability both to continue to sell products
for use in networks of existing customers and to attract new customers for the
Company's products and services. There can be no assurance that the Company will
be successful in its sales and marketing efforts. In addition, in 1998 and 1997,
the Company experienced extended selling cycles due to competitive products
introduced by other vendors, an increase in multi-year customer agreements and
longer evaluations of operating systems and hardware platforms by potential
customers. The Company expects that extended selling cycles will continue to
affect the Company's operating results for the foreseeable future.
18
<PAGE>
The Company's results are partially dependent on its ability to enhance existing
products and introduce new products on a timely basis, and to achieve market
acceptance for such enhanced and new products. The Company introduced Year 2000-
compliant versions of its VINES and StreetTalk for Windows NT products in April
1998. In April 1998, the Company also introduced the Banyan Intranet Messaging
Suite, a product which when added to a customer's StreetTalk for Windows NT
network, can deploy a variety of standards-based mail clients while maintaining
a unified messaging back-end and enterprise directory service. In June 1998, the
Company introduced LDAP version 3.0 support for StreetTalk, a year 2000-ready
network service that provides access to Banyan's StreetTalk directory services
from LDAP-enabled applications. In August 1998, the Company entered into an
agreement with Netegrity Incorporated to develop and sell Banyan SiteMinder, a
product that enables administrators to control user access to Web applications
from a central location and provides end users with single sign-on to
personalized Web content. Failure of any of these products to achieve market
acceptance could have a material adverse effect on the Company's future results
of operations.
The Company has invested significant resources to develop products and services
to bring the Company's directory and messaging capabilities to Internet users.
In 1996, the Company, through Switchboard, introduced Switchboard, a directory
service for Internet users. The Company has limited experience in developing or
selling products for the Internet, and the success of the Company will depend in
part on its ability to enter into strategic alliances with other Internet
providers.
A substantial percentage of the traffic on the Switchboard Internet Web site in
1998 was attributable to the Company's marketing arrangements with America
Online, Inc. ("AOL"), a minority owner of Switchboard Incorporated. Accordingly,
a substantial percentage of Switchboard Internet advertising revenues in 1998
were generally dependent on the marketing arrangements with AOL. In August 1998,
the Company announced that the White Pages contract between Switchboard and AOL
would not be renewed at the end of November 1998. On December 10, 1998, the
Company announced that the Yellow Pages contract between Switchboard and AOL
would not be renewed at the end of 1998. The Company estimates that AOL's
customers accounted for approximately 45 percent of its overall traffic and 30
percent of its total advertising revenues in 1998. There can be no assurance the
termination of these arrangements with AOL will not have material adverse effect
on the Company.
In May 1998, Switchboard acquired the MapsOnUs Web site and Internet mapping
technology from Lucent Technologies Incorporated. Any delay in integrating the
MapsOnUs technology into Switchboard, or any delay in developing additional or
enhanced products and services for the Internet or failure of its Internet
products and services to achieve increased market acceptance could have a
material adverse effect on the Company's future results of operations.
In 1998, international revenues accounted for 31% of the Company's total
revenues. The Company's results of operations in 1998 were adversely affected by
the global economic uncertainty, and in particular, the financial market
instability in Asia. There can be no assurance such uncertainty will not
continue to adversely affect the Company's operating results. On January 1,
1999, the participating member countries of the European Union adopted the Euro
as the common legal currency and fixed conversion rates between their existing
sovereign currencies and the Euro. The Company believes the Euro conversion will
not have a material impact on its operations.
Because of the foregoing factors, the Company believes that period-to-period
comparisons of its financial results are not necessarily meaningful and it
expects that its results of operations may fluctuate from period-to-period in
the future.
Year 2000 Readiness Disclosure
- ------------------------------
The following statement shall be considered a Year 2000 readiness disclosure to
the maximum extent allowed under the Year 2000 Information and Readiness
Disclosure Act.
In the past, many information technology products were designed with two digit
year codes that did not recognize century and millenium fields. As a result,
these hardware and software products may not function or may give incorrect
results beginning in the year 2000. In order to address this issue, such
hardware and software products must be upgraded or replaced in order to
correctly process dates beginning in the year 2000.
19
<PAGE>
Management's Discussion and Analysis
of Financial Condition and Results of Operation
- --------------------------------------------------------------------------------
The Company has created a company-wide year 2000 team to identify and resolve
year 2000 issues. The Company's year 2000 compliance program has identified
three potential areas of impact for review: (i) the software, information and
non-information systems used in the Company's internal business systems; (ii)
the Company's software offered to customers; and (iii) third-party vendors,
manufacturers and suppliers of products used in the Company's internal systems
or distributed with the Company's products. The Company has identified and is
testing its main internal systems and expects to complete testing by mid-1999.
Currently, the testing is approximately 75% complete. During 1999, the Company
expects to complete implementation of any needed year 2000-related modifications
to its information systems.
The Company is also in the process of communicating with its main suppliers of
technology products and services used in its internal systems regarding the year
2000 status of such products or services. Based upon these communications, the
Company is considering the suppliers' year 2000 preparedness in the Company's
decision to continue to deploy or migrate from these technology products or
services. In addition, the Company is currently assessing its internal non-
information technology systems, and expects to complete testing and any needed
modifications to these systems in mid-1999. The Company has not yet developed a
comprehensive contingency plan to address situations that may result if the
Company is unable to achieve year 2000 readiness of its critical operations. The
Company expects in mid-1999 to finalize its assessment of and contingency
planning for potential operational or performance problems related to year 2000-
related issues with its information systems.
The Company's total cost relating to these activities has not been and is not
expected to be material to the Company's financial position, results of
operations, or cash flows. The Company's preliminary assessment is that the cost
of completing the Company's year 2000 compliance program will be approximately
$250,000, which does not include amounts related to the diversion of internal
resources including, without limitation, employee salaries, which amount the
Company has yet to fully quantify. The Company has and expects to continue to
fund its year 2000 compliance program from operating cash flows and does not
expect to separately account for these costs. The Company believes that
necessary modifications to its systems and products will be made on a timely
basis. However, there can be no assurance that there will not be a delay in, or
increased costs associated with, the implementation of such modifications, or
that the Company's suppliers will adequately prepare for the year 2000 issue. It
is possible that any such delays, increased costs, or supplier failures could
have a material adverse impact on the Company's operations and financial
results, by, for example, impacting the Company's ability to deliver products or
services to its customers.
The Company's year 2000 effort has included testing products currently or
recently on the Company's price list for year 2000 issues. Products have been
and are expected to continue to be tested internally. Generally, for products
that were identified as needing updates to address year 2000 issues, the Company
has prepared or is preparing updates, or has discontinued or will discontinue
the product. Currently, this testing is approximately 95% complete. Some of the
Company's customers are using product versions that the Company will not support
for year 2000 issues; the Company is attempting to notify customers of these
year 2000 issues and is encouraging these customers to migrate to current
product versions that are year 2000 ready. There can be no assurance the Company
will be successful in migrating these customers to the year 2000-compliant
products of the Company.
For third-party products that the Company distributes with its products, the
Company has sought information from the product manufacturers regarding the
products' year 2000 readiness status. Customers who use the third-party products
are directed to the product manufacturer for detailed year 2000 status
information. On its year 2000 Web site at www.banyan.com, the Company provides
information regarding which of its products are year 2000 ready and other
general information related to the Company's year 2000 efforts. The Company's
total costs relating to these activities has not been and is not expected to be
material to the Company's financial position or results of operations.
The Company believes its current products, with any applicable updates, are
well-prepared for year 2000 data issues, and the Company plans to support
these products for data issues that may arise related to the year 2000.
However, there can be no guarantee that one or more of the Company's products
do not contain year 2000 date issues. The most reasonably likely worst case
scenarios would include (i) corruption of data contained in the Compnay's
information systems, (ii) hardware failure and (iii) the failure of
infrastructure services provided by third parties (e.g. electricity,
phone service, etc.)
20
<PAGE>
Because the Company is in the business of selling software products, the
Company's risk of being subjected to lawsuits relating to year 2000 issues with
its software products is likely to be greater than that of companies in other
industries. Because computer systems may involve different hardware, firmware
and software components from different manufacturers, it may be difficult to
determine which component in a computer system may cause a year 2000 issue. As a
result, the Company may be subjected to year 2000-related lawsuits independent
of whether its products and services are year 2000 ready. The outcome of any
such lawsuit and the impact on the Company cannot be predicted. Any year 2000
problems in the Company's products could also result in delay or loss of
revenue, diversion of development resources, damage to the Company's reputation,
or increased service or warranty costs, any of which could have a material
adverse effect on the Company's business, financial condition and results of
operations.
The foregoing discussion of the Company's Year 2000 readiness contains forward-
looking statements, including estimates of the timeframes and costs for
addressing the known Year 2000 issues confronting the Company, and is based on
management's current estimates, which were derived using numerous assumptions.
There can be no assurance that these estimates will be achieved, and actual
events and results could differ materially from those anticipated. Specific
factors that might cause such material differences include, but are not limited
to, the availability of personnel with required remediation skills, the ability
of the Company to identify and correct all relevant computer code and the
success of third parties with whom the Company does business in addressing their
Year 2000 issues.
Liquidity and Capital Resources
- -------------------------------
At December 31, 1998, cash and cash equivalents combined with marketable
securities were $22.3 million, compared with $10.9 million at December 31, 1997.
Cash and cash equivalents increased $8.5 million from December 31, 1997,
resulting in a cash balance of $15.2 million at December 31, 1998. The increase
was due primarily to the net proceeds of $9.5 million from an equity investment
by HarbourVest Partners LLC, depreciation and amortization of $4.7 million,
proceeds from stock plan purchases and stock options of $2.6 million and net
income for the year of $1.1 million, offset in part by an increase in accounts
receivable of $4.4 million, net purchases of marketable securities of $2.9
million and capital expenditures of $1.4 million. Working capital increased to
$10.2 million at December 31, 1998 from a deficit of $2.7 million at December
31, 1997.
In April 1997, the Company announced a reorganization of its operations. As a
result of the reorganization, the Company recorded net pre-tax restructuring and
other charges of $8.0 million in 1997. The restructuring and other charges are
expected to reduce cash flow by approximately $3.1 million, of which $3.0
million had been expended through December 31, 1998. The Company expended $0.3
million in 1998, and expects to expend $0.3 million in 1999 related to the 1997
restructuring. Management believes that remaining accrued balances are adequate
to cover future expenditures associated with the 1997 and 1996 restructuring and
other charges.
On September 4, 1997, the Company entered into a $15.0 million line of credit
agreement (the "Credit Agreement") with Foothill Capital Corporation
("Foothill"). In general, the Company's obligations under the Credit Agreement
bear interest at the variable base rate per annum of Norwest Bank Minnesota,
National Association. The Credit Agreement has a three-year initial term.
Foothill was granted warrants to purchase 75,000 and 50,000 and will be granted
warrants to purchase 25,000 shares of the Company's common stock at the then
current fair market value on September 4, 1997, 1998 and 1999, respectively. On
January 12, 1999, Foothill exercised its warrant to purchase 75,000 shares of
the Company's common stock pursuant to a "cashless" exercise resulting in the
issuance of 58,603 shares to Foothill. There were no amounts outstanding under
the line of credit agreement during the years ended December 31, 1998 and 1997.
On January 11, 1999, the Company announced a strategic alliance with Microsoft.
As part of the agreement, Microsoft has committed to contributing $10.0 million
to the Company over a three-year period to fund the training of at least 500
professionals, marketing and development costs as well as the purchase of 1.75
million common stock warrants. The first of three payments to be made by
Microsoft to the Company was received in January 1999 in the amount of $5.9
million. The remaining two payments totaling $4.1 million are expected to be
received on or before December 31, 1999 and 2000 (see Note Q).
The Company believes that existing cash and marketable securities, combined with
cash expected to be generated from operations and an available line of credit,
will be sufficient to fund the Company's operations through at least the next
twelve months.
21
<PAGE>
Consolidated
Balance Sheets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
(in thousands, except share amounts)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 15,160 $ 6,674
Marketable securities 4,052 4,202
Accounts receivable, less allowances of $2,917 and $3,721, respectively 21,392 16,960
Inventories 890 1,023
Other current assets 3,808 3,113
----------------------------------------------------------------------------------------------------------------------------
Total current assets 45,302 31,972
Property and equipment, net 4,950 5,810
Marketable securities 3,076 --
Other assets, net of accumulated amortization of $2,669 and $3,770, respectively 2,882 5,146
- --------------------------------------------------------------------------------------------------------------------------------
Total assets $ 56,210 $ 42,928
--------------------------------------------------------------------------------------------------------------------------
Liabilities
Current liabilities:
Accounts payable $ 3,861 $ 2,039
Accrued compensation 4,137 5,222
Accrued expenses 6,741 6,165
Accrued costs for restructuring and other charges 710 939
Other current liabilities 626 270
Note payable -- 1,139
Deferred revenue 18,430 18,930
Long-term debt, current portion 548 --
----------------------------------------------------------------------------------------------------------------------------
Total current liabilities 35,053 34,704
Commitments and contingencies
Software license payable, non-current 150 590
Long-term debt 600 --
Minority interests in consolidated subsidiaries 2,008 2,557
Shareholders' Equity
Convertible preferred stock, $.01 par value; authorized 1,000,000 shares;
issued and outstanding 263,158 and none, respectively 3 --
Common stock, $.01 par value; authorized 35,000,000 shares; issued and
outstanding 20,818,982 and 19,346,677 shares, respectively 208 193
Additional paid-in capital 79,485 66,020
Unearned compensation (1,326) --
Accumulated deficit (31,585) (32,700)
Accumulated other comprehensive income 178 128
Treasury stock at cost; 1,848,000 shares (28,564) (28,564)
------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 18,399 5,077
--------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 56,210 $ 42,928
------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
22
<PAGE>
Consolidated
Statements of Operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Ended December 31, 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts)
<S> <C> <C> <C>
Revenues:
Software $ 42,966 $ 58,546 $ 88,968
Services 25,743 15,087 16,286
Internet advertising 6,513 709 170
-----------------------------------------------------------------------------------------------------------------
Total revenues 75,222 74,342 105,424
Cost of Revenues:
Software 6,730 6,939 11,332
Services 16,245 9,889 13,441
Internet advertising 1,999 852 29
-----------------------------------------------------------------------------------------------------------------
Total cost of revenues 24,974 17,680 24,802
---------------------------------------------------------------------------------------------------------
Gross profit 50,248 56,662 80,622
Operating Expenses:
Sales and marketing 30,821 40,236 60,811
Product development 10,890 15,909 21,875
General and administrative 6,412 9,069 11,521
Other charges 1,400 8,000 5,500
-----------------------------------------------------------------------------------------------------------------
Total operating expenses 49,523 73,214 99,707
---------------------------------------------------------------------------------------------------------
Income/(loss) from operations 725 (16,552) (19,085)
Other Income/(Expense):
Interest income 793 482 1,088
Minority interest 549 847 571
Interest expense (122) (96) (80)
Other, net (257) (1,334) (511)
------------------------------------------------------------------------------------------------------------------
Total other income/(expense) 963 (101) 1,068
----------------------------------------------------------------------------------------------------------
Income/(loss) before taxes 1,688 (16,653) (18,017)
Provision for income taxes 573 255 9,013
- --------------------------------------------------------------------------------------------------------------------------
Net income/(loss) $ 1,115 $ (16,908) $ (27,030)
- --------------------------------------------------------------------------------------------------------------------------
Net Income/(Loss) per Share:
Basic $ 0.06 $ (0.97) $ (1.59)
Diluted $ 0.05 $ (0.97) $ (1.59)
Weighted average number of common
and common equivalent shares outstanding:
Basic 18,085 17,367 16,947
Diluted 22,377 17,367 16,947
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
23
<PAGE>
Consolidated
Statements of Shareholders' Equity
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three years ended December 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Retained Accumulated
Convertible Additional Earnings/ Other Total
Preferred Common Paid-in Unearned (Accumulated Comprehensive Treasury Shareholders'
Stock Stock Capital Compensation Deficit) Income Stock Equity
- ------------------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 $ -- $ 186 $ 62,347 $ -- $ 11,238 $ (865) $(28,564) $ 44,342
Net loss (27,030) (27,030)
Foreign currency
translation adjustment 845 845
Change in net
unrealized gain/(loss)
on investments (73) (73)
Comprehensive income (26,258)
373,728 shares of
common stock issued
under stock and option
plans including
related tax benefits 4 2,234 2,238
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 -- 190 64,581 -- (15,792) (93) (28,564) 20,322
Net loss (16,908) (16,908)
Foreign currency
translation adjustment 159 159
Change in net
unrealized gain/(loss)
on investments 62 62
Comprehensive income (16,687)
349,795 shares of
common stock issued
under stock and option
plans including
related tax benefits 3 1,439 1,442
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 -- 193 66,020 -- (32,700) 128 (28,564) 5,077
Net income 1,115 1,115
Foreign currency
translation adjustment 42 42
Change in net
unrealized gain/(loss)
on investments 8 8
Comprehensive income 1,165
1,472,305 shares of
common stock issued
under stock and option
plans including
related tax benefits 15 2,542 2,557
263,158 shares of
convertible preferred
stock issued 3 9,497 9,500
Unearned compensation 1,426 (1,426) --
Amortization of unearned
compensation 100 100
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 $ 3 $ 208 $ 79,485 $ (1,326) $ (31,585) $ 178 $(28,564) $ 18,399
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
24
<PAGE>
Consolidated
Statements of Cash Flows
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Ended December 31, 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income/(loss) $ 1,115 $ (16,908) $ (27,030)
Adjustments to reconcile net income/(loss) to net cash
provided by/(used in) operating activities:
Depreciation and amortization 4,662 7,847 8,928
Other charges, noncash portion 1,400 5,835 1,852
Amortization of unearned compensation 100 -- --
Changes in operating assets and liabilities, net of
affect of acquisition:
(Increase)/decrease in accounts receivable (4,370) 2,475 4,521
Decrease/(increase) in inventories 192 1,335 (292)
Decrease in income tax receivable -- -- 6,042
Increase/(decrease) in other current assets (327) 1,214 (576)
(Increase)/decrease in other noncurrent assets (125) 195 68
Increase/(decrease) in accounts payable
and accrued compensation and expenses 707 (4,056) (2,893)
(Decrease) in accrued costs for restructuring
and other charges (873) (3,549) (5,149)
(Decrease)/increase in other current liabilities (69) (186) 1,085
Decrease in deferred taxes -- -- 9,926
(Decrease) in deferred revenue (483) (921) (2,448)
(Decrease) in other liabilities (724) (787) (211)
------------------------------------------------------------------------------------------------------------
Net cash provided by/(used in) operating activities 1,205 (7,506) (6,177)
Cash Flows from Investing Activities:
Capital expenditures (1,420) (1,328) (5,683)
Purchases of investments in unconsolidated affiliates -- -- (2,001)
Acquisition of technology (500) -- --
Acquisition of software licenses -- (150) (1,125)
Capitalization of software costs -- (549) (2,314)
(Purchase of)/proceeds from marketable securities, net (2,918) 4,435 10,217
---------------------------------------------------------------------------------------------------------------------------
Net cash (used in)/provided by investing activities (4,838) 2,408 (906)
Cash Flows from Financing Activities:
Net proceeds from issuance of convertible preferred stock 9,500 -- --
Minority interest equity investments -- 50 3,095
Proceeds from stock plan purchases, stock options
and warrants and related tax benefits 2,557 944 2,238
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 12,057 994 5,333
Effect of exchange rate changes on cash and cash equivalents 62 165 (35)
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in cash and cash equivalents 8,486 (3,939) (1,785)
Cash and cash equivalents at beginning of the year 6,674 10,613 12,398
- -----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of the year $ 15,160 $ 6,674 $ 10,613
- -----------------------------------------------------------------------------------------------------------------------------------
Supplememtal Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest $ 74 $ 36 $ 20
Income taxes $ 372 $ 522 $ 688
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
25
<PAGE>
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
A. Nature of Business
- ----------------------
Banyan Systems Incorporated has two reportable segments: Network software
and services, and Internet advertising. The Company's network software and
services segment designs, develops and markets standards-based networking
directory and messaging products that help people communicate across
enterprise networks, intranets and the Internet. In addition, the network
software and services segment delivers professional services including
technical support, education and consulting, including network performance,
integration and Year 2000 compliance services. The Company's Internet
advertising segment is organized as a majority-owned subsidiary, Switchboard
Incorporated ("Switchboard"), and generates advertising revenue through its
Internet people-to-people and business directory services. The Company's
reportable segments are managed separately because they market and
distribute distinct products and services.
B. Summary of Significant Accounting Policies
- ---------------------------------------------
Basis of Presentation
---------------------
The consolidated financial statements comprise those of the Company and its
subsidiaries. Intercompany accounts and transactions have been eliminated.
Certain previously reported amounts have been reclassified to conform to the
current method of presentation.
Cash Equivalents and Marketable Securities
------------------------------------------
In accordance with Statement of Accounting Standards ("SFAS") No. 115, the
Company classifies all of its marketable debt and marketable equity
securities as available for sale securities. These securities are valued at
fair value. Unrealized holding gains and losses are reported as a net amount
in a separate component of stockholders' equity (see Note K).
The Company considers all highly liquid investments with an original maturity
of three months or less to be cash equivalents. Those instruments with
maturities between three and twelve months are considered to be short-term
marketable securities, and investments with maturities of greater than one
year are classified as long-term marketable securities. Cash equivalents and
marketable securities are carried at market, and consist primarily of U.S.
government securities, corporate and municipal issues, and interest bearing
deposits with major banks. These investments generally mature within twelve
months.
Inventories
-----------
Inventories are stated at the lower of cost (first-in, first-out) or market.
Property and Equipment
----------------------
Properties and equipment are stated at cost. Depreciation is computed using
the straight-line method over the following estimated asset lives:
Computers and peripherals 3 years
Equipment 2-5 years
Furniture and fixtures 5 years
Maintenance and repairs are charged to expense when incurred, while
betterments are capitalized. Leasehold improvements are amortized over the
lesser of the lease term or the life of the asset. When property is retired
or otherwise disposed of, the related cost and accumulated depreciation are
removed from the respective amounts and any gain or loss is reflected in
operations.
Software Development Costs
--------------------------
The Company capitalizes costs for internally developed software after
technological feasibility of the product are charged to research and
development expense. Costs incurred prior to the establishment of
technological feasibility are charged to research and development expense.
Software costs are amortized, on a product by product basis, ratably over the
estimated economic life of the product (generally three years), or the ratio
of current gross revenues to total current and expected future gross revenues
of the product, whichever is greater.
26
<PAGE>
The Company evaluates the net realizable value of capitalized software on an
ongoing basis, relying on a number of factors including operating results,
business plans, budgets, and economic projections and undiscounted cash
flows. In addition, the Company's evaluation considers non-financial data
such as market trends, project development cycles and changes in management's
market emphasis.
Software Licenses
-----------------
The Company has purchased various software licenses for technology that is
incorporated in the Company's products. The cost of these licenses, included
in other assets, is amortized on a straight-line basis over their estimated
useful lives, not to exceed three years (see Note E). Certain of these
licenses require royalty payments based on future sales. Such amounts are
expensed as incurred.
The Company has entered into agreements with various third parties to develop
or license products. Under the terms of these agreements, the Company is
generally required to pay minimum annual royalties commencing upon first
customer shipment. Such amounts are expensed as incurred. The committed
royalties are included in current and noncurrent assets and liabilities.
Revenue Recognition
-------------------
The Company recognizes software revenues in accordance with the provisions of
Statement of Postion 97-2, "Software Revenue Recognition." Revenue from
software license fees are recorded upon execution of the contract provided
that all shipment obligations have been met, fees are fixed or determinable,
and collection is deemed probable. Revenue from maintenance contracts,
including amounts bundled in initial software licenses, is deferred and
recognized ratably over the term of the agreement, generally one year.
Internet advertising consists of advertising revenue and engineering services
delivered through Switchboard. Advertising revenues are recognized when the
services are provided. Engineering and programming fees for site
implementation and/or customization work performed is recognized based upon
completion and acceptance. Reserves for sales returns and allowances are
recorded in the same period as the related revenues.
Foreign Currency Translation
----------------------------
The Company's subsidiaries generally use the U.S. dollar as the functional
currency, and transaction gains and losses are included in other income and
expenses in the statement of operations. For those subsidiaries which use the
local currency as the functional currency, assets and liabilities are
translated into U.S. dollars at the period ended exchange rate and income and
expense amounts are translated using the average rate prevailing for the
period. Adjustments resulting from translation are included in other
comprehensive income. The Company's foreign subsidiaries, Nihon Banyan
Systems Kabushiki Kaisha (NBSKK) and Banyan Systems Australia Pty., used the
local currency as functional currency for the years ended December 31, 1997
and 1996. In January 1998, the Company made a determination to change the
functional currency of NBSKK and Banyan Systems Australia Pty. to the U.S.
dollar. In 1998, the remainder of the Company's subsidiaries used the U.S.
dollar as their functional currency.
Minority Interests
------------------
Minority interests in consolidated subsidiaries represent minority
shareholders' proportionate shares of the equities in the Company's
subsidiaries, NBSKK and Switchboard. At December 31, 1998, the Company owned
approximately 70% of the capital stock of NBSKK and approximately 90% of the
capital stock on a fully diluted basis of Switchboard (see Note P).
Risks and Uncertainties
-----------------------
The Company invests its cash and cash equivalents primarily in deposits and
money market funds with a single commercial bank. The Company has not
experienced any losses to date on its invested cash.
The Company sells its products principally through a direct sales force
domestically and through distributors outside of the United States to
customers in a broad range of industries. The Company performs ongoing credit
evaluations of its customers but does not require collateral or other
security to support customer receivables. The Company maintains reserves for
credit losses and, to date, such losses have been within management's
expectations.
27
<PAGE>
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Income/(Loss) Per Share
-----------------------
Basic income/(loss) per share excludes dilution and is computed by dividing
income/(loss) available to common shareholders by the weighted average number
of common shares outstanding for the period. Diluted income per share
includes the dilution from the assumed exercise of stock options, warrants
(using the treasury stock method) and the assumed conversion of preferred
shares (using the if converted method). In loss periods, common equivalents
are excluded from the diluted loss per share calculation as the effect is
anti-dilutive.
Comprehensive Income
--------------------
In 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income."
This statement establishes rules for the reporting of comprehensive income
and its components. Comprehensive income consists of net income, foreign
currency translation adjustments and unrealized gains/(losses) on investments
and is presented in the Consolidated Statement of Shareholders' Equity. The
adoption of SFAS No. 130 had no impact on total shareholders' equity. Prior
year financial statements have been reclassified to conform to the SFAS No.
130 requirements.
Derivative Instruments and Hedging
----------------------------------
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The new standard establishes accounting
and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging
activities. SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. The Company does not expect SFAS No. 133 to
have a material effect on its financial position or results of operations.
Software Revenue Recognition
----------------------------
In December 1998, the AcSEC issued SoP 98-9, "Modification of SoP 97-2,
Software Revenue Recognition, With Respect to Certain Transactions," which
will retain the limitations of SoP 97-2 on what constitutes vendor specific
objective evidence of fair value. SoP 98-9 will be effective for transactions
entered into in fiscal years beginning after March 15, 1999. The Company does
not expect SoP 98-9 to have a material effect on its financial position or
results of operations.
C. Inventories
- --------------
Inventories consist of the following at:
<TABLE>
<CAPTION>
December 31, 1998 1997
------------------------------------------------------------
(in thousands)
<S> <C> <C>
Purchased parts $ 309 $ 356
Work in process 80 270
Finished goods 501 397
------------------------------------------------------------
$ 890 $ 1,023
---------------------------
</TABLE>
28
<PAGE>
D. Property and Equipment
- -------------------------
Property and equipment consists of the following at:
<TABLE>
<CAPTION>
December 31, 1998 1997
---------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Computer and peripherals $ 24,859 $ 23,848
Equipment 10,455 9,587
Furniture and fixtures 2,659 2,725
Leasehold improvements 2,586 2,536
---------------------------------------------------------------------------
Total cost $ 40,559 $ 38,696
Accumulated depreciation and amortization (35,609) (32,886)
---------------------------------------------------------------------------
$ 4,950 $ 5,810
---------------------------
</TABLE>
Depreciation expense for 1998, 1997 and 1996 was $3,607,000, $6,340,000 and
$7,022,000, respectively.
E. Other Assets
- ----------------
Other assets consist of the following at:
<TABLE>
<CAPTION>
December 31, 1998 1997
---------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Capitalized software costs, net $ 473 $ 991
Investment in unconsolidated affiliate 2,001 2,001
Software licenses, net 150 2,154
Other 258 --
---------------------------------------------------------------------------
$ 2,882 $ 5,146
---------------------------
</TABLE>
During 1997 and 1996, the Company capitalized $549,000 and $2,314,000 of
software costs, respectively. There were no amounts capitalized during 1998,
as amounts qualifying for capitalization were not material. Amortization
expense for other assets was $1,185,000, $1,453,000 and $1,796,000 for 1998,
1997 and 1996, respectively. In 1998, other assets totaling $1,554,000 were
written off along with the reversal of associated long-term liabilities and
a note payable.
F. Other Charges
- ----------------
On May 18, 1998, Switchboard acquired the MapsOnUs Web site and Internet
mapping technology from Lucent Technologies Incorporated. The purchase price
of $1,600,000 was was composed of $500,000 in cash paid to Lucent upon
closing and a note payable of $1,100,000 to be paid over a two year period. A
charge was recorded based on the Company's assessment of the value of the
asset at the time of purchase. The Company was required to incur costs in
developing and integrating the technology into its Switchboard Web site in
order to generate future revenue from the technology.
On April 21, 1997, the Company announced a reorganization of its operations.
As a result of the reorganization, the Company recorded net pre-tax
restructuring and other charges of approximately $9,700,000. The
restructuring and other charges were composed of $1,700,000 for severance
costs, $2,100,000 for the write-off of idle assets related to restructuring
and $5,900,000 for costs related to facility and product line consolidations.
These restructuring charges provided for the reduction of approximately 22%
of the Company's work force. In the fourth quarter of 1997, the Company
reversed $1,700,000 of previously recorded restructuring and other charges
related to the Company's better-than-expected progress in consolidating
facilities and product lines, completing its severance programs, and selling
and redeploying fixed assets.
At December 31, 1997, the Company's cash expenditures for employee
separations related to the 1997 restructuring were approximately $1,250,000.
During 1997, the restructuring action resulted in approximately 78 employee
separations. The restructuring and other actions were substantially completed
in 1997. The restructuring and other charges related to the 1997
restructuring are expected to use cash of $3,100,000, of which $3,000,000 had
been expended through December 31, 1998, while providing an annual cash flow
benefit beginning in 1998.
29
<PAGE>
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
On November 7, 1996, the Company announced a reorganization of its
operations. As a result of the reorganization, the Company recorded a pre-tax
restructuring charge of approximately $5,500,000 in the fourth quarter ended
December 31, 1996. This reorganization charge was composed of $1,400,000 for
the closure or consolidation of leased facilities, $3,200,000 for severance
and costs related to the reduction of approximately 15% of the Company's work
force and $900,000 for the write-off of idle assets related to the
restructuring. The November 1996 restructuring resulted in 70 employee
separations. The restructuring and other charges relating to the November
1996 restructuring are expected to use cash of $3,800,000, of which
$3,500,000 had been expended through December 31, 1998.
For the year ended December 31, 1997, the Company's cash expenditures for
employee separations related to the 1996 restructuring were approximately
$1,800,000. The restructuring and other charges reduced cash flow by
approximately $2,600,000 in 1997 while providing an annual cash flow benefit
beginning in 1998.
Restructuring costs are accrued and charged to expense in accordance with an
approved management plan, supported by an appropriate level of specificity
for the planned actions. Actual restructuring costs are recognized as a
reduction in the accrued liability in the period incurred. The Company
believes the remaining reserve balance of approximately $710,000 is adequate
to cover the remaining restructuring and other actions.
G. Line of Credit
- ------------------
In September 1997, the Company entered into a $15,000,000 line of credit
agreement with a commercial lender that replaced the Company's prior
$10,000,000 credit facility that expired in May 1997. There were no
borrowings under the agreement or the prior line of credit facility in 1998.
This agreement has a three-year initial term and is renewable thereafter for
successive one-year periods. The lender was granted warrants to purchase
75,000 and 50,000 and will be granted warrants to purchase 25,000 shares of
the Company's common stock on September 4, 1997, 1998 and 1999, respectively.
The exercise price of the warrants shall equal the then current fair market
value of the Company's common stock on the date of grant. On January 12,
1999, the lender exercised its warrant to purchase 75,000 shares of the
Company's common stock pursuant to a "cashless" exercise resulting in the
issuance of 58,603 shares to Foothill.
Outstanding borrowings drawn under this line are restricted to (a) 85% of the
Company's eligible accounts receivable plus (i) the lower of $2,000,000 or
75% of eligible foreign accounts plus (ii) the lowest of $3,000,000 or 80% of
the aggregate depreciated equipment value or 50% of the amount of credit
availability by the sum of clauses (i) and (ii), or (b) $15,000,000.
H. Commitments and Contingencies
- -------------------------------
The Company leases its facilities and certain equipment under non-cancelable
lease agreements which expire at various dates through March 2014. Rental
expense under these leases totaled $2,241,000, $2,857,000 and $4,872,000 in
1998, 1997 and 1996, respectively. Under these agreements, the Company is
obligated to pay for utilities, taxes, insurance and maintenance.
At December 31, 1998, future minimum lease payments under operating leases
with initial terms exceeding one year are as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
(in thousands)
<S> <C>
1999 $ 3,877
2000 3,359
2001 2,787
2002 2,390
2003 1,207
Thereafter 3,375
-----------------------------------------------------------------------
Total future minimum lease payments $16,995
-----------------------------------------------------------------------
</TABLE>
The total of future minimum rentals to be received under non-cancelable
subleases related to the above leases is $1,103,000 and $668,000 for the years
ending 1999 and 2000, respectively.
30
<PAGE>
I. Income Taxes
- --------------
The components of the (benefit)/provision for income taxes are as follows:
<TABLE>
<CAPTION>
Years ended December 31, 1998 1997 1996
---------------------------------------------------------------------------
<S> <C> <C> <C>
Currently Payable
U.S. Federal $ -- $ -- $ (1,598)
State -- -- --
Foreign 573 255 974
---------------------------------------------------------------------------
573 255 (624)
Deferred:
U.S. Federal -- -- 9,637
State -- -- --
---------------------------------------------------------------------------
-- -- 9,637
---------------------------------------------
$ 573 $ 255 $ 9,013
---------------------------------------------
</TABLE>
Management of the Company has evaluated the positive and negative evidence
bearing upon the realizability of its deferred tax assets. Management has
considered the Company's recent results of operations and concluded that it
is more likely than not that the deferred tax assets will not be realizable.
Accordingly, deferred tax assets as of December 31, 1998 and 1997 have been
fully reserved. Management re-evaluates the positive and negative evidence
on a quarterly basis. Temporary differences which give rise to deferred tax
assets and liabilities for the years ended December 31, 1998 and 1997 are as
follows:
<TABLE>
<CAPTION>
1998 1997
---------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Net operating loss and
other carryforward $ 15,805 $ 16,126
Purchased research and
development 7,104 7,014
Depreciation and
amortization 1,419 1,801
Benefit plans 612 986
Bad debt allowance 509 663
Other 724 922
-----------------------------------------------------------------------
Gross deferred tax asset 26,173 27,512
Deferred tax liabilities:
Capitalized software (195) (1,012)
-----------------------------------------------------------------------
Gross deferred tax liability (195) (1,012)
Less: valuation allowance (25,978) (26,500)
---------------------------------------------------------------------------
Net deferred tax asset $ -- $ --
---------------------------------------------------------------------------
</TABLE>
At December 31, 1998, the Company had federal net operating losses and
federal tax credit carryforwards of $39 million and $2.3 million,
respectively. The net operating losses will begin to expire between the
years 2010 and 2018 and the credits will begin to expire between the years
2007 and 2011.
A reconciliation of the statutory U.S. Federal income tax rate and the
effective tax rate is as follows:
<TABLE>
<CAPTION>
Years ended December 31, 1998 1997 1996
---------------------------------------------------------------------------
<S> <C> <C> <C>
Tax at statutory rate 35.0% (35.0)% (35.0)%
State income taxes, net of
U.S. federal benefit 3.7% (1.3)% (3.9)%
Effect of foreign tax rates 3.0% 1.6% 5.4%
Minority interest (11.4)% (1.8)% (1.1)%
Foreign losses not benefited 35.4% 2.7% 3.0%
Other (0.8)% (0.2)% 2.0%
Valuation (30.9)% 35.5% 79.6%
---------------------------------------------------------------------------
Effective tax rate 34.0% 1.5% 50.0%
---------------------------------------------------------------------------
</TABLE>
31
<PAGE>
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
J. Preferred Stock
- ------------------
In July 1992, the shareholders of the Company approved the creation of a new
class of undesignated preferred stock and authorized 1,000,000 shares of
$0.01 par value, in one or more series, with voting rights and preferences to
be determined by the Board of Directors. In March 1998, 263,158 shares were
designated as Series A Convertible Preferred Banyan Stock and were issued to
HarbourVest Partners along with warrants to acquire 65,790 shares of Series B
convertible preferred stock and 65,790 shares of Series C convertible
preferred stock at an exercise price of $45.00 and $50.00 per share,
respectively, in exchange for cash of $9,500,000, net of issuance costs of
$500,000. Each share of preferred stock is initially convertible, at the
option of the holder, into ten shares of common stock, subject to adjustment
for certain dilutive issuances. The preferred stock is generally entitled to
vote together with the common stock on all matters submitted to shareholders.
Upon any liquidation, dissolution or winding up of affairs of the Company, no
distribution shall be made to the holders of the common stock unless, prior
to the first such distribution, the holders of the Series A, Series B and
Series C preferred shall have received an amount equal to $38.00, $45.00 and
$50.00 per share of Series A , Series B and Series C preferred respectively.
K. Marketable Securities
- ------------------------
Marketable securities consisted of the following at December 31, 1998
and 1997:
<TABLE>
<CAPTION>
1998 1997
--------------------------------------------------------
Aggregate Amortized Aggregate Amortized
Security Type Fair Value Cost Fair Value Cost
-----------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
Maturing within one year:
U.S. Treasury Notes $ 130 $ 130 $ 4,202 $ 4,210
Commercial paper/agencies 3,922 3,919 -- --
-----------------------------------------------------------------------------------------------------
$ 4,052 $ 4,049 $ 4,202 $ 4,210
Maturing after one year through five years:
U.S. Treasury Notes $ -- $ -- $ -- $ --
Commercial paper/agencies 3,076 3,079 -- --
-----------------------------------------------------------------------------------------------------
$ 3,076 $ 3,079 $ -- $ --
--------------------------------------------------------
Totals $ 7,128 $ 7,128 $ 4,202 $ 4,210
-----------------------------------------------------------------------------------------
</TABLE>
Realized and unrealized gains/(losses) were immaterial for the years ended
December 31, 1998 and 1997.
L. Stock Option Plans
- ----------------------
Under the Company's 1984 stock option plans, the Company granted incentive
and non-qualified stock options to purchase up to an aggregate of 5,113,841
shares of common stock, of which 59,304 options were outstanding at December
31, 1998. In June 1992, the Board of Directors voted that no further options
be granted under the 1984 stock option plans. Generally, options outstanding
vest ratably over a four-year period and expire ten years from the date of
grant.
Under the Company's 1992 Stock Incentive Plan, (the "1992 Stock Incentive
Plan"), as amended, the Company may grant incentive stock options and non-
statutory options for the purchase of an aggregate of 3,500,000 shares of
common stock to employees, officers, directors, consultants and advisors. At
December 31, 1998, 1,742,040 options were outstanding under this plan. The
1992 Stock Incentive Plan provides that incentive stock options may not be
granted at less than the fair market value of the Company's common stock at
the grant date, and options generally vest ratably over a three or four-year
period and expire ten years from the date of grant.
The 1992 plan permits awards of restricted stock at a price determined by
the Compensation Committee of the Board of Directors subject to the
Company's right to repurchase such stock in specified circumstances prior to
the expiration of a restricted period. On October 16, 1998, the Company
issued 396,000 shares of restricted common stock to executive officers and
certain members of senior management at par value. These shares are subject
to the Company's repurchase right and certain other restrictions for a
period of up to three years. An amount for unearned compensation of
$1,426,000 was recorded within shareholders' equity equal to the fair market
value of the stock on the date it was issued, less the purchase price. In
1998, amortization of $100,000 was recorded as compensation expense related
to the transaction. The remainder of the unearned compensation will be
amortized over a period up to three years from the date of issuance.
32
<PAGE>
Under the Company's 1992 Director Stock Option Plan (the "1992 Director
Plan"), as amended , the Company may grant non-statutory stock options for
the purchase of up to an aggregate of 200,000 shares of common stock to
directors of the Company who are not officers or employees of the Company or
any subsidiary of the Company. Under the terms of the 1992 Director Plan,
initial options shall be granted to each eligible director upon his or her
initial election as a director that cover 15,000 shares of common stock and
annual options shall be granted on the date of each Annual Meeting of
Shareholders of the Company that cover 3,000 shares of common stock. The
1992 Director Plan provides that options shall be granted at the fair market
value of the Company's common stock at the grant date. Annual options
generally vest twelve months after the grant date and initial options vest
ratably over a four-year period. At December 31, 1998, 105,000 options had
been outstanding under the 1992 Director Plan.
Under the Company's 1995 Employee Stock Purchase Plan (the "1995 Employee
Stock Purchase Plan"), 1,050,000 shares of common stock are available to all
full-time employees through semi-annual offerings. At December 31, 1998,
785,720 shares of common stock have been purchased under this plan.
During 1997, in addition to the options described above, options to purchase
an aggregate of 1,300,000 shares were issued to four executive officers of
the Company. The underlying shares were registered with the SEC and
generally vest over a four-year period. At December 31, 1998, 1,170,000 of
such options were outstanding.
The Company applies ABP Opinion 25 and related interpretations in accounting
for its plans. In fiscal year 1996, the Company adopted the disclosure
provisions only of SFAS No. 123, "Accounting for Stock-Based Compensation."
Accordingly, no compensation cost has been recognized for its stock-based
compensation plans. Had compensation cost for the Company's stock-based
compensation plans been recorded based on the fair value of awards at the
grant dates as calculated in accordance with SFAS No. 123, the Company's net
income/(loss) and earnings/(loss) per share for the years ended December 31,
1998, 1997 and 1996 would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
---------------------------------------------------------------------------------------------------
As Reported Pro Forma As Reported Pro Forma As Reported Pro Forma
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net income/(loss) $ 1,115 $ 1,194 $ (16,908) $ (21,270) $ (27,030) $ (30,562)
Basic income/(loss)
per share $ 0.06 $ 0.07 $ (0.97) $ (1.22) $ (1.59) $ (1.80)
Diluted income/(loss)
per share $ 0.05 $ 0.05 $ (0.97) $ (1.22) $ (1.59) $ (1.80)
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1998, 1997 and 1996, respectively; dividend
yield of 0%, 0% and 0%; expected volatility of 90%, 70% and 62%; risk-free
interest rates of 5.5%, 6.4% and 6.4%; and expected lives of 5.0, 5.5 and
5.5 years. The effects of applying SFAS No. 123 in this pro forma disclosure
are not likely to be representative of the effects on reported net income
for future years. Additional awards in future years are anticipated. SFAS
No. 123 does not apply to awards granted prior to 1995. The 1998 pro forma
amounts include $3,542,000 of pro forma income related to stock option
forfeiture experience.
A summary of the status of the Company's stock plans as of December 31,
1998, 1997 and 1996, and changes during the years ending on those dates, is
presented below.
<TABLE>
<CAPTION>
1998 1997 1996
-------------------- --------------------- ---------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------------------------------------------------------------ --------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 3,293 $ 2.77 2,631 $ 7.02 2,537 $ 8.34
Granted 1,225 3.93 2,289 2.37 1,080 6.32
Exercised (1,108) 1.89 (31) 2.18 (111) 4.16
Canceled (334) 2.6 (1,596) 4.84 (875) 9.30
------------------------------------------------------------------------------------------------------------
Outstanding at end of year 3,076 $ 3.55 3,293 $ 2.77 2,631 $ 7.02
------------------------------------------------------------------------------------------------------------
Options exercisable at year-end 1,339 $ 3.16 705 $ 4.31 1,154 $ 7.06
------------------------------------------------------------------------------------------------------------
Weighted-average fair value of
options granted during the year $ 4.24 $ 1.69 $ 3.93
--------------------------------------------------------------------------------------------------------
</TABLE>
33
<PAGE>
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
The following table summarizes information about the stock options at
December 31, 1998.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------------------------------------------------
Weighted Weighted Weighted
Number Average Average Number Average
Outstanding at Remaining Exercise Exercisable at Exercise
Range of Exercise Prices December 31, 1998 Contractual Life Price December 31, 1998 Price
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 1.15 -- $ 2.25 1,822 7.9 years $ 2.20 940 $ 2.21
$ 2.26 -- $ 3.99 350 8.9 years $ 3.46 69 $ 3.21
$ 4.00 -- $ 7.00 796 8.3 years $ 5.62 270 $ 4.17
$ 7.01 -- $ 16.25 108 7.3 years $ 11.55 60 $ 13.48
---------------------------------------------------------------------------------------------------------------------
3,076 1,339
-------------------------------------------------------------------------------------
</TABLE>
M. Basic and Diluted Earnings/(Loss) Per Share
- ----------------------------------------------
Basic earnings/(loss) per share is based upon the weighted average number of
common shares outstanding during the period. Diluted earnings per share
includes the dilution of weighted average common equivalent shares
outstanding during the period. Common equivalent shares have been excluded
from the computation of diluted loss per share, as their effect would have
been anti-dilutive in 1997 and 1996. Common equivalent shares result from the
assumed conversion of preferred stock plus the assumed exercise of
outstanding stock options and warrants, the proceeds of which are then
assumed to have been used to repurchase outstanding common stock using the
treasury stock method. Common equivalents also include the unvested portion
of restricted stock.
<TABLE>
<CAPTION>
For the years ended December 31, 1998 1997 1996
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic earnings/(loss) per share
Numerator:
Net income/(loss) $ 1,115 $ (16,908) $ (27,030)
Denominator:
Weighted average common shares
outstanding 18,085 17,367 16,947
---------------------------------------------------------------------------------
Basic earnings/(loss) per share $ 0.06 $ (0.97) $ (1.59)
-------------------------------------------------------------------------------------
Diluted earnings/(loss) per share
Net income/(loss) $ 1,115 $ (16,908) $ (27,030)
Denominator:
Weighted average common shares
outstanding 18,085 17,367 16,947
Weighted average common equivalent
shares 4,292 -- --
---------------------------------------------------------------------------------
Total shares 22,377 17,367 16,947
-------------------------------------------------------------------------
Diluted earnings/(loss) per share $ 0.05 $ (0.97) $ (1.59)
-------------------------------------------------------------------------------------
</TABLE>
Options to purchase 1,836,000 shares of common stock outstanding during the
year ended December 31, 1998 were excluded from the calculation of diluted
net income, as their exercise price was greater than the average share price
or they were not vested as of December 31, 1998. Options to purchase
3,293,000 and 2,631,000 shares of common stock outstanding during the years
ended December 31, 1997 and 1996, respectively, were excluded from the year-
to-date calculation of diluted net loss per share as the effect of their
inclusion would have been anti-dilutive.
N. Employee Benefit Plan
- ------------------------
In 1989, the Company established a savings and profit sharing plan covering
substantially all U.S. employees. The plan is qualified under Section 401(a)
of the Internal Revenue Code of 1986, as amended. Effective January 1, 1994,
the Company elected to match an employee's elective deferrals to the plan
based upon a prescribed formula. The maximum matching contribution was 2% of
an employee's annual compensation. Vesting is over a four-year period and
begins on the date of hire. The Company contributed $297,000, $377,000 and
$549,000 in 1998, 1997 and 1996, respectively.
34
<PAGE>
O. Segment Information
- ----------------------
In March 1998, the Company adopted SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information," which supercedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise." This statement
changes the way that public business enterprises report segment information,
including financial and descriptive information about their selected segment
information. Under SFAS No. 131, operating segments are defined as revenue-
producing components of an enterprise which are generally used internally
for evaluating segment performance. SFAS No. 131 is effective for the
Company's fiscal year ended December 31, 1998, and will not affect the
Company's financial position or results of operations.
As described in Note A, "Nature of Business," the Company has two reportable
segments: Network software and services, and Internet advertising.
Significant financial information relative to the Company's reportable
segments is as follows:
<TABLE>
<CAPTION>
Network Software Internet Total
Year Ended December 31, 1998 and Services Advertising Company
----------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Revenues
Network software $ 42,966 $ -- $ 42,966
Network services 25,743 -- 25,743
Internet advertising -- 6,513 6,513
----------------------------------------------------------------------------------------
Total revenue 68,709 6,513 75,222
Cost of revenues 22,975 1,999 24,974
----------------------------------------------------------------------------------------
Gross margin 45,734 4,514 50,248
----------------------------------------------------------------------------------------
Operating expenses 39,927 9,596 49,523
----------------------------------------------------------------------------------------
Operating income/(loss) $ 5,807 $ (5,082) $ 725
----------------------------------------------------------------------------------------
Total assets $ 53,064 $ 3,146 $ 56,210
----------------------------------------------------------------------------------------
</TABLE>
On April 18, 1996, the Company incorporated Switchboard. In 1996 and 1997,
Switchboard did not generate revenues material to the consolidated Company's
operating results.
The Company distributes its network software and services worldwide and
delivers its Internet advertising within North America. Revenue can be
grouped into geographic areas as follows:
<TABLE>
<CAPTION>
Years Ended December 31, 1998 1997 1996
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(in thousands)
Revenues from unaffiliated customers:
North America
United States $ 44,040 $ 47,409 $ 69,746
Canada 7,734 5,616 10,116
------------------------------------------------------------------------------
51,774 53,025 79,862
International
Europe 19,597 17,244 17,757
Other 3,851 4,073 7,805
------------------------------------------------------------------------------
23,448 21,317 25,562
----------------------------------------------
Total network product
and services revenues $ 75,222 $ 74,342 $ 105,424
----------------------------------------------------------------------
</TABLE>
No one customer accounted for more than ten percent of consolidated revenues in
1998. One customer accounted for 11% of consolidated revenues in both 1997 and
1996. The customers included in this percentage vary from year to year. The
Company does business throughout Europe with the majority of the revenue
concentrated in Germany, The Netherlands, United Kingdom and France for the
years presented. The majority of the revenue in the other category is
concentrated in Australia, Malaysia and Japan for all years presented.
35
<PAGE>
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
P. Minority Interests
- ---------------------
In 1996, the Company entered into an agreement with America Online Inc.
(AOL) and Digital City Inc. (DCI) to sell minority interests in the
Company's subsidiary, Switchboard, to AOL and DCI. Pursuant to this
agreement, AOL and DCI invested a total of $3,000,000 in Switchboard and
currently hold a combined equity interest of 10.0% on a fully diluted basis.
AOL and DCI's collective minority interest in the net loss of Switchboard is
deducted from net income on a pro rata basis. For the year ended December
31, 1998, revenue and expenses were approximately $6,513,000 and
$11,595,000, respectively. Expenses for the year ended December 31, 1998
included a one-time charge for the acquisition of in process research and
development totaling $1,400,000 related to the MapsOnUs Web site purchased
from Lucent Technologies Incorporated. For the year ended December 31, 1997,
revenue and expenses were approximately $709,000 and $5,112,000,
respectively. For the year ended December 31, 1996, revenue and expenses
were approximately $170,000 and $1,479,000, respectively. AOL and DCI's
collective minority interest in Switchboard's assets and liabilities is
shown net in the consolidated balance sheet. At December 31, 1998, assets
and liabilities for Switchboard were approximately $3,146,000 and
$10,901,000, respectively. At December 31, 1997, assets and liabilities were
approximately $1,510,000 and $3,790,000, respectively.
In 1995, the Company entered into an agreement with Marubeni Corporation to
sell a minority interest in the Company's Japanese subsidiary, Nihon Banyan
Systems Kabushiki Kaisha (NBSKK). Subsequently, in 1995, the Company and
Marubeni Corporation entered into an agreement with NTT Technology
Corporation to sell a minority interest in NBSKK. In 1998, the Company
contributed $437,000 of additional capital to NBSKK. Pursuant to these
events, the Japanese companies hold a 30 percent equity interest in NBSKK.
All assets, liabilities, revenues and expenses of NBSKK are included in the
consolidated financial statements for the years ended December 31, 1998,
1997 and 1996. The minority interest in the net loss of NBSKK is deducted
from net income for the years ended December 31, 1997 and 1996,
respectively. For the year ended December 31, 1998, revenue and expenses
were approximately $619,000 and $1,759,000, respectively. For the year ended
December 31, 1997, revenue and expenses for NBSKK were approximately
$1,020,000 and $1,621,000, respectively. For the year ended December 31,
1996, revenue and expenses for NBSKK were approximately $1,321,000 and
$3,328,000, respectively. The Japanese companies' minority interest in
NBSKK's assets and liabilities is shown net in the consolidated balanced
sheet. At December 31, 1998, assets and liabilities for NBSKK were
approximately $863,000 and $2,873,000, respectively. At December 31, 1997,
assets and liabilities for NBSKK were approximately $1,540,000 and
$2,876,000, respectively.
Q. Subsequent Event
- -------------------
On January 11, 1999, the Company announced a strategic alliance with
Microsoft(R) Corporation to deliver integrated messaging, networking and
Internet solutions and the collaboration on the design and implementation of
packaged services, solutions and support offerings based on Microsoft's
enterprise platform. Under the agreement, Microsoft has committed to
contribute $10,000,000 over a three-year period for the training of at least
500 professionals, certain marketing and product development efforts and the
purchase of 1,750,000 common stock warrants. The first of these three
payments was received in January 1999 in the amount of $5,900,000. The
remaining two payments of $2,500,000 and $1,600,000 are to be received on or
before December 31, 1999 and 2000, respectively. The common stock warrants
are subject to a three-year lock-up provision, based on continuation of the
alliance, and have an exercise price of $10.00 per share. If exercised,
Microsoft's warrants represent approximately 7.5 percent ownership in the
Company.
36
<PAGE>
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders
of Banyan Systems Incorporated:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity and cash flows
present fairly, in all material respects, the financial position of Banyan
Systems Incorporated ("Banyan") at December 31, 1998 and 1997 and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of Banyan's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
January 26, 1999
37
<PAGE>
Supplementary Data
- --------------------------------------------------------------------------------
Financial Data
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended December 31, 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Statement of operations data:
Revenues
Software $ 42,966 $ 57,849 $ 87,281 $ 105,160 $ 118,899
Services 25,743 15,087 16,286 21,059 20,444
Internet advertising 6,513 709 170 -- --
Hardware -- 697 1,687 3,464 10,770
--------------------------------------------------------------------------------------------------------------
Total revenues 75,222 74,342 105,424 129,683 150,113
Income/(loss) from operations 725 (16,552) (19,085) (34,201) 5,541
Net income/(loss) 1,115 (16,908) (27,030) (21,360) 4,987
Net income/(loss) per share:
Basic $ 0.06 $ (0.97) $ (1.59) $ (1.27) $ 0.29
Diluted $ 0.05 $ (0.97) $ (1.59) $ (1.27) $ 0.27
Balance sheet data:
Working capital $ 10,249 $ (2,732) $ (1,513) $ 9,534 $ 30,602
Total assets 56,210 42,928 69,532 106,309 124,960
Long-term obligations, less current
maturities -- -- -- -- 61
Total shareholders' equity 18,399 5,077 20,322 44,342 73,879
</TABLE>
Quarterly Financial Information (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 Quarter Ended Dec. 31 Sept. 30 June 30 March 31
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Software $ 10,263 $ 10,193 $ 10,792 $ 11,718
Services 8,462 6,688 5,638 4,955
Internet advertising 1,757 1,970 1,706 1,080
-------------------------------------------------------------------------------------------------
Total revenues 20,482 18,851 18,136 17,753
Income/(loss) from operations/1/ 668 650 (930) 337
Net income/(loss)1 830 681 (773) 377
Net income/(loss) per share
Basic $ 0.05 $ 0.04 $ (0.04) $ 0.02
Diluted $ 0.04 $ 0.03 $ (0.04) $ 0.02
Stock prices:/2/
High $ 9.19 $ 9.69 $ 12.00 $ 6.44
Low $ 2.94 $ 2.38 $ 5.50 $ 2.88
</TABLE>
<TABLE>
<CAPTION>
1997 Quarter Ended Dec. 31 Sept. 30 June 30 March 31
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Software $ 13,465 $ 14,846 $ 13,857 $ 16,378
Services 4,582 3,702 3,160 3,643
Internet advertising 349 294 56 10
---------------------------------------------------------------------------------------------
Total revenues 18,396 18,842 17,073 20,031
Income/(loss) from operations/3,4/ 2,641 888 (13,693) (6,388)
Net income/(loss)/3,4/ 2,380 769 (13,665) (6,392)
Net income/(loss) per share
Basic $ 0.14 $ 0.04 $ (0.79) $ (0.37)
Diluted $ 0.13 $ 0.04 $ (0.79) $ (0.37)
Stock prices:/2/
High $ 3.94 $ 2.75 $ 2.38 $ 5.56
Low $ 2.44 $ 1.97 $ 1.22 $ 2.06
</TABLE>
1. In the second quarter of 1998, the Company recorded a one-time charge of
$1,400 related to the acquisition of the MapsOnUs Web site and
technology from Lucent Technologies Incorporated.
2. The Company's common stock is traded on the over-the-counter market and
is quoted on the Nasdaq National Market under the symbol "BNYN". The
common stock prices are based on the Nasdaq National Market daily
closing stock price.
3. In the second quarter of 1997, the Company recorded a charge of $9,700
related to restructuring the Company.
4. In the fourth quarter of 1997, the Company recorded a benefit, reversing
$1,700 of unneeded restructuring reserves from prior charges.
The Company has not paid cash dividends on its common stock and has historically
retained earnings for use in its business. The Company's current line of credit
prohibits the payment of cash dividends without the consent of the lender. The
Company has no present intention to pay dividends. The Company intends to review
its policy with respect to the payment of dividends from time to time; however,
there can be no assurance that any dividends will be paid in the future. On
December 31, 1998, the Company had 12,869 shareholders.
38
<PAGE>
Directors and Officers
- --------------------------------------------------------------------------------
Directors
- ---------
William P. Ferry
Chairman, Chief Executive Officer
and President
Banyan Systems Incorporated
G. Leonard Baker, Jr.
General Partner
Sutter Hill Ventures
John F. Burton
Managing Director
Updata Capital, Inc.
David C. Mahoney
President and Chief Executive Officer
Dataware Technologies, Inc.
Fontaine K. Richardson
General Partner
Eastech Management Company, Inc.
David N. Strohm
General Partner
Greylock Ventures Limited Partnership
Robert M. Wadsworth
Managing Director
HarbourVest Partners, LLC
Corporate Officers
- ------------------
William P. Ferry
Chairman, Chief Executive Officer
and President
Richard M. Spaulding
Vice President and Chief Financial Officer,
Treasurer and Secretary
Anthony J. Bellantuoni
Vice President, Human Resources
Robert D. Burke
Senior Vice President,
Worldwide Sales and Services
Alexander D. Crosett, III
Vice President, Development
Chief Technology Officer
Scott Silk
Senior Vice President,
Marketing and Business Development
Senior Management
- -----------------
James C. Biggs
Vice President, Channels, Asia Pacific/Japan
Peter Westra
Vice President, Europe/Middle East/Africa Sales
Thomas Gleason
Vice President, Sales and Services - Americas
Dean Polnerow
President, Switchboard Incorporated
39
<PAGE>
Shareholder Information
- --------------------------------------------------------------------------------
Corporate Headquarters
- ----------------------
Banyan Systems Incorporated
120 Flanders Road
Westboro, Massachusetts 01581-5013
United States Offices
- ---------------------
San Francisco, California
Atlanta, Georgia
Chicago, Illinois
Overland Park, Kansas
Westboro, Massachusetts
Okemos, Michigan
Woodbridge, New Jersey
New York, New York
Jenkintown, Pennsylvania
Westchester, Pennsylvania
Dallas, Texas
Houston, Texas
Annandale, Virginia
International Offices
- ---------------------
Melbourne, Australia
North Sydney, Australia
Haacht, Belgium
Ottawa, Ontario, Canada
Montreal, Quebec, Canada
Crawley, West Sussex, England
Paris, France
Munich, Germany
Tokyo, Japan
Kuala Lumpur, Malaysia
Maarssen, The Netherlands
Singapore, Singapore
Annual Meeting
- --------------
The 1999 Annual Meeting will be held on May 13, 1999 at 2:00 P.M. at the
Westboro Marriott Hotel, 5400 Computer Drive, Westboro, Massachusetts 01581.
Form 10-K
- ---------
Copies of the Banyan Systems Annual Report on Form 10-K are available upon
written request to Investor Relations, Banyan Systems Incorporated, 120 Flanders
Road, Westboro, Massachusetts 01581.
Common Stock
- -------------
Banyan Systems common stock is traded over-the-counter on the Nasdaq National
Market ("BNYN").
Independent Accountants
- -----------------------
PricewaterhouseCoopers LLP
Boston, Massachusetts
Legal Counsel
- -------------
Hale and Dorr LLP, Boston, Massachusetts
Transfer Agent and Registrar
- ----------------------------
EquiServe
150 Royall Street
Canton, MA 02021
781-575-4177
Banyan, VINES, StreetTalk, BeyondMail, SideClick, MapsOnUs and SiteMinder are
registered trademarks and Intelligent Messaging, EBR and Switchboard are
trademarks of Banyan Systems Incorporated. Predefined Access Rights for
Undefined Attributes In a Naming Service patent pending. StreetTalk is
a product of Banyan Systems Incorporated and not a product of McCarthy, Crisanti
& Maffei, Inc. Microsoft, Windows and Exchange are registered trademarks and NT
is a trademark of Microsoft Corporation. BigYellow is a registered trademark of
Bell Atlantic Electronic Commerce Services, Inc. AltaVista is a trademark of
Compaq Computer Corporation. Geocities is a trademark of Geocities. Godiva is a
registered trademark of Godiva Chocolatier. Ford is a trademark of Ford Motor
Company. Comcast is a registered trademark and InYourTown is a trademark of
Comcast Corporation. Oblix is a trademark of Oblix, Inc. CommVault Systems is a
registered trademark of CommVault Systems Inc. Other product, company or
organization names cited in this annual report may be trademarks or registered
trademarks of their respective companies or organizations.
Beyond is a wholly owned subsidiary of Banyan Systems Incorporated.
(C) Copyright 1999
Banyan Systems Incorporated.
All Rights Reserved. Printed in USA.
Design: Ellis Pratt Design, Boston
40
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements of
Banyan Systems Incorporated on Form S-8 (File Nos. 33-50860, 33-50862, 33-50864,
33-54140, 33-57734, 33-78804, 33-92312, 33-95288, 333-22631, 333-26857, 333-
28675, 333-28745, 333-40671, 333-46259, 333-53705 and 333-53707) of our reports
dated January 26, 1999, on our audits of the consolidated financial statements
and financial statement schedule of Banyan Systems Incorporated as of December
31, 1998 and 1997, and for each of the three years in the period ended December
31, 1998, which reports are included or incorporated by reference in this Annual
Report on Form 10-K.
/s/ PricewaterhouseCoopers LLP
--------------------------
PricewaterhouseCoopers LLP
Boston, Massachusetts
March 31, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> DEC-31-1998 DEC-31-1997
<CASH> 15,160 6,674
<SECURITIES> 7,128 4,202
<RECEIVABLES> 24,309 20,681
<ALLOWANCES> 2,917 3,721
<INVENTORY> 890 1,023
<CURRENT-ASSETS> 45,302 31,972
<PP&E> 40,559 38,696
<DEPRECIATION> 35,609 32,886
<TOTAL-ASSETS> 56,210 42,928
<CURRENT-LIABILITIES> 35,053 34,704
<BONDS> 0 0
0 0
3 0
<COMMON> 208 193
<OTHER-SE> 18,188 4,884
<TOTAL-LIABILITY-AND-EQUITY> 56,210 42,928
<SALES> 49,479 59,255
<TOTAL-REVENUES> 75,222 74,342
<CGS> 8,729 7,791
<TOTAL-COSTS> 74,497 90,894
<OTHER-EXPENSES> 1,085 (5)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 122 96
<INCOME-PRETAX> 1,688 (16,653)
<INCOME-TAX> 573 255
<INCOME-CONTINUING> 1,115 (16,908)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,115 (16,908)
<EPS-PRIMARY> 0.06 (0.97)
<EPS-DILUTED> 0.05 (0.97)
</TABLE>
