<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999.
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 000-20364
BANYAN SYSTEMS INCORPORATED
(Exact Name of Registrant as Specified in Its Charter)
MASSACHUSETTS
(State or Other Jurisdiction of Incorporation or Organization)
04-2798394
(I.R.S. Employer Identification No.)
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)
<PAGE>
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 common stock held by non-
affiliates of the Registrant, based on a per share fair market value as of March
24, 2000 of $19.56, was approximately $386,933,318.52. 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 24, 2000, there were 23,320,488 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, 1999 (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, 1999 in connection with the Company's 2000
Annual Meeting of Stockholders, are incorporated by reference into Part III
of this Annual Report on Form 10-K.
<PAGE>
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements that
are subject to a number of risks and uncertainties, including, without
limitation, information with respect to our plans and strategy for our business,
statements relating to the sufficiency of cash and cash equivalent balances,
anticipated expenditures, the intended effects of our discontinuation of the
software business and, our 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 actual
our results to differ materially from those indicated by such forward-looking
statements. We cannot guarantee future results, levels of activity, performance
or achievements and you should not place undue reliance on our forward-looking
statements. These factors include, without limitation, the ability to continue
to grow our services business, our ability to identify, acquire, integrate and
assimilate acquisitions, 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 - Factors Affecting Future Operating
Results" which is incorporated by reference in Part II of this Annual Report on
Form 10-K. From time to time, we may also provide oral or written forward-
looking statements in other materials we release to the public. We do not assume
any obligation to update any of the forward-looking statements we make.
PART I
ITEM 1. BUSINESS
GENERAL
Banyan Systems Incorporated (now doing business as ePresence), is a leading
provider of e-services on leading-edge Internet and directory technology. Our
primary service offerings include web site and web portal design and
implementation; directory and security planning, design and integration; and
network integration and optimization.
Web site design and web portal design and implementation services allow
customers to use the Internet to further the goals of their businesses. Our
system architects plan the technical infrastructure for intranets, extranets and
Internet sites. We assist customers with Web site management, staffing, content
and maintenance. We develop data-backed Web sites including directories, image
repositories, course catalogs, archives, document libraries and other
applications. We have the capability to integrate third-party software into
customers' web applications, such as search engines, SQL databases, ad
management software and other applications with a focus on customer relationship
management and personalization.
Directory and security planning, design and integration allow customers to
improve the architecture and performance of their enterprise and Internet
infrastructure. Our consultants provide a comprehensive analysis of a
customer's enterprise-computing environment including topology, security
requirements, client capabilities, application and messaging directory
environment, constraints and data ownership. Our consultants also provide a
security assessment service, which includes a comprehensive security analysis of
a customer's enterprise and Internet infrastructure that assesses critical
requirements and efficiencies. The service includes a review of business
objectives, a basic security assessment, a threat and risk assessment and a
penetration analysis simulating an intruder attack in a safe, controlled way.
The customer's directory and security is evaluated and an assessment of
available technology products is performed. Our consultants provide customers
with a proof of concept where a proposed solution is built, prototyped and
tested.
Network integration and optimization allow customers to achieve improved
network performance across multiple platforms. We understand that high
availability and performance are the foundation of creating an e-business
environment that offers customers, employees and business partners a positive
experience. Building and improving infrastructure designs, proactively
addressing recurring performance issues and planning for growth all
<PAGE>
require that organizations have an understanding of the normal, operating
conditions of their applications and underlying network. We offer personalized,
proactive application trending, with expert analysis and recommendations for
improving and maintaining overall application performance, underlying network
performance, service levels and bandwith utilization.
A critical element of our strategy is to assure that customers are provided
with 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.
In early 1999, we established a global alliance with Microsoft Corporation
to deliver greater business value and increase competitive advantage for
enterprise customers. We plan to develop new services and software tools that
increase the interoperability, connectivity and integration among our products
and those of Microsoft. As part of the alliance, we have begun to expand our
Microsoft certified network services organization, establish Customer Solutions
Centers and work with Microsoft to develop worldwide sales and marketing
programs. Under the agreement, Microsoft agreed to provide $10 million over a
three-year period for training at least 500 professionals, certain marketing and
product development efforts as well as the purchase of 1,750,000 common stock
warrants. Through December 31, 1999, Microsoft has advanced $8.4 million and we
have certified 150 employees on Microsoft technologies.
In October 1999, we announced a decision to exit our software business and
initiated the accounting of our software business as discontinued operations.
Prior to 1999, the largest share of our revenue was derived from our software
business. Since 1995, our software revenues had declined primarily due to
competitive pressures in the network operating system and electronic messaging
markets.
During 1999, we focused our efforts on strengthening our position in the
e-services marketplace with the creation of our services division and the
positioning of Switchboard as a viable stand-alone entity through business
development and a strategic relationship with CBS Corporation. This focus also
led to our January 2000 acquisition of an e-business services company that
specializes in web design, development and intregration to expand our e-services
market position.
Banyan is a registered trademark of the Company and ePresence is a
servicemark of the Company. Other trademarks, tradenames and service marks used
in this Annual Report Form 10-K are the property of their respective companies
or organizations.
SWITCHBOARD INCORPORATED
Our subsidiary, Switchboard Incorporated, is a leading Internet-based local
merchant network interconnecting consumers, merchants and national advertisers.
Through its Web site, Switchboard.com, Switchboard offers users local
information about people and businesses across the United States, including
listings of over 96 million individuals, 12 million businesses and 4 million
e-mail addresses. The Switchboard Web site provides a broad range of functions,
content and services designed to connect consumers and businesses on the
Internet.
On March 2, 2000, Switchboard consummated an initial public offering. Prior
to the offering we owned approximately 54% of Switchboard's outstanding common
stock. Following the offering, we own approximately 41% of Switchboard's
outstanding common stock. Due to our stock ownership and control of
Switchboard's board of directors, we will continue to consolidate Switchboard's
results as part of our financial results. See Note N, Segment information, in
the Company's Notes to Consolidated Financial Statements for the year ended
December 31, 1999 which are incorporated by reference and included herein as
Exhibit 13.
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CUSTOMERS
In 1999, we initiated a number of new consulting engagements with leading
organizations such as Daimler Chrysler, Ericsson, Exxon, Sony and the
Commonwealth of Massachusetts, House of Representatives. Going forward, we
believe Internet-related services will be increasingly important to customers
that desire to cost-effectively, securely and reliably extend the reach of their
key business applications via the Web.
Our services customers, which include many 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 years ended December 31, 1999 and 1998, no one customer accounted
for more than 10% of our continuing revenue. For the year ended 1997, Sprint,
Compaq Computer Corporation and GTE Operations accounted for approximately 17%,
15% and 11% of our continuing revenues.
SALES AND MARKETING
We market our services through sales professionals located in North
America, Europe and Australia. Our primary U.S. regional offices are based in or
near Boston, Dallas, Detroit, New York, San Francisco and Washington, D.C.
Internationally, we have regional offices in Australia, Canada, Germany, The
Netherlands and the United Kingdom. This regional focus, combined with our local
service approach, helps us to develop strong market presence and recognition in
each of our local markets. Our sales professionals operate through a coordinated
process to evaluate prospective customers and secure new engagements.
Our sales efforts are supplemented by marketing and communications
activities that are pursued to build brand and recognition in the marketplace.
These activities include a public relations program, attendance at industry
conferences and business events, sales and marketing materials, public speaking
oppurtunities and training and branding our solutions selling model.
We have established alliances to support our services solutions selling
with the following companies: Checkpoint, Commvault, Critical Path, Dell, EMC,
F5, Fastlane, Incognito, Lightspeed Software, Microsoft, Netegrity, Nextpoint
Networks, Oblix, Peerlogic, Sun-Netscape Alliance and Tally Systems.
COMPETITION
The services business is highly fragmented and increasingly competitive
with no dominant set of Internet consulting or integration competitors worldwide
that we directly compete against. We believe that we currently compete
principally with consulting and integration firms, application vendors and
internal information systems groups. Many of these companies have greater
financial, technical and marketing resources than we have and generate greater
revenues and have greater name recognition than us. In addition, there are
relatively low barriers to entry into our markets and we have faced, and expect
to continue to face, additional competition from new entrants into our markets.
EMPLOYEES
At December 31, 1999, we employed 345 persons, including 243 in sales,
marketing, professional services delivery and related activities, 37 in finance,
administration, and human resources, 53 in Switchboard Incorporated and 12 in
our discontinued software business. We have no collective bargaining agreement
with our employees. We believe that our relations with employees are good.
<PAGE>
ITEM 2. PROPERTIES
Our principal administrative and sales and marketing 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. We
sublease approximately 77,000 square feet of that space including aproximately
18,000 square feet to Switchboard, under subleases that expire on July 31, 2000,
September 18, 2000 and December 31, 2002, with an aggregate annual base rental
income of approximately $954,000. We lease and occupy sales offices in 25
additional locations throughout the United States, Canada, Europe and Australia.
ITEM 3. LEGAL PROCEEDINGS
There are no legal proceedings, other than ordinary routine litigation
incidental to our business, to which we or any of our subsidiaries is a party or
of which any of their property is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
EXECUTIVE OFFICERS OF THE REGISTRANT
The Company's executive officers as of March 27, 2000 were as follows:
<TABLE>
<CAPTION>
NAME Age Position
- ---------------------------- ----- ----------------------------------------------------------------
<S> <C> <C>
William P. Ferry 47 President and Chief Executive Officer
Robert D. Burke 45 Senior Vice President of Worldwide Sales and President of
ePresence Solutions
Scott Silk 42 Senior Vice President, Marketing and Business Development
Richard M. Spaulding 40 Senior Vice President and Chief Financial Officer, Treasurer
and Clerk
Anthony J. Bellantuoni 48 Vice President, Human Resources
</TABLE>
Mr. Ferry, President and Chief Executive Officer, joined the Company in
February 1997. Mr. Ferry has been Chairman of the Board since October 1997 and
Chairman of the Board of Directors of Switchboard Incorporated ("Switchboard"),
a subsidiary of the Company since February 1998. From August 1990 to February
1997, he served in various management capacities at Wang Laboratories, Inc.,
including President, Services Division from July 1994 until February 1997 and
Senior Vice President and General Manager, North American Operations from
January 1993 until July 1994.
<PAGE>
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, President, Senior Vice President of Worlwide Sales and President
of ePresence Solutions, joined the Company in March 1997. Prior to joining the
Company, 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. Silk joined the Company in January 1999 as Senior Vice President of
Marketing and Business Development. Prior to joining the Company, Mr. Silk was
President of North American Operations and Vice President of Worldwide Marketing
at Gentia Software from January 1997 to January 1999. In 1996, Mr. Silk was Vice
President of Sales and Marketing at Actium Corporation, a systems integration
firm. From 1980 to 1995, Mr. Silk held a variety of senior level sales,
marketing and general management positions at Unisys Corporation.
Mr. Spaulding, Senior Vice President and Chief Financial Officer, Treasurer
and Clerk, joined the Company in September 1990. Prior to joining the Company,
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.
<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.
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 2000 Annual Meeting
of Stockholders (the "2000 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.
<PAGE>
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 2000 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 2000 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 2000 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 2000 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, 1999 and 1998.
. Consolidated Statements of Operations for the years ended
December 31, 1999, 1998, and 1997.
. Consolidated Statements of Shareholders' Equity for the years
ended December 31, 1999, 1998 and 1997.
. Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997.
. Notes to Consolidated Financial Statements.
. Report of Independent Accountants for the years ended December
31, 1999, 1998 and 1997.
. Selected Financial Data for the years ended December 31, 1999,
1998, 1997, 1996, and 1995.
<PAGE>
2. Financial Statement Schedules:
. Report of Independent Accountants for the years ended December
31, 1999, 1998 and 1997.
. 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,
which Exhibit Index is incorporated herein by reference.
Documents listed on such Exhibit Index, except for documents
identified by footnotes, are being filed as exhibits herewith.
Documents identified by footnotes are not being filed herewith
and, pursuant to Rule 12b-32 under the Securities Exchange Act of
1934, reference is made to such documents as previously filed
with the Securities and Exchange Commission. The Registrant's
file number under the Securites Exchange Act of 1934 is 000-
20364.
(b) No reports on Form 8-K were filed by the Registrant during the last
quarter of the fiscal year ended December 31, 1999.
<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, 1999:
Reserve for price, sales and doubtful account allowance...... $2,917 $ 834 $2,882 $ 869
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
</TABLE>
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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 February 2, 2000 appearing on page 25 of the 1999 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
February 2, 2000
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
- --------------- ---------------------------------------------------------------------------------------------------
NUMBER TITLE OF DOCUMENT
- --------------- ---------------------------------------------------------------------------------------------------
<S> <C>
3.1(2) Second Amended and Restated Articles of Organization of the Registrant.
3.1A(7) Certificate of Vote of Directors Establishing a Class or Series of Stock
3.2(1) Amended and Restated By-Laws of the Registrant.
3.2A Amendment No. 1 to Amended and Restated By-Laws of the Registrant.
10.1+(8) Second Amended and Restated 1984 Incentive Stock Option Plan.
10.2+(8) Second Amended and Restated 1984 Non-Qualified Stock Option Plan.
10.3+(11) 1992 Stock Incentive Plan, as amended.
10.3A+(11) Form of Incentive Stock Option for grant under the Registrant's 1992 Stock Incentive Plan, as
amended.
10.3B+(11) Form of Non-Qualified Stock Option for grant under the Registrant's 1992 Stock Incentive Plan, as
amended.
10.4+(5) 1992 Director Stock Option Plan, as amended.
10.5 Reserved.
10.6+(4)(5) Employment Agreement dated February 4, 1997 between the Registrant and William P. Ferry, as
amended.
10.6A+(10) Amendment No. 2 dated as of October 16, 1998 to Employment Agreement between the Registrant
and William P. Ferry.
10.6B+ Amendment No. 3 dated as of December 8, 1999 to Employment Agreement between the Registrant and
William P. Ferry.
10.7(1) Real Estate Sublease dated June 19, 1991, as amended to date, between the Registrant and Sytron
Corporation.
10.8(1) Lease Agreement dated April 21, 1989, as amended to date, between the Registrant and CB
Westboro C Limited Partnership, a Texas Limited Partnership.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
10.8A(10) Amendment to Lease Agreement dated April 21, 1993 between the Registrant and CB Westboro C
Limited Partnership, a Texas Limited Partnership.
10.8B(3) Amendment to Lease Agreement dated April 21, 1993 between the Registrant 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)(10) Lease Agreement dated November 14, 1986, as amended to date, between the Registrant and Aetna
Real Estate Associated, L.P. (as assignee of Flanders Realty Trust).
10.9A(10) Amendment to Lease Agreement dated April 1, 1993 between the Registrant and Aetna Real Estate,
L.P. (as assignee of Flanders Realty Trust).
10.9B(8) Fifth Lease Extension and Modification Agreement made as of October 15, 1997 between Aetna
Real Estate Associates and the Registrant.
10.10(6) Loan and Security Agreement dated as of September 4, 1997 by and between Foothill Capital
Corporation and the Registrant.
10.10A(8) Consent and Amendment to Loan and Security Agreement dated as of March 5, 1998 by and
between Foothill Capital Corporation and the Regisrant.
10.11(6) Securities Issuance Agreement dated as of September 4, 1997 by and between Foothill Capital
Corporation and the Registrant.
10.12(6) Form of Warrant issued by and to be issued by the Registrant to Foothill Capital Corporation.
10.13(7) Preferred Stock and Warrant Purchase Agreement dated as of March 5, 1998 between the Registrant
and HarbourVest Partners V--Direct Fund L.P. ("HarbourVest").
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
- ------------------- ----------------------------------------------------------------------------------------------
NUMBER TITLE OF DOCUMENT
- ------------------- ----------------------------------------------------------------------------------------------
<S> <C>
10.14(7) Warrant to purchase shares of Series B Convertible Preferred Stock issued by the Registrant to
HarbourVest as of March 5, 1998.
10.15(7) Warrant to purchase shares of Series C Convertible Preferred Stock issued by the Regisrant to
HarbourVest as of March 5, 1998.
10.16+(8)(9) Separation Agreement and Release and Waiver of Claims dated as of May 31, 1997 between
the Registrant and David C. Mahoney, as amended.
10.17+(10) Executive Retention Agreement dated as of October 16, 1998 between the Registrant and
Robert D. Burke.
10.18+(10) Executive Retention Agreement dated as of October 16, 1998 between the Registrant and
Richard M. Spaulding.
10.19+(10) Executive Retention Agreement dated as of October 16, 1998 between the Registrant and
Anthony J. Bellantuoni.
10.20+(10) Executive Officer Restricted Stock Agreement dated October 16, 1998 between the Registrant
and William P. Ferry.
10.21+(10) Executive Officer restricted Stock Agreement dated October 16, 1998 between the Registrant
and Robert D. Burke.
10.22+(10) Executive Officer Restricted Stock Agreement dated October 16, 1998 between the Registrant
and Richard M. Spaulding.
10.23+(10) Executive Officer Restricted Stock Agreement dated October 16, 1998 between the Registrant
and Anthony J. Bellantuoni.
10.24*(12) Alliance Agreement dated January 8, 1999 between the Registrant and Microsoft Corporation.
10.25(12) Warrant Purchase Agreement January 8, 1999 between the Registrant and Microsoft.
10.26(12) Common Stock Purchase Warrant issued by the Registrant to Microsoft on January 8, 1999.
10.27+(12) Employment Letter dated as of January 15, 1999 between the Registrant and Scott G. Silk.
10.28+(12) Non-Qualified Stock Option Agreement dated February 4, 1997 granted by the Registrant to
William P. Ferry.
10.29+(12) Non-Qualified Stock Option Agreement dated March 20, 1997 granted by the Registrant to
Robert D. Burke.
</TABLE>
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<TABLE>
<S> <C>
10.30+(12) Non-Qualified Stock Option Agreement dated June 11, 1997 granted by the Registrant to Anthony
J. Bellantuoni.
10.31(13) Common Stock and Warrant Purchase Agreement dated as of June 1, 1999 by and among Switchboard
Incorporated, the Registrant and CBS Corporation, as amended.
10.31A(14) Amendment No. 2 to Common Stock and Warrant Purchase Agreement by and among Switchboard Incorporated, the
Registrant and CBS Corporation, effective as of July 1, 1999.
10.32*(13) Common Stock Purchase Warrant issued by Switchboard Incorporated to CBS Corporation on June
30, 1999.
10.33*(13) Advertising and Promotion Agreement dated as of June 30, 1999 by and among CBS Corporation,
the Registrant and Switchboard Incorporated.
10.34(13) License Agreement dated as of June 30, 1999 by and between CBS Corporation and Switchboard
Incorporated.
10.35(13) Warrant Purchase Agreement dated as of June 1, 1999 by and between the Company and CBS
Corporation.
10.36(13) Common Stock Purchase Warrant issued by the Registrant to CBS Corporation on June 30, 1999.
10.37+ Non-Qualified Stock Option Agreement dated October 21, 1999 granted by the Registrant to
William P. Ferry.
10.38+ Non-Qualified Stock Option Agreement dated December 8, 1999 granted by the Registrant to
William P. Ferry.
10.39+ Executive Officer restricted stock Agreement dated October 8, 1999 between the Registrant and
Scott G. Silk
13 Selected portions of the Registrant's Annual Report to Shareholders for the year ended
December 31, 1999 (which is not deemed to be "filed" except to the extent that portions
thereof are expressly
incorporated by reference in this Annual Report on Form 10-K).
21 Subsidiaries of the Company.
23 Consent of PricewaterhouseCoopers LLP.
27 Financial Data Schedule.
</TABLE>
<PAGE>
- ----------------
+ Management contract or compensation plan or arrangement required to be
filed as an exhibit pursuant to Item 14(c) of Form 10-K.
* Confidential treatment has been requested as to certain portions, which
portions have been omitted and filed seperately with the Securities and
Exchange Commission.
(1) Incorporated herein by reference to the exhibits to the Registrant's
Registration statement on Form S-1 (File No. 33-49194).
(2) Incorporated herein by reference to the exhibits to the Registrant's
Registration statement on Form S-8 (File No. 33-54140).
(3) Incorporated herein by reference to the exhibits to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended September 30,
1995.
(4) Incorporated herein by reference to the exhibits to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996.
(5) Incorporated herein by reference to the exhibits to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1997.
(6) Incorporated herein by reference to the exhibits to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended September 30,
1997.
(7) Incorporated herein by reference to the exhibits to the Registrant's
Current Report on Form 8-K dated March 5, 1998.
(8) Incorporated herein by reference to the exhibits to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1997.
(9) Incorporated herein by reference to the exhibits to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended September 30,
1998.
(10) Incorporated herein by reference to the exhibits to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1998.
(11) Incorporated herein by reference to the exhibits to the Company's
Registration Statement on Form S-8 (File No. 333-70553).
(12) Incorporated herein by reference to the exhibits to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended March 31,
1999.
(13) Incorporated herein by reference to the exhibits to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1999.
(14) Incorporated herein by reference to Exhibit 10.4A to Switchboard
Incorporated's Registration Statement on Form S-1 (Commission File No. 333-
90013), filed on October 29, 1999, as amended.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: March 28, 2000 BANYAN SYSTEMS INCORPORATED
/s/ Richard M. Spaulding
-------------------------
By: Richard M. Spaulding
Senior Vice President and Chief Financial Officer,
Treasurer and Clerk
(Principal Financial and Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
- ---- ----- ----
<S> <C> <C>
/s/ William P. Ferry
- -------------------- Chairman of the Board, President and March 28, 2000
William P. Ferry Chief Executive Officer
(Principal Executive Officer)
/s/ Richard M. Spaulding
- ------------------------ Senior Vice President, Chief Financial Officer March 28, 2000
Richard M. Spaulding and Treasurer
(Principal Financial and Principal Accounting Officer)
/s/ John F. Burton
- ------------------ Director March 28, 2000
John F. Burton
/s/ David C. Mahoney
- -------------------- Director March 28, 2000
David C. Mahoney
/s/ Albert A. Notini
- -------------------- Director March 28, 2000
Albert A. Notini
/s/ John J. Rando
- ----------------- Director March 28, 2000
March 28, 2000
John J. Rando
/s/ Fontaine K. Richardson
- -------------------------- Director March 28, 2000
Fontaine K. Richardson
/s/ Robert M. Wadsworth
- ----------------------- Director March 28, 2000
March 28, 2000
Robert M. Wadsworth
</TABLE>
<PAGE>
Exhibit 3.2A
------------
BANYAN SYSTEMS INCORPORATED
Amendment No. 1
to
Amended and Restated By-Laws
----------------------------
The Amended and Restated By-Laws of Banyan Systems Incorporated, a
Massachusetts corporation, are hereby amended to add new Sections 1.10, 1.11 and
1.12 as follows:
"1.10 Nomination of Directors.
-----------------------
(a) Except for (i) any directors entitled to be elected by the
holders of preferred stock or any other securities of the corporation (other
than common stock) and (ii) any directors elected in accordance with Section 2.5
hereof by the Board of Directors to fill a vacancy, only persons who are
nominated in accordance with the procedures in this Section 1.10 shall be
eligible for election as directors. Nomination for election to the Board of
Directors of the corporation at a meeting of stockholders may be made (i) by or
at the direction of the Board of Directors or (ii) by any stockholder of the
corporation who (x) complies with the notice procedures set forth in Section
1.10(b) and (y) is a stockholder of record on the date of the giving of such
notice and on the record date for the determination of stockholders entitled to
vote at such meeting.
(b) To be timely, a stockholder's notice must be received by the
Clerk at the principal executive offices of the corporation as follows: (a) in
the case of an election of directors at an annual meeting of stockholders, not
less than 60 days nor more than 90 days prior to the first anniversary of the
preceding year's annual meeting; provided, however, that (i) in the event that
the date of the annual meeting is advanced by more than 20 days, or delayed by
more than 60 days, from such anniversary date, a stockholder's notice must be so
received not earlier than the ninetieth day prior to such annual meeting and not
later than the close of business on the later of (A) the sixtieth day prior to
such annual meeting and (B) the tenth day following the day on which notice of
the date of such annual meeting was mailed or public disclosure of the date of
such annual meeting was made, whichever first occurs; or (b) in the case of an
election of directors at a special meeting of stockholders, not earlier than the
ninetieth day prior to such special meeting and not later than the close of
business on the later of (i) the sixtieth day prior to such special meeting and
(ii) the tenth day following the day on which notice of the date of such special
meeting was mailed or public disclosure of the date of such special meeting was
made, whichever first occurs.
The stockholder's notice to the Clerk shall set forth (a) as to each
proposed nominee (i) such person's name, age, business address and, if known,
residence address, (ii) such person's principal occupation or employment, (iii)
the class and number of shares of stock of the corporation which are
beneficially owned by such person, and (iv) any other information concerning
such person that must be disclosed as to nominees in proxy solicitations
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended; (b) as to the
<PAGE>
stockholder giving the notice (i) such stockholder's name and address, as they
appear on the corporation's books, (ii) the class and number of shares of stock
of the corporation which are owned, beneficially and of record, by such
stockholder, (iii) a description of all arrangements or understandings between
such stockholder and each proposed nominee and any other person or persons
(including their names) pursuant to which the nomination(s) are to be made by
such stockholder and (iv) a representation that such stockholder intends to
appear in person or by proxy at the meeting to nominate the person(s) named in
its notice; and (c) as to the beneficial owner, if any, on whose behalf the
nomination is being made (i) such beneficial owner's name and address, (ii) the
class and number of shares of stock of the corporation which are beneficially
owned by such beneficial owner, and (iii) a description of all arrangements or
understandings between such beneficial owner and each proposed nominee and any
other person or persons (including their names) pursuant to which the
nomination(s) are to be made. In addition, to be effective, the stockholder's
notice must be accompanied by the written consent of the proposed nominee to
serve as a director if elected. The corporation may require any proposed nominee
to furnish such other information as may reasonably be required to determine the
eligibility of such proposed nominee to serve as a director of the corporation.
(c) The chairman of any meeting shall, if the facts warrant,
determine that a nomination was not made in accordance with the provisions of
this Section 1.10, and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded.
(d) Except as otherwise required by law, nothing in this Section 1.10
shall obligate the corporation or the Board of Directors to include in any proxy
statement or other stockholder communication distributed on behalf of the
corporation or the Board of Directors information with respect to any nominee
for director submitted by a stockholder.
1.11 Notice of Business at Annual Meetings.
-------------------------------------
(a) At any annual meeting of the stockholders, only such business
shall be conducted as shall have been properly brought before the meeting. To
be properly brought before an annual meeting, business must be (i) specified in
the notice of meeting (or any supplement thereto) given by or at the direction
of the Board of Directors, (ii) otherwise properly brought before the meeting by
or at the direction of the Board of Directors, or (iii) properly brought before
the meeting by a stockholder. For business to be properly brought before an
annual meeting by a stockholder, (i) if such business relates to the election of
directors of the corporation, the procedures in Section 1.10 must be complied
with and (ii) if such business relates to any other matter, the stockholder must
(x) have given timely notice thereof in writing to the Clerk in accordance with
the procedures set forth in Section 1.11(b) and (y) be a stockholder of record
on the date of the giving of such notice and on the record date for the
determination of stockholders entitled to vote at such annual meeting.
(b) To be timely, a stockholder's notice must be received by the
Clerk at the principal executive offices of the corporation not less than 60
days nor more than 90 days prior to the first anniversary of the preceding
year's annual meeting; provided, however, that in the event that the date of the
annual meeting is advanced by more than 20 days, or delayed by more than 60
days, from such anniversary date, a stockholder's notice must be so received not
earlier
-2-
<PAGE>
than the ninetieth day prior to such annual meeting and not later than the close
of business on the later of (A) the sixtieth day prior to such annual meeting
and (B) the tenth day following the day on which notice of the date of such
annual meeting was mailed or public disclosure of the date of such annual
meeting was made, whichever first occurs.
The stockholder's notice to the Clerk shall set forth as to each matter the
stockholder proposes to bring before the annual meeting (i) a brief description
of the business desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting, (ii) the name and address,
as they appear on the corporation's books, of the stockholder proposing such
business, and the name and address of the beneficial owner, if any, on whose
behalf the proposal is made, (iii) the class and number of shares of stock of
the corporation which are owned, of record and beneficially, by the stockholder
and beneficial owner, if any, (iv) a description of all arrangements or
understandings between such stockholder or such beneficial owner, if any, and
any other person or persons (including their names) in connection with the
proposal of such business by such stockholder and any material interest of the
stockholder or such beneficial owner, if any, in such business, and (v) a
representation that such stockholder intends to appear in person or by proxy at
the annual meeting to bring such business before the meeting. Notwithstanding
anything in these By-laws to the contrary, no business shall be conducted at any
annual meeting of stockholders except in accordance with the procedures set
forth in this Section 1.11; provided that any stockholder proposal which
complies with Rule 14a-8 of the proxy rules (or any successor provision)
promulgated under the Securities Exchange Act of 1934, as amended, and is to be
included in the corporation's proxy statement for an annual meeting of
stockholders shall be deemed to comply with the requirements of this Section
1.11.
(c) The chairman of any meeting shall, if the facts warrant,
determine that business was not properly brought before the meeting in
accordance with the provisions of this Section 1.11, and if he should so
determine, he shall so declare to the meeting and such business shall not be
brought before the meeting.
1.12 Conduct of Meetings.
-------------------
(a) Chairman of Meeting. Meetings of stockholders shall be presided
over by the Chairman of the Board, if any, or in his absence by the Vice
Chairman of the Board, if any, or in his absence by the President, or in his
absence by a Vice President, or in the absence of all of the foregoing persons
by a chairman designated by the Board of Directors, or in the absence of such
designation by a chairman chosen by vote of the stockholders at the meeting. The
Clerk shall act as Clerk of the meeting, but in his absence the chairman of the
meeting may appoint any person to act as Clerk of the meeting.
(b) Rules, Regulations and Procedures. The Board of Directors of the
corporation may adopt by resolution such rules, regulations and procedures for
the conduct of any meeting of stockholders of the corporation as it shall deem
appropriate. Except to the extent inconsistent with such rules, regulations and
procedures as adopted by the Board of Directors, the chairman of any meeting of
stockholders shall have the right and authority to prescribe such rules,
regulations and procedures and to do all such acts as, in the judgment of such
chairman, are appropriate for the proper conduct of the meeting. Such rules,
regulations or procedures, whether adopted by the Board of Directors or
prescribed by the chairman of the meeting, may
-3-
<PAGE>
include, without limitation, the following: (i) the establishment of an agenda
or order of business for the meeting; (ii) rules and procedures for maintaining
order at the meeting and the safety of those present; (iii) limitations on
attendance at or participation in the meeting to stockholders of record of the
corporation, their duly authorized and constituted proxies or such other persons
as shall be determined; (iv) restrictions on entry to the meeting after the time
fixed for the commencement thereof; and (v) limitations on the time allotted to
questions or comments by participants. Unless and to the extent determined by
the Board of Directors or the chairman of the meeting, meetings of stockholders
shall not be required to be held in accordance with the rules of parliamentary
procedure.
(c) Closing of Polls. The chairman of the meeting shall announce at
the meeting when the polls for each matter to be voted upon at the meeting will
be opened and closed. If no announcement is made, the polls shall be deemed to
have opened when the meeting is convened and closed upon the final adjournment
of the meeting. After the polls close, no ballots, proxies or votes or any
revocations or changes thereto may be accepted."
-4-
<PAGE>
Exhibit 10.6(b)
AMENDMENT NO. 3
TO EMPLOYMENT AGREEMENT
This Amendment No. 3 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 8th day of December, 1999. Capitalized
terms used and not otherwise defined herein shall have the respective meanings
ascribed to them in the Agreement.
1. The parties hereto agree that the Agreement is hereby amended as follows:
(a) Section 3.1 of the Agreement is amended to provide that, effective
January 1, 2000, the Company shall pay the Employee, in bi-weekly
installments, a minimum annual base salary of Five Hundred Thousand
Dollars ($500,000) per year. Such base salary shall be subject to
adjustment from time to time (but, with respect to any such adjustment
to be made applicable to an upcoming calendar year, not later than
October of the year prior to such upcoming year), as determined by the
Board;
(b) 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 annual target bonus of Three Hundred
Thousand Dollars ($300,000) following the end of each calendar year
beginning with 2000, based on the achievement of performance
objectives (based primarily on operating profit and cash flow
objectives or other mutually agreeable objectives), as determined by
the Board. Such target bonus shall be subject to adjustment from time
to time (but, with respect to any such adjustment to be made
applicable to an upcoming calendar year, not later than October of the
year prior to such upcoming year), as determined by the Board. Section
3.2(a) is further amended to provide that One Hundred Thousand Dollars
($100,000) of the target bonus shall be paid to the Employee as a
non-recoverable advance against such bonus in quarterly installments
of Twenty-Five Thousand Dollars ($25,000) in each of March, June,
September and December. The balance of the target bonus for each year,
if any, shall be paid at the conclusion of the audit for such year
(typically within sixty (60) days after the end of the year); and
(c) Section 3.2(b) of the Agreement, which relates to the Employee's
"stretch bonus," is hereby deleted in its entirety so as to eliminate
such stretch bonus and shall be of no further force or effect. The
Board may, in its discretion, award and pay a bonus in addition to the
target bonus.
2. The parties hereto hereby acknowledge that:
(a) on October 21, 1999, the Company granted to the Employee an option to
purchase 300,000 shares of the Company's Common Stock at a per share
exercise price of $8.75, and that such option is appended hereto as,
and, is subject to the terms set forth in, Annex A; and
<PAGE>
William P. Ferry Amendment No. 3 to Employment Agreement Page 2
(b) on December 8, 1999, the Company granted to the Employee an option to
purchase 200,000 shares of the Company's Common Stock at a per share
exercise price of $16.875 and that such option is appended hereto as,
and is subject to the terms set forth in, Annex B.
3. The parties hereto are aware that:
(a) on September 14, 1999, Switchboard Incorporated, a majority-owned
subsidiary of the Company ("Switchboard"), granted to the Employee, in
his capacity as Chairman of the Board of Directors of Switchboard, an
option to purchase 40,000 shares of Switchboard's common stock at a
per share exercise price of $8.50, and that such option is appended
hereto as, and is subject to the terms set forth in, Annex C; and
(b) on October 18, 1999, Switchboard granted to the Employee, in his
capacity as Chairman of the Board of Directors of Switchboard, an
option to purchase 60,000 shares of Switchboard's common stock at a
per share exercise price of $9.00, and that such option is appended
hereto as, and is subject to the terms set forth in, Annex D.
4. To the extent any provision of this Amendment is inconsistent with any
provision of the Agreement and/or prior amendments, 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. For the avoidance of doubt, Sections 1(a), 1(b) and 1(c) of
this Amendment supersede in their entirety Sections 2, 3 and 4 of Amendment
No. 2 to the Agreement, respectively.
EXECUTED as of the 9th day of December 1999.
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
<PAGE>
Exhibit 10.37
BANYAN SYSTEMS INCORPORATED
NON-QUALIFIED STOCK OPTION AGREEMENT
------------------------------------
1. Grant of Options. Banyan Systems Incorporated, a Massachusetts corporation
(the "Company"), hereby grants to William P. Ferry (the "Optionee"), an
option to purchase an aggregate of 200,000 shares of Common Stock ("Common
Stock") of the Company at a price of $16.88 per share, purchasable as set
forth in and subject to the terms and conditions of this option. The date
of grant of this option is December 8, 1999. Except where the context
otherwise requires, the term "Company" shall include the parent and all
present and future subsidiaries of the Company as defined in Sections
424(e) and 424(f) of the Internal Revenue Code of 1986, as amended or
replaced from time to time (the "Code").
2. Non-Qualified Stock Option. This option is not intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code.
3. Exercise of Option and Provisions for Termination.
a. Vesting Schedule. Except as otherwise provided in this Agreement, this
option may be exercised prior to the tenth anniversary of the date of
grant (hereinafter the "Expiration Date"), in whole or in part, from
time to time, as to an aggregate number of shares equal to 200,000.
This option shall vest and become exercisable at the rate of twelve
thousand five hundred (12,500) shares per month commencing on March 1,
2001.
b. Change in Control. Upon the occurrence of a Change in Control, as
defined in the Employment Agreement of even date herewith between the
Company and the Employee (the "Employment Agreement"), this option
shall become vested and exercisable as to 50% of the number of shares
covered thereby that would not otherwise then be vested and
exercisable (in reverse order of vesting), as provided for in Section
3.3(b) of the Employment Agreement.
1
<PAGE>
c. Certain Events. The vesting of this option shall also be subject to
continuation and/or acceleration in accordance with the provisions of
Section 5 of the Employment Agreement.
d. Exercise Procedure. Subject to the conditions set forth in this
Agreement, this option shall be exercised by the Optionee's delivery
of written notice of exercise to the Treasurer of the Company,
specifying the number of shares to be purchased and the purchase price
to be paid therefore and accompanied by payment in full in accordance
with Section 4.
e. Continuous Employment Required. Except as otherwise provided in this
Section 3, this option may not be exercised unless Optionee, at the
time he or she exercises this option, is, and has been at all times
since the date of grant of this option, an employee of the Company.
For all purposes of this option, (i) "employment" shall be defined in
accordance with the provisions of Section 1.421-7(h) of the Income Tax
Regulations or any successor regulations, and (ii) if this option
shall be assumed or a new option substituted therefore in a
transaction to which Section 424(a) of the Code applies, employment by
such assuming or substituting corporation (hereinafter called the
"Successor Corporation") shall be considered for all purposes of this
option to be employment by the Company.
f. Exercise Period Upon Termination of Employment. If the Optionee ceases
to be employed by the Company for any reason, then, except as provided
in paragraphs (g) and (h) below, the right to exercise this option
shall terminate three months after the later of cessation of
employment or cessation of vesting (but in no event after the
Expiration Date), provided that this option shall be exercisable only
to the extent that the Optionee was entitled to exercise this option
on the date of such cessation. The Company's obligation to deliver
shares upon the exercise of this option shall be subject to the
satisfaction of all applicable federal, state and local income and
employment tax withholding requirements, arising by reason of this
option being treated as a non-statutory option or otherwise.
g. Exercise Period Upon Death or Disability. If the Optionee dies or
becomes disabled (within the meaning of Section 22(e)(3) of the Code)
prior to the Expiration Date while he is an employee of the Company,
or if the Optionee dies within three months after the Optionee ceases
to be an employee of the Company (other than as a result of a
discharge for "cause" as specified in paragraph (h) below), this
option shall become exercisable, within the period of one year
following the date of death or disability of the Optionee (but in no
event after the Expiration Date), by the Optionee or by the person to
whom this option is transferred by will or the laws of descent and
distribution, provided that this option shall be exercisable only
2
<PAGE>
to the extent that this option was exercisable by the Optionee on the
date of his death or disability. Except as otherwise indicated by the
context, the term "Optionee", as used in this option, shall be deemed
to include the estate of the Optionee or any person who acquires the
right to exercise this option by bequest or inheritance or otherwise
by reason of the death of the Optionee.
h. Discharge for Cause. If the Optionee, prior to the Expiration Date,
ceases his employment with the Company because he is discharged for
"cause" (as defined in the Employment Agreement), the right to
exercise this option shall terminate 30 days after such cessation of
employment.
4. Payment of Purchase Price.
a. Method of Payment. Payment of the purchase price for shares purchased
upon exercise of this option shall be made by delivery of cash or
check in the amount equal to the exercise price of such options or,
with the prior consent of the Company (which may be withheld in its
sole discretion), by (A) delivery of shares of Common Stock owned by
the Optionee for at least six months, valued at their fair market
value, as determined in (b) below, (B) delivery of a promissory note
of the Optionee to the Company on terms determined by the Board, (C)
delivery of an irrevocable undertaking by a broker to deliver promptly
to the Company sufficient funds to pay the exercise price or delivery
of irrevocable instructions to a broker to deliver promptly to the
Company cash or a check sufficient to pay the exercise price, (D)
payment of such other lawful consideration as the Board may determine,
or (E) any combination of the foregoing.
b. Valuation of Shares or Other Non-Cash Consideration Tendered in
Payment of Purchase Price. For the purposes hereof, the fair market
value of any share of the Company's Common Stock or other non-cash
consideration which may be delivered to the Company in exercise of
this option shall be determined in good faith or in the manner
determined by the Board of Directors of the Company from time to time.
c. Delivery of Shares Tendered in Payment of Purchase Price. If the
Optionee exercises options by delivery of shares of Common stock of
the Company, the certificate or certificates representing the shares
of Common Stock of the Company to be delivered shall be duly executed
in blank by the Optionee or shall be accompanied by a stock power duly
executed in blank suitable for purposes of transferring such shares to
the Company. Fractional shares of Common Stock of the Company will not
be accepted in payment of the purchase price of shares acquired upon
exercise of this option.
3
<PAGE>
d. Restrictions on Use of Option Stock. Notwithstanding the foregoing, no
shares of Common Stock of the Company may be tendered in payment of
the purchase price of shares purchased upon exercise of this option if
the shares to be so tendered were acquired within six months before
the date of such tender through the exercise of this option or any
other stock option or restricted stock agreement.
5. Delivery of Shares; Compliance with Securities Laws, etc. The Company will
not be obligated to deliver any shares of Common Stock or to remove
restriction from shares previously delivered (i) until all conditions of
the option have been satisfied or removed, (ii) until, in the opinion of
Company's counsel, all applicable federal and state laws and regulations
have been complied with, (iii) if the outstanding Common Stock is at the
time listed on any stock exchange, until the shares to be delivered have
been listed or authorized to be listed on such exchange upon official
notice of notice of issuance, and (iv) until all other legal matters in
connection with the issuance and delivery of such shares have been approved
by the Company's counsel.
6. Non-transferability of Option. This option is personal and no rights
granted hereunder may be transferred, assigned, pledged or hypothecated in
any way (whether by operation of law or otherwise) nor shall any such
rights be subject to execution, attachment or similar process, except that
this option may be transferred (i) by will or the laws of descent and
distribution or (ii) pursuant to a qualified domestic relations order as
defined in Section 414(p) of the Code. Upon any attempt to transfer,
assign, pledge, hypothecate or otherwise dispose of this option or of such
rights contrary to the provisions hereof, or upon the levy of any
attachment or similar process upon this option or such rights, this option
and such rights shall, at the election of the Company, become null and
void.
7. No Special Employment or Similar Rights. Nothing contained in this option
shall be construed or deemed by any person under any circumstances to bind
the Company to continue the employment or other relationship of Optionee
with the Company for the period within which this option may be exercised.
8. Rights as a Shareholder. The Optionee shall have no rights as a shareholder
with respect to any shares which may be purchased by exercise of this
option (including, without limitation, any rights to receive dividends or
non-cash distributions with respect to such shares) unless and until a
certificate representing such shares is duly issued and delivered to the
Optionee. No adjustment shall be made for dividends or other rights for
which the record date is prior to the date such stock certificate is
issued.
9. Adjustment Provisions. In the event that the Board, in its sole discretion,
determines that any stock dividend, extraordinary cash dividend,
recapitalization,
4
<PAGE>
reorganization, merger, consolidate, split-up, spin-off, combination or
other similar transaction affects the Common Stock such that an adjustment
is required in order to preserve the benefits or potential benefits
intended to be made available under the Plan, then the Board shall
equitably adjust either or both (i) the number and kind of shares subject
to this option, and (ii) the award, exercise or conversion price with
respect to the foregoing, and if considered appropriate, the Board may make
provision for a cash payment with respect to this option, provided that the
number of shares subject to this option shall always be a whole number.
10. Mergers, Consolidation, Distributions, Liquidations, etc. Subject to the
provisions of Section 3(b) above, in the event of a consolidation, merger
or other reorganization in which all of the outstanding shares of Common
Stock are exchanged for securities, cash or other property of any other
corporation or business entity (an "Acquisition") or in the event of a
liquidation of the Company, the Board of Directors of the Company, or the
board of directors of any corporation assuming the obligations of the
Company, may, in its discretion, take any one or more of the following
actions as to this option: (i) provide that this option shall be assumed,
or a substantially equivalent option shall be substituted by the acquiring
or succeeding corporation (or an affiliate thereof) on such terms as the
Board determines to be appropriate, (ii) upon written notice to the
Optionee, provide that if unexercised, this option will terminate
immediately prior to the consummation of such transaction unless exercised
by the Optionee within a specific period following the date of such notice,
(iii) in the event of an Acquisition under the terms of which holders of
the Common Stock of the Company will receive upon consummation thereof a
cash payment for each share surrendered in the Acquisition (the
"Acquisition Price"), make or provide for a cash payment to the Optionee
equal to the difference between (A) the Acquisition Price times the number
of shares of Common Stock subject to outstanding options (to the extent
then exercisable at prices not in excess of the Acquisition Price) and (B)
the aggregate exercise price of all such outstanding options in exchange
for the termination of such options, and (iv) provide that all or part of
this option shall become exercisable or realizable in full prior to the
effective date of such Acquisition.
11. Withholding Taxes. The Company's obligation to deliver shares upon the
exercise of this option shall be subject to the Optionee's satisfaction to
all applicable federal, state and local income and employment tax
withholding requirements. The Optionee shall pay to the Company, or make
provision satisfactory to the Board for payment of, any taxes required by
law to be withheld in respect of options under the Plan no later than the
date of the event creating the tax liability. In the Board's discretion,
and subject to such conditions as the Board may establish, such tax
obligations may be paid in whole or in part in shares of Common Stock,
including shares retained from the option creating the tax obligation,
valued at their fair market value. The Company may, to the extent
5
<PAGE>
permitted by law, deduct any such tax obligations from any payment of any
kind otherwise due to the Optionee.
12. Miscellaneous.
a. If any terms of this Option Agreement are contrary to or otherwise
conflict with the terms of the Employment Agreement, the terms of the
Employment Agreement shall control.
b. All notices under this option shall be mailed or delivered by hand to
the parties at their respective addresses set forth beneath their
names below or at such other address as may be designated in writing
by either of the parties to one another.
c. This option shall be governed by and construed in accordance with the
laws of the Commonwealth of Massachusetts.
BANYAN SYSTEMS INCORPORATED
BY: /s/ Richard M. Spaulding
---------------------------------------
Richard M. Spaulding
Senior Vice President and
Chief Financial Officer
6
<PAGE>
OPTIONEE'S ACCEPTANCE
The undersigned hereby accepts the foregoing option and agrees to the terms
and conditions hereof.
OPTIONEE: /s/ William P. Ferry
------------------------------
William P. Ferry
Address:
-------------------------------
---------------------------------------
7
<PAGE>
Exhibit 10.38
BANYAN SYSTEMS INCORPORATED
NON-QUALIFIED STOCK OPTION AGREEMENT
------------------------------------
1. Grant of Options. Banyan Systems Incorporated, a Massachusetts corporation
(the "Company"), hereby grants to William P. Ferry (the "Optionee"), an
option to purchase an aggregate of 300,000 shares of Common Stock ("Common
Stock") of the Company at a price of $8.75 per share, purchasable as set
forth in and subject to the terms and conditions of this option. The date
of grant of this option is October 21, 1999. Except where the context
otherwise requires, the term "Company" shall include the parent and all
present and future subsidiaries of the Company as defined in Sections
424(e) and 424(f) of the Internal Revenue Code of 1986, as amended or
replaced from time to time (the "Code").
2. Non-Qualified Stock Option. This option is not intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code.
3. Exercise of Option and Provisions for Termination.
a. Vesting Schedule. Except as otherwise provided in this Agreement, this
option may be exercised prior to the tenth anniversary of the date of
grant (hereinafter the "Expiration Date"), in whole or in part, from
time to time, as to an aggregate number of shares equal to 300,000
multiplied by a fraction, the numerator of which is the number of full
months during which the Optionee has been employed by the Company from
the date of grant (but not more than 36) and the denominator of which
is 36; provided that that period from the commencement of this
agreement until October 31, 1999 shall be considered a full month and
the number of additional shares as to which this option shall become
exercisable upon completion of the 36th month of this agreement shall
be 8,310.
b. Change in Control. Upon the occurrence of a Change in Control, as
defined in the Employment Agreement of even date herewith between the
Company and the Employee (the "Employment Agreement"), this option
shall become vested and exercisable as to 50% of the number of shares
covered thereby that would not otherwise then be vested and
exercisable (in reverse order of vesting), as provided for in Section
3.3(b) of the Employment Agreement.
c. Certain Events. The vesting of this option shall also be subject to
continuation and/or acceleration in accordance with the provisions of
Section 5 of the Employment Agreement.
1
<PAGE>
d. Exercise Procedure. Subject to the conditions set forth in this
Agreement, this option shall be exercised by the Optionee's delivery
of written notice of exercise to the Treasurer of the Company,
specifying the number of shares to be purchased and the purchase price
to be paid therefore and accompanied by payment in full in accordance
with Section 4.
e. Continuous Employment Required. Except as otherwise provided in this
Section 3, this option may not be exercised unless Optionee, at the
time he or she exercises this option, is, and has been at all times
since the date of grant of this option, an employee of the Company.
For all purposes of this option, (i) "employment" shall be defined in
accordance with the provisions of Section 1.421-7(h) of the Income Tax
Regulations or any successor regulations, and (ii) if this option
shall be assumed or a new option substituted therefore in a
transaction to which Section 424(a) of the Code applies, employment by
such assuming or substituting corporation (hereinafter called the
"Successor Corporation") shall be considered for all purposes of this
option to be employment by the Company.
f. Exercise Period Upon Termination of Employment. If the Optionee ceases
to be employed by the Company for any reason, then, except as provided
in paragraphs (g) and (h) below, the right to exercise this option
shall terminate three months after the later of cessation of
employment or cessation of vesting (but in no event after the
Expiration Date), provided that this option shall be exercisable only
to the extent that the Optionee was entitled to exercise this option
on the date of such cessation. The Company's obligation to deliver
shares upon the exercise of this option shall be subject to the
satisfaction of all applicable federal, state and local income and
employment tax withholding requirements, arising by reason of this
option being treated as a non-statutory option or otherwise.
g. Exercise Period Upon Death or Disability. If the Optionee dies or
becomes disabled (within the meaning of Section 22(e)(3) of the Code)
prior to the Expiration Date while he is an employee of the Company,
or if the Optionee dies within three months after the Optionee ceases
to be an employee of the Company (other than as a result of a
discharge for "cause" as specified in paragraph (h) below), this
option shall become exercisable, within the period of one year
following the date of death or disability of the Optionee (but in no
event after the Expiration Date), by the Optionee or by the person to
whom this option is transferred by will or the laws of descent and
distribution, provided that this option shall be exercisable only to
the extent that this option was exercisable by the Optionee on the
date of his death or disability. Except as otherwise indicated by the
context, the term
2
<PAGE>
"Optionee", as used in this option, shall be deemed to include the
estate of the Optionee or any person who acquires the right to
exercise this option by bequest or inheritance or otherwise by reason
of the death of the Optionee.
h. Discharge for Cause. If the Optionee, prior to the Expiration Date,
ceases his employment with the Company because he is discharged for
"cause" (as defined in the Employment Agreement), the right to
exercise this option shall terminate 30 days after such cessation of
employment.
4. Payment of Purchase Price.
a. Method of Payment. Payment of the purchase price for shares purchased
upon exercise of this option shall be made by delivery of cash or
check in the amount equal to the exercise price of such options or,
with the prior consent of the Company (which may be withheld in its
sole discretion), by (A) delivery of shares of Common Stock owned by
the Optionee for at least six months, valued at their fair market
value, as determined in (b) below, (B) delivery of a promissory note
of the Optionee to the Company on terms determined by the Board, (C)
delivery of an irrevocable undertaking by a broker to deliver promptly
to the Company sufficient funds to pay the exercise price or delivery
of irrevocable instructions to a broker to deliver promptly to the
Company cash or a check sufficient to pay the exercise price, (D)
payment of such other lawful consideration as the Board may determine,
or (E) any combination of the foregoing.
b. Valuation of Shares or Other Non-Cash Consideration Tendered in
Payment of Purchase Price. For the purposes hereof, the fair market
value of any share of the Company's Common Stock or other non-cash
consideration which may be delivered to the Company in exercise of
this option shall be determined in good faith or in the manner
determined by the Board of Directors of the Company from time to time.
c. Delivery of Shares Tendered in Payment of Purchase Price. If the
Optionee exercises options by delivery of shares of Common stock of
the Company, the certificate or certificates representing the shares
of Common Stock of the Company to be delivered shall be duly executed
in blank by the Optionee or shall be accompanied by a stock power duly
executed in blank suitable for purposes of transferring such shares to
the Company. Fractional shares of Common Stock of the Company will not
be accepted in payment of the purchase price of shares acquired upon
exercise of this option.
3
<PAGE>
d. Restrictions on Use of Option Stock. Notwithstanding the foregoing, no
shares of Common Stock of the Company may be tendered in payment of
the purchase price of shares purchased upon exercise of this option if
the shares to be so tendered were acquired within six months before
the date of such tender through the exercise of this option or any
other stock option or restricted stock agreement.
5. Delivery of Shares; Compliance with Securities Laws, etc. The Company will
not be obligated to deliver any shares of Common Stock or to remove
restriction from shares previously delivered (i) until all conditions of
the option have been satisfied or removed, (ii) until, in the opinion of
Company's counsel, all applicable federal and state laws and regulations
have been complied with, (iii) if the outstanding Common Stock is at the
time listed on any stock exchange, until the shares to be delivered have
been listed or authorized to be listed on such exchange upon official
notice of notice of issuance, and (iv) until all other legal matters in
connection with the issuance and delivery of such shares have been approved
by the Company's counsel.
6. Non-transferability of Option. This option is personal and no rights
granted hereunder may be transferred, assigned, pledged or hypothecated in
any way (whether by operation of law or otherwise) nor shall any such
rights be subject to execution, attachment or similar process, except that
this option may be transferred (i) by will or the laws of descent and
distribution or (ii) pursuant to a qualified domestic relations order as
defined in Section 414(p) of the Code. Upon any attempt to transfer,
assign, pledge, hypothecate or otherwise dispose of this option or of such
rights contrary to the provisions hereof, or upon the levy of any
attachment or similar process upon this option or such rights, this option
and such rights shall, at the election of the Company, become null and
void.
7. No Special Employment or Similar Rights. Nothing contained in this option
shall be construed or deemed by any person under any circumstances to bind
the Company to continue the employment or other relationship of Optionee
with the Company for the period within which this option may be exercised.
8. Rights as a Shareholder. The Optionee shall have no rights as a shareholder
with respect to any shares which may be purchased by exercise of this
option (including, without limitation, any rights to receive dividends or
non-cash distributions with respect to such shares) unless and until a
certificate representing such shares is duly issued and delivered to the
Optionee. No adjustment shall be made for dividends or other rights for
which the record date is prior to the date such stock certificate is
issued.
9. Adjustment Provisions. In the event that the Board, in its sole discretion,
determines that any stock dividend, extraordinary cash dividend,
recapitalization, reorganization, merger, consolidate, split-up, spin-off,
combination or other similar transaction affects the Common Stock such that
an adjustment is required
4
<PAGE>
in order to preserve the benefits or potential benefits intended to be made
available under the Plan, then the Board shall equitably adjust either or
both (i) the number and kind of shares subject to this option, and (ii) the
award, exercise or conversion price with respect to the foregoing, and if
considered appropriate, the Board may make provision for a cash payment
with respect to this option, provided that the number of shares subject to
this option shall always be a whole number.
10. Mergers, Consolidation, Distributions, Liquidations, etc. Subject to the
provisions of Section 3(b) above, in the event of a consolidation, merger
or other reorganization in which all of the outstanding shares of Common
Stock are exchanged for securities, cash or other property of any other
corporation or business entity (an "Acquisition") or in the event of a
liquidation of the Company, the Board of Directors of the Company, or the
board of directors of any corporation assuming the obligations of the
Company, may, in its discretion, take any one or more of the following
actions as to this option: (i) provide that this option shall be assumed,
or a substantially equivalent option shall be substituted by the acquiring
or succeeding corporation (or an affiliate thereof) on such terms as the
Board determines to be appropriate, (ii) upon written notice to the
Optionee, provide that if unexercised, this option will terminate
immediately prior to the consummation of such transaction unless exercised
by the Optionee within a specific period following the date of such notice,
(iii) in the event of an Acquisition under the terms of which holders of
the Common Stock of the Company will receive upon consummation thereof a
cash payment for each share surrendered in the Acquisition (the
"Acquisition Price"), make or provide for a cash payment to the Optionee
equal to the difference between (A) the Acquisition Price times the number
of shares of Common Stock subject to outstanding options (to the extent
then exercisable at prices not in excess of the Acquisition Price) and (B)
the aggregate exercise price of all such outstanding options in exchange
for the termination of such options, and (iv) provide that all or part of
this option shall become exercisable or realizable in full prior to the
effective date of such Acquisition.
11. Withholding Taxes. The Company's obligation to deliver shares upon the
exercise of this option shall be subject to the Optionee's satisfaction to
all applicable federal, state and local income and employment tax
withholding requirements. The Optionee shall pay to the Company, or make
provision satisfactory to the Board for payment of, any taxes required by
law to be withheld in respect of options under the Plan no later than the
date of the event creating the tax liability. In the Board's discretion,
and subject to such conditions as the Board may establish, such tax
obligations may be paid in whole or in part in shares of Common Stock,
including shares retained from the option creating the tax obligation,
valued at their fair market value. The Company may, to the extent permitted
by law, deduct any such tax obligations from any payment of any kind
otherwise due to the Optionee.
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<PAGE>
12. Miscellaneous.
a. If any terms of this Option Agreement are contrary to or otherwise
conflict with the terms of the Employment Agreement, the terms of the
Employment Agreement shall control.
b. All notices under this option shall be mailed or delivered by hand to
the parties at their respective addresses set forth beneath their
names below or at such other address as may be designated in writing
by either of the parties to one another.
c. This option shall be governed by and construed in accordance with the
laws of the Commonwealth of Massachusetts.
BANYAN SYSTEMS INCORPORATED
BY: /s/ Richard M. Spaulding
---------------------------------------
Richard M. Spaulding
Senior Vice President and
Chief Financial Officer
6
<PAGE>
OPTIONEE'S ACCEPTANCE
The undersigned hereby accepts the foregoing option and agrees to the terms
and conditions hereof.
OPTIONEE: /s/ William P. Ferry
--------------------------------
William P. Ferry
Address:
---------------------------------
-----------------------------------------
7
<PAGE>
Exhibit 10.39
-------------
BANYAN SYSTEMS INCORPORATED
Restricted Stock Agreement
Granted Under 1992 Stock Incentive Plan
This Restricted Stock Agreement (this "Agreement") is made this 8th day of
October, 1999, between Banyan Systems Incorporated, a Massachusetts corporation
(the "Company"), and Scott G. Silk (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 8,
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).
"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 12-month
period ending October 8, 2000, (ii) 50% during the 12-month period ending
October 8, 2001 and (iii) zero on or after October 8, 2001.
<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 Banyan Systems Incorporated only.
(d) If a Change in Control Date (as defined below) occurs on or prior to
October 8, 2001, the Applicable Percentage shall be zero. The following
definitions apply to this provision:
(i) "Change in Control" means an event or occurrence set forth in any
one or more of Section 2(d)(i)(A) through 2(d)(i)(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 (1) the then-outstanding shares of common
stock of the Company (the "Outstanding Company Common Stock") or (2) 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 2(d)(i)(A),
the following acquisitions shall not constitute a Change in Control: (1) 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), (2) any acquisition by the Company, (3) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the Company
or any corporation controlled by the Company, or (4) any acquisition by any
corporation pursuant to a transaction which complies with clauses (1) and (2) of
Section 2(d)(i)(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 (1) who was a member of the Board on the
date of the execution of this Agreement or (2) 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
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<PAGE>
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 (2)
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 o 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 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: (1) 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 (2) 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.
(ii) "Change in Control Date" means the date on which a Change in
Control occurs. Anything in this Agreement to the contrary notwithstanding, if
(A) a Change in Control occurs, (B) the Participant'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 Participant that such termination
of employment (X) was at the request of a third party who has taken steps
reasonably calculated to effect a Change in Control or (Y) 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>
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.
(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
4
<PAGE>
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.
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.
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<PAGE>
(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 30
Partridge Lane, Boxford, MA 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.
6
<PAGE>
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.
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/ Scott G. Silk
--------------------------------
Name: Scott G. Silk
7
<PAGE>
Appendix A
----------
BANYAN SYSTEMS INCORPORATED
Joint Escrow Instructions
October 8, 1999
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
<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.
(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 reply upon the advice of such counsel.
<PAGE>
(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 Partridge Lane, Boxford, MA 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 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.
<PAGE>
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/ Scott G. Silk
----------------------------------------
Name: Scott G. Silk
ESCROW AGENT
/s/ Richard M. Spaulding
- -----------------------------------
Name: Richard M. Spaulding
Title: Clerk
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
OVERVIEW
Banyan Systems Incorporated (now doing business as ePresence) (the "Company") is
a leading provider of e-services on leading-edge Internet and directory
technology. The Company's primary service offerings include web site and web
portal design and implementation, directory and security planning, design and
integration; and network integration and optimization.
In addition, the Company's subsidiary, Switchboard Incorporated ("Switchboard"),
is an Internet-based local merchant network, interconnecting consumers,
merchants and national advertisers. Switchboard connects consumers searching for
specific products and services with merchants that provide them. Switchboard's
results are consolidated as part of the Company's financial results. From
inception to March 2000, Switchboard was a majority-owned subsidiary of the
Company. In March 2000, Switchboard consummated an initial public offering. Pre-
offering, the Company owned approximately 53% of Switchboard's outstanding
common stock and post offering the Company owns approximately 41% of
Switchboard's outstanding common stock. Due to the Company's control of the
Switchboard board of directors, Switchboard's results will continue to be
consolidated as part of the Company's financial results.
In 1999, the Company announced a decision to exit its software business and
initiated the accounting of its software business as discontinued operations.
Included in the 1999 results of operations is an estimated loss from disposal of
discontinued operations of $3 million, net of tax. Since 1995, the Company's
software revenues had declined primarily due to competitive pressures in the
network operating system and electronic messaging markets.
During 1999, the Company focused its efforts on strengthening its position in
the e-services marketplace with the creation of its worldwide services division
and on positioning Switchboard as a viable stand-alone entity through business
development activities and a strategic relationship with CBS. Due to these
initiatives, the Company was able to increase revenues from $27.8 million in
1998 to $45.8 million in 1999. This focus also led to the Company's acquisition
of ePresence, Inc., a privately-held e-business services company that
specializes in web design, development and integration, in January 2000, to
expand its e-services market position. As a result of this strategic focus on e-
services and its recent acquisition, the Company has assumed the name and begun
doing business as ePresence and filed a definitive proxy statement requesting
shareholder approval of a legal name change to ePresence, Inc.
RESULTS OF OPERATIONS
Revenues
Services revenues for 1999 increased 76% to $37.5 million, compared with $21.3
million in 1998 and $9.8 million in 1997. The increase in services revenues in
1999 and 1998 was attributable primarily to additional revenues generated from
consulting services due to an increase in consulting engagements.
Switchboard revenues for 1999 increased $1.8 million to $8.3 million, compared
with $6.5 million in 1998 and $0.7 million in 1997. The increase in 1999 was due
primarily to an increase in syndication and license revenues primarily due to
new customer agreements and the launch of Switchboard's merchant aggregation
program, and the commencement of a strategic alliance between Switchboard and
Discover Financial Services. These increases were offset in part by a decrease
in advertising revenue due primarily to the termination of Switchboard's
agreements with America Online, Inc. The increase in Switchboard revenues in
1998 was primarily due to increased advertising revenue due to growth in traffic
primarily related to Switchboard's agreements with America Online, Inc. and
increased syndication and license revenue due to various new customer agreements
obtained in 1998.
North American revenues for 1999 increased 53% to $34.3 million, compared with
$22.5 million in 1998 and $9.3 million in 1997. The increases in both 1999 and
1998 were primarily due to increases in the Company's consulting engagements,
services and Switchboard revenues. International revenues for 1999 increased
115% to $11.5 million, compared with $5.4 million in 1998 and $1.2 million in
1997. The increases in 1999 and 1998 were primarily the result of increased
revenues from consulting engagements and services.
<PAGE>
Gross Profits
Gross profits for services in 1999 were 39%, or $14.8 million, compared with
42%, or $9.0 million, in 1998 and 54%, or $5.3 million, in 1997. The increases
in gross profit dollars in 1999 and 1998 were due primarily to an increase in
consulting engagements, offset in part by increases in third-party product costs
incurred as part of select consultancy engagements, and an increase in delivery
personnel and related costs to expand consulting services revenues. The
decreases in gross profit percentage in 1999 and 1998 were due primarily to an
increase in consulting delivery personnel and related costs. Cost of services
revenues consists primarily of consulting delivery personnel and third-party
product costs.
Gross profits for Switchboard were 76%, or $6.3 million, compared with 69%, or
$4.5 million, in 1998 and $(0.1) million in 1997. The increases in gross profit
dollars and percentage in 1999 and 1998 were due to an increase in advertising
revenues generated by Switchboard, offset in part by an increase in variable
costs related to advertising arrangements. Cost of revenue consists primarily of
expenses paid to third- parties under data licensing agreements, as well as
other direct expenses incurred to maintain the operations of the Switchboard web
site. These direct expenses consist of data communications expenses related to
Internet connectivity charges, salaries and benefits for operations personnel,
equipment costs and related depreciation, and the costs to run the Switchboard
data center, which include rent and utilities.
Operating Expenses
Sales and marketing expenses increased 70% to $22.2 million in 1999, compared
with $13.0 million in 1998 and $5.4 million in 1997. The increases in 1999 and
1998 were primarily due to increases in sales staff in the Company's expanded
consulting services activities, promotional investment in Switchboard,
particularly CBS advertising in 1999, intended to increase site traffic and an
increase in variable sales costs, including commissions, which increased due to
higher revenues. Sales and marketing expenses as a percentage of revenues were
48%, 47% and 52% for 1999, 1998 and 1997, respectively. Sales and marketing
expenses consist primarily of salaries, associated employee benefits and travel
expenses of sales and marketing personnel and promotional expenses.
Product development expenses decreased 40% to $1.9 million in 1999, compared
with $3.2 million in 1998 and $2.0 million in 1997. This decrease was primarily
due to the fact that product development expense for the year ended December 31,
1998 included $1.4 million of expense for incomplete technology related to the
MapsOnUs technology acquisition from Lucent Technologies, Inc. Product
development as a percentage of revenues were 4%, 12% and 19% for 1999, 1998 and
1997, respectively. Product development expenses consist primarily of
compensation, benefits, travel costs and depreciation expenses for employees in
Switchboard's development group.
General and administrative expenses increased 43% to $13.8 million in 1999,
compared with $9.6 million in 1998 and $9.5 million in 1997. The increase in
1999 was due primarily to an increase in facilities, recruiting, training and
depreciation expenses to expand consulting services activities, as well as an
increase in staffing at Switchboard. General and administrative expenses as a
percentage of revenues were 30%, 34% and 90% for 1999, 1998 and 1997,
respectively. General and administrative expenses consist primarily of
compensation, benefits and travel costs for employees in the Company's
management, finance, human resources, information services and operations
groups; recruiting and training costs for delivery personnel and facilities and
depreciation expenses not allocated to sales or cost of revenues.
On May 18, 1998, Switchboard acquired the MapsOnUs Internet mapping technology
from Lucent Technologies, Inc. for $1.6 million. The technology was acquired to
integrate it into Switchboard's directory web site.
A significant portion of the technology acquired was deemed incomplete as it did
not meet the criteria for capitalization. The technology was incomplete because
the technology required a substantial development effort by Switchboard in order
to successfully integrate the MapsOnUs technology into its web site. The
technology had no alternative future use to Switchboard inasmuch as Switchboard
had acquired the technology to improve and integrate it into Switchboard's web
site and not to market it as a standalone product. Further, Switchboard had no
other product,
<PAGE>
line of business or product development project that could use the technology.
Therefore, a charge to product development of $1.4 million was recorded for the
purchase of incomplete technology in 1998.
The acquired technology was incomplete because a significant amount of coding,
testing and integration was required before the technology would be viable for
use on the Switchboard web site. Switchboard has now completed the design and
integration of the MapsOnUs technology into the Switchboard web site. The cost
of completing the development effort was $200,000 which was capitalized in 1998.
Other Income/(Expense)
Other income/(expense) increased to $20.7 million in 1999 compared with $1.0
million in 1998 and $(0.6) million in 1997. The increase in 1999 was due
primarily to a net gain of approximately $16.6 million from the sale of shares
in Software.com, Inc. ("Software.com"), a non-affiliated company, an increase in
minority interest in subsidiary losses and an increase in interest income from
available funds invested in marketable securities.
Income Taxes
In 1999, management considered the Company's recent results of operations, as
well as the realizability of a gain on its investment in Software.com, and
concluded that it is more likely than not that the deferred tax assets will be
fully realizable. Accordingly, reserves against the Company's deferred tax
assets were reversed, resulting in a one-time benefit from income taxes of $21.7
million. Additionally, the Company deconsolidated Switchboard for tax purposes
upon its percentage ownership change on June 30, 1999. 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. Excluding the one-time benefit from the reversal of previously
recorded deferred tax asset reserves and the Switchboard tax deconsolidation,
the Company's effective tax rate was 60.9%. The effective tax rate for 1998 was
34%, compared with 1.5% in 1997.
Discontinued Operations
In the fourth quarter of 1999, the Board of Directors of the Company approved a
plan to exit its software business and to focus the Company on its services and
Switchboard businesses as its sole operating units. Included in the 1999 results
of operations is an estimated loss from disposal of discontinued operations of
$3.0 million, net of tax. The provision is comprised primarily of $1.9 million
for the write off of certain idle-assets and the closure and consolidation of
leased facilities, estimated future operating losses of $0.7 million and $0.4
million for severance and costs related to the reduction of approximately 45
members of the Company's staff.
Revenues from discontinued operations for 1999 decreased 44% to $26.7 million,
compared with $47.4 million in 1998 and $63.8 million in 1997. The decline in
revenues was due primarily to competitive pressures in the network operating
system and electronic messaging markets. Excluding the estimated loss from
disposal of discontinued operations, expenses from discontinued operations
decreased 46% to $18.4 million, compared with $34.4 million in 1998 and $68.6
million in 1997. The decrease in expenses was due primarily to the redeployment
of resources into the Company's services and Switchboard segments, a decrease in
product development activities and a decrease in variable costs, including
commissions and cost of goods sold, due to lower revenues.
Other Matters
In January 2000, the Company acquired ePresence, Inc. ("ePresence"), a privately
held e-business services company based in Red Bank, New Jersey that specializes
in web site and portal design, development and integration. Consideration for
the acquisition is comprised of $10.0 million in cash and the issuance of shares
of the Company's common stock based on the achievement of certain performance
measures. The total value of the acquisition is approximately $13.8 million. The
acquisition will be accounted for using the purchase method of accounting.
In March 2000, as a result of the Company's strategic focus on the e-services
market place and this recent acquisition, the Company has concluded to assume
the name of the acquiree and begin doing business as ePresence. Additionally,
the Company has filed a definitive proxy statement requesting shareholder
approval of a legal name change to ePresence, Inc.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, cash, cash equivalents and marketable securities were
$130.8 million, compared with $22.3 million at December 31, 1998. Working
capital increased from $10.2 million at December 31, 1998 to $112.4 million at
December 31, 1999. Cash and cash equivalents increased $14.8 million resulting
in a cash balance of $29.9 million at December 31, 1999. This increase was
primarily due to $17.3 million in net proceeds from the sale of shares of
Software.com, $8.4 million in cash received from Microsoft, proceeds from stock
plan purchases and stock option exercises of $4.3 million, $4.3 million in cash
net of related expenses received from CBS for an investment in the Company's
Switchboard subsidiary and other various operating, financing and investing
activities. These increases were offset in part by net purchases of marketable
securities of $7.9 million, a decrease in other liabilities of $3.7 million, a
decrease in accounts payable and accrued compensation of $3.3 million, capital
expenditures of $2.2 million, a decrease in deferred revenues of $1.6 million
and an increase in accounts receivable of $0.8 million.
During 1999, the Company sold 469,985 shares of Software.com's common stock
resulting in net proceeds of approximately $17.5 million and a realized net gain
of approximately $16.6 million. At December 31, 1999, the Company owned 891,202
shares of Software.com with a fair market value based upon the closing sale
price of such stock on the Nasdaq National Market, on such date, of $85.6
million. The net unrealized gain of $53.8 million, net of taxes of $30.4
million, is included in accumulated other comprehensive income within
shareholders' equity. Additionally, in the first quarter of 2000, the Company
has sold an additional 491,202 shares of Software.com resulting in net proceeds
of $45.3 million and a net before tax realized gain of $44.6 million.
Subsequently, in the first quarter of 2000, the Company has entered into hedge
contracts for its remaining 400,000 shares.
In June 1999, the Company and CBS consummated their agreement for CBS to acquire
a 35% equity stake in Switchboard as of that date. In exchange, Switchboard
received $5.0 million in cash and is entitled to promotion and branding over
terms of seven and ten years, respectively, across the full range of CBS media
properties, as well as those of its radio and outdoor subsidiary, Infinity
Broadcasting Corporation. The agreement provides advertising with a future value
of $95.0 million to Switchboard over a seven-year period and a license to
utilize the CBS trademarks for ten years. CBS also received warrants to purchase
an additional 5% of Switchboard as of June 30, 1999. Additionally, CBS received
warrants to purchase 250,000 shares of the Company's common stock at $11.27 per
share.
In January 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 a
warrant to purchase 1.75 million shares of the Company's common stock. 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 second payment of $2.5 million was
received in December 1999. The remaining payment of $1.6 million is scheduled to
be received on or before December 31, 2000.
In September 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, 50,000 and 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 13, 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. On
May 14, 1999, Foothill exercised its warrant to purchase 50,000 shares of the
Company's common stock pursuant to a "cashless" exercise resulting in the
issuance of 32,098 shares to Foothill. On February 22, 2000, Foothill exercised
its warrant to purchase 25,000 shares of the Company's common stock pursuant to
a "cashless" exercise resulting in the issuance of 18,608 shares to Foothill.
There were no amounts outstanding under the line of credit agreement during the
period ended December 31, 1999 and the Company does not intend to borrow any
amounts under the line of credit.
In January 2000, the Company acquired ePresence, Inc. ("ePresence"), a privately
held e-business services company based in Red Bank, New Jersey that specializes
in web design, development and integration. Consideration for the acquisition is
comprised of $10.0 million in cash and the issuance of shares of the Company's
common stock based on the achievement of certain performance measures. The total
value of the acquisition is approximately $13.75 million.
<PAGE>
The acquisition will be accounted for using the purchase method of accounting.
At December 31, 1999, ePresence employed 45 services professionals.
In March 2000, the Company's subsidiary, Switchboard Incorporated, raised
approximately $82.5 million, prior to offering expenses, through an initial
public offering of its common stock.
The Company believes that existing cash and marketable securities, combined with
cash expected to be generated from operations, will be sufficient to fund the
Company's operations through at least the next twelve months.
FACTORS AFFECTING FUTURE OPERATING RESULTS
Certain of the information contained in this Annual Report, including, without
limitation, information with respect to the Company's plans and strategy for its
business, statements relating to the sufficiency of cash and cash equivalent
balances, anticipated expenditures, the intended effects of the Company's
discontinuation of the software business and sales and marketing and product
development efforts, consists of forward-looking statements. Any statements
contained herein that are not statements of historical fact may be deemed to be
forward-looking statements. Without limiting the foregoing, the words
"believes," "expects," "anticipates," "plans," and similar expressions are
intended to identify forward-looking statements. Important factors that could
cause actual results to differ materially from the forward-looking statements
include the following factors:
In October 1999, the Company announced a plan to exit its software business.
Until the fourth quarter of 1998, a majority of the Company's revenues were
attributable to its software business. While the Company will continue to
provide consulting services to its customers, it will no longer market software,
nor will it advance its software technology through product development. The
Company's future success will depend in part upon its ability to continue to
grow its services business, enter into new strategic alliances, acquire
additional services customers and adapt to changing technologies and customer
requirements. Any failure to do so could have a material adverse effect on the
Company. The Company has a limited operating history as a services company.
There can be no assurance the Company will be successful in its new strategic
focus on services, including e-services.
In 1999, the Company announced its intention to acquire additional professional
services companies in an attempt to strengthen its expanding consulting services
business activities. Any failure by the Company to effectively identify,
acquire, integrate and assimilate acquisitions could have a material adverse
effect on the Company.
As part of its strategic focus on services, on January 11, 1999, the Company
announced a global 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. 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.
As part of CBS' June 1999 investment in Switchboard, Switchboard and the Company
entered into an Advertising and Promotion Agreement with CBS under which CBS
agreed to arrange for the placement of up to $95.0 million of advertising and
promotion of the Switchboard web site. Under this agreement, the Company agreed
to indemnify CBS for any breach by Switchboard of Switchboard's representations,
warranties or covenants in the agreement. The Company's indemnification
obligations with respect to the covenants expire upon the first to occur of (i)
the first business day after June 30, 2001 when the Company owns or controls
less than a majority of Switchboard's voting power and (ii) the first business
day after any person owns or controls more of Switchboard's voting power than
does the Company. Switchbaord has agreed to indemnify the Company for amounts
that the Company may be required to pay CBS pursuant to the Company's
indemnification obligations to CBS. If the Company is required under the
Advertising and Promotion Agreement to indemnify CBS it may have a material
adverse effect on the Company.
The Company owns 9,802,421 shares of Switchboard's common stock with an
aggregate value, based upon the closing sale price of shares on the Nasdaq
National Market on March 10, 2000, of $343.1 million The trading price of
Switchboard's common stock is likely to be volatile and may be influenced by
many factors, including, without limitation, variations in financial results,
changes in earnings estimates by industry research analysts, the failure or
<PAGE>
success of branding and strategic initiatives (including Switchboard's
relationship with CBS) and investors' perceptions. Volatility in the trading
price of Switchboard's common stock could have a material adverse effect on the
Company's financial results. In addition, due to the Company's level of
ownership of Switchboard, the trading price of the Company's common stock is
likely to be influenced by the trading price of Switchboard's common stock. If
Switchboard's trading price declines, the trading price of the Company's common
stock will likely decline, as well.
Switchboard's results of operations are consolidated as part of the Company's
results of operations. Switchboard has a history of incurring net losses,
expects its net losses to continue throughout 2000 as a result of planned
increases in operating expenses and may never achieve profitability. In
addition, Switchboard's quarterly results of operations have fluctuated
significantly in the past and are likely to fluctuate significantly from quarter
to quarter in the future. Factors that may cause Switchboard's results of
operations to fluctuate include:
. the addition or loss of relationships with third parties that are
Switchboard's source of new merchants for its local merchant network or that
license Switchboard's services for use on their own web sites;
. Switchboard's ability to attract and retain consumers, local merchants and
national advertisers to its web site;
. the amount and timing of expenditures for expansion of Switchboard's
operations, including the hiring of new employees, capital expenditures and
related costs;
. technical difficulties or failures affecting Switchboard's systems or the
Internet in general;
. the cost of acquiring, and the availability of, content, including directory
information and maps; and
. that Switchboard's expenses are partially based on expectations regarding
future revenue and are largely fixed in nature, particularly in the short-term.
In addition, Switchboard has only a limited operating history and until March
2000, had no operating history as a stand-alone company and no experience in
addressing various business challenges without the support of a corporate
parent. It may not be successful as a stand-alone company.
William P. Ferry, the Company's Chairman of the Board, President and Chief
Executive Officer, is Switchboard's Chairman of the Board and both Richard M.
Spaulding, the Company's Senior Vice President and Chief Financial Officer, and
Robert M. Wadsworth, a director of the Company, are also directors of
Switchboard. Serving as a director of Switchboard and either a director or an
officer of the Company could create, or appear to create, potential conflicts of
interest when those directors and officers are faced with decisions that could
have different implications for the Company than for Switchboard. Such
conflicts, or potential conflicts, of interest could hinder or delay the
Company's management's ability to make timely decisions regarding significant
matters relating to the Company's business.
As of December 31, 1999 the Company owned 891,202 shares of Software.com, Inc.
("Software.com"), with a fair market value based upon the closing sale price of
such stock on the Nasdaq National Market on such date of $85.6 million. In the
first quarter of 2000, the Company sold an additional 491,202 shares of
Software.com resulting in net proceeds of $45.3 million. The trading price of
Software.com's common stock has been volatile and this volatility could have a
material adverse effect on the Company's liquidity and capital resources.
Subsequent to December 31, 1999, the Company has entered into hedge contracts
for its remaining 400,000 shares. Any failure in this hedging activity could
have a material adverse effect on the Company's liquidity and capital resources.
In 1999 and 1998, international revenues accounted for 25% and 19%,
respectively, of the Company's total revenues. International revenues may be
adversely affected by factors such as local or global economic conditions,
political uncertainty, currency fluctuations and governmental regulation. For
example, the Company's results of operations in 1998 were adversely affected by
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.
The Company sells its services principally through a direct sales force to
customers in a broad range of industries. The Company does not require
collateral or other security to support customer receivables. The Company's
financial results and condition could be adversely affected by credit losses.
<PAGE>
The Company is dependent upon the continued services of its key management and
technical personnel. Competition for qualified personnel is intense, and there
can be no assurance the Company will be able to attract and retain qualified
management and other key employees.
Because of the foregoing factors and the other factors disclosed by the Company
from time to time, 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.
EURO CONVERSION DISCLOSURE
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 does not believe
that the Euro conversion will have a material impact on the Company's
operations.
YEAR 2000 READINESS DISCLOSURE
The Company has not experienced any Year 2000 related problems and does not
believe it will experience any significant Year 2000 issues relating to its
products, internal systems and service providers.
The Company's total cost relating to Year 2000 readiness activities has not been
and is not expected to be material to the Company's financial position, results
of operations, or cash flows. However, there can be no assurance the Company
will not experience any unanticipated Year 2000 problems. The Company's current
assessment is that the cost of completing the Company's Year 2000 compliance
program was approximately $250,000. These cash estimates do not include amounts
related to the diversion of internal resources including, without limitation,
employee salaries, which amount the Company did not separately track. The
Company funded its Year 2000 compliance program from operating cash flows and
did not separately account for these costs.
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1999 1998
- --------------------------------------------------------------------------------------- --------- ---------
(in thousands, except share and per share amounts)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 29,920 $ 15,160
Marketable securities 91,653 4,052
Accounts receivable, less
allowances of $869 and $2,917, respectively 14,482 21,392
Other current assets 2,729 4,698
-------- --------
Total current assets 138,784 45,302
Property and equipment, net 3,784 4,950
Marketable securities 9,198 3,076
Deferred tax asset 21,655 -
Other assets, net of accumulated amortization
of $596 and $2,669, respectively 1,029 2,882
-------- --------
Total assets $174,450 $ 56,210
======== ========
LIABILITIES
Current liabilities:
Accounts payable $ 3,677 $ 3,861
Accrued compensation 4,493 4,137
Accrued expenses 7,538 6,789
Accrued costs for restructuring and other charges - 710
Net liabilities of discontinued operations 3,264 -
Other current liabilities 1,041 626
Deferred revenue 5,728 18,430
Long-term debt, current portion 600 500
Total current liabilities 26,341 35,053
Commitments and contingencies (Note G)
Software license payable, non-current - 150
Long-term debt - 600
Deferred tax liability 30,350 -
Minority interests in consolidated subsidiaries 2,392 2,008
SHAREHOLDERS' EQUITY
Convertible preferred stock, $.01 par value;
authorized 1,000,000 shares;
issued and outstanding none and 263,158, respectively - 3
Common stock, $.01 par value; authorized
35,000,000 shares; issued and outstanding 24,783,670
and 20,818,982 shares, respectively 248 208
Additional paid-in capital 93,648 79,485
Unearned compensation (603) (1,326)
Accumulated deficit (3,436) (31,585)
Accumulated other comprehensive income 54,074 178
Treasury stock at cost; 1,848,000 shares (28,564) (28,564)
-------- --------
Total shareholders' equity 115,367 18,399
-------- --------
Total liabilities and shareholders' equity $174,450 $ 56,210
======== ========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended December 31, 1999 1998 1997
- --------------------------------------------------------------------------------------- --------- --------- ----------
(in thousands, except per share amounts)
<S> <C> <C> <C>
REVENUES:
Services $ 37,494 $ 21,320 $ 9,797
Switchboard 8,304 6,513 709
-------- -------- --------
Total revenues 45,798 27,833 10,506
COST OF REVENUES:
Services 22,714 12,284 4,509
-------- -------- --------
Switchboard 1,970 1,999 852
-------- -------- --------
Total cost of revenues 24,684 14,283 5,361
Gross profit 21,114 13,550 5,145
OPERATING EXPENSES:
Sales and marketing 22,163 13,053 5,440
Product development 1,923 3,223 2,035
General and administrative 13,768 9,595 9,492
-------- -------- --------
Total operating expenses 37,854 25,871 16,967
-------- -------- --------
Operating loss from continuing operations (16,740) (12,321) (11,822)
OTHER INCOME/(EXPENSE):
Interest income 1,345 793 482
Minority interest 3,513 549 394
Interest expense (100) (122) (96)
Other, net 15,914 (257) (1,334)
-------- -------- --------
Total other income/(expense) 20,672 963 (554)
-------- -------- --------
Income/(loss) from continuing operations before income taxes 3,932 (11,358) (12,376)
(Benefit from)/provision for income taxes (22,292) 573 255
-------- -------- --------
Income/(loss) from continuing operations $ 26,224 $(11,931) $(12,631)
Discontinued operations:
Income/(loss) from discontinued operations
(net of taxes of $3,283) 4,925 13,046 (4,277)
Loss from disposal of discontinued operations
(net of tax benefit of $2,000) (3,000) - -
-------- -------- --------
Net income/(loss) $ 28,149 $ 1,115 $(16,908)
======== ======== ========
NET INCOME/(LOSS) PER SHARE:
Basic
Income/(loss) from continuing operations $1.24 $(0.66) $(0.73)
======== ======== ========
Net income/(loss) $1.33 $0.06 $(0.97)
======== ======== ========
Diluted
Income/(loss) from continuing operations $1.03 $(0.66) $(0.73)
======== ======== ========
Net income/(loss) $1.11 $0.06 $(0.97)
======== ======== ========
Weighted average number of common shares:
Basic 21,155 18,085 17,367
======== ======== ========
Diluted 25,449 18,085 17,367
======== ======== ========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Three years ended December
31, 1999
- -------------------------
(in thousands) Convertible Additional Earnings/ Other Total
Preferred Common Paid-in Unearned (Accumulated Comprehensive Treasury Shareholders'
Stock Stock Capital Compensation Deficit) Income Stock Equity
---------- ----------- ----------- ------------- ------------- --------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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 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 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
Net income 28,149 28,149
Foreign currency translation
adjustment (61) (61)
Change in net unrealized
gain on investments, net
of tax 53,957 53,957
- -----------------------------------------------------------------------------------------------------------------------------------
Comprehensive income 82,045
1,333,108 shares of common
stock issued under
stock and option plans
including related tax
benefits 13 3,736 3,749
Exercise of warrants for
90,701 shares of common
stock 1 (1) -
Conversion of preferred
stock to 2,631,580
shares of common stock (3) 26 (23) -
Unearned compensation 277 (277) -
Amortization of unearned
compensation 1,000 1,000
Issuance of warrants 4,503 4,503
Issuance of subsidiary
common stock and warrants,
net of minority interests 3,474 3,474
Non-cash advertising and
promotion expenses, net
of minority interests 2,197 2,197
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 $ - $248 $93,648 $ (603) $ (3,436) $54,074 $(28,564) $115,367
===================================================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended December 31, 1999 1998 1997
- --------------------------------------------------------------------------------------- --------- -------- ---------
(in thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss) $ 28,149 $ 1,115 $(16,908)
Adjustments to reconcile net income/(loss) to net
cash (used in)/provided by operating activities:
Gain on sale of investments (16,586) - -
Depreciation and amortization 2,343 4,662 7,847
Discontinued operations, non-cash portion 600 - -
Other charges, non-cash portion - 1,400 5,835
Amortization of unearned compensation 1,000 100 -
Non-cash advertising and promotion 4,069 - -
Changes in operating assets and liabilities:
(Increase)/decrease in accounts receivable (804) (4,370) 2,475
Decrease in inventories - 192 1,335
Net change in net discontinued liabilities 2,071 - -
Decrease/(increase) in other current assets 212 (327) 1,214
Decrease/(increase) in other non-current assets 481 (125) 195
Increase/(decrease) in accounts payable
and accrued compensation and expenses 846 707 (4,056)
(Decrease) in accrued costs for restructuring and other charges - (873) (3,549)
(Decrease) in other current liabilities (437) (69) (186)
(Increase) in deferred tax assets (21,655) - -
(Decrease) in deferred revenue (1,429) (483) (921)
(Decrease) in other liabilities (3,684) (724) (787)
-------- ------- --------
Net cash (used in)/provided by operating activities (4,824) 1,205 (7,506)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,218) (1,420) (1,328)
Proceeds from investment 17,286 - -
Acquisition of technology - (500) -
Acquisition of software licenses - - (150)
Capitalization of software costs - - (549)
(Purchases of)/proceeds from marketable securities, net (7,915) (2,918) 4,435
-------- ------- --------
Net cash provided by/(used in) investing activities 7,153 (4,838) 2,408
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of convertible preferred stock - 9,500 -
Sale of equity in subsidiary, net 4,298 - 50
Proceeds from stock plan purchases, stock options
and warrants and related tax benefits 8,326 2,557 944
-------- ------- --------
Net cash provided by financing activities 12,624 12,057 994
Effect of exchange rate changes on cash and cash equivalents (193) 62 165
-------- ------- --------
Net increase/(decrease) in cash and cash equivalents 14,760 8,486 (3,939)
Cash and cash equivalents at beginning of the year 15,160 6,674 10,613
-------- ------- --------
Cash and cash equivalents at end of the year $ 29,920 $15,160 $ 6,674
======== ======= ========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest $ 147 $ 74 $ 36
Income taxes $ 301 $ 372 $ 522
Non-cash financing activity:
Corporate insurance financing $ 1,029
Issuance of note payable for technology $ 1,100
Issuance of subsidiary common stock for technology $ 1,050
Warrant received in connection with a
Development, Access and License agreement $ 775
--------
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. NATURE OF BUSINESS
Banyan Systems Incorporated (now doing business as ePresence) ("the Company")
has two reportable segments: Services and Switchboard. The Company's services
segment delivers professional services including web site and web portal design
and implementation; directory and security planning, design and integration;
network integration and optimization. The Company's Switchboard segment is
organized as a subsidiary, Switchboard Incorporated ("Switchboard"). Switchboard
is an Internet-based local merchant network interconnecting consumers, merchants
and national advertisers. Switchboard connects consumers searching for specific
products and services with merchants that provide them. In 1999, the Company
announced the discontinuation of its software business. 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
The Company considers all highly liquid investments with a maturity of three
months or less to be cash equivalents. Those instruments with maturities between
three and twelve months are considered to be short-term marketable securities,
and investments with maturities of greater than one year 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.
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 their fair
value. Unrealized holding gains and losses are reported as a net amount in
accumulated other comprehensive income, a separate component of shareholders'
equity (see Note J).
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.
<PAGE>
Product Development Costs
The Company capitalizes costs for internally developed software after
technological feasibility of the products is reached. Costs incurred prior to
the establishment of technological feasibility are charged to research and
development expense. Software costs are amortized, on a product by product
basis, ratably over the estimated economic life of the product (generally three
years), or the ratio of current gross revenues to total current and expected
future gross revenues of the product, whichever is greater.
The Company evaluates the net realizable value of capitalized software on an
ongoing basis, relying on a number of factors including operating results,
business plans, budgets and economic projections and undiscounted cash flows. In
addition, the Company's evaluation considers non-financial data such as market
trends, project development cycles and changes in management's market emphasis.
In 1999, the Company adopted SOP 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." The adoption of SOP 98-1, did
not have a material impact on the Company's financial position or results of
operations.
Software Licenses
The Company has purchased various software licenses for technology that have
been 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 D). Certain of these
licenses require royalty payments based on future sales. Such amounts are
expensed as incurred.
Revenue Recognition
The Company recognizes services revenues pursuant to time and material contracts
generally as services are provided. Services revenues pursuant to fixed-fee
contracts are generally recognized as services are rendered on the percentage-
of-completion method of accounting (based on the ratio of costs incurred to
total estimated costs).
The Company's subsidiary, Switchboard, generates its revenue from web site
advertising, syndication and licensing fees for its directory technologies, and
its merchant aggregation program. Revenue from advertising is recognized as the
services are delivered provided that no significant Switchboard obligations
remain and collection of the resulting receivable is probable. Revenue from
revenue-sharing agreements is recognized in the period following that in which
the services are provided and when the revenue amount can be determined.
Syndication and licensing revenues and related costs are recognized ratably over
the term of the contract. Subscription fees are recognized over the period that
the local merchant web site is in place, usually on a monthly basis. Customer
acquisition fees are recognized when the local merchant web site construction is
complete.
Deferred revenue is principally comprised of billings in excess of recognized
revenue relating to consulting engagements, advertising agreements and licensing
fees received in advance of revenue recognition.
Foreign Currency Translation
The Company's subsidiaries generally 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 accumulated other comprehensive income. For those subsidiaries
which use the U.S. dollar as the functional currency, and translation gains and
losses are included in other income and expenses in the statement of operations.
The Company's foreign subsidiaries, Banyan Systems (UK) Ltd., Banyan Systems
(Deutschland) GmbH and Banyan Systems Holland B.V., used the U.S. dollar as
functional currency for the years ended December 31, 1998 and 1997. In April
1999, the Company made a determination to change the functional currency of
Banyan Systems (UK) Ltd., Banyan Systems (Deutschland) GmbH and Banyan Systems
Holland B.V. to their respective local currencies. The Company's foreign
<PAGE>
subsidiaries, Nihon Banyan Systems Kabushiki Kaisha ("NBSKK") and Banyan Systems
Australia Pty., used the local currency as functional currency for the year
ended December 31, 1997. In January of 1998, the Company made a determination to
change the functional currency of NBSKK and Banyan Systems Australia Pty. to the
U.S. dollar. In 1999, 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, 1999, the Company owned approximately 70% of the
capital stock of NBSKK and approximately 54% of the capital stock on a fully
diluted basis of Switchboard (see Note O).
Risks and Uncertainties
The Company invests its cash and cash equivalents primarily in deposits and
money market funds with two commercial banks. The Company has not experienced
any losses to date on its invested cash.
The Company sells its services principally through a direct sales force to
customers in a broad range of industries. The Company performs ongoing credit
evaluations of its customers but does not require collateral or other security
to support customer receivables. The Company maintains reserves for credit
losses, and to date, such losses have been within management's expectations.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Income Taxes
The Company accounts for income taxes under the asset and liability method.
Under this method, deferred tax assets and liabilities are recognized for the
estimated future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted rates in effect for the year in which those temporary differences
are expected to be recovered or settled. A deferred tax asset is established for
the expected future benefit of net operating loss and credit carryforwards. A
valuation reserve against net deferred tax assets is required if, based upon
available evidence, it is more likely than not that some or all of the deferred
tax assets will not be realized.
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, as amended by SFAS No. 137, is effective for all fiscal quarters of fiscal
years beginning after June 15, 2000. The Company does not expect SFAS No. 133 to
have a material effect on its financial position or results of operations. At
December 31, 1999 the Company had no derivative investments or accounting hedges
in place.
Advertising Expense
Advertising costs, in the Switchboard subsidiary books, are expensed as incurred
and totaled $6,611,694, $3,296,431 and $202,195 in the years ended December 31,
1999, 1998 and 1997, respectively. In 1999, the cost included $4,069,246 of non-
cash advertising related to the CBS relationship.
<PAGE>
C. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at:
<TABLE>
<CAPTION>
December 31, 1999 1998
- ------------------------------------------------------------------------------------------------------- ------------- ---------
(in thousands)
<S> <C> <C>
Computer and peripherals $ 17,786 $ 24,859
Equipment 8,740 10,455
Furniture and fixture 1,638 2,659
Leasehold improvements 2,361 2,586
-------- --------
Total cost $ 30,525 $ 40,559
Accumulated depreciation and amortization (26,741) (35,609)
-------- --------
$ 3,784 $ 4,950
======== ========
Depreciation expense for 1999, 1998 and 1997 was $1,931,464, $3,607,000 and $6,340,000, respectively.
</TABLE>
D. OTHER ASSETS
Other assets consist of the following at:
<TABLE>
<CAPTION>
December 31, 1999 1998
- ------------------------------------------------------------------------------------------------------- -------- --------
(in thousands)
<S> <C> <C>
Capitalized software costs, net $ - $ 473
Investment in unconsolidated affiliate - 2,001
Software licenses, net 743 150
Other 286 258
-------- --------
$ 1,029 $ 2,882
======== ========
</TABLE>
During 1997, the Company capitalized $549,000 of software costs. There were no
amounts capitalized during 1999 and 1998, as amounts qualifying for
capitalization were not material. Amortization expense for other assets was
$413,000, $1,185,000 and $1,453,000 for 1999, 1998 and 1997, respectively.
On May 18, 1998, Switchboard acquired the MapsOnUs Internet mapping technology
from Lucent Technologies, Inc. ("Lucent"). The technology was acquired to
integrate it into Switchboard's directory web site. Switchboard paid Lucent
$500,000 in cash and executed a note payable of $1,100,000 to be paid over a
two-year period. The note bears interest at a rate of 6.75%. At December, 1999,
$600,000 of principal is outstanding under the note.
A significant portion of the technology acquired was deemed incomplete as it did
not meet the criteria for capitalization. The technology was incomplete because
the technology required a substantial development effort by Switchboard in order
to successfully integrate the MapsOnUs technology into its web site. The
technology had no alternative future use to Switchboard inasmuch as Switchboard
had acquired the technology to improve and integrate it into Switchboard's web
site and not to market it as a standalone product. Further, Switchboard had no
other product, line of business or product development project that could use
the technology. Therefore, a charge to product development of $1,400,000 was
recorded for the purchase of incomplete technology in 1998.
E. RESTRUCTURING AND OTHER CHARGES
On April 21, 1997, the Company announced a reorganization of its operations. As
a result of the reorganization, the Company recorded net pre-tax restructuring
and other charges of approximately $9,700,000. The restructuring and other
charges were composed of $1,700,000 for severance costs, $2,100,000 for the
write-off of idle assets related to restructuring and $5,900,000 for costs
related to facility and product line consolidations. These restructuring charges
provided for the reduction of approximately 22% of the Company's work force. In
the fourth quarter of 1997, the Company reversed $1,700,000 of previously
recorded restructuring and other charges related to the Company's better-than-
expected progress in consolidating facilities and product lines, completing its
severance programs and selling and redeploying fixed assets.
<PAGE>
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. Cash
expenditures related to the 1997 restructuring were approximately $3,100,000,
while providing an annual cash flow benefit beginning in 1998.
F. 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 1999, 1998 and 1997. This
agreement has a three-year initial term and is renewable thereafter for
successive one-year periods. In the event of borrowing, all of the Company's
assets would be eligible collateral. The lender was granted warrants to
purchased 75,000, 50,000 and 25,000 shares of the Company's common stock on
September 4, 1997, 1998 and 1999, respectively. The exercise price of the
warrants equaled the 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 the lender. On April 19, 1999, the
lender exercised its warrant to purchase 50,000 shares of the Company's common
stock pursuant to a "cashless" exercise resulting in the issuance of 32,098
shares to the lender. On February 22, 2000, the lender exercised its warrant to
purchase 25,000 shares of the Company's common stock, pursuant to a "cashless"
exercise, resulting in the issuance of 18,608 shares to the lender. 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.
G. COMMITMENTS AND CONTINGENCIES
The Company leases its facilities and certain equipment under non-cancellable
lease agreements which expire at various dates through March of 2014. Rental
expense under these leases totaled $1,389,000, $2,241,000 and $2,857,000 in
1999, 1998 and 1997, respectively. Under these agreements, the Company is
obligated to pay for utilities, taxes, insurance and maintenance.
At December 31, 1999, future minimum lease payments under operating leases with
initial terms exceeding one year are as follows:
<TABLE>
<CAPTION>
(in thousands)
- --------------
<S> <C>
2000 $ 3,701
2001 3,174
2002 2,863
2003 1,132
2004 1,025
Thereafter 2,345
-------
Total future minimum lease payments $14,240
=======
</TABLE>
The total of future minimum rentals to be received under non-cancellable
subleases related to the above leases is $1,115,000, $825,000, $853,000, $99,000
and $43,000 for the years ending 2000, 2001, 2002, 2003 and 2004, respectively.
<PAGE>
H. INCOME TAXES
The components of the (benefit)/provision for income taxes are as follows:
<TABLE>
<CAPTION>
Years ended December 31, 1999 1998 1997
- ------------------------------------------------------------ --------- ------- --------
<S> <C> <C> <C>
Currently Payable:
U.S. Federal $ 170 $ - $ -
State 224 - -
Foreign (37) 573 255
-------- ------ -------
357 573 255
Deferred:
U.S. Federal 1,254 - -
State 75 - -
Valuation allowance (23,978) - -
-------- ------ -------
(22,649) - -
-------- ------ -------
$(22,292) $ 573 $ 255
A reconciliation of the Federal statutory tax rate to the Company's effective income tax rate is as
follows:
1999 1998 1997
-------- ------ -------
Tax at statutory rate 35.0% 35.0% (35.0)%
State income taxes, net of U.S. federal benefit 7.1 3.7 (1.3)
Effect of foreign tax rates 3.1 3.0 1.6
Minority interest 71.8 (11.4) (1.8)
Foreign losses not benefited 14.7 35.4 2.7
Other 1.0 (0.8) (0.2)
Valuation (751.5) (30.9) 35.5
-------- ------ -------
Effective tax rate (618.8) 34.0 1.5
</TABLE>
As of December 31, 1999, the Company no longer has a valuation allowance
offsetting the net deferred tax asset. In assessing the realizability of
deferred tax assets, management considers whether it is more likely than not
that some portion or all of the deferred tax assets will not be realized. Based
upon an analysis of the Company's ability to generate sufficient future taxable
income during periods in which temporary differences reverse, management
believes it is more likely than not the Company will realize the benefits of its
net deferred tax assets. The amount of net deferred tax assets considered
realizable could be reduced if estimated future taxable income cannot be
achieved.
The components of the net deferred tax asset (liability) and the related
valuation allowance are as follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
- --------------------------------------------- --------- ---------
<S> <C> <C>
Deferred tax assets:
Net operating loss and other carryforwards $ 10,292 $ 15,805
Purchased research and development 6,510 7,104
Fixed assets 1,537 1,419
Benefit plans 443 612
Bad debt allowance 764 509
Discontinued operations 1,455 -
Other 654 529
-------- --------
Gross deferred tax asset 21,655 25,978
Deferred tax liabilities:
Unrealized gain on securities (30,350) -
-------- --------
Gross deferred tax liability (30,350) -
Less: valuation allowance - (25,978)
-------- --------
Net deferred tax liability $ (8,695) $ -
======== ========
</TABLE>
<PAGE>
The Company has net operating loss carryforwards of federal and state tax
purposes of approximately $4,406,000 and $27,800,000, respectively. The federal
net operating loss carryforwards will begin to expire in 2012 and the state net
operating loss carryforwards will begin to expire in 2000.
Ownership changes resulting from the Company's issuance of capital stock may
limit the amount of net operating loss carryforwards that can be utilized
annually to offset future taxable income. The amount of the annual limitation is
determined based upon the Company's value immediately prior to the ownership
change. Subsequent significant changes in ownership could further affect the
limitation in the future.
I. PREFERRED STOCK
In July of 1992, the shareholders of the Company approved the creation of a new
class of undesignated preferred stock and authorized 1,000,000 shares of $.01
par value, in one or more series, with voting rights and preferences to be
determined by the Board of Directors. In March of 1998, 263,158 shares were
designated as Series A Convertible Preferred 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 was initially convertible, at the option of the holder, into
ten shares of common stock, subject to adjustment for certain dilutive
issuances. In June 1999, the 263,158 shares of Series A Convertible Preferred
Stock, held by HarbourVest Partners, automatically converted into 2,631,580
shares of common stock.
J. MARKETABLE SECURITIES
Marketable securities consisted of the following at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
Aggregate Amortized Aggregate Amortized
Security Type Fair Value Cost Fair Value Cost
- --------------------------------------------- ---------- --------- ---------- ---------
(in thousands)
<S> <C> <C> <C> <C>
Maturing within one year:
Software.com holdings $ 85,555 $ 1,310 $ - $ -
Commercial paper/agencies 5,961 5,957 3,922 3,919
U.S. Treasury Notes 137 137 130 130
-------- ------- ------ ------
$ 91,653 $ 7,404 $4,052 $4,049
Maturing after one year through five years:
Commercial paper/agencies $ 1,030 $ 1,017 $ - $ -
U.S. Treasury Notes 8,168 8,123 3,076 3,079
-------- ------- ------ ------
$ 9,198 $ 9,140 $3,076 $3,079
======== ======= ====== ======
Totals $100,851 $16,544 $7,128 $7,128
-------- ------- ------ ------
</TABLE>
Unrealized gains/(losses) are included in shareholders' equity and accumulated
other comprehensive income, net of tax. Realized and unrealized gains/(losses)
were immaterial for the year ended December 31, 1998.
K. 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 20,000 options were outstanding at December 31, 1999.
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 4,450,000 shares of common
stock to employees, officers, directors, consultants and advisors. At December
31, 1999, 2,142,445 options
<PAGE>
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-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 1999, 10,000 shares were cancelled and 40,000
additional restricted common shares were issued to executive officers and
certain members of senior management at par value. An additional $277,000 was
recorded as unearned compensation within shareholders' equity equal to the fair
market value of the stock on the date it was issued, less the purchase price. In
1999, amortization of $1,000,000 was recorded as compensation expense related to
these transactions. The remainder of the unearned compensation will be amortized
over a period of up to three years from the date of issuance.
The Company currently holds one note receivable for a total of $221,970 from an
officer of the Company. The note arose from a transaction in October of 1999
whereby the Company loaned the officer money to pay federal and state tax
obligations with respect to the vesting and issuance of restricted stock. The
note bears interest at a rate equal to the prime rate, less 1% per annum. The
principal and all accrued interest of this note shall be repaid in full on or
before October 18, 2000. The note and accrued interest are recorded as an other
current asset.
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, 1999,
181,000 options were 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, 1999, 882,033 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, 1999, 878,000 of such options were
outstanding.
The Company applies APB Opinion 25 and related interpretations in accounting for
its plans. In fiscal year 1996, the Company adopted the disclosure only
provisions 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,
1999, 1998 and 1997 would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
1999 1998 1997
------------------ ----------------- --------------------
As Pro As Pro As Pro
Reported Forma Reported Forma Reported Forma
-------- -------- -------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net income/(loss) $28,149 $24,016 $1,115 $1,194 $(16,908) $(21,170)
Basic income/ (loss) per share $ 1.33 $ 1.14 $ 0.06 $ 0.07 $ (0.97) $ (1.22)
Diluted income/(loss) per share $ 1.11 $ 0.94 $ 0.06 $ 0.06 $ (0.97) $ (1.22)
------- ------- ------ ------ -------- --------
</TABLE>
<PAGE>
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 1999, 1998 and 1997, respectively; dividend yield
of 0%, 0% and 0%; expected volatility of 90%, 90% and 70%; risk-free interest
rates of 5.8%, 5.5% and 6.4%; and expected lives of 5.0, 5.0, 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 1999 pro forma amounts include $4,133,000
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, 1999,
1998 and 1997 and changes during the years ending on those dates, is presented
below.
<TABLE>
<CAPTION>
1999 1998 1997
------------------ ---------------------- ---------------- --------
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 3,076 $ 3.55 3,293 $ 2.77 2,631 $ 7.02
Granted 1,590 10.94 1,225 3.93 2,289 2.37
Exercised (1,119) 2.83 (1,108) 1.89 (31) 2.18
Cancelled (325) 6.95 (334) 2.63 (1,596) 4.84
------ ------ ------ ------ ------ ------
Outstanding at end of year 3,222 $ 7.11 3,076 $ 3.55 3,293 $ 2.77
====== ====== ====== ====== ====== ======
Options exercisable at end of year 1,095 $ 3.93 1,339 $ 3.16 705 $ 4.31
====== ====== ====== ====== ====== ======
Weighted-average fair value of
options granted during the year $ 7.97 $ 4.24 $ 1.69
====== ====== ======
The following table summarizes information about the
Company's stock options at December 31, 1999:
Options Outstanding Options Exercisable
-------------------------------------- -------------------
Weighted
Number Average Weighted Number Weighted
Range of Outstanding at Remaining Average Exercisable at Average
Exercise Prices December 31, Contractual Exercise December 31, Exercise
1999 Life Price 1999 Price
------ ------ ------ ------ ------
$ 1.15 - $ 2.25 993 6.8 years $ 2.21 651 $ 2.19
$ 2.26 - $ 3.99 176 8.2 years $ 3.53 71 $ 3.21
$ 4.00 - $ 7.00 594 8.0 years $ 5.90 261 $ 5.26
$ 7.01 - $20.00 1,459 9.3 years $11.38 112 $11.45
====== ====== ====== ====== ======
3,222 1,095
</TABLE>
<PAGE>
L. BASIC AND DILUTED EARNING/(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 dilutive effect of potential common shares outstanding during the period.
Potential common shares have been excluded from the computation of diluted loss
per share in 1998 and 1997, as their effect would have been anti-dilutive.
Potential common 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. Potential common shares also
include the unvested portion of restricted stock. For the year ended December
31, 1999, basic and diluted earnings per share were calculated as follows:
<TABLE>
<CAPTION>
Continuing Net
For the year ended December 31, 1999 Operations Income
- --------------------------------------------- ---------- -------
<S> <C> <C>
Basic earnings per share numerator:
Income from continuing operations $26,224
Net income $28,149
Denominator:
Weighted average common shares outstanding 21,115 21,115
------- -------
Basic earnings per share $ 1.24 $ 1.33
======= =======
Diluted earnings per share
Income from continuing operations $26,224
Net income $28,149
Denominator:
Weighted average common shares outstanding 21,115 21,115
Weighted average common potential shares 4,334 4,334
------- -------
Total shares 25,449 25,449
------- -------
Diluted earnings per share $ 1.03 $ 1.11
======= =======
</TABLE>
Options to purchase 531,000 shares of common stock outstanding during the year
ended December 31, 1999, were excluded from the calculation of diluted earnings
per share, as their exercise price was greater that the average share price.
Options and warrants to purchase 4,517,000 and 3,293,000 shares of common stock
outstanding during the years ended December 31, 1998 and 1997, 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.
M. EMPLOYEE BENEFIT PLAN
In 1989, the Company established a savings and profit sharing plan covering
substantially all U.S. employees. The plan is qualified under Section 401(a) of
the Internal Revenue Code of 1986, as amended. Effective January 1, 1994, the
Company elected to match an employee's elective deferrals to the plan based upon
a prescribed formula. The maximum matching contribution was 2% of an employee's
annual compensation. Vesting is over a four-year period and begins on the date
of hire. The Company contributed $307,000, $297,000 and $377,000 in 1999, 1998
and 1997, respectively.
N. SEGMENT INFORMATION
As described in Note A. "Nature of Business", the Company has two reportable
segments: Services and Switchboard. Significant financial information relative
to the Company's reportable segments is as follows:
<TABLE>
<CAPTION>
Total
Year Ended December 31, 1999 Services Switchboard Company
- ------------------------------ --------- ------------ ---------
(in thousands)
<S> <C> <C> <C>
Revenues
Services $ 37,494 $ - $ 37,494
Switchboard - 8,304 8,304
-------- ------- --------
Total revenue 37,494 8,304 45,798
Cost of revenues 22,714 1,970 24,684
-------- ------- --------
Gross profit 14,780 6,334 21,114
Operating expenses 22,864 14,990 37,854
-------- ------- --------
Operating loss $ (8,084) $(8,656) $(16,740)
======== ======= ========
Total assets $162,255 $12,195 $174,450
======== ======= ========
</TABLE>
<PAGE>
The Company delivers its services worldwide and Switchboard delivers its
revenues within North America. Revenue can be grouped into geographic areas as
follows:
<TABLE>
<CAPTION>
Years Ended December 31, 1999 1998 1997
- --------------------------------------- ------- ------- -------
(in thousands)
<S> <C> <C> <C>
Revenues from unaffiliated customers:
North America $34,252 $22,459 $ 9,300
Europe 7,275 4,165 1,035
Other 4,271 1,209 171
======= ======= =======
Total revenues $45,798 $27,833 $10,506
</TABLE>
No one customer accounted for more than ten percent of consolidated revenues in
1999 or 1998. Three customers accounted for 17%, 15% and 11% of consolidated
revenues in 1997. 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.
O. MINORITY INTERESTS
In 1999, the Company entered into an agreement with CBS Corporation ("CBS") to
sell a minority interest in Switchboard. Pursuant to this agreement, CBS
invested $5,000,000 in Switchboard and will provide $95 million in promotion
over seven years and branding over ten years across the full range of CBS media
properties as well as those of its radio and outdoor subsidiary, Infinity
Broadcasting Corporation. As a result of this investment, CBS held an equity
interest of approximately 35.0% on a fully-diluted basis at December 31, 1999.
In 1996, the Company entered into an agreement with America Online, Inc. ("AOL")
and Digital City, Inc. ("DCI") to sell minority interests in Switchboard, to AOL
and DCI. Pursuant to this agreement, AOL and DCI invested a total of $3,000,000
in Switchboard, Incorporated and held a combined equity interest of 3.0% on a
fully-diluted basis at December 31, 1999. CBS, 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, 1999, revenues and expenses were
approximately $8,304,000 and $16,960,000, respectively. At December 31, 1999,
assets and liabilities for Switchboard were approximately $12,195,000 and
$5,464,000, respectively.
P. SALE OF INVESTMENT
In 1996, the Company made an equity investment of approximately $2,001,000 in
Software.com, Inc. ("Software.com") a company which supplies Internet messaging
solutions to service providers. During 1999, the Company sold 469,985 shares of
common stock of Software.com resulting in net proceeds of $17,477,000 and a
realized net gain of approximately $16,586,000. In December 1999, the six-month
trading restriction on the Company's remaining shares expired. At December 31,
1999, the Company held 891,202 shares of common stock of Software.com which were
valued at $96.00 per share, for a total value of $85,555,392. The investment is
classified as available for sale in accordance with SFAS No. 115. The net
unrealized gain of approximately $53,895,000, net of taxes of $30,350,000, is
included in other comprehensive income within shareholders' equity. Subsequent
to December 31, 1999, the Company entered into hedge contracts on 400,000 shares
of Software.com common stock.
<PAGE>
On January 21, 2000, the Company entered into a hedging contract for 300,000
shares of Software.com common stock. The maturity date for the contract is
February 2, 2001. Upon maturity, the Company will receive payment for the value
of the Software.com common shares based upon the average closing price of the
ten consecutive trading days prior to, and including, the maturity date. The
settlement price can be no lower than $84.04 or higher than $114.50 per common
share.
On February 25, 2000, the Company entered into a hedging contract for 100,000
shares of Software.com common stock. The maturity date for the contract is
February 25, 2001. Upon maturity, the Company will receive payment for the value
of the Software.com common shares based upon the average closing price of the
five consecutive trading days prior to, and including, the maturity date. The
settlement price can be no lower than $84.60 or higher than $115.90 per common
share.
Q. CBS ALLIANCE
In 1999, the Company's subsidiary, Switchboard and CBS consummated a number of
agreements under which CBS acquired a 35% equity stake in Switchboard, through
the issuance of 7,468,560 shares of Switchboard common stock and one share of
Series E Special Voting Preferred Stock. In exchange, Switchboard received
$5,000,000 in cash and will receive advertising and promotional value over a
term of seven years, across the full range of CBS media properties, as well as
those of its radio and outdoor subsidiary, Infinity Broadcasting Corporation. As
part of the transactions, CBS was also issued warrants to purchase up to an
additional 1,066,937 shares of Switchboard common stock at a per share exercise
price of $1.00, which would increase its ownership position in Switchboard to
40%. The number of shares of common stock and warrants issued to CBS are subject
to adjustment in the event of certain future issuances of securities by
Switchboard.
The Advertising and Promotion Agreement dated as of June 30, 1999 and among the
Company, Switchboard, and CBS provides advertising with a future value of $95
million to Switchboard over a seven-year period, subject to one-year renewals
upon the mutual written agreement of the Company, Switchboard, and CBS. The net
present value of the advertising has been recorded as a subscription receivable
and an offsetting amount as paid-in capital in the Switchboard equity accounts.
The subscription equity account will be amortized as marketing expense based on
the proportion of advertising provided to the total amount to be provided over
the seven-year term. During the year ended December 31, 1999, the Company
recognized approximately $4,069,000 in non-cash advertising expense pursuant to
the agreement.
CBS and Switchboard also entered into a License Agreement dated as of June 30,
1999 which provides a ten-year license, subject to extension, to Switchboard for
the utilization of the CBS trademarks in identifying, marketing and promoting
the Switchboard web site. Additionally, the Company issued a common stock
purchase warrant to CBS on June 30, 1999, whereby CBS received warrants to
purchase 250,000 shares of the Company's common stock at $11.27 per share.
Switchboard is required to pay CBS a 25% revenue share on the net advertising
revenues derived from the sale of advertising displayed to CBS users through the
co-branded interfaces or vertical guides during the term of the agreement.
Additionally, Switchboard is required to pay a 12% sales commission for
advertising sold by CBS on the Switchboard web site, or on advertisements
displayed to CBS users through co-branded interfaces or vertical guides. In the
event that the agreement is terminated by Switchboard for cause, as defined in
the agreement, in lieu of performing the advertising and promotional obligations
CBS may elect to pay in cash the difference between $95 million and the amount
of promotional value provided to date. CBS may pay the cash over the original
term of the agreement or in a lump sum payment equal to the net present value of
the amount due.
The Company has agreed to indemnify CBS for breaches by Switchboard of
representations, warranties and covenants in the Advertising and Promotion
Agreement. The indemnification obligations with respect to the covenants will
expire upon the first to occur of: (i) the first business day after June 30,
2001 when the Company owns or controls less than a majority of Switchboard's
voting power; and (ii) the first business day after any person owns or controls
more of Switchboard's voting power than the Company does. Switchboard has agreed
to indemnify the Company for amounts that the Company may be required to pay to
CBS pursuant to the Company's indemnification obligations to CBS.
<PAGE>
R. MICROSOFT CORPORATION ALLIANCE
On January 11, 1999, the Company announced a strategic alliance with Microsoft
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 second payment of $2,500,000 was received in December
1999. The Company has recorded $4,032,000 of the 1999 payments received as
additional paid in capital for the warrants issued to Microsoft. The remaining
$4,368,000, associated with training, marketing and product development efforts,
was recorded as an offset to expenses incurred related to this effort. At
December 31, 1999, approximately $1,597,000 is classified as a component of
accrued expenses. The remaining payment of $1,600,000 is to be received on or
before December 31, 2000. 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 7.1% ownership of the outstanding common stock of the Company at
December 31, 1999, on a basic basis.
S. DISCONTINUED OPERATIONS
In the fourth quarter of 1999, the Board of Directors of the Company committed
to a plan to exit its software business and to focus the Company on its services
and Switchboard segments as its sole operating units. The Company plans to
provide support to its existing customers, including services for coexisting
with and migrating customers to alternative software platforms over the next one
to two years.
Included in the 1999 results of operations is an estimated loss from disposal of
discontinued operations of $3,000,000, net of tax. The provision is comprised
primarily of $1,900,000 for the write off of certain idle-assets and the closure
and consolidation of leased facilities, estimated future operating losses of
$700,000 and $400,000 for severance and costs related to the reduction of
approximately 45 members of the Company's staff. As of December 31, 1999, the
Company has expended $484,000 in cash related to the exiting of its software
business.
Excluding the estimated loss from disposal of discontinued operations, revenues
and expenses from discontinued operations for the years ended December 31, 1999,
1998 and 1997 were $26,636,000 and $18,431,000; $47,389,000 and $34,343,000; and
$63,836,000 and $68,566,000, respectively.
Net liabilities of discontinued operations, which are included in the
Consolidated Balance Sheets as of December 31, 1999, are as follows:
<TABLE>
<CAPTION>
(in thousands)
- ---------------------------------------------
<S> <C>
Accounts receivable (net) $1,846
Inventory 53
Other current assets 1,402
Property and equipment (net) 466
Other assets (net) 99
------
Total assets 3,866
Accrued expenses 4,634
Deferred revenues 2,496
------
Total liabilities 7,130
------
Net liabilities of discontinued operations $3,264
======
</TABLE>
<PAGE>
T. SUBSEQUENT EVENTS
In January 2000, the Company acquired ePresence, Incorporated ("ePresence"), a
privately held e-business services company based in Red Bank, New Jersey that
specializes in web design, development and integration. Consideration for the
acquisition is comprised of $10,000,000 in cash and the issuance of shares of
the Company's common stock based upon the achievement of certain performance
measures. The total value of the acquisition is approximately $13,750,000 and
will be accounted for using the purchase method of accounting. At December 31,
1999, ePresence employed 45 services professionals.
On March 2, 2000, Switchboard completed an initial public offering of 5,500,000
shares of common stock for proceeds of $82,500,000. Switchboard plans to use the
net proceeds of this offering for general corporate purposes. After the initial
public offering, the Company retains approximately 41% ownership in Switchboard.
U. RELATED PARTIES
The Company and Switchboard have entered into a corporate services agreement
dated November 1, 1996 under which the Company's corporate staff provides
certain administrative services, including financial and accounting, human
resources and payroll advice, treasury, tax and insurance services and routine
data processing, technical support and equipment maintenance services for which
Switchboard pays the Company a monthly fee based on Switchboard's headcount and
the level of services provided by the Company. The fee is reviewed and adjusted
periodically by mutual agreement of the parties. The corporate services
agreement extends for a period of three years and thereafter renews annually
unless either party terminates the agreement with 90 days notice to the other.
For additional items such as development of data processing systems and
programs, legal support, support in financing and acquisition transactions,
general executive and management services, and support for contract bidding,
Switchboard is charged based on Banyan's labor costs for the employee performing
the services. Further, Switchboard reimburses the Company for its pro rata share
of telephone, photocopying, postage and employee benefit plan expenses.
Switchboard leases the space it occupies under an agreement with the Company.
Switchboard pays Banyan rent in an amount that is approximately equal to its pro
rata share of the Company's occupancy costs.
Certain directors of Switchboard hold positions as officers or directors of the
Company. The Chairman of the Board of Directors of Switchboard is also Chairman
of the Board of Directors, President and Chief Executive Officer of the Company.
One director of Switchboard is Vice President and Chief Financial Officer of the
Company.
<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, shareholders' equity and cash flows
present fairly, in all material respects, the consolidated financial position of
Banyan Systems Incorporated ("Banyan") at December 31, 1999 and 1998 and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States. 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 auditing standards generally
accepted in the United States 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
February 2, 2000,
except for Note T,
for which the date is March 2, 2000
<PAGE>
SUPPLEMENTARY DATA -- SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Years ended December 31, 1999 1998 1997 1996 1995
- ----------------------------------------------------- --------- --------- --------- --------- ---------
(in thousands, except share and per share amounts)
<S> <C> <C> <C> <C> <C>
Statement of operations data:
Revenues:
Services $ 37,494 $ 21,320 $ 9,797 $ 7,231 $ 6,608
Switchboard 8,304 6,513 709 170 -
-------- -------- -------- -------- --------
Total revenues 45,798 27,833 10,506 7,401 6,608
Operating loss from continuing operations (16,740) (12,321) (11,964) (8,527) (7,978)
Net income/(loss)1,2 28,149 1,115 (16,908) (27,030) (21,360)
Net income/(loss) per share:
Basic $ 1.33 $ 0.06 $ (0.97) $ (1.59) $ (1.27)
Diluted $ 1.11 $ 0.06 $ (0.97) $ (1.59) $ (1.27)
Balance sheet data:
Working capital $112,443 $ 10,249 $ (2,732) $ (1,513) $ 9,534
Total assets 174,450 43,389 42,928 69,532 106,309
Total shareholders' equity 115,367 56,210 5,077 20,322 44,342
-------- -------- -------- -------- --------
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
1999 Quarter Ended Dec. 31 Sept. 30 June 30 March 31
- ----------------------------------------------------- -------- -------- -------
Revenues:
Services $ 11,011 $ 9,881 8,636 $ 7,966
Switchboard 3,040 2,286 1,850 1,128
-------- -------- ------- --------
Total revenues 14,051 12,167 10,486 9,094
Income/(loss) from continuing operations (7,609) (3,540) (3,018) (2,573)
Net income/(loss)1,2 24,215 (985) 4,462 457
Net income/(loss) per share:
Basic $ 1.07 $ (0.04) 0.22 $ 0.02
Diluted $ 0.93 $ (0.04) 0.17 $ 0.02
Stock prices:3
High $ 23.13 $ 11.75 17.25 $ 17.94
Low $ 8.13 $ 6.72 9.50 $ 8.81
-------- -------- ------- --------
1998 Quarter Ended Dec. 31 Sept. 30 June 30 March 31
- ----------------------------------------------------- -------- -------- -------
Revenues:
Services $ 7,269 $ 5,693 4,598 $ 3,760
Switchboard 1,757 1,970 1,706 1,080
-------- -------- ------- --------
Total revenues 9,026 7,663 6,304 4,840
Operating loss from continuing operations (2,527) (2,478) (4,024) (3,292)
Net income/(loss)4 830 681 (773) 377
Net income/(loss) per share:
Basic $ 0.05 $ 0.04 (0.04) 0.02
Diluted $ 0.05 $ 0.04 (0.04) $ 0.02
Stock prices:3
High $ 9.19 $ 9.69 12.00 $ 6.44
Low $ 2.94 $ 2.38 5.50 $ 2.88
-------- -------- ------- --------
</TABLE>
1. In the second quarter of 1999, the Company recorded a net gain of
approximately $4,043 for the sale of shares in an unaffiliated company.
2. In the fourth quarter of 1999, the Company recorded a net gain of
approximately $12,543 for the sale of shares in an unaffiliated company, a one-
time benefit from the reversal of deferred tax asset reserves of $21,655, and a
one-time charge of $3,000, net of taxes, for the loss on disposal of business.
<PAGE>
3. The Company's common stock is currently quoted on the Nasdaq National Market
under the symbol "BNYN". The Company has registered a new symbol "EPRE" with
Nasdaq and plans to begin trading under the symbol EPRE in May 2000. The common
stock prices are based on the Nasdaq National Market daily closing stock price.
4. 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.
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, 1999, the Company had 13,440 shareholders of record.
<PAGE>
SHAREHOLDER INFORMATION
ANNUAL MEETING
The 2000 Annual Meeting will be held on May 9, 2000 at 2:00 p.m. at the Wyndham
Westboro, 5400 Computer Drive, Westboro, Massachusetts 01581-1721.
FORM 10-K
Copies of our Annual Report on Form 10-K are available upon written request to
Investor Relations, ePresence, 120 Flanders Road, Westboro, Massachusetts 01581.
COMMON STOCK
The Company's common stock is currently traded on the Nasdaq National Market
under the symbol BNYN. The Company has registered a new symbol "EPRE" with
Nasdaq and plans to begin trading under the symbol EPRE in May 2000.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
Boston, Massachusetts
LEGAL COUNSEL
Hale and Dorr LLP
Boston, Massachusetts
TRANSFER AGENT AND REGISTRAR
EquiServe
P. O. Box 9187
Canton, MA 02021-9187
Shareholder inquiries (877) 282-1169
CORPORATE HEADQUARTERS
ePresence
120 Flanders Road
Westboro, Massachusetts 01581-5013
UNITED STATES OFFICES
San Francisco, California
Chicago, Illinois
Overland Park, Kansas
Westboro, Massachusetts
Detroit, Michigan
Okemos, Michigan
Woodbridge, New Jersey
New York, New York
<PAGE>
Jenkintown, Pennsylvania
Dallas, Texas
Annandale, Virginia
INTERNATIONAL OFFICES
Melbourne, Australia
North Sydney, Australia
Haacht, Belgium
Ottawa, Ontario, Canada
Crawley, West Sussex, England
Munich, Germany
Maarssen, The Netherlands
(C) Copyright 2000 ePresence.
All Rights Reserved.
Printed in USA.
<PAGE>
SUBSIDIARIES OF THE REGISTRANT
------------------------------
Company Jurisdiction of
Incorporation
1. Banyan Systems International Incorporated Massachusetts
2. Banyan Securities Corporation Massachusetts
3. Banyan Systems Asia-Pacific Incorporated Massachusetts
4. Banyan Systems (UK) Ltd. England
5. Banyan Systems (Holland) B.V. Holland
6. Banyan Systems (Deutschland) Germany
7. Switchboard Incorporated Delaware
8. Banyan Worldwide Services of Canada, Ltd. Canada
9. ePresence Incorporated New Jersey
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (File Nos. 33-50860, 33-50862, 33-50864, 33-54140, 33-
57734, 33-78804, 33-92312, 33-95288, 333-22631, 333-26857, 333-28745, 333-28675,
333-40671, 333-46259, 333-78553, and 333-78551) of Banyan Systems Incorporated
of our report dated February 2, 2000 except for Note T, for which the date is
March 2, 2000 relating to the financial statements, which is incorporated by
reference in this Annual Report on Form 10-K. We also consent to the
incorporation by reference of our report dated February 2, 2000 relating to the
financial statement schedule, which appears in this Annual Report on Form 10-K.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
March 30, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> DEC-31-1999 DEC-31-1998
<CASH> 29,920 15,160
<SECURITIES> 100,851 7,128
<RECEIVABLES> 15,351 24,309
<ALLOWANCES> 869 2,917
<INVENTORY> 0 890
<CURRENT-ASSETS> 138,784 45,302
<PP&E> 30,525 40,559
<DEPRECIATION> 26,741 35,609
<TOTAL-ASSETS> 174,450 56,210
<CURRENT-LIABILITIES> 26,341 35,053
<BONDS> 0 0
0 0
0 3
<COMMON> 248 208
<OTHER-SE> 115,119 18,188
<TOTAL-LIABILITY-AND-EQUITY> 174,450 56,210
<SALES> 45,798 27,833
<TOTAL-REVENUES> 45,798 27,833
<CGS> 24,684 14,283
<TOTAL-COSTS> 62,538 40,154
<OTHER-EXPENSES> 20,772 1,085
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 100 122
<INCOME-PRETAX> 3,932 (11,358)
<INCOME-TAX> (22,292) 573
<INCOME-CONTINUING> 26,224 (11,931)
<DISCONTINUED> 1,925 13,046
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 28,149 1,115
<EPS-BASIC> 1.33 0.06
<EPS-DILUTED> 1.11 0.06
</TABLE>
