<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 23, 1998
REGISTRATION NUMBER 333-52883
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
BINDVIEW DEVELOPMENT CORPORATION
(Exact name of registrant as specified in its charter)
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TEXAS 7372 76-0306721
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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3355 WEST ALABAMA, SUITE 1200
HOUSTON, TEXAS 77098
713/843-1799
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
SCOTT R. PLANTOWSKY
CHIEF FINANCIAL OFFICER
BINDVIEW DEVELOPMENT CORPORATION
3355 WEST ALABAMA, SUITE 1200
HOUSTON, TEXAS 77098
713/843-1799
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
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ROBERT F. GRAY, JR. JAY K. HACHIGIAN
RICHARD H. GILDEN BRIAN K. BEARD
FULBRIGHT & JAWORSKI L.L.P. GUNDERSON DETTMER STOUGH
1301 MCKINNEY, SUITE 5100 VILLENEUVE FRANKLIN & HACHIGIAN, LLP
HOUSTON, TEXAS 77010 8911 CAPITAL OF TEXAS HIGHWAY, SUITE 4240
713/651-5151 AUSTIN, TEXAS 78759
512/342-2300
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
- ---------------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ---------------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE PRICE(2) REGISTRATION FEE(3)
- -----------------------------------------------------------------------------------------------------------------------
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Common Stock, no par value per
share............................ 4,312,500 Shares $11.00 $47,437,500 $13,995
=======================================================================================================================
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(1) Includes 562,500 shares of Common Stock which may be purchased by the
Underwriters to cover over-allotments; if any.
(2) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o).
(3) Of such amount, $13,062 was previously paid on May 15, 1998.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JUNE 23, 1998
3,750,000 SHARES
COMMON STOCK
------------------------------
Of the 3,750,000 shares of Common Stock offered hereby, 2,762,385 shares
are being sold by BindView Development Corporation ("BindView" or the "Company")
and 987,615 shares are being sold by the Selling Shareholders. See "Principal
and Selling Shareholders." The Company will not receive any of the proceeds from
the sale of shares by the Selling Shareholders. Prior to this offering, there
has been no public market for the Common Stock of the Company. It is currently
estimated that the initial offering price will be between $9.00 and $11.00 per
share. See "Underwriting" for information relating to the method of determining
the initial public offering price. The Company has applied for quotation of the
Common Stock on the Nasdaq National Market System under the symbol "BVEW."
------------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 7.
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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UNDERWRITING PROCEEDS
PRICE TO DISCOUNTS PROCEEDS TO TO SELLING
PUBLIC AND COMMISSIONS COMPANY(1) SHAREHOLDERS
- ----------------------------------------------------------------------------------------------------------------------------
Per Share....................... $ $ $ $
- ----------------------------------------------------------------------------------------------------------------------------
Total(2)........................ $ $ $ $
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(1) Before deducting expenses payable by the Company estimated at $975,000.
(2) The Company has granted to the Underwriters a 30-day option to purchase up
to an additional 562,500 shares of Common Stock solely to cover
over-allotments, if any. See "Underwriting." If such option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions,
Proceeds to the Company and Proceeds to Selling Shareholders will be
$ , $ , $ and $ , respectively.
------------------------------
The Common Stock is offered by the Underwriters as stated herein, subject
to receipt and acceptance by them and subject to their right to reject any order
in whole or in part. It is expected that delivery of such shares will be made
through the offices of BancAmerica Robertson Stephens, San Francisco,
California, on or about , 1998.
BANCAMERICA ROBERTSON STEPHENS
BT ALEX. BROWN
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
THE DATE OF THIS PROSPECTUS IS , 1998.
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------------------------------
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, ENTERING STABILIZING BIDS, EFFECTING SYNDICATE
COVERING TRANSACTIONS AND IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
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NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, ANY SELLING SHAREHOLDER OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES
OR AN OFFER TO, OR A SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH
AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
------------------------------
TABLE OF CONTENTS
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PAGE
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Summary..................................................... 4
Risk Factors................................................ 6
Use of Proceeds............................................. 17
Dividend Policy............................................. 17
Capitalization.............................................. 18
Dilution.................................................... 19
Selected Consolidated Financial Data........................ 20
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 21
Business.................................................... 30
Management.................................................. 42
Certain Transactions........................................ 51
Principal and Selling Shareholders.......................... 54
Description of Capital Stock................................ 56
Shares Eligible for Future Sale............................. 58
Underwriting................................................ 60
Legal Matters............................................... 61
Experts..................................................... 61
Additional Information...................................... 62
Index to Consolidated Financial Statements.................. F-1
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The Company intends to furnish to its shareholders annual reports
containing audited consolidated financial statements examined by its independent
public accountants and quarterly reports containing unaudited financial
statements for the first three quarters of each fiscal year.
BindView EMS, NOSadmin and ActiveAdmin are trademarks of the Company and
BindView is a registered trademark of the Company. Trade names, service marks or
trademarks of other companies appearing in this Prospectus are the property of
their respective holders.
The Company was incorporated in Texas in May 1990. The Company's principal
executive offices are located at 3355 West Alabama, Suite 1200, Houston, Texas
77098, and its telephone number is (713) 843-1799. The Company's Web site is
located at www.bindview.com. Information contained in the Company's Web site
shall not be deemed to be a part of this Prospectus. Unless otherwise indicated,
all references in this Prospectus to "BindView" or the "Company" refer to
BindView Development Corporation and its subsidiaries.
Unless otherwise indicated, the information in this Prospectus (i) assumes
no exercise of the Underwriters' over-allotment option, (ii) reflects a
2 1/2-to-1 split of the Company's common stock (the "Common Stock") that was
approved by the Company's Board of Directors on May 14, 1998, subject to
shareholder approval, and (iii) reflects, except in the Consolidated Financial
Statements, the conversion of all outstanding shares of Preferred Stock into
Common Stock and the exercise of outstanding warrants to purchase 749,999 shares
of Common Stock upon or prior to completion of this offering.
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SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors" and the Consolidated Financial Statements
and Notes thereto, appearing elsewhere in this Prospectus. This Prospectus
contains forward-looking statements that involve risks and uncertainties. The
Company's actual results may differ materially from the results discussed in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those discussed in "Risk Factors" and elsewhere in this
Prospectus.
THE COMPANY
BindView develops, markets and supports a suite of systems management
software products that manage the security and integrity of complex, distributed
client/server networks operating on Microsoft Windows NT and Novell NetWare
environments. The Company's primary product line, BindView EMS, provides
software solutions for systems administration, security management, enterprise
inventory of LAN assets and Year 2000 assessment of PC hardware and software.
BindView EMS can be used by network administrators, security auditors and other
IT personnel to proactively identify, diagnose and, in many cases, fix a wide
range of systems management problems allowing organizations to reduce the Total
Cost of Ownership of enterprise computing.
The use of distributed, client/server networks has grown tremendously in
the last ten years with the increase in PC-based LANs being one of the fastest
growing aspects of the client/server market. These LANs are largely dependent on
servers running network operating systems provided by Microsoft and Novell. As
these LANs have grown larger and technically more complex, the problems
associated with maintaining their security and integrity have increased and
become more difficult for IT departments to manage. As a result, network
security and integrity are increasingly at risk, and the Total Cost of Ownership
for client/server computing has often climbed far beyond management's
expectations. The market for systems management software to address these issues
is growing rapidly. IDC projects this market for the Windows and NetWare
platforms to grow to over $4.6 billion by the year 2000, with security
management software for Windows NT Server and NetWare accounting for $640
million of the total.
Historically, IT organizations have addressed LAN systems management
problems through a combination of manual processes, custom-built tools and
third-party software, but none of these alternatives have offered a completely
satisfactory solution. Third-party software solutions, in general, have been
more cost-effective, less time consuming and less prone to human error than
manual processes and custom-built tools. However, most of the traditional
third-party LAN suites in this market focus on management of the desktop and not
on the management of the network operating system. In addition, many of these
solutions were not built specifically to manage Windows NT and NetWare
environments, do not scale efficiently to manage networks as they grow to
enterprise-wide deployments and do not provide the diagnostic software to find
and fix the root cause of a problem. As an organization's dependence on its LAN
infrastructure increases, its IT department must be able to address these
shortcomings.
The Company's comprehensive suite of systems management software products
enable IT organizations to manage the increasingly complex issues associated
with managing the security and integrity of the LAN environment in a
cost-effective manner. BindView EMS has been built to be native to each of the
Windows NT and Novell NetWare platforms that it supports. BindView EMS has also
been designed to manage workgroup LANs as well as enterprise-wide networks of
tens of thousands of users. BindView's product offerings utilize a unique
query-based approach to systems management that allows users to perform
diagnostic and reporting tasks in a matter of minutes that previously took hours
or even days to complete. Finally, the Company's products are designed to be
both easy to install and use, with a typical enterprise-wide deployment taking
just days or weeks to install depending on the product.
The Company's products have been sold to more than 70% of the Fortune 100
companies. BindView markets and sells its products primarily through a direct
telesales organization of 75 people located in Houston, Texas and Frankfurt,
Germany, and, to a lesser extent, through VARs, distributors and systems
integrators. The Company has sold its software products through direct channels
to over 4,000 corporations, governmental agencies and other organizations
worldwide, and also to over 150 resellers and distributors. The Company's
customers currently include: 3Com, Blue Cross and Blue Shield, Chase, Ernst &
Young, Federal Reserve Bank, GE Capital, Hoechst, Kellogg, Michelin, PageNet,
Paramount Pictures, Proctor & Gamble, Sony, Sprint and Suntrust.
The Company's objective is to be the leading provider of systems management
software for enterprise networks. In order to meet this goal, the Company's
strategy is to enhance its leadership position in security assessment software,
enhance its systems administration capabilities, apply query-based management to
new applications, expand its direct telesales model, leverage its existing
customer base and strengthen its strategic relationships.
4
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THE OFFERING
Common Stock Offered by the Company....... 2,762,385 shares
Common Stock Offered by the Selling
Shareholders.............................. 987,615 shares
Common Stock to be Outstanding after the
Offering.................................. 18,843,252 shares(1)(2)
Use of Proceeds........................... For working capital and general
corporate purposes. See "Use
of Proceeds."
Proposed Nasdaq National Market Symbol.... BVEW
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
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1993 1994 1995 1996 1997 1997 1998
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(UNAUDITED)
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CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues.......................................... $3,031 $5,171 $7,333 $11,002 $ 20,838 $ 3,423 $ 5,840
Operating income (loss)(3)........................ 396 509 783 1,982 (11,296) 725 390
Net income (loss)................................. 389 488 754 1,990 (8,028) 739 397
Pro forma net income (loss)(4)(5)................. 253 317 490 1,293 (7,263) 480 --(9)
Diluted pro forma net income (loss) per
share(4)(6)(7).................................. $ 0.03 $ 0.04 $ 0.06 $ 0.12 $ (0.88) $ 0.03 $ 0.02
Shares used in computing diluted pro forma net
income (loss) per share(6)(7)................... 8,228 8,228 8,228 11,046 8,232 14,314 16,322
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MARCH 31, 1998
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PRO
ACTUAL FORMA(2) AS ADJUSTED(2)(8)
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(UNAUDITED)
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CONSOLIDATED BALANCE SHEET DATA:
Working capital............................................. $10,857 $15,607 $40,322
Total assets................................................ 17,105 21,855 46,570
Long-term liabilities, net of current portion............... -- -- --
Total shareholders' equity.................................. 12,647 17,397 42,112
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(1) Based on the number of shares outstanding as of March 31, 1998. Excludes
4,717,388 shares subject to outstanding options as of March 31, 1998 at a
weighted average exercise price of $2.13 per share and 1,911,187 shares
reserved for issuance under the Company's stock option plans. See
"Management -- Stock Option Plans" and Note 7 of the Notes to Consolidated
Financial Statements.
(2) Reflects the automatic conversion of outstanding Preferred Stock into Common
Stock, the exercise of outstanding warrants to purchase 749,999 shares of
Common Stock, as the warrant holders have notified the Company of their
intention to exercise the warrants prior to the completion of the offering,
437,500 shares of Common Stock issued to an officer pursuant to the exercise
of a Common Stock purchase warrant in May 1998 and the intended exercise of
297,490 option shares by Selling Shareholders.
(3) Operating income excluding stock compensation expense of $436 and $15,262 in
1996 and 1997, respectively, recognized in connection with the Company's
terminated Phantom Stock Plan and a terminated provision of an employment
agreement would have been $2,418 and $3,966 in 1996 and 1997, respectively.
The Company believes this data may be useful to investors. However, such
data is not prepared in accordance with generally accepted accounting
principles and investors should not utilize this data as a substitute for
operating income.
(4) Pro forma net income excluding stock compensation expense of $436 and
$15,262 in 1996 and 1997, respectively, recognized in connection with the
Company's terminated Phantom Stock Plan and a terminated provision of an
employment agreement would have been $1,577 and $2,655 in 1996 and 1997,
respectively. The Company believes this data may be useful to investors.
However, such data is not prepared in accordance with generally accepted
accounting principles and investors should not utilize this data as a
substitute for operating income.
(5) Net income of the Company, adjusted for a pro forma charge in lieu of income
taxes as if the Company were a C Corporation for all periods.
(6) See Note 10 of the Notes to Consolidated Financial Statements for an
explanation of the method used to determine the number of shares used in
computing pro forma net income per share.
(7) The amounts for the three months ended March 31, 1998 represent actual
diluted net income per share rather than pro forma diluted net income per
share and the number of shares used to determine such amount.
(8) Adjusted to reflect the sale of 2,762,385 shares of Common Stock by the
Company at the initial offering price of $10.00 per share and the
application of the estimated net proceeds. See "Use of Proceeds" and
"Capitalization."
(9) Not applicable as the Company was a C Corporation for the entire period.
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RISK FACTORS
In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating the Company and its
business before purchasing shares of the Common Stock offered hereby. This
Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors" and elsewhere in this Prospectus.
OPERATING RESULTS SUBJECT TO SIGNIFICANT FLUCTUATIONS; SEASONALITY
The Company's quarterly revenues, expenses and operating results have in
the past varied and in the future will continue to vary significantly due to a
variety of factors, such as demand for the Company's products, the size and
timing of significant orders and their fulfillment, the length of the sales
cycle for larger orders, the number, timing and significance of product
enhancements and new product announcements by the Company and its competitors,
changes in pricing policies by the Company or its competitors, customer order
deferrals in anticipation of enhancements or new products offered by the Company
or its competitors or in anticipation of changes or delays in network operating
system ("NOS") platforms and technologies, the ability of the Company to
develop, introduce and market new and enhanced versions of its products on a
timely basis, changes in the Company's level of operating expenses, budgeting
cycles of its customers, product life cycles, undetected software errors and
other product quality problems, the Company's ability to attract and retain
qualified personnel, changes in the Company's sales incentive plans and staffing
of sales territories, changes in the mix of products and services sold, changes
in the mix of domestic and international revenues, the level of international
expansion, changes in the mix of channels through which the Company's products
are offered, the impact of industry consolidation, the Company's ability to
control costs and general domestic and international economic and political
conditions. The Company operates with virtually no order backlog because its
software products are shipped shortly after orders are received, which makes
product revenues in any quarter substantially dependent on orders booked
throughout that quarter. A disproportionate amount of the Company's sales are
booked in the last few weeks or days of each quarter as a result of customer
buying patterns. The Company believes this pattern will continue. Moreover, the
Company's expense levels are based to a significant extent on the Company's
expectations of future revenues and therefore are relatively fixed in the short
term. If revenue levels are below expectations, operating results are likely to
be adversely and disproportionately affected because only a small portion of the
Company's expenses vary with its revenues.
The Company's quarterly operating results are subject to certain seasonal
fluctuations, largely due to customer buying patterns. Historically, the
Company's revenues have tended to be strongest in the fourth quarter of the year
and to decrease in the first quarter of the following year. The Company believes
this seasonality is due to the calendar year budgeting cycles of many of its
customers and to compensation polices tending to compensate sales personnel for
achieving annual revenue quotas. In future periods, the Company expects these
seasonal trends may cause first quarter revenues to be significantly lower than
the level achieved in the preceding fourth quarter.
Prior to January 1, 1998, the Company provided telephone support free of
charge and sold product upgrades separately or through subscription contracts.
The Company now requires its customers to purchase a subscription policy in
order to receive product upgrades and technical support. Unlike software license
revenues that are generally recognized upon shipment of the product, the Company
recognizes revenues from the sale of subscription contracts ratably over the
life of the contract term. As a result, to the extent that the Company derives a
larger percentage of its revenues from the sale of subscription contracts, the
Company will experience an increase in deferred revenue that is likely to result
in decreases in operating margins that could have an adverse effect on the
Company's business operating results and financial condition.
Based upon all of the factors described above, the Company believes that
its quarterly revenues, expenses and operating results are likely to vary
significantly in the future, that period-to-period comparisons of its operating
results are not necessarily meaningful and that, in any event, such comparisons
should not be relied upon as indications of future performance. The Company has
limited ability to forecast future revenues, and it
6
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is likely that in some future quarter the Company's operating results will be
below the expectations of public market analysts and investors. In the event
operating results are below expectations, or in the event adverse conditions
prevail or are perceived to prevail generally or with respect to the Company's
business, the price of the Company's Common Stock would likely be adversely
affected. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
LIMITED OPERATING HISTORY; FUTURE OPERATING RESULTS UNCERTAIN
Although the Company was founded in 1990 and began shipping its first
products in 1991, the Company has derived substantially all of its revenues
since 1995 from sales of its BindView NCS product released in 1993 and its
BindView EMS product, which replaced the BindView NCS product in 1996. The
Company therefore has a limited history of operating results based on its
primary products and, accordingly, the Company's prospects should be viewed in
light of the risks and uncertainties inherent to a software company in the early
stages of development, particularly in the highly competitive and rapidly
evolving systems management software market. To compete in this market, the
Company believes that it will be necessary to devote substantial resources to
expanding its sales and marketing organization and to continued product
development. As a result, the Company will need to recognize significant
quarterly revenues to maintain profitability. Although the Company's revenues
have increased in recent years, and revenues for recent quarters have exceeded
revenues for the same quarter for the prior year, there can be no assurance that
the Company's revenues will grow in future periods, that they will grow at past
rates or that the Company will remain profitable on a quarterly or annual basis
in the future. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
SIGNIFICANT COMPETITION
The market in which the Company competes is intensely competitive and
characterized by rapidly changing technology and evolving standards. Companies
offering competitive products vary in the scope and breadth of the products and
services offered and include: (i) providers of security analysis and audit
products, such as Axent Technologies, Inc. and Security Dynamics Technologies,
Inc.; (ii) providers of standalone inventory and asset management products such
as Tally Systems Corp.; (iii) providers of LAN desktop management suites, such
as Intel Corporation, Hewlett-Packard Company and Microsoft Corporation; and
(iv) providers of Year 2000 assessment products such as Network Associates, Inc.
In addition, the native tools provided by Novell, Inc. and third-party tools
provided by certain vendors, such as Computer Associates, Inc. and other
companies, may compete with certain management features of the Company's
products. The Company has experienced, and expects to continue to experience,
increased competition from current and potential competitors, many of whom have
significantly greater financial, technical, marketing and other resources than
the Company. Such competitors may be able to respond more quickly to new or
emerging technologies and changes in customer requirements or devote greater
resources to the development, promotion and sale of their products than the
Company. Also, certain current and potential competitors, including such
enterprise management companies as IBM/Tivoli and Computer Associates, Inc., may
have greater name recognition or more extensive customer bases that could be
leveraged. The Company expects additional competition as other established and
emerging companies enter into the network management software market and new
products and technologies are introduced. Increased competition could result in
price reductions, fewer customer orders, reduced gross margins, longer sales
cycles and loss of market share, any of which would materially adversely affect
the Company's business, operating results and financial condition.
In addition, vendors of operating system software, particularly Microsoft
and Novell, may in the future enhance their products to include functionality
that is currently provided by the Company's products. The widespread inclusion
of the functionality of the Company's software as standard features of operating
system software could render the Company's products obsolete and unmarketable,
particularly if the quality of such functionality were comparable to that of the
Company's products. Even if the functionality provided as standard features by
operating system software is more limited than that of the Company's software,
there can be no assurance that a significant number of customers would not elect
to accept more limited functionality in lieu of purchasing additional software.
7
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Current and potential competitors may make strategic acquisitions or
establish cooperative relationships among themselves or with third parties,
thereby increasing their ability to address the needs of the Company's current
or prospective customers. Accordingly, it is possible that new competitors or
alliances among current and new competitors may emerge and rapidly gain
significant market share. Such competition could materially adversely affect the
Company's ability to obtain new licenses or to obtain maintenance and support
renewals for existing licenses on terms favorable to the Company. There can be
no assurance that the Company will be able to compete successfully against
current and future competitors, and the failure to do so would materially
adversely affect the Company's business, operating results and financial
condition. See "Business -- Competition."
RAPID TECHNOLOGICAL CHANGE AND NEW PRODUCTS
The market for the Company's products is characterized by rapid
technological change, frequent new product introductions and enhancements,
uncertain product life cycles, changes in customer demands and evolving industry
standards. The introduction of products embodying new technologies and the
emergence of new industry standards could render existing products obsolete and
unmarketable. The Company relies heavily on its relationships with Microsoft and
Novell and attempts to coordinate its product offerings with the future releases
of operating systems by such vendors. The Company may or may not be made aware
of such feature enhancements prior to their release and, therefore, may not be
able to introduce products on a timely basis that capitalize on such operating
system releases and feature enhancements. As a result of the complexities
inherent in client/server computing environments, the life cycles of the
Company's software products are difficult to estimate and new products and
product enhancements can require long development and testing periods and are
dependent on the Company's ability to hire and retain increasingly scarce and
technically competent personnel. As a result, significant delays in the general
availability of such new releases or significant problems in the installation or
implementation of such new releases could have a material adverse effect on the
Company's business, operating results and financial condition. The Company has,
on occasion, experienced delays in the scheduled introduction of new and
enhanced products and there can be no assurance that such delays will not be
experienced in the future. As a result, the Company's future success will
depend, in part, upon its ability to continue to enhance existing products and
develop and introduce in a timely manner new products to keep pace with
technological change and evolving industry standards, satisfy customer
requirements and achieve market acceptance. There can be no assurance that the
Company will successfully identify new product opportunities and develop and
bring new products to market in a timely and cost-effective manner, or that
products, capabilities or technologies developed by others will not render the
Company's products or technologies obsolete or noncompetitive or shorten the
life cycles of the Company's products. See "Business -- Product Development."
DEPENDENCE ON CONTINUED GROWTH OF THE MARKET FOR WINDOWS NT AND NOVELL NETWARE
OPERATING SYSTEMS
To date, all of the Company's revenues have been dependent upon Microsoft's
Windows NT and Novell's NetWare operating systems. Although demand for Windows
NT and Novell NetWare operating systems has grown in recent years with the
proliferation of distributed computing, this market is still emerging and there
can be no assurance that it will continue to grow or that, even if the market
does grow, organizations will continue to adopt the Company's products. The rate
of acceptance of the Company's products is dependent upon the increasing
complexity of Windows NT and NetWare operating systems and the lack of effective
tools to simplify system administration and security management for these
environments. There can be no assurance that the market for the Company's
products will continue to develop or that the Company's products will be widely
accepted. Additionally, there can be no assurance that the market for system
administration and security management software generally will continue to grow.
If the markets for the Company's products fail to develop or develop more slowly
than the Company currently anticipates, the Company's business, operating
results and financial condition would be materially adversely affected. The
percentages of the Company's revenues attributable to licenses of its software
operating on particular platforms are subject to change from time to time due to
a number of factors outside the Company's control, such as changing market
acceptance and penetration of the various operating system platforms supported
by the Company and the relative mix of development and installation by
value-added resellers ("VARs") of
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application software operating on such platforms. See "Business -- Industry
Background," "-- Products and Technology" and "-- Sales and Marketing."
PRODUCT CONCENTRATION
Substantially all of the Company's revenues to date have been attributable
to the sale of its NOSadmin and NETinventory products, and these products are
currently expected to account for substantially all of the Company's revenues
for the foreseeable future. The Company's future operating results are dependent
upon continued market acceptance of its NOSadmin and NETinventory products and
enhancements to these products, as well as the continued development of
additional snap-in modules to its Enterprise Console product. Consequently, a
decline in the demand for, or market acceptance of, the Company's NOSadmin and
NETinventory products as a result of competition, technological change or other
factors, would have a material adverse effect on the Company's business,
operating results and financial condition. Although the Company currently has
plans to broaden its product line, there can be no assurance that such product
concentration will be reduced. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business -- Products and
Technology."
RISKS ASSOCIATED WITH LENGTH OF SALES CYCLE
The Company has traditionally focused sales of its products to the
workgroups and divisions of a customer, resulting in a sales cycle ranging
between three and six months. Recently, the Company has focused more of its
selling effort on products for the customer's entire enterprise, since such
sales represent a larger revenue opportunity. However, the sales cycle for these
enterprise-wide sales typically ranges between six and twelve months, which can
be more than twice as long as the sales cycle for smaller scale implementations.
Because of the costs involved, customers of enterprise-wide sales generally
commit significant resources to an evaluation of available network management
software and require the Company to expend substantial time, effort and money
educating them about the value of the Company's products and services.
Enterprise-wide sales of the Company's software products require an extensive
sales effort throughout a customer's organization because decisions to license
and deploy such software generally involve the evaluation of the software by a
significant number of customer personnel in various functional and geographic
areas, each often having specific and conflicting requirements. A variety of
factors, including factors over which the Company has little or no control, may
cause potential customers to favor competing products or to delay or forego a
purchase. As a result of the length of the sales cycle for larger,
enterprise-wide sales of its products and services, the Company has a limited
ability to forecast the timing and amount of specific sales. The delay or
failure to complete one or more large, enterprise-wide sales in a particular
quarter or calendar year could have a materially adverse effect on the Company's
business, operating results and financial condition and could cause the
Company's operating results to vary significantly from quarter to quarter. See
"-- Operating Results Subject to Significant Fluctuations; Seasonality."
MANAGEMENT OF A RAPIDLY CHANGING BUSINESS
The Company has recently experienced a period of significant expansion that
has placed significant demands upon its management, systems and resources. In
particular, the Company had a total of 178 employees at March 31, 1998, as
compared to 85 at March 31, 1997. This expansion of the Company's business has
placed, and any future expansion is expected to continue to place, a significant
strain on the Company's management and operations, including its sales, customer
support, research and development, finance and administrative operations. The
Company is in the process of upgrading its internal financial, reporting and
sales contact management systems to enhance the Company's ability to obtain,
analyze and manage information and sales contacts derived from its domestic and
international operations. There can be no assurance, however, that the Company's
existing or future controls, systems or procedures will be adequate to support
the Company's operations. The Company is also considering moving to new
headquarters facilities in 1998, which can be a disruptive, time consuming and
expensive process. The Company's ability to manage its future growth, if any,
will require the Company to continually improve its financial and management
controls, reporting systems and procedures on a timely basis, implement new
systems as necessary, expand,
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train and manage its employee workforce and recruit qualified management
personnel. There can be no assurance that the Company's controls, systems,
procedures or management will be adequate to support the Company's operations.
Further, the implementation of such controls, systems or procedures could entail
substantial expense and require the time and attention of key management
personnel, either of which could have a materially adverse effect on the
Company's business, operating results or financial condition. The rapid
expansion of the Company's business may result in the Company being subject to a
variety of local, state, federal and international taxes. Although the Company
believes it is currently in compliance with the rules and regulations of such
tax jurisdictions, due to the complexity inherent in such tax laws, any
discovered current or future tax liabilities could have a materially adverse
effect on the Company's business, operating results and financial condition. The
founders of the Company, including the Company's Chief Executive Officer, have
had no prior experience managing a large or public company, and have only
limited experience managing a rapidly growing business organization. The failure
of the Company's management to respond effectively to changing business
conditions would have a material adverse effect upon the Company's business,
operating results and financial condition.
DEPENDENCE ON KEY PERSONNEL; NEED FOR ADDITIONAL QUALIFIED PERSONNEL
The Company's success depends to a significant extent upon the efforts of
Eric J. Pulaski, the Company's President and Chief Executive Officer, who is not
bound by an employment contract, and other key management, sales and marketing,
technical support and research and development personnel. The loss of key
management or technical personnel could adversely affect the Company. The
Company does not maintain key man life insurance policies on any of its
executive officers. The Company believes that its future success will depend in
large part upon its continuing ability to attract and retain highly skilled
research and development, technical support and sales and marketing personnel.
Like other software companies, the Company faces intense competition for such
personnel and the Company has at times experienced and continues to experience
difficulty in recruiting qualified personnel. The Company anticipates that it
will need to continue to increase the size of its research and development,
direct telesales, services and support personnel in future periods. In
particular, the Company has experienced difficulties in hiring and retaining
qualified research and development personnel. In order to support sales growth,
if any, the Company will need to increase the size of its sales and marketing
staff, increase the staff's productivity and, in selected markets, develop
indirect distribution channels. There can be no assurance that the Company will
be able to successfully leverage its sales force or that the Company's sales and
marketing organization will successfully compete against the more extensive and
better funded sales and marketing organizations of many of the Company's current
and future competitors. There can be no assurance that the Company will be
successful in attracting, assimilating and retaining additional qualified
personnel in the future. The loss of the services of one or more of the
Company's key individuals or the failure to attract and retain additional
qualified personnel, could have a material adverse effect on the Company's
business, operating results and financial condition. See "Business -- Employees"
and "Management."
RISKS ASSOCIATED WITH INTERNATIONAL SALES AND OPERATIONS
During 1995, 1996 and 1997, and during the three months ended March 31,
1998, the Company derived approximately 16%, 10%, 13% and 10% of its revenues,
respectively, from sales outside North America. The Company only recently opened
its first direct telesales and service office outside the United States.
Historically, the Company has generated revenues outside North America through
indirect channels, including VARs and other distributors. The Company is in the
early stages of developing its indirect distribution channels in certain markets
outside the United States. There can be no assurance that the Company will be
able to attract third parties that will be able to market the Company's products
effectively and will be qualified to provide timely and cost-effective customer
support and service. The Company's arrangements with its resellers generally
provide that such resellers may carry competing product offerings. There can be
no assurance that any distributor or reseller will continue to represent the
Company's products. The inability to recruit, or the loss of, important sales
personnel, distributors or resellers could materially adversely affect the
Company's business, operating results and financial condition.
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The Company anticipates that for the foreseeable future an increasing
percentage of its revenues may be derived from sources outside North America as
the Company seeks to expand its sales and support operations internationally. In
January 1998, the Company established its first international direct telesales
office and is still adapting the telesales model utilized by the Company in
North America to local conditions. In order to successfully expand international
sales, the Company must establish additional international direct telesales
offices, expand the management and support organizations for its international
sales channel, hire additional personnel, customize its products for local
markets, recruit additional international resellers where appropriate and expand
the use of its direct telesales model. There are currently only a limited number
of companies that have established a direct telesales model in countries outside
the United States. In the event the Company is unable to establish and generate
increased sales through a direct telesales model, it will incur higher personnel
costs without corresponding increases in revenue, resulting in lower operating
margins for its international operations. In addition, the differing employment
policies of countries outside the United States potentially reduce the Company's
flexibility in managing headcount and, in turn, managing personnel-related
expenses. To the extent that the Company is unable to address the risks
associated with these international sales in a timely and cost-effective manner,
the Company's sales growth internationally, if any, will be limited, operating
margins could be reduced by increases in personnel-related expenses without
corresponding increases in revenues, and the Company's business, operating
results and financial condition could be materially adversely affected. Even if
the Company is able to successfully expand its international operations, there
can be no assurance that the Company will be able to maintain or increase
international market demand for its products. See "Business -- Sales and
Marketing."
The Company's international operations are generally subject to a number of
risks, including costs of customizing products for foreign countries,
protectionist laws and business practices favoring local competition, dependence
on local vendors, compliance with multiple, conflicting and changing
governmental laws and regulations, longer sales cycles, greater difficulty or
delay in accounts receivable collection, import and export restrictions and
tariffs, difficulties in staffing and managing foreign operations, foreign
currency exchange rate fluctuations, multiple and conflicting tax laws and
regulations and political and economic instability. To date, substantially all
of the Company's revenues and costs have been denominated in U.S. dollars.
However, the Company believes that in the future, an increasing portion of the
Company's revenues and costs will be denominated in foreign currencies. There
can be no assurance that future fluctuations in the value of foreign currencies
will not have a material adverse effect on the Company's business, operating
results and financial condition. Management currently does not have an active
foreign exchange hedging program. As a result the Company's foreign operations
are subject to the risks of future foreign currency fluctuations, to the extent
that they are not hedged by obligations denominated in local currencies. See
"-- Operating Results Subject to Significant Fluctuations; Seasonality" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
LIMITED PROTECTION OF PROPRIETARY TECHNOLOGY; RISKS OF INFRINGEMENT
The Company relies primarily on a combination of copyright, trademark and
trade secret laws, confidentiality procedures and contractual provisions to
protect its proprietary rights. However, the Company believes that such measures
afford only limited protection. There can be no assurance that others will not
develop technologies that are similar or superior to the Company's technology or
design around the copyrights and trade secrets owned by the Company. The Company
licenses its software products primarily under "shrink wrap" licenses (i.e.,
licenses included as part of the product packaging). Shrink wrap licenses are
not negotiated with or signed by individual licensees and purport to take effect
upon the opening of the product package. In cases where the Company negotiates a
specific license with a customer, the license agreement contains provisions
purporting to protect the Company's proprietary rights. The Company believes,
however, that these measures afford only limited protection. Despite the
Company's efforts to protect its proprietary rights, unauthorized parties may
attempt to copy aspects of the Company's products or to obtain and use
information that the Company regards as proprietary. Policing unauthorized use
of the Company's products is difficult and the Company is unable to determine
the extent to which its products may be copied by unauthorized parties. In
addition, the laws of some foreign countries do not protect the Company's
proprietary rights as fully as do the laws of the United States. There can be no
assurance that the Company's means of
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protecting its proprietary rights will be adequate or that competition will not
independently develop similar or superior technology.
The Company is not aware that it is infringing upon any proprietary rights
of third parties. There can be no assurance, however, that third parties will
not claim infringement by the Company of their intellectual property rights. The
Company expects that software product developers increasingly will be subject to
infringement claims as the number of products and competitors in the Company's
industry segment grows and the functionality of products in different industry
segments overlaps. Any such claims, with or without merit, could be time
consuming to defend, result in costly litigation, divert management's attention
and resources, cause product shipment delays or require the Company to enter
into royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to the Company, if at all. In
the event of a successful claim of product infringement against the Company and
failure or inability of the Company to either license the infringed or similar
technology or develop alternative technology on a timely basis, the Company's
business, operating results and financial condition could be materially
adversely affected. See "Business -- Proprietary Rights."
RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS
Historically, the Company has not engaged in a substantial number of
acquisitions. However, in order to remain competitive in the future, the Company
may find it necessary to acquire businesses, products and technologies that
could complement or expand the Company's business. In the event that the Company
identifies an appropriate acquisition candidate, there can be no assurance that
the Company would be able to successfully negotiate the terms of any such
acquisition, finance such acquisition or integrate such acquired business,
products or technologies into the Company's existing business and operations.
Furthermore, the negotiation of potential acquisitions as well as the
integration of an acquired business could cause diversions of management time
and resources. There can be no assurance that a given acquisition, whether or
not consummated, would not materially adversely affect the Company's business,
operating results and financial condition. If the Company proceeds with one or
more significant acquisitions in which the consideration consists of cash, the
Company may be required to use a substantial portion of the Company's available
cash (including proceeds of this offering) to consummate the acquisitions. If
the Company consummates one or more significant acquisitions in which the
consideration consists of stock, shareholders of the Company could suffer a
significant dilution of their interests in the Company. See "Use of Proceeds"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
RISK OF UNDETECTED SOFTWARE ERRORS
Software products as complex as those offered by the Company may contain
certain undetected errors, particularly when first introduced or when new
versions or enhancements are released. The Company has in the past discovered
software errors in certain of its new products after their introduction. There
can be no assurance that, despite testing by the Company, such errors will not
be found in current versions, new versions or enhancements of its products after
commencement of commercial shipments, resulting in adverse publicity, loss of
revenues, delay in market acceptance or claims by customers brought against the
Company, all of which could have a material adverse effect on the Company's
business, operating results and financial condition. See "Business -- Product
Development."
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products were not
built to cope with issues that will result from accepting and processing dates
beyond December 31, 1999. This problem stems from the fact that many software
products, computer systems, and other equipment with embedded hardware chips
that use dates, have stored the year component of such dates as a two-digit
number relative to the year 1900 rather than as a four-digit number (e.g.,
storing the year as "98" rather than "1998"). On January 1, 2000, systems using
only a two-digit year may interpret the year "00" as "1900" rather than "2000"
and continue to misinterpret subsequent years as well. In addition, the clocks
of many systems that automatically compute leap years may incorrectly compute
leap years beyond 1999. Many other associated problems could also occur,
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including system failures or miscalculations causing disruption of operations.
As a result, in the next two years, computer systems and/or software used by
many companies may need to be upgraded to comply with such "Year 2000"
requirements. Significant uncertainty exists in the software industry concerning
the potential effects associated with such compliance. Although the latest
versions of BindView EMS are designed to be Year 2000 compliant, releases of
BindView EMS before version 5.2a are not Year 2000 compliant or have not been
tested for Year 2000 compliance. There can be no assurance the Company's
software products designed to be Year 2000 compliant contain all necessary date
code changes.
The Company believes that the purchasing patterns of customers and
potential customers may be affected by Year 2000 issues in a variety of ways.
Many companies are expending significant resources to correct or patch their
current software systems for Year 2000 compliance. These expenditures may result
in reduced funds available to purchase products and services such as those
offered by the Company. Potential customers may also choose to defer purchasing
Year 2000 compliant products until they believe it is absolutely necessary, thus
resulting in depressed market sales within the industry. Conversely, Year 2000
issues may cause other companies to accelerate purchases, thereby causing an
increase in short-term demand and a consequent decrease in long-term demand for
software products. Additionally, Year 2000 issues could cause a significant
number of companies, including current customers of the Company, to reevaluate
their current software needs and, as a result, switch to other systems or
suppliers. Any of the foregoing could result in a material adverse effect on the
Company's business, operating results and financial condition.
BindView currently uses third-party software applications some of which are
not Year 2000 compliant. The Company is in the process of upgrading these
systems to be able to handle the transition to the Year 2000 and beyond and
plans to have these upgrades completed within the next 12 months. In addition,
the Company is not yet certain as to the extent to which the computer software
and business systems of its suppliers are Year 2000 compliant. If systems of
third parties on which the Company relies are not converted on a timely basis,
the Year 2000 issue could have a material adverse effect on the Company's
business, financial conditions or results of operations.
PRODUCT LIABILITY
Although the Company's license agreements with its customers typically
contain provisions designed to limit the Company's exposure to potential product
liability claims, it is possible that such limitation of liability provisions
may not be effective as a result of existing or future laws or unfavorable
judicial decisions. The Company has not experienced any material product
liability claims to date. However, the sale and support of the Company's
products may entail the risks of such claims, which may be substantial in light
of the use of the Company's products in business-critical applications. In
particular, because certain products of the Company are sold to customer's with
the intent of aiding them in their attempt to resolve security management,
inventory management and Year 2000 issues, it is possible that the Company could
be exposed to product liability claims in the event such products result in
additional problems for the customer or do not perform as the customer might
expect. A successful product liability claim brought against the Company could
have a material adverse effect on the Company's business, operating results and
financial condition. Moreover, defending such a suit, regardless of its merits,
could entail substantial expense and require the time and attention of key
management personnel, either of which could have a materially adverse effect on
the Company's business, operating results and financial condition. See
"Business -- Products and Technology" and "-- Product Development."
NO PRIOR TRADING MARKET FOR THE COMMON STOCK; POTENTIAL VOLATILITY OF STOCK
PRICE
Prior to this offering, there has been no public market for the Common
Stock and there can be no assurance that an active trading market will develop
or be sustained after this offering. The initial public offering price will be
determined by negotiation among the Company, the Selling Shareholders and the
representatives of the Underwriters and may not be indicative of the price that
will prevail in the open market. See "Underwriting" for a discussion of the
factors to be considered in determining the initial public offering price.
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The market price of the Common Stock is likely to be highly volatile and
may be significantly affected by factors such as actual or anticipated
fluctuations in the Company's revenue and operating results, announcements of
technological innovations, new or enhanced products by the Company or its
competitors, developments with respect to copyrights or proprietary rights,
conditions and trends in the software and other technology industries, adoption
of new accounting standards affecting the software industry, changes in
financial estimates by securities analysts, general market conditions and other
factors. In addition, the stock market has from time to time experienced
significant price and volume fluctuations that have particularly affected the
market prices for the securities of technology companies. In the past, following
periods of volatility in the market price of a particular company's securities,
securities class action litigation has often been brought against the company.
There can be no assurance that such litigation will not occur in the future with
respect to the Company. Such litigation could result in substantial costs and a
diversion of management's attention and resources, which could have a material
adverse effect upon the Company's business, operating results and financial
condition. See "Underwriting."
CONTROL OF COMPANY BY OFFICERS, DIRECTORS AND FIVE PERCENT SHAREHOLDERS
Upon the consummation of this offering, the officers, directors, five
percent or greater shareholders and their affiliates in the aggregate will
beneficially own approximately 71.4% of the outstanding Common Stock (69.5% if
the Underwriters' over-allotment option is exercised in full). As a result,
these shareholders will be able to exercise control over all matters requiring
shareholder approval, including the election of directors and approval of
significant corporate transactions. Such concentration of ownership may have the
effect of delaying or preventing a change in control of the Company. See
"Principal and Selling Shareholders."
BENEFITS OF THE OFFERING TO EXISTING STOCKHOLDERS
The existing stockholders of the Company will recognize significant
benefits from this offering. These benefits include the creation of a public
market for the Company's Common Stock, which will afford existing stockholders
the ability to liquidate their investments, subject, in certain cases, to volume
limitations and other limitations and restrictions upon the sale of the Common
Stock. See "Shares Eligible For Future Sale." Certain of the Company's
stockholders will sell shares in this offering. See "Principal and Selling
Stockholders." As of March 31, 1998, existing stockholders held 16,080,867
shares of Common Stock (on a pro forma basis), which shares were originally
purchased from the Company at prices up to $2.85 per share, with an aggregated
consideration paid to the Company of $23,147,000. Based on the initial public
offering price of $10 per share, after this offering (assuming no exercise of
the Underwriters' over-allotment option) the aggregate value of the shares owned
by the Company's existing stockholders will be $160,809,000, reflecting
unrealized gains of $137,662,000 over the aggregate consideration paid to the
Company for such shares (assuming that such shares continue to be held by the
original purchasers thereof). Further, as of March 31, 1998, there were
4,717,388 shares of Common Stock issuable upon exercise of outstanding options
at a weighted average exercise price of $2.13 per share. Such options and
warrants have an aggregate potential realizable gain of $37,126,000.
Accordingly, after this offering, existing stockholders and optionholders will
have substantial unrealized gains on their retained shares and options. See
"Dilution" and "Principal and Selling Stockholders."
ANTI-TAKEOVER EFFECTS OF ARTICLES OF INCORPORATION, BYLAWS AND TEXAS LAW
The Company's Amended and Restated Articles of Incorporation (the "Revised
Articles of Incorporation") and Bylaws contain certain provisions that may have
the effect of discouraging, delaying or preventing a change in control of the
Company or unsolicited acquisition proposals that a shareholder might consider
favorable, including provisions (i) authorizing the issuance of "blank check"
preferred stock, (ii) establishing advance notice requirements for shareholder
nominations for elections to the Board of Directors or for proposing matters
that can be acted upon at shareholders' meetings, (iii) eliminating the ability
of shareholders to act by written consent and (iv) providing for a Board of
Directors with staggered, three-year
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terms. In addition, certain provisions of Texas law and the Company's Omnibus
Incentive Plan (the "Omnibus Plan") may also have the effect of discouraging,
delaying or preventing a change in control of the Company or unsolicited
acquisition proposals. The anti-takeover affect of the documents mentioned above
may also have an adverse effect on the public trading price of the Company's
Common Stock. See "Description of Capital Stock" and "Management -- Stock Option
Plans."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock after the offering
could adversely affect the market price of the Common Stock and could impair the
Company's ability to raise capital through the sale of equity securities. Upon
completion of the offering, the Company will have outstanding 18,843,252 shares
of Common Stock (19,405,752 shares if the Underwriters' over-allotment option is
exercised in full), assuming no exercise of options after April 30, 1998. Of
these shares, the 3,750,000 shares offered hereby (4,312,500 shares if the
Underwriters' over-allotment option is exercised in full) will be freely
tradable without restriction or further registration under the Securities Act of
1933, as amended (the "Securities Act"), unless purchased by "affiliates" of the
Company as that term is defined in Rule 144 under the Securities Act ("Rule
144") described below. The remaining 15,093,252 shares of Common Stock
outstanding upon completion of the offering will be "restricted securities" as
that term is defined in Rule 144.
Restricted shares may be sold in the public market only if registered or if
they qualify for an exemption from registration under Rule 144, 144(k) or 701
promulgated under the Securities Act. As a result of the contractual
restrictions described below and the provisions of Rules 144, 144(k) and 701,
additional shares will be available for sale in the public market as follows:
(i) 82,500 shares will be eligible for immediate sale on the date of this
Prospectus; (ii) no shares will be eligible for sale 90 days after the date of
this Prospectus; (iii) 14,194,106 shares will be eligible for sale upon
expiration of lock-up agreements between certain shareholders of the Company and
the representatives of the Underwriters 180 days after the date of this
Prospectus; and (iv) 1,069,275 shares will be eligible for sale thereafter. In
addition to the foregoing, as of March 31, 1998, there were outstanding under
the Stock Option Plans options to purchase an aggregate of 4,717,388 shares of
Common Stock. All of which shares underlying such options will be eligible for
sale upon expiration of the lock-up agreements between certain option holders of
the Company and the representatives of the Underwriters beginning 180 days after
the date of this Prospectus, subject in certain cases to such shares underlying
outstanding options becoming eligible for sale more than 180 days after the date
of this Prospectus as such options vest. In addition, the Company intends to
register, following this offering, approximately 5,178,740 shares of Common
Stock subject to outstanding options or reserved for issuance under the
Company's Stock Option Plans. Further, certain shareholders holding
approximately 13,700,000 shares of Common Stock (assuming the exercise of
warrants to purchase 749,999 shares of Common Stock held by holders of
registration rights) are entitled to demand registration of their shares of
Common Stock. By exercising their demand registration rights, such shareholders
could cause a large number of securities to be registered and sold in the public
market, which could have an adverse effect on the market price of the Common
Stock. See "Description of Capital Stock" and "Shares Eligible for Future Sale."
BROAD DISCRETION OVER USE OF PROCEEDS
The net proceeds to the Company from this offering will be used, as
determined by management in its sole discretion, for working capital and general
corporate purposes, as well as for the possible acquisition of additional
businesses and technologies or the establishment of joint ventures that are
complementary to the current or future business of the Company. The Company has
not determined the specific allocation of net proceeds among the various uses
described above. Accordingly, investors in this offering will rely upon the
judgment of the Company's management with respect to the use of proceeds, with
only limited information concerning management's specific intentions. See "Use
of Proceeds."
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IMMEDIATE AND SUBSTANTIAL DILUTION
The initial public offering price is substantially higher than the book
value per share of the outstanding Common Stock. As a result, investors
purchasing Common Stock in this offering will incur immediate and substantial
dilution of $7.77 per share. In addition, the Company has issued options to
acquire Common Stock at prices significantly below the assumed initial public
offering price. To the extent such outstanding options are exercised, there will
be further dilution. See "Dilution" and "Shares Eligible for Future Sale."
16
<PAGE> 18
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,762,385 shares of
Common Stock offered by the Company hereby will be approximately $24,715,181
million ($29,946,431 if the Underwriters' over-allotment option is exercised in
full), after deducting estimated underwriting discounts and commissions and
estimated offering expenses payable by the Company. The Company will not receive
any of the proceeds from the sale of shares of Common Stock by the Selling
Shareholders. The principal purposes of this offering are to increase the
Company's equity capital, to create a public market for the Common Stock, to
facilitate future access by the Company to public equity markets and to provide
increased visibility of the Company in a marketplace where many of its
competitors are publicly held companies.
The Company intends to use the net proceeds of this offering for working
capital and general corporate purposes. The Company may also use a portion of
the net proceeds for possible acquisition of businesses, products and
technologies that are complementary to those of the Company. Although the
Company has not identified any specific businesses, products or technologies
that it may acquire, nor are there any current agreements or negotiations with
respect to any such transactions, the Company from time to time evaluates such
opportunities. Pending such uses, the Company plans to invest the net proceeds
in short-term, interest-bearing, investment-grade securities.
DIVIDEND POLICY
Prior to becoming a C Corporation in October 1997, the Company paid
distributions to its S Corporation shareholders in amounts generally consistent
with their tax liabilities arising from their allocable share of S Corporation
earnings. Since becoming a C Corporation, the Company has not declared or paid
any cash dividends on its capital stock and does not expect to do so in the
foreseeable future. The Company anticipates that all future earnings, if any,
generated from operations will be retained by the Company to develop and expand
its business. Any future determination with respect to the payment of dividends
will be at the discretion of the Board of Directors and will depend upon, among
other things, the Company's operating results, financial condition and capital
requirements, the terms of then-existing indebtedness, general business
conditions and such other factors as the Board of Directors deems relevant.
17
<PAGE> 19
CAPITALIZATION
The following table sets forth the unaudited total capitalization of the
Company as of March 31, 1998, (i) on an actual basis, (ii) on a pro forma basis
to reflect the filing of the Revised Articles of Incorporation and the automatic
conversion of all outstanding shares of the Company's Preferred Stock into
Common Stock upon completion of the offering, the exercise of all outstanding
Investor Warrants in accordance with the notification to the Company by the
holders thereof of their intention to exercise the warrants prior to the
completion of the offering, the issuance by the Company of 437,500 shares of
Common Stock in May 1998 to an officer pursuant to the exercise of a Common
Stock purchase warrant and the intended exercise of 297,490 option shares by
Selling Shareholders and (iii) on such pro forma basis as adjusted to reflect
the sale of the shares of Common Stock offered by the Company hereby at an
assumed initial public offering price of $10.00 per share and the application of
the estimated net proceeds therefrom. See "Use of Proceeds." This table should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
and Notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Shareholders' equity:
Convertible Preferred Stock: $.01 par value, 20,000,000
shares authorized, 2,528,090 issued and outstanding,
actual; 20,000,000 authorized, no shares issued and
outstanding, pro forma and as adjusted............... $ 25 $ -- $ --
Common Stock: no par value, 100,000,000 shares
authorized, 13,197,615 shares issued and 8,275,657
shares outstanding, actual; 100,000,000 shares
authorized, 21,002,825 shares issued and 16,080,867
shares outstanding, pro forma; 100,000,000 shares
authorized, 23,765,210 shares issued and 18,843,252
shares outstanding, as adjusted(1)................... 1 1 1
Additional paid-in capital................................ 31,728 37,053 61,768
Common Stock warrant to purchase 437,500 shares........... 550 -- --
Accumulated deficit....................................... (5,640) (5,640) (5,640)
Treasury stock, 4,921,958 shares actual and pro forma,
shares as adjusted............................ (14,017) (14,017) (14,017)
-------- -------- --------
Total shareholders' equity...................... 12,647 17,397 42,112
-------- -------- --------
Total capitalization............................ $ 12,647 $ 17,397 $ 42,112
======== ======== ========
</TABLE>
- ------------
(1) Based on the number of shares outstanding as of March 31, 1998. Excludes
4,717,388 shares subject to options outstanding as of March 31, 1998 at a
weighted average exercise price of $2.13 per share and 1,911,187 shares
reserved for issuance under the Company's Stock Option Plan. See
"Management -- Stock Option Plans" and Note 7 of Notes to Consolidated
Financial Statements.
18
<PAGE> 20
DILUTION
The pro forma net tangible book value of the Company as of March 31, 1998,
giving effect to the conversion of all outstanding shares of Preferred Stock
into Common Stock and the exercise of all outstanding Warrants upon or prior to
the closing of this offering, was $17,397,000, or approximately $1.08 per share.
"Pro forma net tangible book value" per share represents the amount of total
tangible assets of the Company less total liabilities, divided by the number of
shares of Common Stock outstanding on an as-converted basis. The pro forma net
tangible book value of the Company as of March 31, 1998 would have been
approximately $42,112,000, or $2.23 per share after giving effect to the sale of
2,762,385 shares of Common Stock offered by the Company in this offering at an
assumed initial public offering price of $10.00 per share and the application of
the estimated net proceeds therefrom. This represents an immediate increase in
pro forma net tangible book value of $1.16 per share to existing shareholders
and an immediate dilution of $7.77 per share to investors purchasing shares of
Common Stock in this offering. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price................................ $ 10.00
Pro forma net tangible book value as of March 31,
1998(1)................................................ $ 1.08
-------
Increase attributable to new investors.................... $ 1.15
Adjusted pro forma net tangible book value as of March 31, 1998(1)... $ 2.23
--------
Dilution to new investors(1)......................................... $ 7.77
========
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 1998,
the difference between the number of shares of Common Stock purchased from the
Company, the total consideration paid and the average price per share paid by
existing shareholders and by the new shareholders before deducting the estimated
underwriting discounts and commissions and estimated offering expenses payable
by the Company at the assumed initial public offering price of $10.00 per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders(2)............. 16,080,867 85% $23,147,000 46% $ 1.43
New shareholders(1)(2)............... 2,762,385 15 27,623,850 54 10.00
---------- --- ----------- ---
Totals..................... 18,843,252 100% $50,770,793 100%
========== === =========== ===
</TABLE>
- ------------
(1) Excludes 4,717,388 shares subject to outstanding options as of March 31,
1998 at a weighted average exercise price of $2.13 per share and 1,911,187
shares reserved for issuance under the Company's Stock Option Plan. To the
extent outstanding options are exercised, there will be further dilution to
new investors. See "Management -- Stock Option Plans" and Note 7 of the
Notes to Consolidated Financial Statements.
(2) Sales by the Selling Shareholders in this offering will reduce the number of
shares held by existing shareholders to 15,093,252, or 80% (15,093,252, or
77%, if the Underwriters' over-allotment option is exercised in full), and
will increase the number of shares held by new investors to 3,750,000, or
20% (4,312,500, or 23%, if the Underwriters' over-allotment option is
exercised in full), of the total number of shares of Common Stock
outstanding after this offering. See "Principal and Selling Shareholders."
19
<PAGE> 21
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the Consolidated Financial Statements and Notes thereto and
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations," which are included elsewhere in this Prospectus. The consolidated
statements of operations data for the years ended December 31, 1995, 1996 and
1997, and the consolidated balance sheet data at December 31, 1996 and 1997, are
derived from audited consolidated financial statements included elsewhere in
this Prospectus. Statements presented for all previous periods are derived from
audited financial statements not included in this Prospectus. The consolidated
statements of operations data for the three months ended March 31, 1997 and 1998
are derived from the unaudited consolidated financial statements of the Company,
which are included elsewhere herein. The unaudited financial information
reflects all adjustments (consisting only of normal recurring adjustments) that
the Company considers necessary for a fair statement of the financial data for
such period. The results of operations for the three months ended March 31,
1998, are not necessarily indicative of results to be expected for any future
period.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
FISCAL YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------------- -----------------
1993 1994 1995 1996 1997 1997 1998
------ ------ ------ ------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues:
Licenses.................................................. $3,031 $5,171 $7,005 $ 9,720 $ 17,821 $ 2,950 $ 4,384
Services.................................................. -- -- 328 1,282 3,017 473 1,456
------ ------ ------ ------- -------- ------- -------
Total revenues...................................... 3,031 5,171 7,333 11,002 20,838 3,423 5,840
------ ------ ------ ------- -------- ------- -------
Cost of revenues:
Cost of licenses.......................................... 626 564 693 465 644 91 208
Cost of services.......................................... -- -- 139 362 624 105 215
------ ------ ------ ------- -------- ------- -------
Total cost of revenues.............................. 626 564 832 827 1,268 196 423
------ ------ ------ ------- -------- ------- -------
Gross profit................................................ 2,405 4,607 6,501 10,175 19,570 3,227 5,417
------ ------ ------ ------- -------- ------- -------
Costs and expenses:
Sales and marketing....................................... 983 2,256 3,234 4,197 9,088 1,369 2,708
Research and development.................................. 615 820 1,249 2,088 3,573 622 1,643
General and administrative................................ 411 1,022 1,235 1,472 2,943 511 676
Stock compensation expense................................ -- -- -- 436 15,262 -- --
------ ------ ------ ------- -------- ------- -------
Operating income (loss)(4).................................. 396 509 783 1,982 (11,296) 725 390
Other income (expense), net................................. (7) (21) (29) 8 118 14 129
------ ------ ------ ------- -------- ------- -------
Income (loss) before income tax provision................... 389 488 754 1,990 (11,178) 739 519
Provision (benefit) for income tax.......................... -- -- -- -- (3,150) -- 122
------ ------ ------ ------- -------- ------- -------
Net income (loss)........................................... 389 488 754 1,990 (8,028) 739 397
Pro forma charge (benefit) in lieu of income taxes.......... 136 171 264 697 (765) 259 --
------ ------ ------ ------- -------- ------- -------
Pro forma net income (loss)(1)(5)........................... $ 253 $ 317 $ 490 $ 1,293 $ (7,263) $ 480 $ --
====== ====== ====== ======= ======== ======= =======
Diluted pro forma net income (loss) per share(2)(3)......... $ 0.03 $ 0.04 $ 0.06 $ 0.12 $ (0.88) $ 0.03 $ 0.02
====== ====== ====== ======= ======== ======= =======
Shares used in computing diluted pro forma net income (loss)
per share(2)(3)........................................... 8,228 8,228 8,228 11,046 8,232 14,314 16,322
------ ------ ------ ------- -------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------- MARCH 31,
1993 1994 1995 1996 1997 1998
---- ------ ------ ------ ------- -----------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital............................................. $(41) $ 197 $ 671 $1,750 $10,823 $10,857
Total assets................................................ 925 1,552 2,747 4,016 16,509 17,105
Long-term liabilities, net of current portion............... -- -- 68 -- -- --
Total shareholders' equity.................................. 287 707 1,214 2,647 12,250 12,647
</TABLE>
- ------------
(1) Net income of the Company, adjusted for a pro forma charge in lieu of income
taxes as if the Company were a C Corporation for all periods.
(2) See Note 10 of the Notes to Consolidated Financial Statements for an
explanation of the method used to determine the number of shares used in
computing diluted pro forma net income (loss) per share.
(3) The amounts for the three months ended March 31, 1998 represent actual
diluted net income per share rather than pro forma diluted net income per
share and the number of shares used to determine such amount.
(4) Operating income excluding stock compensation expense of $436 and $15,262 in
1996 and 1997, respectively, recognized in connection with the Company's
terminated Phantom Stock Plan and a terminated provision of an employment
agreement would have been $2,418 and $3,966 in 1996 and 1997, respectively.
The Company believes this data may be useful to investors. However, such
data is not prepared in accordance with generally accepted accounting
principles and investors should not utilize this data as a substitute for
operating income.
(5) Pro forma net income excluding stock compensation expense of $436 and
$15,262 option in 1996 and 1997, respectively, recognized in connection with
the Company's terminated Phantom Stock Plan and a terminated provision of an
employment agreement would have been $1,577 and $2,655 in 1996 and 1997,
respectively. The Company believes this data may be useful to investors.
However, such data is not prepared in accordance with generally accepted
accounting principles and investors should not utilize this data as a
substitute for operating income.
20
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Consolidated
Financial Statements and the Notes thereto included elsewhere in this
Prospectus. This discussion contains forward-looking statements that involve
risks and uncertainties. The Company's actual results could differ significantly
from the results discussed in the forward-looking statements as a result of
certain factors, including, but not limited to, those discussed in "Risk
Factors" and elsewhere in this Prospectus.
OVERVIEW
BindView develops, markets and supports a suite of systems management
software products that manage the security and integrity of complex, distributed
client/server networks operating on Microsoft Windows NT and Novell NetWare
environments. The Company's primary product line, BindView EMS, provides
software solutions for systems administration, security management, enterprise
inventory of LAN assets and Year 2000 assessment of PC hardware and software.
BindView EMS can be used by network administrators, security auditors and other
IT personnel to proactively identify, diagnose and, in many cases, fix a wide
range of systems management problems allowing organizations to reduce the Total
Cost of Ownership of enterprise computing.
BindView was founded in 1990 and in 1991 introduced the first generation of
its customizable report generator for NetWare file servers. In 1993, the Company
added inventory and asset management capabilities and released the BindView
Network Control System ("BindView NCS"). In 1996, BindView NCS was supplanted by
the BindView Enterprise Management System ("BindView EMS"), a completely
redesigned product utilizing a Windows-based, object-oriented architecture. The
release of BindView EMS was also accompanied by the release of NOSadmin for
NetWare 3 and NOSadmin for NetWare 4. NOSadmin for Windows NT began shipping in
early 1997 and NETinventory was added to the product family in mid-1997.
The Company's revenues totaled $7.3 million, $11.0 million and $20.8
million in 1995, 1996 and 1997, respectively, substantially all of which have
been derived from the sale of BindView NCS and BindView EMS related products and
services. The Company has been profitable each year since 1991 and, since the
third quarter of 1995, has experienced 11 consecutive quarters of profitability
(before stock compensation expense charges related to the termination of the
Phantom Stock Plan in October 1997 effecting profitability in 1997 and the
fourth quarter of 1997). However, there can be no assurance the Company will
remain profitable on a quarterly or annual basis. See "Risk Factors -- Operating
Results Subject to Significant Fluctuations; Seasonality," " -- Limited
Operating History; Future Operating Results Uncertain."
Pricing of the Company's software product licenses is based on the number
of servers, workstations and/or users. The Company may provide discounts for
customers with large installations or when several BindView EMS products are
licensed concurrently. The annual subscription contract is purchased separately
by customers at their discretion and is a separate component that is offered for
a fee generally equal to 21% of the retail price of the perpetual license fee.
Prior to January 1, 1998, the Company provided telephone support services free
of charge and sold product upgrades separately or through subscription
contracts. Subsequent to that date, the Company began requiring customers to
purchase a subscription contract in order to have access to such support
services and updates. Subscription contract revenues both before and after
January 1, 1998 are recognized ratably over the contract term. Subscription
contracts typically include telephone support and product updates, when and if
available. Most customers with large implementations of BindView EMS products
have purchased subscription contracts and have renewed such contracts on an
annual basis.
The Company recognizes revenues in accordance with the American Institute
of Certified Public Accountants Statement of Position No. 97-2. The Company
sells its products under perpetual licenses and recognizes its license revenues
upon meeting each of the following criteria: (i) execution of a written purchase
order, license agreement or contract; (ii) delivery of software or, if the
customer has previously received evaluation software, delivery of the software
license code; (iii) issuance of the related license, with no significant vendor
obligations or customer acceptance rights outstanding; (iv) the license fee is
fixed or
21
<PAGE> 23
determinable; and (v) collectibility is assessed as being probable. Revenues
from perpetual licenses are recorded as license revenues in the Statements of
Operations. Service revenues include subscription contracts and professional
services. Subscription contract revenues are recognized ratably over the one
year contract term. The portion of subscription contract revenues that have not
yet been recognized as revenue is reported as deferred revenue in the
accompanying balance sheet. However, costs associated with selling such
contracts are recognized in the period in which they were incurred. Professional
service revenues are recognized as such services are performed and have
historically been immaterial.
The Company markets and sells its products through direct telesales, VARs,
distributors and systems integrators. The Company's direct telesales
organization generates the substantial majority of sales to North America
customers. Conversely, VARs, distributors and systems integrators generate the
substantial majority of sales to international customers. In 1998, the Company
launched its first international direct telesales effort by forming a wholly
owned German subsidiary, BindView Development GmbH. Historically, substantially
all sales have been invoiced and paid in U.S. dollars. However, the Company
anticipates international expansion will result in the Company transacting
business in foreign currencies. The Company may implement a foreign currency
forward-hedging program to mitigate the foreign currency transaction risk in the
future. See "Risk Factors -- Risks Associated with International Sales and
Operations."
At the time of its incorporation, the Company (then operating as The LAN
Support Group, Inc.) elected to be treated as an S Corporation under Subchapter
S of the Internal Revenue Code. As an S Corporation, the Company's shareholders
were liable for federal income tax liabilities resulting from the Company's
operations. On October 16, 1997, the Company's status as an S Corporation was
terminated and for periods thereafter the Company has been liable for federal
income taxes. The Company has recognized a pro forma charge in lieu of income
taxes in its Consolidated Statements of Operations for the periods prior to its
C Corporation status to reflect income tax charges as if the Company had been a
C Corporation for all periods presented. Prior to the termination of its S
Corporation status, the Company declared distributions as dividends to
shareholders payable in cash in an amount generally equal the tax consequence
created by the S Corporation's earnings up to the date of such termination. The
Company has no plans to pay any dividends or distributions in the foreseeable
future.
22
<PAGE> 24
RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data as a
percentage of total revenues for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------- ---------------
1995 1996 1997 1997 1998
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues:
Licenses..................................... 95.5% 88.3% 85.5% 86.2% 75.1%
Services..................................... 4.5 11.7 14.5 13.8 24.9
----- ----- ----- ----- -----
Total revenues....................... 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- -----
Cost of revenues:
Cost of licenses............................. 9.5 4.2 3.1 2.6 3.6
Cost of services............................. 1.8 3.3 3.0 3.1 3.6
----- ----- ----- ----- -----
Total cost of revenues............... 11.3 7.5 6.1 5.7 7.2
----- ----- ----- ----- -----
Gross margin................................... 88.7 92.5 93.9 94.3 92.8
----- ----- ----- ----- -----
Costs and expenses:
Sales and marketing.......................... 44.1 38.1 43.6 40.0 46.4
Research and development..................... 17.0 19.0 17.1 18.2 28.1
General and administrative................... 16.8 13.4 14.1 14.9 11.6
Stock compensation expense................... -- 4.0 73.2 -- --
----- ----- ----- ----- -----
Operating income (loss)........................ 10.8 18.0 (54.1) 21.2 6.7
Other income (expense), net.................... (0.4) 0.1 0.6 0.4 2.2
----- ----- ----- ----- -----
Income (loss) before income tax provision...... 10.4 18.1 (53.5) 21.6 8.9
Provision (benefit) for income tax............. -- -- (15.1) -- 2.1
----- ----- ----- ----- -----
Net income (loss).............................. 10.4 18.1 (38.4) 21.6 6.8
Pro forma charge (benefit) in lieu of income
taxes........................................ 3.6 6.3 (3.6) 7.6 --
----- ----- ----- ----- -----
Pro forma net income (loss).................... 6.8 11.8 (34.8) 14.0 --
===== ===== ===== ===== =====
</TABLE>
Revenues
The Company's revenues are derived from the sale of software products and
related services including subscription contracts. The Company's revenues were
$7.3 million, $11.0 million and $20.8 million in 1995, 1996 and 1997,
respectively, representing increases of $3.7 million or 50% from 1995 to 1996
and $9.8 million or 89% from 1996 to 1997. The Company's revenues were $3.4
million and $5.8 million for the three months ended March 31, 1997 and 1998,
respectively, representing an increase in the first quarter of 1998 of $2.4
million or 71% over the comparable quarter of the prior year. The Company had no
customer that accounted for more than 10% of its revenues in 1996, 1997 or for
the three months ended March 31, 1998. Revenues recognized from sales to
customers outside North America, primarily in the United Kingdom and Europe,
represented approximately 16%, 10%, 13% and 10% in 1995, 1996, 1997 and for the
three months ended March 31, 1998, respectively.
The Company's license revenues were $7.0 million, $9.7 million and $17.8
million in 1995, 1996 and 1997, respectively, representing increases of $2.7
million or 39% from 1995 to 1996 and $8.1 million or 83% from 1996 to 1997. The
Company's license revenues were $3.0 million and $4.4 million for the three
months ended March 31, 1997 and 1998, respectively, representing an increase in
the first quarter of 1998 of $1.4 million or 49% over the comparable quarter of
the prior year. The increase in the Company's license revenues over this time
period has resulted from new product introductions and enhancements, increases
in the average transaction size and increases in the size and productivity of
the Company's sales force. The increase in the Company's license revenues from
1995 to 1996 resulting from the release of the Windows-based BindView EMS
product family, including NOSadmin for NetWare 3 and NOSadmin for NetWare 4,
approximated $3.9 million. The increase in the Company's license revenues from
1996 to 1997 resulting from
23
<PAGE> 25
continued market acceptance of BindView EMS, including the release of NOSadmin
for Windows NT and the release of NETinventory which approximated $4.8 million.
The increase in the Company's license revenues from the three months ended March
31, 1997 to the three months ended March 31, 1998, resulted from those reasons
cited for the growth between 1996 and 1997, as well as product enhancements to
NETinventory to include Year 2000 auditing capabilities for PC hardware and
software which contributed $1.4 million.
The Company's service revenues were $328,000, $1.3 million and $3.0 million
in 1995, 1996 and 1997, respectively, representing increases of $1.0 million or
291% from 1995 to 1996 and $1.7 million or 135% from 1996 to 1997. The Company's
subscription contract revenues were $473,000 and $1.5 million for the three
months ended March 31, 1997 and 1998, respectively, representing an increase in
the first quarter of 1998 of $1.0 million or 208% over the comparable quarter of
the prior year. The increase in the Company's service revenues from 1995 through
the first quarter of 1998 resulted primarily from increases in purchases of
subscription contracts by the Company's growing installed customer base and
larger dollar value of subscription agreements resulting from increases in the
average size of customer licensing agreements. In particular, the increase in
the Company's service revenues from the three months ended March 31, 1997 to the
three months ended March 31, 1998 resulted primarily from increases in sales of
subscription contracts to new and existing customers as a result of a change in
the Company's policies with respect to technical support and product upgrades.
Prior to January 1, 1998, the Company provided telephone support free of charge
and sold product upgrades separately or through subscription contracts.
Subsequent to that date, the Company began requiring customers to purchase a
subscription contract in order to have access to such support services and
updates. As subscription contracts are recognized ratably over the one year
contract term, an increase in such revenues as a percentage of total revenues
would result in greater deferred revenue recognition. This would, in turn,
impact the Company's operating margins. See "Risk Factors -- Operating Results
Subject to Significant Fluctuations; Seasonality."
Cost of Revenues
Cost of licenses includes product manuals, packaging, distribution and
media costs for the Company's software products. Cost of licenses were $693,000,
$465,000 and $644,000 in 1995, 1996 and 1997, respectively, and $91,000 and
$208,000 for the three months ended March 31, 1997 and 1998, respectively. The
cost of licenses decreased $228,000 or 33% from 1995 to 1996, increased $179,000
or 38% from 1996 to 1997 and increased $117,000 or 129% for the three months
ended March 31, 1997 as compared to the three months ended March 31, 1998. In
1996, the Company instituted a policy of qualifying potential customers before
delivering evaluation copies of the Company's software, resulting in a decrease
in the absolute cost of licenses. Since 1996, the cost of licenses has increased
primarily due to increases in product shipments. Cost of licenses as a
percentage of license revenues were 9.9%, 4.8% and 3.6% for 1995, 1996 and 1997,
respectively, and 3.1% and 4.7% for the three months ended March 31, 1997 and
1998, respectively. The Company believes these costs will remain relatively
consistent on a percentage basis in the future, although there will continue to
be quarterly fluctuations due to the timing of certain expenses, as was
exemplified in the first quarter of 1998 as compared to the comparable period in
1997.
Cost of services includes personnel and other costs related to technical
support and professional services. Cost of services were $139,000, $362,000 and
$624,000 in 1995, 1996 and 1997, respectively, and $105,000 and $215,000 for the
three months ended March 31, 1997 and 1998, respectively. The cost of services
increased $223,000 or 160% from 1995 to 1996, $262,000 or 72% from 1996 to 1997
and $110,000 or 105% for the three months ended March 31, 1997 as compared to
the three months ended March 31, 1998. The increase in the Company's cost of
services from 1995 through the first quarter of 1998 resulted primarily from
increases in the cost of technical support staff providing support to the
Company's growing customer base. Cost of services as a percentage of service
revenues were 42.4%, 28.2% and 20.7% for 1995, 1996 and 1997, respectively, and
22.2% and 14.8% for the three months ended March 31, 1997 and 1998,
respectively. These decreases in the Company's cost of services as a percentage
of service revenues from 1995 to the first quarter of 1998 resulted primarily
from service revenues outpacing technical support staffing levels. The Company
believes services gross margin as a percentage of service revenues in the future
will remain relatively consistent with services
24
<PAGE> 26
gross margins realized in the first quarter of 1998. Professional service
revenues generally results in a lower gross margin than other types of revenues
and in the event that professional service revenues increase as a percentage of
total revenues, the Company's gross margin may be adversely affected.
Costs and Expenses
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries, commissions and bonuses earned by sales and marketing personnel,
general office expenses, travel and entertainment and promotional expenses.
Sales and marketing expenses were $3.2 million, $4.2 million and $9.1 million in
1995, 1996 and 1997, respectively, and $1.4 million and $2.7 million for the
three months ended March 31, 1997 and 1998, respectively. Sales and marketing
expenses increased $1.0 million or 30% from 1995 to 1996, $4.9 million or 117%
from 1996 to 1997 and $1.3 million or 98% for the three months ended March 31,
1997 as compared to the three months ended March 31, 1998. The increase in the
Company's sales and marketing expenses from 1995 through the first quarter of
1998 resulted primarily from the hiring of sales management and additional sales
personnel, as well as higher commissions paid as a result of the Company's
revenue growth. The increase in the Company's sales and marketing expenses from
1996 to 1997 also resulted from increases in investment in marketing programs,
particularly a series of NT Security Seminars utilized to raise awareness of the
Company's security products. The increase in the Company's sales and marketing
expenses from the three months ended March 31, 1997 to the three months ended
March 31, 1998 also resulted from personnel and start-up costs associated with
the launch of a direct telesales organization in Germany during the first
quarter of 1998. Sales and marketing expenses as a percentage of total revenues
were 44.1%, 38.1% and 43.6% for 1995, 1996 and 1997, respectively, and 40.0% and
46.4% for the three months ended March 31, 1997 and 1998, respectively. As the
Company continues to devote resources to the expansion of the Company's sales
and marketing organization, the Company expects that sales and marketing
expenses as a percentage of total revenues will continue to be similar to the
percentage recorded in 1997 for the foreseeable future.
Research and Development. Research and development expenses consist
primarily of salaries and benefits of product development, product management
and quality assurance personnel, payments to contract programmers and expendable
equipment purchases. Research and development expenses were $1.2 million, $2.1
million and $3.6 million for 1995, 1996 and 1997, respectively, and $622,000 and
$1.6 million for the three months ended March 31, 1997 and 1998, respectively.
Research and development expenses increased $0.9 million or 67% from 1995 to
1996, $1.5 million or 71% from 1996 to 1997 and $1.0 million or 164% for the
three months ended March 31, 1997 as compared to the three months ended March
31, 1998. The increase in the Company's research and development expenses for
each period resulted primarily from an increase in the number of development and
quality assurance personnel to support the development of new products and
enhancements to existing products and an increase in compensation levels for
such personnel. In addition, in 1997 the Company formed a new product management
group to identify technical specifications and market opportunities for new and
existing products. Most of the new members of this group were hired in the
fourth quarter of 1997 and the first quarter of 1998. Research and development
expenses as a percentage of total revenues represented 17.0%, 19.0% and 17.1%
for 1995, 1996 and 1997, respectively, and 18.2% and 28.1% for the three months
ended March 31, 1997 and 1998, respectively. The increase in the Company's
research and development expenses as a percentage of total revenues from the
three months ended March 31, 1997 to the three months ended March 31, 1998
resulted primarily from hiring of new product management personnel dedicated to
identifying new market opportunities for its products. The Company believes that
a significant increase in its research and development investment is essential
for it to maintain market leadership and continue to expand its product line.
Accordingly, the Company anticipates it will continue to devote substantial
resources to product research and development for the foreseeable future, and
research and development expenses as a percentage of total revenues are likely
to increase in future periods. The Company has adopted Statement of Financial
Accounting Standards ("SFAS") No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed." Research and development
expenditures generally have been charged to operations as incurred and any
capitalizable amounts have been immaterial.
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<PAGE> 27
General and Administrative. General and administrative expenses consist
primarily of salaries, personnel and related costs for the Company's executive,
administrative, finance and information services staff. General and
administrative expenses were $1.2 million, $1.5 million and $2.9 million for
1995, 1996 and 1997, respectively, and $511,000 and $676,000 for the three
months ended March 31, 1997 and 1998, respectively. The increase in the
Company's general and administrative expenses of $0.3 million or 19% from 1995
to 1996 resulted primarily from additions to the Company's executive management
team and finance department. The increase in the Company's general and
administrative expenses of $1.4 million or 100% from 1996 to 1997 resulted
primarily from increases in compensation levels, including bonuses, resulting
from the Company's operating results exceeding budgeted levels, a nonrecurring
provision made for the early termination of the Company's operating facility
lease, increases in provisions for bad debt reserves related to the Company's
1997 fourth quarter revenue growth and increases in legal and accounting fees
due to the termination of the Phantom Stock Plan and the related private
placement and stock repurchase with each of these factors contributing equally
to the increase. The increase in the Company's general and administrative
expenses of $165,000 or 32% for the three months ended March 31, 1997 as
compared to the three months ended March 31, 1998 resulted from increases in the
numbers of employees. General and administrative expenses as a percentage of
total revenues were 16.8%, 13.4% and 14.1% for 1995, 1996 and 1997,
respectively, and 14.9% and 11.6% for the three months ended March 31, 1997 and
1998, respectively. The Company expects that general and administrative expenses
will decrease as a percentage of total revenue in 1998, but will increase in
absolute dollars as the Company increases the number of administrative personnel
and upgrades its internal and financial reporting systems. Also, the Company
anticipates additional expenses due to a relocation of its office facilities and
costs related to being a public company, including, but not limited to, annual
and other public reporting costs, directors' and officers' liability insurance,
investor relations programs and professional services fees.
Stock Compensation Expense. Stock compensation expenses were $436,000 and
$15.3 million for 1996 and 1997, respectively an increase of $14.8 million or
3400%. In 1996, such expenses resulted from a lump sum cash payment to an
employee in consideration of forfeiture of certain phantom stock units under the
Company's Phantom Stock Plan. In 1997, $14.7 million of such expense resulted
from the non-recurring issuance of 4,944,800 million shares of Common Stock in
connection with the termination of the Company's Phantom Stock Plan and $550,000
of such expense resulted from the issuance of a warrant to purchase 437,500
shares of Common Stock to an officer in exchange for the extinguishment of a
bonus provision in his option agreement. See "Certain Transactions -- Phantom
Stock Plan."
Provision for Income Taxes. Prior to October 16, 1997, the Company was
treated as a Subchapter S Corporation for federal income tax purposes.
Accordingly, the Company recorded no federal income tax expense for 1995, 1996
and the period from January 1, 1997 to October 16, 1997. The taxable income
generated by the Company's operations during the period were reported in the
income tax returns of the individual shareholders. A pro forma charge in lieu of
income taxes has been recognized in the Company's Consolidated Statement of
Operations to reflect income taxes as if the Company had been a C Corporation
for all periods. At December 31, 1997, the Company had a federal net operating
loss carryforward of approximately $7.5 million, that may be utilized to reduce
future taxable income through the year 2012, subject to certain annual
limitations.
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<PAGE> 28
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth certain unaudited consolidated statements of
operations data for the nine quarters ended March 31, 1998, as well as the
percentage of the Company's revenues represented by each item. This data has
been derived from unaudited interim consolidated financial statements prepared
on the same basis as the audited Consolidated Financial Statements contained
herein and, in the opinion of management, include all adjustments, consisting
only of normal recurring adjustments, that the Company considers necessary for a
fair presentation of such information when read in conjunction with the
Consolidated Financial Statements and Notes thereto appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1996 1996 1996 1996 1997 1997 1997 1997 1998
-------- -------- --------- -------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenues:
Licenses................... $1,599 $2,020 $2,460 $3,641 $2,950 $3,308 $4,524 $ 7,039 $4,384
Services................... 299 336 212 435 473 604 794 1,146 1,456
------ ------ ------ ------ ------ ------ ------ -------- ------
Total revenues....... 1,898 2,356 2,672 4,076 3,423 3,912 5,318 8,185 5,840
------ ------ ------ ------ ------ ------ ------ -------- ------
Cost of revenues:
Cost of licenses........... 76 97 117 175 91 138 150 265 208
Cost of services........... 90 96 71 105 105 142 139 238 215
------ ------ ------ ------ ------ ------ ------ -------- ------
Total cost of
revenues........... 166 193 188 280 196 280 289 503 423
------ ------ ------ ------ ------ ------ ------ -------- ------
Gross profit................. 1,732 2,163 2,484 3,796 3,227 3,632 5,029 7,682 5,417
------ ------ ------ ------ ------ ------ ------ -------- ------
Costs and expenses:
Sales and marketing........ 738 944 1,180 1,335 1,369 1,827 2,325 3,567 2,708
Research and development... 430 454 586 618 622 700 837 1,414 1,643
General and
administrative........... 266 386 338 482 511 483 550 1,399 676
Stock compensation
expense.................. -- -- -- 436 -- -- -- 15,262 --
------ ------ ------ ------ ------ ------ ------ -------- ------
Operating income (loss)...... 298 379 380 925 725 622 1,317 (13,960) 390
Other income (expense),
net........................ 1 2 5 14 15 22 67 129
------ ------ ------ ------ ------ ------ ------ -------- ------
Income (loss) before income
tax provision.............. 298 380 382 930 739 637 1,339 (13,893) 519
Provision (benefit) for
income tax................. -- -- -- -- -- -- -- (3,150) 122
------ ------ ------ ------ ------ ------ ------ -------- ------
Net income (loss)............ 298 380 382 930 739 637 1,339 (10,743) 397
Pro forma charge (benefit) in
lieu of income taxes....... 104 133 134 326 259 223 469 (1,716) --
------ ------ ------ ------ ------ ------ ------ -------- ------
Pro forma net income
(loss)..................... $ 194 $ 247 $ 248 $ 604 $ 480 $ 414 $ 870 $ (9,027) --
====== ====== ====== ====== ====== ====== ====== ======== ======
AS A PERCENTAGE OF TOTAL
REVENUES:
Revenues:
Licenses................... 84.2% 85.7% 92.1% 89.3% 86.2% 84.6% 85.1% 86.0% 75.1%
Services................... 15.8 14.3 7.9 10.7 13.8 15.4 14.9 14.0 24.9
------ ------ ------ ------ ------ ------ ------ -------- ------
Total revenues....... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
------ ------ ------ ------ ------ ------ ------ -------- ------
Cost of revenues:
Cost of licenses........... 4.0 4.1 4.3 4.3 2.6 3.6 2.8 3.2 3.6
Cost of services........... 4.7 4.1 2.7 2.6 3.1 3.6 2.6 2.9 3.6
------ ------ ------ ------ ------ ------ ------ -------- ------
Total cost of
revenues........... 8.7 8.2 7.0 6.9 5.7 7.2 5.4 6.1 7.2
------ ------ ------ ------ ------ ------ ------ -------- ------
Gross margin................. 91.3 91.8 93.0 93.1 94.3 92.8 94.6 93.9 92.8
------ ------ ------ ------ ------ ------ ------ -------- ------
Costs and expenses:
Sales and marketing........ 38.9 40.1 44.2 32.8 40.0 46.7 43.7 43.6 46.4
Research and development... 22.7 19.2 22.0 15.1 18.2 17.9 15.8 17.3 28.1
General and
administrative........... 14.0 16.4 12.6 11.8 14.9 12.3 10.3 17.1 11.6
Stock compensation
expense.................. -- -- -- 10.7 -- -- -- 186.5 --
------ ------ ------ ------ ------ ------ ------ -------- ------
Operating income (loss)...... 15.7 16.1 14.2 22.7 21.2 15.9 24.8 (170.6) 6.7
Other income (expense),
net........................ -- -- 0.1 0.1 0.4 0.4 0.4 0.8 2.2
------ ------ ------ ------ ------ ------ ------ -------- ------
Income (loss) before income
tax provision.............. 15.7 16.1 14.3 22.8 21.6 16.3 25.2 (169.8) 8.9
Provision (benefit) for
income tax................. -- -- -- -- -- -- -- (38.5) 2.1
------ ------ ------ ------ ------ ------ ------ -------- ------
Net income (loss)............ 15.7 16.1 14.3 22.8 21.6 16.3 25.2 (131.3) 6.8
Pro forma charge (benefit) in
lieu of income taxes....... 5.5 5.6 5.0 8.0 7.6 5.7 8.8 (21.0) --
------ ------ ------ ------ ------ ------ ------ -------- ------
Pro forma net income
(loss)..................... 10.2 10.5 9.3 14.8 14.0 10.6 16.4 (110.3) --
====== ====== ====== ====== ====== ====== ====== ======== ======
</TABLE>
27
<PAGE> 29
The trends discussed in the annual comparisons of operating results from
1995 to 1997 and the first quarter of 1997 to first quarter of 1998 are
generally applicable to the comparison of quarters within the nine quarterly
periods ended March 31, 1998, adjusted for the seasonality the Company has
experienced as referred to below with the following exceptions of note. Given
the seasonal fluctuations of the Company's revenues, operating profitability
tends to be significantly higher in the fourth quarter over the preceding
quarters. However, the Company's general and administrative expenses in the
quarter ended December 31, 1997 exceeded levels the Company had historically
experienced due to incentive bonus payments, a nonrecurring provision for the
early termination of the Company's operating facility lease, an increase in the
Company's provision for bad debt reserves related to the Company's large fourth
quarter revenue growth and increases in legal accounting fees.
The Company's quarterly revenues, expenses and operating results are likely
to vary significantly due to a variety of factors, such as demand for the
Company's products, the size and timing of significant orders and their
fulfillment, the length of sales cycle to larger customers, the number, timing
and significance of product enhancements and new product announcements by the
Company and its competitors, changes in pricing policies by the Company or its
competitors, customer order deferrals in anticipation of enhancements or new
products offered by the Company or its competitors or in anticipation of changes
or delays in NOS technologies, the ability of the Company to develop, introduce
and market new and enhanced versions of its products on a timely basis, changes
in the Company's level of operating expenses, budgeting cycles of its customers,
product life cycles, undetected software errors and other product quality
problems, the Company's ability to attract and retain qualified personnel,
changes in the Company's sales incentive plans and staffing of sales
territories, changes in the mix of products and services sold, changes in the
mix of domestic and international revenues, the level of international
expansion, changes in the mix of channels through which the Company's products
are offered, the impact of acquisitions of competitors, the Company's ability to
control costs and general domestic and international economic and political
conditions. The Company operates with virtually no order backlog because its
software products are shipped shortly after orders are received, which makes
product revenues in any quarter substantially dependent on orders booked
throughout that quarter. A disproportionate amount of the Company's sales are
booked in the last few weeks or days of each quarter as a result of customer
buying patterns. The Company believes this pattern will continue. Moreover, the
Company's expense levels are based to a significant extent on the Company's
expectations of future revenues and therefore are relatively fixed in the short
term. If revenue levels are below expectations, operating results are likely to
be adversely and disproportionately affected because only a small portion of the
Company's expenses vary with its revenues.
The Company's quarterly operating results are subject to certain seasonal
fluctuations. Historically, the Company's revenues have tended to be strongest
in the fourth quarter of the year and to decrease in the first quarter of the
following year. The Company believes this seasonality is due to the calendar
year budgeting cycles of many of its customers and to compensation policies
tending to compensate sales personnel for achieving annual revenue quotas. In
future periods, the Company expects these seasonal trends may cause first
quarter revenues to decrease from, or remain consistent with, the level achieved
in the preceding quarter. Based upon all of the factors described above, the
Company believes that its quarterly revenues, expenses and operating results are
likely to vary significantly in the future, that period-to-period comparisons of
its operating results are not necessarily meaningful and that, in any event,
such comparisons should not be relied upon as indications of future performance.
See "Risk Factors -- Operating Results Subject to Significant Fluctuations;
Seasonality."
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has primarily been funded by cash flow
generated from its operations. Net cash provided by operating activities were
$1.1 million, $1.6 million and $5.1 million for 1995, 1996 and 1997,
respectively. Net cash provided by operating activities in 1997 was primarily
the result of operating profitability before the non-cash stock compensation
expense of $14.6 million related to the issuance of shares of the Company's
Common Stock to terminate the Phantom Stock Plan.
28
<PAGE> 30
The Company's net cash used by financing activities was $151,000 and
$783,000 in 1995 and 1996 and related primarily to the payment of S Corporation
distributions. In the fourth quarter of 1997, the Company issued shares of
Common Stock to employees in connection with the termination of its Phantom
Stock Plan, resulting in a charge to earnings of $14.7 million. The Company
financed an approximately $14.1 million Common Stock repurchase program of
shares issued in connection with the termination of its Phantom Stock Plan
through a private sale of $18.0 million of Preferred Stock. The Preferred Stock
will automatically convert into 6,320,225 shares of Common Stock upon
consummation of this offering. See "Distribution of Capital Stock" and "Certain
Transactions - Phantom Stock Plan." The Company paid $1.3 million in S
Corporation distributions in 1997.
Net cash used by the Company's investing activities was $519,000, $713,000
and $1.3 million in 1995, 1996 and 1997, respectively, and relates primarily to
the Company's capital expenditures. The Company does not expect to incur
significant costs to make its products or internal information systems Year 2000
complaint because it believes such products and information systems to be
installed are designed to properly function through and beyond the year 2000.
See "Risk Factors -- Year 2000 Compliance."
The Company has a $2 million revolving line of credit and a $500,000 line
of credit whereby any principal draws mature 30 months after the date of such
advances. These lines are collateralized by accounts receivable, property and
equipment. There were no new borrowings under these facilities in 1996, 1997 or
the first three months of 1998.
As of March 31, 1998, the Company had $9.1 million of cash and cash
equivalents. The Company believes that the net proceeds of this offering,
together with existing cash, cash equivalents, short-term investments and cash
flow from operations will be sufficient to meet its working capital requirements
for at least the next 12 months. Thereafter, the Company may require additional
funds to support its working capital requirements or for other purposes and may
seek to raise such additional funds through public or private equity financing
or from other sources. There can be no assurance that additional financing will
be available at all or that if available, such financing will be obtainable on
terms favorable to the Company or that any additional financing would not be
dilutive.
The Company currently intends to use the net proceeds of this offering for
working capital and general corporate purposes, including financing accounts
receivable and capital expenditures made in the ordinary course of business, as
well as for possible acquisitions of businesses, products and technologies that
are complementary to those of the Company. Although the Company has not
identified any specific businesses, products or technologies that it may
acquire, nor are there any current agreements or negotiations with respect to
any such transactions, the Company from time to time evaluates such
opportunities. Pending such uses, the net proceeds will be invested in
government securities and other short-term, investment-grade, interest-bearing
instruments.
29
<PAGE> 31
BUSINESS
The following description of the Company's business should be read in
conjunction with the information included elsewhere in this Prospectus. This
description contains certain forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ significantly from the
results discussed in the forward-looking statements as a result of certain of
the risk factors set forth below and elsewhere in this Prospectus.
OVERVIEW
BindView develops, markets and supports a suite of systems management
software products that manage the security and integrity of complex, distributed
client/server networks operating on Microsoft Windows NT and Novell NetWare
environments. The Company's primary product line, BindView EMS, provides
software solutions for systems administration, security management, enterprise
inventory of LAN assets and Year 2000 assessment of PC hardware and software.
BindView EMS can be used by network administrators, security auditors and other
IT personnel to proactively identify, diagnose and, in many cases, fix a wide
range of systems management problems allowing organizations to reduce the Total
Cost of Ownership of enterprise computing.
INDUSTRY BACKGROUND
The use of distributed, client/server networks has grown tremendously in
the last ten years with the increase in PC-based Local Area Networks ("LANs")
being one of the fastest-growing aspects of the client/server market. These
LANs, largely dependent on servers running network operating systems provided by
Microsoft and Novell, are enabling a new generation of client/server
applications, including e-mail and group collaboration software such as
Microsoft Exchange and Lotus Notes. As a result, LANs, which were originally
intended to be used as relatively simple workgroup systems, have lost their
"local" characteristic and have developed into mission-critical platforms for
enterprise-scale applications. As LANs, and the network operating systems that
support them, have been used to operate mission-critical applications and
services, organizations have become increasingly dependent upon them. According
to a recent International Data Corporation ("IDC") study, shipments of Windows
NT server software are projected to grow from approximately 1.0 million in 1997
to 2.7 million in 2001 and shipments of NetWare server software are projected to
grow from approximately 1.1 million in 1997 to 1.2 million in 2001.
Additionally, the Company believes that the average number of users supported by
these LANs has been increasing.
As LANs have grown larger and technically more complex, the problems
associated with maintaining their security and integrity have increased and
become more difficult for Information Technology ("IT") departments to manage.
As a result, network security and integrity are increasingly at risk and the
Total Cost of Ownership (initial purchase price and the ongoing cost of
upgrades, maintenance and support) for client/server computing has often climbed
far beyond management's expectations when networks were initially installed.
Therefore, reducing the Total Cost of Ownership has become a strategic
initiative for many IT organizations, which have sought systems management
software to manage the complexity and costs of client/server computing. The
management challenges associated with maintaining the security and integrity of
LANs include:
Systems Administration. Systems administrators within IT departments need
to resolve a wide range of issues and problems on a daily basis, which include
managing the configuration of network servers, administering users and groups
and managing disk space on critical servers and workstations. Problems such as
these may not be solved quickly, placing the availability of the network at risk
and the use of mission-critical, client/server applications throughout an
enterprise in jeopardy. Additionally, the implementation of new or upgraded
network operating systems will result in increased strain on an organization's
IT resources. Both Microsoft and Novell are planning to ship major new releases
of their network operating systems in the next 12 months. Although both upgrades
promise new enhancements, the Company believes these upgrades will continue to
add levels of complexity to the network operating system ("NOS") environments,
particularly in the case of Windows NT.
Security. Computer security breaches are a pervasive and growing problem. A
survey published in March 1998, by the Computer Security Institute ("CSI")
reported that 64% of respondents had encountered
30
<PAGE> 32
computer security breaches within the last 12 months. Although many IT
organizations have installed firewalls and implemented security management
strategies focusing on preventing "hacking in" from outside the organization,
these efforts do not address the most serious security-related losses which are
the result of unauthorized access by insiders. In fact, the CSI survey found
that only 24% of respondents reported penetration from outside the organization
while 44% reported unauthorized access by employees. The top 18 respondents
reporting unauthorized access by insiders averaged losses of over $2.8 million
each.
Asset Management. Both IT and finance departments need to identify and
manage their organization's technology assets. These departments need to plan
for expansion, budget for software and hardware expenditures and trouble-shoot
problems with PC configurations, as well as track potential theft of expensive
components. Given the proliferation of diverse products, platforms and
technologies within the typical enterprise-wide IT infrastructure, taking an
accurate inventory of LAN assets has been a costly and time-consuming process.
Year 2000 Assessment. Although many organizations have focused upon the
mainframe issues of the Year 2000 exposure, the costs of bringing distributed
computing into compliance are now estimated by some sources at nearly half of
the total cost to fix mainframe systems. The Gartner Group recently estimated
the total cost to find and fix desktop-related Year 2000 compliance issues to be
between $10 billion and $42 billion. Year 2000 compliance issues on the LAN
include problems with PC hardware, firmware and applications.
IT departments are faced with conflicting pressures to both: (i) manage
increasing complexity and guarantee better service for users who are demanding
assurance of high productivity and availability and (ii) reduce the Total Cost
of Ownership for client/server computing. Adding to this challenge is a lack of
qualified IT personnel. In March 1998, the Information Technology Association of
America estimated that there were 346,000 IT-related job vacancies in the United
States. Pressure to reduce the Total Cost of Ownership and the increasing
difficulty and expense in locating qualified IT personnel has driven IT
management to establish processes and develop or purchase tools to manage their
organization's IT assets.
Historically, IT organizations have addressed LAN systems management
problems through a combination of manual processes, custom-built tools and
third-party software, but none of these alternatives have offered a completely
satisfactory solution.
Manual processes, such as performing a security audit, an inventory of
network assets or a Year 2000 project assessment, are costly, time consuming and
prone to human error. Many IT organizations custom-build their own systems
management tools. However, these custom-built solutions (i) are generally
developed by costly and hard-to-find programmers, (ii) take time to develop and
thoroughly test, (iii) are frequently designed for a single purpose and cannot
be used for other tasks and (iv) often need to be rewritten with new versions of
the NOS.
Most organizations have purchased at least some third-party software
solutions to manage their networks and are budgeting to purchase more. IDC
projects the systems management software market for the Windows and NetWare
platforms to grow to over $4.6 billion by the year 2000, with security
management software for Windows NT Server and NetWare accounting for $640
million of the total. Many third-party tools, including traditional "LAN
Suites," focus on management of the desktop, but not on management of the NOS.
Most tools that have been designed for the LAN -- including point products for
security management, disk space management and other systems management
tasks -- were built for managing single servers or small workgroups, and do not
scale to efficiently manage networks as they grow enterprise-wide to thousands
or tens of thousands of users. In addition, vendors that have traditionally
developed UNIX-based systems management software have begun to port or redevelop
their products to PC-based LAN environments. These products often do not meet
the specific needs of the Windows NT and NetWare platforms. For example,
security products from vendors of UNIX-based products are not designed to
effectively deal with the configuration flexibility and complexity of Windows NT
and NetWare platforms. Finally, many third-party products can often alert the IT
staff that a problem has occurred but do not provide the diagnostic software to
find the root cause of the problem or fix it. As an organization's dependence
upon its LAN infrastructure increases, its IT department must be able to both
proactively and reactively diagnose and repair its LAN-based computing
resources.
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<PAGE> 33
As Windows NT and NetWare networks have grown so have the challenges of
deploying, upgrading, managing and changing the configuration of these networks.
Organizations seek software solutions that (i) can quickly and proactively
diagnose and fix a wide range of problems, (ii) are comprehensive in scope and
can be used effectively by a wide range of the organization's existing IT
personnel, (iii) scale to manage large, complex networks, (iv) address the
unique aspects of each NOS they support and (v) can be easily deployed and
maintained.
THE BINDVIEW SOLUTION
BindView develops, markets and supports a suite of systems management
software products that manage the security and integrity of complex, distributed
client server networks while reducing the Total Cost of Ownership for enterprise
computing. The Company's primary product line, BindView EMS provides software
solutions for systems administration, security management, enterprise inventory
of LAN assets and Year 2000 assessment of PC hardware and software. BindView EMS
can be used proactively to diagnose, and in many cases fix, a wide range of
specific problems occurring in Windows NT and NetWare environments. In addition,
BindView EMS is built to scale with networks as they grow enterprise-wide.
BindView EMS provides customers with products which are both easy to use and
easy to deploy enterprise-wide.
Proactive, Query-based Systems Management
BindView offers a query-based approach to systems management for Windows NT
and NetWare environments. The query-based approach provides systems
administrators, security auditors and other IT professionals with a simple,
graphical user interface ("GUI") for asking questions, or "queries," about the
configuration and security of the NOS environment. This approach provides a
framework for proactive management of the NOS environment. Rather than waiting
for an event or alarm to occur, the systems administrator can locate, and in
many cases fix, issues with the configuration and security of the network before
they turn into problems. For those IT organizations with existing event
management systems, BindView provides a diagnostic tool to help find the root
cause of a NOS-related problem when an alarm is triggered. The query-based
approach can perform diagnostic and reporting tasks in a matter of minutes that
previously took hours or even days to complete. In addition, the modular
architecture of this query-based technology facilitates the development of new
add-on products. The Company believes this provides BindView with a competitive
advantage in the development of future applications.
Comprehensive in Scope
BindView EMS covers a complete range of system administration and security
issues, including file server management, user and group administration, disk
space management and management of directory services. All of the critical
configuration parameters and security settings of Windows NT and NetWare network
operating systems are made available through the simple user interface of
BindView EMS. As a result, BindView EMS empowers a broader group of IT
personnel, rather than just a limited number of IT experts, to solve problems
quickly by providing a way to automate the labor-intensive tasks necessary to
ensure the integrity and security of enterprise servers, applications and users.
Architected to Scale
BindView EMS has been designed to manage both workgroup LANs as well as
enterprise-wide networks that are frequently geographically dispersed. Customers
often purchase BindView EMS to manage one or two workgroups and then over time
purchase more products to manage their LAN as it grows to an enterprise-wide,
distributed network. BindView EMS is used routinely to manage networks ranging
from tens to tens of thousands of users. A Fortune 25 consumer goods company,
for example, uses BindView EMS to manage over 70,000 users on its global
NetWare-based network.
Native to Each Environment
BindView's products for managing Windows NT and NetWare operating systems
each have a different agent architecture that works best for that particular
environment and can exploit the unique features of each platform. BindView's
object-oriented architecture separates the user interface from the back-end data
gathering modules. This approach allows BindView to build each of these modules
to be native to the specific platform it supports. BindView products are not
programmed with a "least common denominator" approach
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<PAGE> 34
across heterogeneous platforms. The Company believes this enables BindView to
build "best-of-breed" products for managing and exploiting each operating
environment.
Easy to Deploy, Maintain and Use
BindView's products are built to be both easy to install and easy to use.
In addition to being easy to install on a single server or workstation, the
Company's products can be rapidly deployed enterprise-wide. BindView's systems
administration and security products can typically be deployed enterprise-wide
in a matter of days, and BindView's enterprise inventory and Year 2000
assessment products can typically be deployed enterprise-wide in a matter of
weeks. BindView's products are also designed to be easy to upgrade and maintain
on an ongoing basis following initial deployment. As a result, customers can
rapidly implement and utilize BindView's products with minimal training, thereby
reducing their Total Cost of Ownership without placing additional burdens on
customer's IT personnel.
STRATEGY
The Company's objective is to be the leading provider of systems management
software for enterprise networks. Key elements of the Company's strategy to
achieve these objectives include:
Enhance Leadership Position in Security Assessment Software. The Company
believes it is currently the leading vendor for Windows NT and NetWare-based
security assessment software, both in product sales and technology leadership.
BindView will continue its research and development efforts to maintain its
technology leadership in comprehensive security assessments of Windows NT and
NetWare networks.
Enhance Systems Administration Capabilities. The Company intends to add new
capabilities to its modules for managing Windows NT and NetWare-based networks.
These capabilities include new user interface components and analysis tools for
presenting information in more meaningful ways to BindView EMS users. The
Company also intends to continue to make enhancements allowing customers to
proactively fix more problems through the "ActiveAdmin" features of BindView
EMS. The Company currently plans to introduce ActiveAdmin for Windows NT in the
next 12 months.
Apply Query-based Management to New Applications. The Company intends to
apply its query-based management approach to high-growth opportunities and to
introduce high value-added modules for managing a wide variety of critical
applications and services. The Company is evaluating opportunities to develop
new BindView EMS modules, including those for managing e-mail systems (such as
Microsoft Exchange), other operating environments (such as UNIX application
servers) and other mission-critical, client/server applications (such as
electronic commerce servers).
Expand Direct Telesales Model. The Company believes its direct telesales
strategy enables it to maintain a low cost sales model and most effectively
track and meet the needs of its customers. The Company intends to continue to
expand its direct telesales force, both in the United States and
internationally. The Company also believes it can continue to increase its
success rate in achieving strategic, enterprise-level sales by selling to higher
levels of management at key accounts of major enterprises.
Leverage Existing Customer Base. BindView products have been sold to over
4,000 customers, including more than 70% of the Fortune 100 companies. Although
the Company has already sold BindView EMS into some of these companies for
deployment enterprise-wide, the majority of these organizations have used
BindView EMS only on some of their departmental LANs and have many additional
networks continuing to represent large sales opportunities. The Company believes
it can sell more deeply within these existing customer sites and sell more
products as BindView expands its product line.
Strengthen Strategic Relationships. The Company will continue to strengthen
existing relationships and pursue new relationships with key partners.
Technology partners (including Microsoft, Novell, Computer Associates and
IBM/Tivoli) provide the Company with product integration and marketing
opportunities. Service providers (including the Big Six accounting firms,
systems integrators and Year 2000 audit firms) provide the Company with
distribution opportunities, as well as implementation and project management
leverage.
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<PAGE> 35
PRODUCTS AND TECHNOLOGY
The Company's primary product line is BindView EMS. BindView EMS is
designed to provide a wide range of systems management capabilities to the
Company's customers for use with their heterogeneous, distributed networks.
BindView EMS employs a Windows-based console to provide scalable and
comprehensive systems management solutions. BindView EMS utilizes an
object-oriented architecture enabling the management of a wide variety of
network operating systems and managed objects to be supported through snap-in
modules. These snap-in modules are sold either separately or as a "suite." Each
snap-in module to the Enterprise Console increases the scope of BindView EMS to
cover a new set of management issues for a particular platform. Current snap-in
modules for BindView EMS include the NOSadmin series (for both Windows NT and
NetWare) and NETinventory. The Enterprise Console provides an effective set of
tools that work across all snap-in modules.
PRODUCT CHART
Central to the BindView EMS architecture is the Universal Data Processing
Engine ("UDPE") which enables the query-processing capabilities of BindView EMS
by utilizing an object-oriented design separating the common components of the
Enterprise Console from the specific features and platforms of the snap-in
modules. The UDPE provides a querying engine that gathers the necessary data
from across the network and presents the query results to the user through the
Enterprise Console. Query results may be displayed in a variety of meaningful
ways, including tabular spreadsheets, printed reports, graphs and charts, or may
be exported to over a dozen popular formats, including those viewable through
e-mail or a web browser. The user can create queries from scratch, or can select
a predefined query from an initial set of over one hundred sample reports
supplied "out-of-the-box" with BindView EMS. Once queries have been created,
they can be saved to build a suite of management reports monitoring the
deployment of "best practices" and IT-mandated policies across the network.
With this architecture, BindView EMS enables the management of
heterogeneous, distributed networks through a common GUI. Customers typically
purchase one Enterprise Console per administrator and one or more snap-in
modules to manage their particular network, often including both NOSadmin for
NetWare and NOSadmin for Windows NT.
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<PAGE> 36
All components of BindView EMS have been developed using industry-standard
compilers, development tools and languages, including C, C++, Java and Assembly
for Intel hardware platforms.
Enterprise Console
The Enterprise Console is the central component and user interface of
BindView EMS. It provides a common tool-set used by security auditors and
network administrators for the analysis, reporting, policy management and
automated administration of enterprise resources and assets. The Enterprise
Console's query-based approach provides the ability to ask questions,
automatically collect the data necessary to answer those questions, present the
answers in meaningful ways and, in some instances (where ActiveAdmin features
are available), make necessary corrections while documenting any required
changes. The Company is working to add and expand ActiveAdmin capabilities to
future versions of all BindView EMS modules, increasing the user's ability to
both diagnose and fix problems from the Enterprise Console.
NOSadmin Series
The NOSadmin series of products provides comprehensive security assessment
and systems management across heterogeneous environments. The NOSadmin series
addresses a complete range of systems administration and security issues,
including file server management, user and group administration, disk space
management and management of directory services. All of the critical
configuration parameters and security settings of Windows NT and NetWare network
operating systems are made available through a simple user interface, without
requiring an agent to be placed on every managed server and workstation. As a
result, the NOSadmin series empowers a broader group of IT personnel, rather
than just a limited number of IT experts, to solve problems quickly by providing
them with a way to automate the labor-intensive tasks necessary to ensure the
integrity and security of enterprise servers, applications and users.
- NOSadmin for Windows NT enables IT professionals to view and analyze
multi-domain Windows NT networks enterprise-wide from a single
administrative console. The product includes the capability to pinpoint a
variety of potential security risks for Windows NT servers and
workstations. Within the next 12 months, the Company plans to release an
updated NOSadmin for Windows NT with "ActiveAdmin" capabilities, enabling
the user to make changes to the NOS configuration and fix problems
enterprise-wide directly from the Enterprise Console.
- NOSadmin for NetWare 3 and NOSadmin for NetWare 4 provide comprehensive
security and configuration management of NetWare servers enterprise-wide
from a single administrative console. These include the capability to
make changes to the NOS configuration and fix problems enterprise-wide
through a feature called "ActiveAdmin." In addition, NOSadmin for NetWare
4 enables management of Novell Directory Services ("NDS") for a variety
of platforms (including NetWare 4, Windows NT and UNIX servers).
All NOSadmin modules "snap in" to the Enterprise Console through a
Windows-based Dynamic Link Library ("DLL") that interfaces the snap-in module to
the UDPE. In addition to this snap-in DLL, each NOSadmin module utilizes a
distributed agent architecture that is particular to the native environment that
it supports. The distributed agents for the NOSadmin for Windows NT run as
Windows NT services in each Windows NT domain. The distributed agents for the
NOSadmin for NetWare products run as NetWare Loadable Modules on one or more
NetWare file servers.
NETinventory
NETinventory is a scalable, fast and accurate asset management and
inventory analysis tool for large multi-site networks. It extends the
capabilities of BindView EMS to include comprehensive network inventory and
asset tracking for an entire enterprise. As a result, the user can discover,
document and evaluate PC assets throughout the entire enterprise and make
better-informed strategic technology decisions . NETinventory also reduces help
desk costs and response times by providing immediate access to any end-user's
hardware and software configuration changes. NETinventory also provides powerful
Year 2000 auditing capabilities allowing the execution and automation of Year
2000 compliance testing and reporting for PC hardware and software in a fraction
of the time it would take to do manually.
The following table describes the BindView EMS product family.
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<PAGE> 37
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
BINDVIEW EMS
PRODUCT FEATURES/BENEFITS
- -------------------------------------------------------------------------------------------------
<S> <C>
Enterprise Console - The Desktop Manager allows for the delegation of tasks to
individuals filling special roles (for example, security
auditors or help desk personnel) by giving them customized
desktops focused on the tasks they perform
- A Query Builder to ask questions about the state of the
network through an easy-to-use GUI
- Spreadsheet and graphics/charting interfaces to view query
results
- A Report Writer to generate presentation-quality reports
- An export function to export data to over a dozen popular
file formats
- ---------------------------------------------------------------------------------------------
NOSadmin for Windows NT - Comprehensive security assessments
- Configuration analysis of both servers and workstations,
including services, sessions, shares and device drivers
- Network integrity analysis of domain infrastructure,
users, groups, policies and trust relationships between
domains
- A single report can span multiple Windows NT domains for
enterprise-wide analysis of all Windows NT servers and
workstations
- Documention and analysis of the values of any registry
keys across all servers and workstations enterprise-wide
- File system and disk space management
- ----------------------------------------------------------------------------------------------
NOSadmin for NetWare 4 - Comprehensive security assessments
- Management of file server configuration, NetWare Loadable
Modules and "Set" variables
- User and group administration
- File system and disk space management
- Documention of organizational policies throughout the
enterprise
- ActiveAdmin for making global changes to system
configuration
- Management of NDS and ActiveAdmin for making global
changes to NDS
- ----------------------------------------------------------------------------------------------
NOSadmin for NetWare 3 - See features/benefits for NOSadmin for NetWare 4 above,
except supports NetWare binding services instead of NDS
- ----------------------------------------------------------------------------------------------
NETinventory - Integrated Year 2000 compliance testing and reporting for
PC hardware and software
- Automated discovery and tracking of hardware assets
- Automated detection of over 4,000 software packages
- A three-tiered architecture providing central
administration and synchronization services, with
fault-tolerant collection and distribution of asset
management information
- Management of database integrity across all segments of
the distributed inventory database enterprise-wide
- Generation of complete reports for all PC hardware and
software assets across the enterprise
</TABLE>
CUSTOMERS
The Company's products have been sold to more than 70% of the Fortune 100
companies. The Company has sold software products through direct channels to
over 4,000 corporations, governmental agencies and other organizations
worldwide, and also to over 150 resellers and distributors. The following table
is a selected
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<PAGE> 38
list of the Company's end-user customers that accounted for more than $50,000 in
total revenue (license and service) to BindView since January 1, 1996:
<TABLE>
<S> <C> <C>
3Com GTE Mobile Communications Scudder, Stevens & Clark
American Stores Hoechst Sony
Baltimore Gas & Electric ITT Industries Sprint
Banc One Capital Kellogg USA Suntrust Banks
Blue Cross and Blue Shield Kimberley-Clark Tandy Corporation
California Federal Bank KPMG Peat Marwick Trans Union
Chase Manhattan Bank LCI International Union Pacific
CIBC Asia Limited Michelin U.S. Bank
Cigna Mellon Bank U.S. Customs Service
Citicorp Mobil U.S. Trust
CoreStates Bank Oxford Health Plans Wells Fargo
CSX Corporation PageNet
Deloitte & Touche Paramount Pictures
El Paso Energy Phillips Petroleum
Emory Clinic Procter & Gamble
Ernst & Young Providian Financial
Excel Telecommunications Quantum
Federal Reserve Bank Raytheon
First Chicago Sallie Mae
GE Capital San Diego Gas & Electric
</TABLE>
Although the Company has sold its software on an enterprise-wide basis, the
majority of the Company's existing customers continue to represent larger sales
opportunities. Customers typically buy for a single department or division and
then, based upon the initial success of the products in such department or
division, later expand their use of the Company's products into other parts of
the organization. The Company believes it can sell more deeply within these
existing customer sites and sell more products as the Company expands its
product line. In 1996, 1997, and for the three months ended March 31, 1998, no
customer comprised more than 10% of the Company's sales.
SALES AND MARKETING
The Company sells its products primarily through its direct telesales
force, and, to a lesser extent, through VARs, distributors and systems
integrators. In addition, the Company has strategic marketing relationships with
professional service organizations and software vendors that provide the Company
with increased visibility as well as sales leads.
Direct Telesales
The Company sells its products primarily through a direct telesales force.
The Company utilizes a direct telesales model that minimizes the number of
remote sales offices and customer site visits and focuses on effective use of
the telephone and Internet communications for product demonstrations and product
sales. When necessary, the Company's sales force will also travel to customer
locations. The Company believes its direct telesales approach allows it to
achieve control of the sales process and respond rapidly to customer needs,
while maintaining an efficient, low-cost sales model. Sales cycles typically
range between as little as three months for departmental sales and up to 12
months for enterprise-wide contracts.
As of March 31, 1998, the Company had 75 persons in its direct telesales
organization worldwide. The direct telesales force for North America is based in
Houston and accounts for a substantial majority of the Company's revenues. In
January 1998, the Company established its first international direct telesales
office in Frankfurt, Germany. The Company has increased the size of its direct
telesales organization from 32 to 75 individuals over the last year and expects
to continue hiring sales personnel, both domestically and internationally, over
the next 12 months.
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<PAGE> 39
VARs and Distributors
In addition to its direct telesales strategy, the Company has established
indirect distribution channels through VARs and distributors. Outside North
America, where the Company is in the process of developing its direct telesales
presence, the Company relies heavily on its reseller channel. The Company has
established a network of VARs and distributors in Europe, Latin America and the
Pacific Rim, with the concentration of such distributors being located in
European markets.
The Company's international VARs and distributors typically perform
marketing, sales and technical support functions in their country or region.
Each one may distribute direct to the customer, via other resellers or through a
mixture of both channels. The Company actively trains its international VARs and
distributors in both product and sales methodology.
Systems Integrators and Service Providers
In addition to more traditional resellers, the Company markets its products
through service organizations that help customers install, manage and secure
large Windows NT and NetWare networks. Such organizations include large systems
integrators, outsourcing companies, security auditing groups in the Big Six
accounting firms and service companies performing Year 2000 compliance work.
Some of these companies sell BindView's products directly to their end-users,
while others license the BindView products from the Company and include these
products in their standard toolkits used at their clients' sites.
Marketing Partnerships and Programs
To support its growing sales organization and channel, the Company in the
last year has devoted significant resources to building a series of marketing
partnerships and programs. The Company has developed a partnership with
IBM/Tivoli for marketing BindView EMS as a companion product to Tivoli TME 10,
as well as partnerships with other key vendors, including Microsoft, Novell and
Computer Associates. The Company is a Microsoft Solution Provider, and holds
"Microsoft Back Office" certification for its products. The Company also
partners with many of the Big Six accounting firms to increase awareness of
network security issues. Results of these partnerships in the past year include
a seminar series with Ernst & Young entitled "Issues in Windows NT Security"
given in over 25 cities in the United States and Europe, and a white paper
published by Coopers & Lybrand entitled "Evaluating Novell NetWare 4.X Security
Using BindView EMS."
In addition to the above partnerships, the Company's marketing efforts have
resulted in a number of programs, such as seminars, industry trade shows, vendor
executive briefings, analyst and press tours, advertising and public relations.
CUSTOMER SUPPORT AND PROFESSIONAL SERVICES
BindView believes that high quality customer support and professional
services are requirements for continued growth and increased sales of its
products. The Company has made a significant investment in increasing the size
of its support and services organization in the past and plans to continue to do
so in the future. As of March 31, 1998, the Company's customer support and
professional services organization consisted of 15 employees. Customer support
personnel provide technical support by telephone, e-mail and fax, and maintain
the Company's Web site and bulletin boards to complement these services.
Technical support for customers is provided at no charge for 30 days after the
product's sale and on a subscription basis thereafter. Future versions of the
Company's products are provided at no extra charge as part of the subscription
service. International offices and resellers extend this service for overseas
customers.
The Company's professional services group provides product training,
consulting and implementation services for a fee in order to assist customers in
maximizing the benefits of the Company's products. In addition, the Company
periodically offers training to its channel partners and employees.
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PRODUCT DEVELOPMENT
BindView has been an innovator and leader in the development of systems
management tools for the LAN marketplace. The Company believes that a
technically skilled, quality oriented and highly productive software development
organization is the key to the continued success of new product offerings. The
software development staff is also responsible for enhancing the Company's
existing products and expanding its product line. The Company's product
development staff consisted of 18 employees as of March 31, 1997 and 32
employees as of March 31, 1998. The Company expects that it will continue to
invest substantial resources in product development expenditures.
BindView is currently developing enhancements to existing products as well
as working to develop new products for managing additional applications and
platforms not currently within the scope of BindView EMS. Potential future
applications include a product to manage e-mail applications such as Microsoft
Exchange. In addition, the Company plans to release ActiveAdmin for Windows NT
in the next 12 months, and is currently developing the next generation of the
BindView EMS product family. There can be no assurance that these development
efforts will be completed within the Company's anticipated schedules or that, if
completed, they will have the features necessary to make them successful in the
marketplace. Moreover, products as complex as the Company's may contain
undetected errors when first introduced or as new versions are released. Such
undetected errors in new products may be found after commencement of commercial
shipments, resulting in loss of or delay in market acceptance. Future delays in
the development or marketing of product enhancements or new products could
result in a material adverse effect on the Company's business, financial
condition and results of operations. See "Risk Factors -- Rapid Technological
Change and New Products."
COMPETITION
The market in which the Company competes is intensely competitive and
characterized by rapidly changing technology and evolving standards. Companies
offering competitive products vary in the scope and breadth of the products and
services offered and include: (i) providers of security analysis and audit
products, such as Axent Technologies, Inc. and Security Dynamics Technologies,
Inc.; (ii) providers of standalone inventory and asset management products such
as Tally Systems Corp.; (iii) providers of LAN desktop management suites, such
as Intel Corporation, Hewlett-Packard Company and Microsoft Corporation; and
(iv) providers of Year 2000 assessment products such as Network Associates, Inc.
In addition, the native tools provided by Novell, Inc. and third-party tools
provided by certain vendors, such as Computer Associates, Inc. and other
companies, may compete with certain management features of the Company's
products. The Company has experienced, and expects to continue to experience,
increased competition from current and potential competitors, many of whom have
greater name recognition, a larger installed customer base and significantly
greater financial, technical, marketing, and other resources than the Company.
Such competitors may be able to respond more quickly to new or emerging
technologies and changes in customer requirements or devote greater resources to
the development, promotion and sale of their products than the Company. The
Company expects additional competition as other established and emerging
companies enter into the systems management software market and new products and
technologies are introduced. Increased competition could result in price
reductions, fewer customer orders, reduced gross margins, longer sales cycles
and loss of market share, any of which would materially adversely affect the
Company's business, operating results and financial condition.
In addition, vendors of operating system software, particularly Microsoft
and Novell, may in the future enhance their products to include functionality
that is currently provided by the Company's products. The widespread inclusion
of the functionality of the Company's software as standard features of operating
system software could render the Company's products obsolete and unmarketable,
particularly if the quality of such functionality were comparable to that of the
Company's products. Even if the functionality provided as standard features by
operating system software is more limited than that of the Company's software,
there can be no assurance that a significant number of customers would not elect
to accept more limited functionality in lieu of purchasing additional software.
Current and potential competitors may make strategic acquisitions or
establish cooperative relationships among themselves or with third parties,
thereby increasing their ability to address the needs of the Company's
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<PAGE> 41
current or prospective customers. Accordingly, it is possible that new
competitors or alliances among current and new competitors may emerge and
rapidly gain significant market share. Such competition could materially
adversely affect the Company's ability to obtain new licenses or to obtain
maintenance and support renewals for existing licenses on terms favorable to the
Company. There can be no assurance that the Company will be able to compete
successfully against current and future competitors, and the failure to do so
would materially adversely affect the Company's business, operating results and
financial condition.
The Company believes that significant competitive factors affecting the
markets described above are depth of product functionality, breadth of platform
support, product quality and performance, conformance to industry standards,
product price and customer support. In addition the ability to rapidly develop
and implement new products and features for these markets is critical. See "Risk
Factors -- Significant Competition."
PROPRIETARY RIGHTS
The Company relies primarily on a combination of copyright, trademark and
trade secret laws, confidentiality procedures and contractual provisions to
protect its proprietary rights. However, the Company believes that such measures
afford only limited protection. There can be no assurance that others will not
develop technologies that are similar or superior to the Company's technology or
design around the copyrights and trade secrets owned by the Company. The Company
licenses its software products primarily under "shrink wrap" licenses (i.e.,
licenses included as part of the product packaging). Shrink wrap licenses are
not negotiated with or signed by individual licensees, and purport to take
effect upon the opening of the product package. The Company believes, however,
that these measures afford only limited protection. Despite the Company's
efforts to protect its proprietary rights, unauthorized parties may attempt to
copy aspects of the Company's products or to obtain and use information that the
Company regards as proprietary. Policing unauthorized use of the Company's
products is difficult and the Company is unable to determine the extent to which
piracy of its software products exists. In addition, the laws of some foreign
countries do not protect the Company's proprietary rights as fully as do the
laws of the United States. There can be no assurance that the Company's means of
protecting its proprietary rights will be adequate or that competition will not
independently develop similar or superior technology.
The Company is not aware that it is infringing any proprietary rights of
third parties. There can be no assurance, however, that third parties will not
claim infringement by the Company of their intellectual property rights. The
Company expects that software product developers will increasingly be subject to
infringement claims as the number of products and competitors in the Company's
industry segment grows and the functionality of products in different industry
segments overlaps. Any such claims, with or without merit, could be time
consuming to defend, result in costly litigation, divert management's attention
and resources, cause product shipment delays or require the Company to enter
into royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to the Company, if at all. In
the event of a successful claim of product infringement against the Company and
failure or inability of the Company to either license the infringed or similar
technology or develop alternative technology on a timely basis, the Company's
business, operating results and financial condition could be materially
adversely affected. See "Risk Factors - Limited Protection of Proprietary
Technology; Risks of Infringement."
EMPLOYEES
As of March 31, 1998, the Company employed 178 full-time employees,
including 83 in sales and marketing, 57 in research and development, 15 in
technical support and professional services and 23 in general and
administrative. The Company believes that its future success will depend in
large part upon its continuing ability to attract and retain highly skilled
managerial, sales, marketing, customer support and research and development
personnel. Like other software companies, the Company faces intense competition
for such personnel, and the Company has at times experienced and continues to
experience difficulty in recruiting qualified personnel. There can be no
assurance that the Company will be successful in attracting, assimilating and
retaining other qualified personnel in the future. The Company is not subject to
any collective bargaining agreement and it believes that its relationships with
its employees are good. See "Risk Factors - Dependence on Key Personnel; Need
for Additional Qualified Personnel."
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FACILITIES
The Company's principal administrative, sales, marketing, support and
research and development facility is located in approximately 35,000 square feet
of space in Houston, Texas. Although the lease on this office space expires
October 2000, the Company notified its landlord in 1997 of its intention to
terminate its lease in order to secure more space in Houston, Texas. The Company
also currently has office space in Frankfurt, Germany. However, anticipated
expansions in international sales may result in the Company moving to new
facilities within the next 12 months. The Company believes suitable additional
or alternative space will be available in the future on commercially reasonable
terms as needed.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceeding.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The executive officers, directors and key employees of the Company are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------- --- ---------------------------------------------------------
<S> <C> <C>
Executive Officers and Directors
Eric J. Pulaski................... 35 Chairman, President, Chief Executive Officer and Director
Christopher J. Sole............... 46 Vice President, Chief Operating Officer and Director
Scott R. Plantowsky............... 34 Vice President, Chief Financial Officer and Director
David E. Pulaski.................. 30 Vice President -- North and South American Sales
Nadeem Ghias...................... 37 Vice President -- Research & Development
Peter L. Bloom(1)(2).............. 40 Director
John J. Moores(1)(2).............. 53 Director
Richard A. Hosley II.............. 53 Director
Key Employees
Rudi Vanderbeeken................. 43 Managing Director -- Europe, Middle East and Africa
Mark Miller....................... 28 Director of Technical Services
Irl Nathan........................ 33 Vice President -- Product Marketing
</TABLE>
- ------------
(1) Member Compensation Committee
(2) Member Audit Committee
Executive Officers and Directors
Eric J. Pulaski founded the Company in May 1990 and has served as the
Company's Chairman, President and Chief Executive Officer and as a Director
since its inception. Prior to founding the Company, Mr. Pulaski was employed as
Director of the Advanced Services Division of Network Resources, Inc., a
Houston-based systems integration firm. Mr. Pulaski holds a B.A. in Humanities
from the University of Texas at Austin.
Christopher J. Sole has served as the Company's Vice President and Chief
Operating Officer since May 1996. Mr. Sole has been a Director of the Company
since October 1997. From January 1995 to May 1996, Mr. Sole was a Business
Consultant, planning technology and business strategies for leading
inter-networking and Internet companies. From December 1993 to December 1994,
Mr. Sole was employed as Vice President of Product Marketing by Uniface B.V., a
Netherlands based developer of client/server application development systems.
From April 1989 to December 1993, Mr. Sole was employed by Bachman Information
Systems, Inc., a Massachusetts based developer and marketer of model-driven
application tools, where he served in various roles including Business Unit
Manager and Vice President of Product Management and Development. Mr. Sole holds
a B.Sc. in Mechanical Engineering from Birmingham University, U.K., and an
M.B.A. from the Stanford University Graduate School of Business.
Scott R. Plantowsky has served as the Company's Vice President and Chief
Financial Officer since September 1993. Mr. Plantowsky has been a Director of
the Company since October 1997. From January 1986 to August 1993, Mr. Plantowsky
was Vice President and General Manager for Plantowsky's Furniture, a Houston
retail furniture chain. Mr. Plantowsky is currently a General Partner in Century
Development's Student Furniture Partnerships and is a Director of SSP
Properties, a real estate holding company based in Corpus Christi, Texas. Mr.
Plantowsky holds a B.B.A. in Finance from the University of Texas at Austin.
David E. Pulaski has served as the Company's Vice President for North and
South American Sales since January 1998. From July 1995 to January 1998, Mr.
Pulaski was Director of Domestic Sales for the Company. From February 1993 to
July 1995, Mr. Pulaski served the Company as a sales representative and then as
sales
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manager. Prior to joining the Company in February 1993, Mr. Pulaski was a
licensed securities broker for Paine Webber and Lehman Brothers. Mr. Pulaski is
the brother of Eric J. Pulaski.
Nadeem Ghias has served as the Company's Vice President -- Research &
Development since May 1996. Prior to becoming Vice President of Product
Development, Mr. Ghias was a Product Architect and Senior Windows Developer for
the Company. From April 1989 to December 1993, Mr. Ghias was the founder and
Chief Executive Officer of Micronix, Inc. ("Micronix"), a. developer and
marketer of products for the xBASE after-market, which was purchased by the
Company in 1993. From August 1988 to April 1989, Mr. Ghias held senior
development positions at Vitesse Semiconductor, a manufacturer of high-speed
microchips, and General Motors Corporation. Mr. Ghias holds a B.S. degree in
Electrical Engineering from Marquette University.
Peter L. Bloom has served as a Director of the Company since October 1997.
Mr. Bloom is a Managing Member of General Atlantic Partners, LLC, a private
investment firm focused exclusively on strategic investments in software and
related services worldwide. Prior to joining General Atlantic Partners, LLC in
1996, Mr. Bloom spent 13 years at Salomon Brothers, an investment banking firm,
where he last was the Managing Director of Salomon's U.S. Technology Division.
Mr. Bloom is a member of the Board of Directors of SS&C Technologies, Inc., a
Special Advisor to the Board of Directors of E-TRADE Securities, Inc. and a
board member of a number of private companies. Mr. Bloom holds a B.A. in
Computer Studies and Economics from Northwestern University.
John J. Moores has served as a Director of the Company since October 1997.
In 1980, Mr. Moores founded BMC Software, Inc. ("BMC"), a vendor of system
software utilities for IBM mainframe computing environments. Mr. Moores served
as BMC's President and Chief Executive Officer from 1980 to 1986 and as Chairman
of the Board of Directors from 1980 to 1992. Prior to that, Mr. Moores was
employed by IBM and Shell Oil Corporation in various MIS positions. Since
December 1994, Mr. Moores has served as owner and Chairman of the Board of the
San Diego Padres Baseball Club, L.P. and since September 1991 as Chairman of the
Board of JMI Services, Inc., a private investment company. Mr. Moores also
serves as Chairman of the Board of Peregrine Systems, Inc., a publicly held
infrastructure management software company, and numerous privately held
companies. Mr. Moores holds a B.S. in Economics and a J.D. from the University
of Houston.
Richard A. Hosley II has served as a Director of the Company since January
1998. Since October 1990, Mr. Hosley has been a private investor. From 1980 to
1990, Mr. Hosley was employed by BMC, where he held a variety of positions
including Vice President of Sales and Marketing, President, Chief Executive
Officer and Vice Chairman. Prior to joining BMC , Mr. Hosley was employed by
IBM. Mr. Hosley serves as a director of Logic Works, Inc., a database design
software company, and Peregrine Systems, Inc. Mr. Hosley holds a B.A. in
Economics from Texas A&M University.
Key Employees
Rudi Vanderbeeken has served as the Company's Managing Director of sales to
Europe, the Middle East and Africa since August 1997. From January 1995 to June
1997, Mr. Vanderbeeken was a shareholder and Managing Director for Europe for
Triteal Corporation, a U.S. based developer of UNIX-based windowing software and
was responsible for building a direct and indirect sales channel in Europe. From
June 1992 to January 1995, Mr. Vanderbeeken was employed by Uniface
International, a Netherlands based developer of client /server application
development systems as Sales Director for Europe, Japan and Asia Pacific. Prior
to that Mr. Vanderbeeken was employed by Performance Software Ltd and
Computerland Europe.
Mark Miller has served as the Company's Director of Technical Services
since March 1997, and oversees the quality assurance, information systems,
technical support and professional services departments. From March 1996 until
March 1997, Mr. Miller was Technical Support Manager for the Company. From April
1995 to March 1996, Mr. Miller was a Technical Support Representative for the
Company. Prior to joining the Company, Mr. Miller served on active duty in the
United States Air Force from October 1989 to March 1995 where he held a variety
of positions, including Manager of an Air Base help desk, Data Base
Administrator, Systems Analyst and Manager and Main Frame operator.
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<PAGE> 45
Irl Nathan has served as the Company's Vice President of Product Marketing
since March 1997 and oversees the execution of the Company's product strategy.
From November 1990 to March 1997, Mr. Nathan managed the Company's marketing
department as well as managing the sales department from January 1991 to
February 1993. Prior to joining the Company, Mr. Nathan founded a consulting and
publishing firm specializing in network integration for the legal community. Mr.
Nathan holds a B.A. in Government from the University of Texas at Austin and a
J.D. with honors from St. Mary's University.
BOARD COMPOSITION
The Company's Revised Articles of Incorporation provide for a Board of
Directors consisting of not less than four members and shall consist of six
members initially unless and until increased by resolution of the Board of
Directors. The Company currently has six Directors. Each of the Company's
officers and directors, other than non-employee directors, devotes substantially
full time to the affairs of the Company. The Company's non-employee directors
devote such time to the affairs of the Company as is necessary to discharge
their duties. Each officer is elected and serves at the discretion of the Board
of Directors.
The terms of office of the Board of Directors are divided into three
classes of staggered terms. Class I, whose term will expire at the annual
meeting of shareholders to be held in 1999; Class II, whose term will expire at
the annual meeting of shareholders to be held in 2000; and Class III, whose term
will expire at the annual meeting of shareholders to be held in 2001. The Class
I directors are Christopher J. Sole and Richard A. Hosley II, the Class II
directors are John J. Moores and Scott R. Plantowsky and the Class III directors
are Eric J. Pulaski and Peter L. Bloom. At each annual meeting of shareholders
after the initial classification, the successors to directors whose term will
then expire will be elected to serve from the time of election and qualification
until the third annual meeting following election. This classification of the
Board of Directors may have the effect of delaying or preventing changes in
control or management of the Company. See "Risk Factors -- Anti-Takeover Effects
of Articles of Incorporation, Bylaws and Texas Law."
COMMITTEES OF THE BOARD
The Bylaws authorize the Board of Directors to designate one or more
committees. As of January 27, 1998, the Board of Directors had authorized an
Audit Committee and a Compensation Committee.
The Audit Committee reviews, acts on and reports to the Board of Directors
with respect to various auditing and accounting matters, including the selection
of the Company's independent accountants, the scope of the annual audits, fees
to be paid to the independent accountants, the performance of the Company's
independent accountants and the accounting practices of the Company. The Audit
Committee is comprised of John J. Moores as Chairman and Peter L. Bloom.
The Compensation Committee establishes salaries, incentives and other forms
of compensation for officers and other employees of the Company as well as
administering the incentive compensation and benefit plans of the Company. The
Compensation Committee is comprised of Peter L. Bloom as Chairman and John J.
Moores.
DIRECTOR COMPENSATION
The Company reimburses each member of the Company's Board of Directors for
out-of-pocket expenses incurred in connection with attending Board meetings.
Except for Richard A. Hosley II, no member of the Company's Board of Directors
currently receives any additional cash compensation. Mr. Hosley receives $1,000
per board meeting attended. The Company has granted each of John J. Moores,
Richard A. Hosley II and Peter L. Bloom options to acquire 50,000 shares of
Common Stock at an exercise price of $3.85 per share under the Company's 1998
Non-Employee Directors Stock Option Plan. See "-- 1998 Non-Employee Directors
Stock Option Plan." All such options vest in annual installments over five
years, except that they vest in full if the Company is subject to a change in
control (as defined in such Plan) and in the event of the optionee's death or
disability. Such options expire ten years from the date of grant or, if earlier,
90 days after the optionee ceases to be a director or 12 months after the
optionee's death. See "Principal and Selling Shareholders."
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<PAGE> 46
EXECUTIVE COMPENSATION
The following table sets forth the compensation earned by the Company's
Chief Executive Officer and the four other most highly compensated officers
whose salary and bonus for 1997 were in excess of $100,000 (collectively, the
"Named Officers"), for services rendered in all capacities to the Company and
its subsidiaries for that fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-----------------------
AWARDS
-----------------------
ANNUAL COMPENSATION RESTRICTED SECURITIES
--------------------- STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) AWARDS($) OPTIONS(#) COMPENSATION($)(3)
--------------------------- --------- -------- ---------- ---------- ------------------
<S> <C> <C> <C> <C> <C>
Eric J. Pulaski(1)............ $141,000 $36,044 0 0 $ 9,500
President and Chief
Executive Officer
Christopher J. Sole........... 110,000 83,301 0 279,990 9,054
Chief Operating Officer
Scott R. Plantowsky........... 110,000 113,179 1,335,000(4) 1,500,000(5) 9,500
Chief Financial Officer
David E. Pulaski.............. 65,000 121,225 1,335,000(6) 187,500(7) 9,500
Vice President -- Sales,
North America
Nadeem Ghias(2)............... 114,950 83,455 231,400(8) 97,500(9) 9,500
Vice President -- Research &
Development
</TABLE>
- ------------
(1) Does not include S Corporation dividends of $1,207,545 paid in 1997.
(2) Does not include S Corporation dividends of $28,910 paid in 1997.
(3) Includes contributions made by the Company to a 401(k) Plan.
(4) Issued in connection with the termination of the Phantom Stock Plan. At the
end of 1997, Mr. Plantowsky held 107,125 shares of restricted stock valued
at $412,217. Dividends will be paid on restricted stock to the same extent
that dividends are paid on unrestricted stock.
(5) Includes a warrant for 437,500 shares of Common Stock at $2.85 per share,
vested as of December 31, 1997 and expiring October 2007. Also includes
options for 218,750 shares of Common Stock, vested as of December 31, 1997,
with the remaining options vesting in the amount of 218,750 shares on
January 1, 1998, 109,375 shares on July 1998, 187,500 shares on September 1,
1998 and 109,375 shares on each of the following dates: January 1, 1999,
July 1, 1999 and January 1, 2000.
(6) Issued in connection with the termination of the Phantom Stock Plan. At end
of fiscal year 1997, Mr. Pulaski held 243,202 shares of restricted stock
valued at $935,841. Dividends will be paid on restricted stock to the same
extent that dividends are paid on unrestricted stock.
(7) Granted in connection with the termination of the Phantom Stock Plan all of
which became fully vested and exercisable in February 1998. In addition in
January 1998, Mr. Pulaski was granted options for 37,500 shares of Common
Stock at an exercise price of $3.85 per share.
(8) Issued in connection with the termination of the Phantom Stock Plan. At end
of fiscal year 1997, Mr. Ghias held no shares of restricted stock. Dividends
will be paid on restricted stock to the same extent that dividends are paid
on unrestricted stock.
(9) Granted in connection with the termination of the Phantom Stock Plan. In
addition, in March 1998, Mr. Ghias was granted options for 37,500 shares of
Common Stock at an exercise price of $4.48 per share.
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<PAGE> 47
The following table contains information concerning the stock option grants
made to each of the Named Officers in the year ended December 31, 1997. No stock
appreciation rights were granted to these individuals during such year.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------------- POTENTIAL REALIZABLE VALUE
% OF TOTAL AT ASSUMED ANNUAL RATES OF
NUMBER OF OPTIONS STOCK PRICE APPRECIATION
SECURITIES GRANTED TO EXERCISE FOR OPTION TERM(3)
UNDERLYING EMPLOYEES IN PRICE EXPIRATION --------------------------
NAME OPTIONS GRANTED FISCAL YEAR(1) ($/SHARE)(2) DATE 5%($) 10%($)
---- --------------- -------------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Eric J. Pulaski........ 0 -- -- -- -- --
Christopher J. Sole.... 279,990(4) 7.3 $2.85 10/2007 $501,488 $1,270,869
Scott R. Plantowsky.... 875,000(5) 22.9 1.34 4/2007 737,379 1,868,663
437,500(6) 11.4 2.85 10/2007 783,603 1,985,803
187,500(7) 4.9 2.85 10/2007 335,830 851,058
David E. Pulaski....... 187,500(8) 4.9 2.85 10/2007 335,830 851,058
Nadeem Ghias........... 97,500(9) 2.5 2.85 10/2007 174,631 442,550
</TABLE>
- ------------
(1) Based on an aggregate of 3,828,885 shares subject to options and warrants
granted to employees of the Company under the Incentive Stock Option Plan,
Stock Option Plan and 1997 Incentive Plan during 1997.
(2) The Company's Board of Directors has authorized stock option grants during
1997 based upon its estimate of the fair market value of the Company's
Common Stock at the date of grant. The estimates of fair market value of the
Company's Common Stock for the first three quarters of the year were based
upon multiplying Company revenues for the preceding twelve months by a
factor implicit in an independent valuation of the Company performed at
January 1, 1996. The estimates of fair market value of the Company's Common
Stock for the fourth quarter of 1997 were based upon the effective price per
share of Common Stock indicated by the October 1997 sale of $18 million in
Convertible Preferred Stock to third-party investors. The exercise price may
be paid in cash, in shares of Common Stock valued at fair market value on
the exercise date or pursuant to a cashless exercise procedure.
(3) The potential realizable value is calculated based on the term of the option
at the time of grant (ten years). Stock price appreciation of 5% and 10% is
assumed pursuant to rules promulgated by the Securities and Exchange
Commission and does not represent the Company's prediction of its stock
price performance. The potential realizable values at 5% and 10%
appreciation are calculated by assuming that the exercise price on the date
of grant appreciates at the indicated rate for the entire term of the option
and that the option is exercised at the exercise price and sold on the last
day of its term at the appreciated price. While the Company believes these
grants were made at the then fair market value at the date of each grant,
the exercise prices are substantially below the price per share at which
Common Stock is proposed to be sold in this offering. If the midpoint of the
proposed offering range of $10.00 per share had been used as the base price
to compute potential realizable value at assumed 5% and 10% annual rates of
return, the aggregate value for the stock option grants presented in this
table would have increased from $2,868,761 to $29,072,540 for 5% annual
appreciation, and from $7,269,951 to $48,996,551 for 10% annual
appreciation. Investors should be cautioned not to expect similar rates of
appreciation related to their potential investment in the Company's Common
Stock.
(4) Issued in connection with termination of the Company's Phantom Stock Plan.
Twenty-five percent (25%) of the option shares shall vest annually
commencing in May 1998.
(5) Includes options for 218,750 shares of Common Stock, vested as of December
31, 1997, with the remaining options vesting in the amount of 218,750 on
January 1, 1998 and 109,375 shares on each of the following dates: July 1,
1998, January 1, 1999, July 1, 1999 and January 1, 2000.
(6) This warrant was exercised in full in May 1998.
(7) Issued in connection with termination of the Company's Phantom Stock Plan.
All of the option shares shall vest in September 1998.
(8) Issued in connection with termination of the Company's Phantom Stock Plan.
All of the option shares vested in February 1998.
(9) Issued in connection with termination of the Company's Phantom Stock Plan.
Fifty percent (50%) of the option shares vested in December 1997 and fifty
percent (50%) of the option shares shall vest in December 1998.
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<PAGE> 48
The following table sets forth information concerning the shares acquired
and the value realized upon the exercise of stock options during 1997 and the
year-end number and value of unexercised options with respect to each of the
Named Officers. No stock appreciation rights were exercised by the Named
Officers in 1997 or were outstanding at the end of that year.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT DECEMBER 31, AT DECEMBER 31,
1997 1997(1)
----------------------- ------------------------
NAME VESTED UNVESTED VESTED UNVESTED
---- -------- --------- -------- ----------
<S> <C> <C> <C> <C>
Eric J. Pulaski........................... -- -- -- --
Christopher J. Sole....................... -- 927,315 -- $1,170,709
Scott R. Plantowsky....................... 656,250 843,750 $986,125 1,833,375
David E. Pulaski.......................... -- 187,500 -- 187,500
Nadeem Ghias.............................. 48,750 48,750 48,750 48,750
</TABLE>
- ------------
(1) Based on the fair market value of Common Stock of $3.85 per share at the
year ending December 31, 1997, as determined by the Company's Board of
Directors, less the exercise price payable for such shares.
BONUS PLAN
The Company has adopted a bonus program pursuant to which all employees may
be awarded cash bonuses based on individual performance and the performance and
profitability of the Company.
STOCK OPTION PLANS
Incentive Stock Option Plan.
The Company's Incentive Stock Option Plan, as amended (the "Incentive
Plan"), provides for the grant to certain key employees of options intended to
qualify as incentive stock options ("ISOs") under Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"). The Incentive Plan was adopted by
the Board of Directors in January 1996 and approved by the Company's
stockholders in December 1996. Unless terminated sooner, the Incentive Plan will
terminate automatically in December 2004. A total of 1,875,000 shares of Common
Stock had been reserved for issuance under the Incentive Plan at March 31, 1998.
The Incentive Plan shall be administered by the Board of Directors. The Board
has the power to designate the employees or classes of employees eligible to
participate in the Incentive Plan, grant options provided for in the Incentive
Plan in the form and amounts as the Board shall determine and impose such
limitations, restrictions and conditions upon such options as the Board deems
appropriate. Options granted under the Incentive Plan are not generally
transferable by the optionee, and each option is generally exercisable during
the lifetime of the optionee only by such optionee. Options granted under the
Incentive Plan shall expire immediately on the date of termination of the
optionee's employment with the Company and will expire six months after such
optionee's death, but in no event will any option be exercisable later than ten
years from the date of grant of such option. The exercise price of all ISOs
granted under the Incentive Plan must be equal to the fair market value of the
Common Stock on the date of grant. No options may be granted to any participant
who owns stock possessing more than ten percent of the voting power of all
classes of the Company's outstanding capital stock. The aggregate fair market
value of options granted to an optionee may not exceed $100,000 in any calendar
year. The term of options granted under the Incentive Plan may not exceed ten
years. The Incentive Plan provides that in the event of a stock dividend,
merger, consolidation, exchange of shares or other similar event, the Board of
Directors may appropriately adjust the number of shares of Common Stock issuable
under and the option price of such options. As of March 31, 1998, 10,000 shares
of Common Stock had been issued upon exercise of options outstanding under the
Incentive Plan. The recipient of any option under the Incentive Plan has no
rights as a shareholder unless and until certificates for shares of Common Stock
have been issued to him. Options to purchase 1,487,520 shares of Common Stock at
a weighted average exercise price of $1.28 were outstanding under the Incentive
Plan. At March 31, 1998, 387,480 shares remained available for future issuance
under the Incentive Plan. After May 1998, all options
47
<PAGE> 49
outstanding under the Incentive Plan are to be governed, for administration
purposes only, by the Omnibus Plan.
Stock Option Plan.
The Company's Stock Option Plan, as amended (the "Stock Plan"), provides
for the grant to certain employees of nonstatutory options and ISOs within the
meaning of Section 422 of the Code. The Stock Plan was adopted by the Board of
Directors in January 1996 and approved by the Company's stockholders in December
1996. Unless terminated sooner, the Stock Plan will terminate automatically in
December 2005. A total of 1,747,325 shares of Common Stock had been reserved for
issuance under the Stock Plan at March 31, 1998. The Stock Plan shall be
administered by the Board of Directors. The Board has the power to designate the
employees or classes of employees eligible to participate in the Stock Plan,
grant options provided for in the Stock Plan in the form and amounts as the
Board shall determine and impose such limitations, restrictions and conditions
upon such options as the Board deems appropriate. Options granted under the
Stock Plan are not generally transferable by the optionee, and each option is
generally exercisable during the lifetime of the optionee only by such optionee.
Options granted under the Stock Plan shall expire 24 months after the optionee's
death or termination of employment with the Company, but in no event will any
option be exercisable later than ten years from the date of grant of such
option. The exercise price of options granted under the Stock Plan shall be as
determined by the Board of Directors. The term of options granted under the
Stock Plan may not exceed ten years. The Stock Plan provides that in the event
of a stock dividend, merger, consolidation, exchange of shares or other similar
event, the Board of Directors may appropriately adjust the number of shares of
Common Stock issuable under and the option price of such options. As of March
31, 1998, no shares of Common Stock had been issued upon exercise of options
outstanding under the Stock Plan. The recipient of any option under the Stock
Plan has no rights as a shareholder unless and until certificates for shares of
Common Stock have been issued to him. Options to purchase 1,747,325 shares of
Common Stock at a weighted average exercise price of $1.79 were outstanding
under the Stock Plan. At March 31, 1998, no shares remained available for future
issuance under the Stock Plan. After May 1998, all options outstanding under the
Stock Plan are to be governed, for administration purposes only, by the Omnibus
Plan.
1997 Incentive Plan.
The Company's 1997 Incentive Plan, as amended (the "1997 Plan"), provides
for the grant to certain key employees, executive officers, directors and
consultants of nonstatutory options and ISOs within the meaning of Section 422
of the Code. The 1997 Plan was adopted by the Board of Directors in September
1997 and approved by the Company's stockholders in October 1997. The 1997 Plan
shall continue in effect until terminated by the Board of Directors, but in no
event will incentive stock options be granted by the Board after September 2007.
A total of 1,303,740 shares of Common Stock had been reserved for issuance under
the 1997 Plan at March 31, 1998. The 1997 Plan shall be administered by the
Board of Directors or such other committee of the Board designated to administer
the 1997 Plan. The Board has the power to select persons to whom options may be
granted, to determine the number and type of options to be granted, to determine
in what manner the exercise price of an option may be paid and to adopt, amend,
suspend and rescind such rules and regulations as the Board may deem necessary
to administer the 1997 Plan. Options granted under the 1997 Plan are not
generally transferable by the optionee, and each option is generally exercisable
during the lifetime of the optionee only by such optionee. The term and
expiration of options granted under the 1997 Plan shall be determined by the
Board of Directors, but in no event shall the term of any incentive stock option
exceed a period of ten years from the date of its grant. The exercise price of
all options granted under the 1997 Plan shall be determined by the Board of
Directors, but in no event will the exercise price be less than the fair market
value of the Common Stock on the date of grant. The 1997 Plan provides that in
the event of a stock dividend, merger, consolidation, exchange of shares or
other similar event, the Board of Directors may appropriately adjust the number
of shares of Common Stock issuable under and the option price of such options.
Further, unless otherwise provided by the Board of Directors, all conditions and
restrictions with respect to the exercisability or settlement of options granted
under the 1997 Plan shall immediately lapse if any person acquires directly or
indirectly "beneficial ownership," as such term is defined in Section 13(d) of
the Exchange Act, of voting securities representing 50 percent or more of the
voting power of all of the then-
48
<PAGE> 50
outstanding voting securities of the Company. As of March 31, 1998, 1,303,740
shares of Common Stock had been issued upon exercise of options outstanding
under the 1997 Plan. No option granted under the 1997 Plan shall confer on any
optionee the rights of a shareholder unless and until stock is duly issued or
transferred, or if the option is duly exercised. Options to purchase 1,303,740
shares of Common Stock at a weighted average exercise price of $2.85 were
outstanding under the 1997 Plan. At March 31, 1998, no shares remained available
for future issuance under the 1997 Plan. After May 1998, all options outstanding
under the 1997 Plan are to be governed, for administration purposes only, by the
Omnibus Plan.
Omnibus Incentive Plan.
The Company's Board of Directors has adopted the Company's Omnibus
Incentive Plan (the "Omnibus Plan"). The Company expects the Omnibus Plan to be
approved by the Company's stockholders in May 1998.
Under the Omnibus Plan, 1,750,000 shares of Common Stock are reserved for
issuance pursuant to the direct award or sale of shares or the exercise of
options. If any options granted under the Omnibus Plan are forfeited or
terminate for any other reason without having been exercised in full, then the
unpurchased shares subject to those options will become available for additional
grants under the Omnibus Plan. If shares granted or purchased under the Omnibus
Plan are forfeited, then those shares will also become available for additional
grants under the Omnibus Plan.
Under the Omnibus Plan, all employees (including officers) of the Company
or any subsidiary are eligible to purchase shares of Common Stock, to receive
awards of shares or to receive nonstatutory options or ISOs within the meaning
of Section 422 of the Code. The Omnibus Plan is administered by the Board of
Directors, which selects the persons to whom shares will be sold or awarded or
options will be granted, determines the number of shares to be made subject to
each sale, award or grant, and prescribes the other terms and conditions of each
sale, award or grant, including the type of consideration to be paid to the
Company upon sale or exercise and the vesting schedule.
The exercise price under ISOs cannot be lower than 100% of the fair market
value of the Common Stock on the date of grant and, in the case of ISOs granted
to holders of more than 10% of the voting power of the Company, not less than
110% of such fair market value. There is no minimum exercise price for
nonstatutory options. Options granted under the Omnibus Plan generally are not
transferable, except that an optionee may transfer nonstatutory options to an
immediate family member or an entity controlled by the optionee or an immediate
family member.
The term of any option cannot exceed ten years, and the term of an ISO
granted to a holder of more than 10% of the voting power of the Company cannot
exceed five years. Options generally terminate three months after the optionee's
employment terminates for any reason other than retirement, disability or death.
In the event of the optionee's retirement, the optionee generally may exercise
the vested portion of the option within 12 months after retirement. In the event
of the optionee's disability, the option vests in full and the optionee
generally may exercise the option within 12 months after the optionee's
employment terminated. In the event of the optionee's death, the option also
vests in full and the optionee's successors generally may exercise the option
within 12 months after the optionee's death. Restricted stock awards likewise
vest in full in the event of the recipient's disability or death.
As of March 31, 1998, options to purchase an aggregate of 326,293 shares of
Common Stock were outstanding under the Omnibus Plan at a weighted average
exercise price of $4.12. A total of 1,423,707 shares of Common Stock are
available for future issuance under the Omnibus Plan.
1998 Non-Employee Director Stock Option Plan.
The Company's Board of Directors has adopted the Company's 1998
Non-Employee Director Stock Option Plan (the "Director Plan"). The Company
expects that the Director Plan will be approved by the Company's stockholders in
May, 1998.
Under the Director Plan, 250,000 shares of Common Stock are reserved for
issuance upon the exercise of options. If any options granted under the Director
Plan are forfeited or terminate for any other reason without
49
<PAGE> 51
having been exercised in full, then the unpurchased shares subject to those
options will become available for additional grants under the Director Plan.
Under the Director Plan, each new director who is not an employee of the
Company or any affiliate is automatically granted, as of the date when he or she
is elected to the Company's Board of Directors, an option to purchase 50,000
shares of Common Stock at an exercise price equal to the fair market value of
the Common Stock on the date of grant. These options vest in equal annual
installments over the five-year period commencing on the date of grant, except
that they vest in full in the event of the optionee's death or disability or in
the event that the Company is subject to a change in control.
The term of the options is ten years. Options generally terminate 90 days
after the optionee's service as a director terminates for any reason other than
death. In the event of the optionee's death, the optionee's successors may
exercise the option within 12 months after the optionee's death. Options granted
under the Director Plan generally are not transferable, except that an optionee
may transfer the options to an immediate family member or an entity controlled
by the optionee or an immediate family member.
As of March 31, 1998, options to purchase an aggregate of 150,000 shares of
Common Stock were outstanding under the Director Plan at a weighted average
exercise price of $3.85. A total of 100,000 shares of Common Stock are available
for future issuance under the Director Plan.
401(K) PLAN
The Company has adopted a 401(k) retirement savings plan referred to as the
BindView Development Corporation 401(k) Profit Sharing Plan. This plan is
available to all employees who have attained age 21 and have completed three
months of service. An employee may contribute, on a pre-tax basis, up to 15% of
the employee's wages from the Company, subject to limitations specified under
the Internal Revenue Code. Under the terms of the BindView Development
Corporation 401(k) Profit Sharing Plan, the Company shall match employee
contributions up to 50% of the first 6% contributed by the employee and may make
discretionary profit sharing contributions. Contributions are allocated to each
employee's individual account and are, at the employee's election, invested in
one, all or some combination of the investment funds available under such 401(k)
plan. Employee contributions are fully vested and non-forfeitable. Employees
will vest in any Company contributions at the rate of 20% for each year of
service commencing after the first year of service.
EMPLOYMENT AGREEMENTS
The Company has employment agreements with Christopher J. Sole, Scott R.
Plantowsky, David E. Pulaski and Nadeem Ghias. Mr. Sole's employment agreement
remains in effect until such agreement is terminated by Mr. Sole upon two weeks
notice, subject to the Company's right to terminate the agreement immediately
for cause or Mr. Sole's death. The Company may also terminate Mr. Sole at any
time for any reason (or no reason), subject to the obligation of the Company to
pay Mr. Sole an amount equal to six months of base salary. Mr. Sole's annual
salary is currently $110,000, subject to review by the Compensation Committee.
Mr. Sole is also eligible to receive annual cash bonuses, stock option grants
and other awards under the Company's existing stock plans, by and at the
discretion of the Compensation Committee. Mr. Sole is prohibited from soliciting
customers of the Company for a period of up to 12 months after Mr. Sole's
termination.
Mr. Plantowsky's employment agreement remains in effect until January 1,
2000, or until such agreement is terminated by Mr. Plantowsky upon 60 days
notice, subject to the Company's right to terminate the agreement immediately
for cause or Mr. Plantowsky's death. In connection with Mr. Plantowsky's
employment, Mr. Plantowsky received, among other things, a nonstatutory stock
option to purchase 875,000 shares of the Company's Common Stock that vest over a
three year period from April 1997. Under this option, if Mr. Plantowsky's
employment is terminated for any reason other than for cause, including a
constructive termination, the Company is obligated to either (i) pay Mr.
Plantowsky $1 million and one-half of his then unvested shares shall immediately
vest or (ii) cause all of Mr. Plantowsky's shares to immediately vest. Mr.
Plantowsky's annual salary is currently $110,000, subject to review by the
Compensation Committee.
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<PAGE> 52
Mr. Plantowsky is also eligible to receive annual cash bonuses, stock option
grants and other awards under the Company's existing stock plans, by and at the
discretion of the Compensation Committee. In addition, in the event that Mr.
Plantowsky's employment with the Company is terminated for cause or Mr.
Plantowsky resigns, in either case prior to January 1, 1999, July 1, 1999 or
January 1, 2000, then the Company shall have the option to purchase up to
164,062 shares, 109,375 shares and 54,687 shares, respectively, of Common Stock
from Mr. Plantowsky at a price per share of $2.85. Mr. Plantowsky is prohibited
from (i) directly or indirectly engaging in the same or similar business
activities to those carried on by the Company and (ii) soliciting customers of
the Company for a period of two years after Mr. Plantowsky's termination.
Mr. Ghias' employment agreement remains in effect until such agreement is
terminated by Mr. Ghias upon two weeks notice, subject to the Company's right to
terminate the agreement immediately for cause or Mr. Ghias' death. Mr. Ghias'
annual salary is currently $114,950, subject to review by the Compensation
Committee. Mr. Ghias is also eligible to receive annual cash bonuses, stock
option grants and other awards under the Company's existing stock plans, by and
at the discretion of the Compensation Committee. Mr. Ghias is prohibited from
(i) directly or indirectly engaging in the same or similar business activities
to those carried on by the Company and (ii) soliciting customers of the Company
for a period of 12 months after Mr. Ghias' termination.
David E. Pulaski's employment agreement remains in effect until such
agreement is terminated by Mr. Pulaski upon two weeks notice, subject to the
Company's right to terminate the agreement immediately for cause or Mr.
Pulaski's death. Mr. Pulaski's annual salary is currently $96,000, subject to
review by the Compensation Committee. Mr. Pulaski is also eligible to receive
annual cash bonuses, stock option grants and other awards under the Company's
existing stock plans, by and at the discretion of the Compensation Committee.
Mr. Pulaski is prohibited from (i) directly or indirectly engaging in the same
or similar business activities to those carried on by the Company and (ii)
soliciting customers of the Company for a period of 12 months at Mr. Pulaski's
termination.
The Company also maintains employment/confidentiality agreements with
substantially all of its employees. Such agreements are not for a specific term
and are generally terminable at will by the Company, subject to the obligation
of the Company to pay the employee an amount equal to accrued vacation time and
severance pay in the amount of at least one-half month's salary. These
agreements provide for annual base salaries, other benefits, such as vacation
and sick leave, and non-compete and confidentiality agreements. The employees
who are parties to these agreements are also entitled to bonuses based on
achieving targets to be set by the Company's Board of Directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Peter L. Bloom, a director of the Company, is a member of the Compensation
Committee of the Board of Directors. Mr. Bloom is also a general partner of both
General Atlantic Partners 44, L.P. and GAP Coinvestment Partners, L.P., owners
of approximately 24.3% and 5.0%, respectively, of the capital stock of the
Company prior to the offering.
CERTAIN TRANSACTIONS
TRANSACTIONS WITH DIRECTORS AND OFFICERS
On April 8, 1997, the Company delivered 487,500 shares of Common Stock to
Nadeem Ghias, the Company's Vice President -- Research & Development, to settle
its obligation pursuant to the sale of technology by Mr. Ghias to the Company in
1993. Under the terms of a related agreement (the "Agreement"), the Company has
the option to purchase the 487,500 shares of Common Stock subject to the
Agreement within 60 days of certain triggering events. The triggering events are
the death or disability of Mr. Ghias, the termination of his employment with the
Company or any disposition of the shares. The purchase price of the shares is
determined by the following formula: the Company is to be valued at an amount
equal to 1.56 times the net sales of the Company in the preceding 12 month
period, and the value of one share is determined by dividing the value of the
Company by the total number of outstanding shares of Common Stock. In the event
that Mr. Ghias' employment has been terminated with the Company for any reason
other than death or disability, or if the Company exercises its option due to an
involuntary disposition
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<PAGE> 53
by Mr. Ghias, the purchase price of the shares will be 1.56 times the amount
calculated in the preceding formula. The terms of the Agreement provide that the
Agreement will terminate upon an initial public offering of Common Stock of the
Company.
On October 16, 1997, the Company issued in a private placement an aggregate
of 6,320,225 shares of Class A Convertible Preferred Stock of the Company
("Class A Preferred Stock") and warrants (the "Investor Warrants") to purchase
an aggregate of 749,999 shares of Common Stock of the Company with an exercise
price of $4.00 per share. The Class A Preferred Stock and Investor Warrants were
purchased by General Atlantic Partners 44, L.P., GAP Coinvestment Partners, L.P.
and JMI Equity Fund III, L.P. (collectively, the "Purchasers") for an aggregate
consideration of $18 million. Pursuant to the agreements entered into in
connection with this offering and sale of the Class A Preferred Stock and
Investor Warrants, among other provisions, the Company agreed to nominate, and
Eric J. Pulaski, a significant shareholder, agreed to vote his shares to elect,
representatives of the Purchasers to the Board of Directors of the Company.
Immediately prior to the private placement and sale of the Class A
Preferred Stock and Investor Warrants, the Company terminated its Phantom Stock
Plan. In connection with the termination of the Phantom Stock Plan, the Company
issued shares of Common Stock and options to purchase shares of the Common Stock
of the Company to the participants in the plan as consideration for the
cancellation of their interests in the plan. The Company issued 1,757,188 shares
of Common Stock before terminating its S Corporation status, creating a loss in
the short S Corporation year. Subsequently, the shareholders elected to convert
the Company into a C Corporation and issued 3,187,612 shares of Common Stock
creating a loss in the short C Corporation year. Upon issuance of the Common
Stock to the employee recipients, the Company incurred a one-time aggregate
compensation charge of approximately $14.7 million. Contemporaneously, the
Company initiated a stock repurchase, in aggregate, of 4,921,958 shares of
Common Stock for approximately $14 million, equal to approximately $2.85 per
share. The stock repurchase provided funds for personal income tax liabilities
for employees resulting from the receipt of Common Stock in consideration of
cancellation of their interest in the Phantom Stock Plan, to the extent vested,
and provided liquidity for certain selling shareholders. Options were granted to
purchase 1,303,740 shares of Common Stock at an exercise price of $2.85 in
consideration of cancellation of the participant's unvested interest in the
Phantom Stock Plan pursuant to the Company's 1997 Incentive Plan.
In November, 1997, the Company granted Scott R. Plantowsky, the Company's
Vice President, Chief Financial Officer and a member of its Board of Directors,
a warrant (the "Warrant") to purchase 437,500 shares of its Common Stock at an
exercise price of $2.85 per share in exchange for the extinguishment of a bonus
provision in his option agreement. This warrant was exercised in May 1998.
The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future transactions, including loans between the
Company and its officers, directors, principal shareholders and their affiliates
will be approved by a majority of the Board of Directors, including a majority
of the independent and disinterested outside directors on the Board of
Directors, and will continue to be on terms no less favorable to the Company
than could be obtained from unaffiliated third parties.
PHANTOM STOCK PLAN
In 1996, the Company implemented a Phantom Stock Plan which granted phantom
stock units to certain employees. Each phantom stock unit provided the
participant with the right to receive shares of the Company's Common Stock upon
the occurrence of a change in control of the Company, an initial public offering
of the Company's Common Stock, liquidation of the Company or a sale of
substantially all of the Company's assets. The Company granted 6,598,250 phantom
stock units during 1996. No grants were made during 1997.
The Company terminated the Phantom Stock Plan in October 1997 and issued
1,757,188 shares of Common Stock on October 13, 1997 and 3,187,612 shares of
Common Stock on October 16, 1997 to retire the Phantom Stock Plan and recognized
a related stock compensation charge of $14.7 million in October 1997. On October
16, 1997, the Company issued options to purchase 1,303,740 shares of Common
Stock under the
52
<PAGE> 54
Company's 1997 Incentive Plan with an exercise price of $2.85 per share to
former participants with unvested rights in the Phantom Stock Plan.
INDEMNIFICATION
The Revised Articles of Incorporation of the Company contain a provision
that limits the liability of the Company's directors as permitted under Texas
law. The provision eliminates the liability of a director to the Company or its
shareholders for monetary damages for acts or omissions in the director's
capacity as a director. The provision does not affect the liability of a
director (i) for breach of his duty of loyalty to the Company or to the
shareholders, (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of the law, (iii) for acts or
omissions for which the liability of a director is expressly provided by an
applicable statute or (iv) in respect of any transaction from which a director
received an improper personal benefit. Pursuant to the Revised Articles of
Incorporation, the liability of directors will be further limited or eliminated
without action by shareholders if Texas law is amended to further limit or
eliminate the personal liability of directors.
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<PAGE> 55
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information known to the Company
regarding beneficial ownership of its Common Stock as of March 31, 1998, and as
adjusted to reflect the sale of shares offered hereby, by (i) each person who is
known by the Company to own beneficially more than 5% of the Company's Common
Stock, (ii) each of the Named Officers, (iii) each of the Company's directors,
(iv) all current executive officers and directors as a group and (v) all Selling
Shareholders.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
PRIOR TO OFFERING NUMBER OF AFTER OFFERING(2)
------------------------- SHARES BEING --------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER(1) NUMBER PERCENT(3) OFFERED NUMBER PERCENT(3)
- --------------------------------------- ---------- ----------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C>
General Atlantic Partners, LLC(4)..... 4,713,481 29.3% -- 4,713,481 25.0%
3 Pickwick Plaza
Greenwich, CT 06830
JMI Equity Fund III, L.P.(5).......... 2,356,742 14.7 -- 2,356,742 12.5
12860 High Bluff Road, Suite 200
San Diego, CA 92130
Eric J. Pulaski....................... 5,861,000 36.4 586,100 5,274,900 28.0
Peter L. Bloom(4)..................... 4,713,481 29.3 -- 4,713,481 25.0
Scott R. Plantowsky(6)................ 987,125 5.9 160,713 826,412 4.2
Christopher J. Sole(7)................ 717,322 4.3 92,732 624,590 3.2
David E. Pulaski(8)................... 555,702 3.4 35,000 520,702 2.7
Nadeem Ghias(9)....................... 292,500 1.8 37,500 255,000 1.3
John J. Moores........................ -- * -- -- *
Richard A. Hosley II.................. -- * -- -- *
Edward Amash.......................... 160,000 1.0 16,000 144,000 *
Phil Bergeron......................... 44,642 * 1,250 43,392 *
Greg Hanka............................ 109,195 * 15,525 93,670 *
Kevin Le.............................. 1,250 * 625 625 *
David Locke........................... 2,500 * 1,250 1,250 *
Greg Major............................ 1,625 * 1,300 325 *
Mark Miller........................... 20,500 * 3,000 17,500 *
Ken Naumann........................... 47,760 * 1,000 46,760 *
Jonathan Olson........................ 1,625 * 812 813 *
Mike Reynolds......................... 17,580 * 8,508 9,072 *
Brenda Simon.......................... 4,500 * 450 4,050 *
Kimberly Teller....................... 2,500 * 1,250 1,250 *
Rudi Vanderbeeken..................... 56,250 * 22,500 33,750 *
Kim Wylie............................. 21,000 * 2,100 18,900 *
All directors and officers as a group
(8 persons)(10)..................... 13,127,130 73.8% 12,215,085 59.8%
</TABLE>
- ------------
* Represents beneficial ownership of less than 1% of the outstanding shares
of Common Stock.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting or investment power
with respect to securities. Unless otherwise indicated, the address for
each listed shareholder is c/o BindView Development Corporation, 3355 West
Alabama, Suite 1200, Houston, Texas 77098. To the Company's knowledge,
except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named in the table have
sole voting and investment power with respect to the shares of Common
Stock indicated.
(2) Assumes no exercise of the Underwriters' over-allotment option. See
"Underwriting."
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<PAGE> 56
(3) Percentage of beneficial ownership is based on 16,080,867 shares of Common
Stock outstanding as of March 31, 1998, and 18,843,252 shares of Common
Stock outstanding after the completion of this offering. The number of
shares of Common Stock beneficially owned includes the shares issuable
pursuant to stock options that are either exercisable within 60 days of
March 31, 1998 or exercisable upon the effective date of this offering.
Shares issuable pursuant to stock options are deemed outstanding for
computing the percentage of the person holding such options but are not
outstanding for computing the percentage of any other person. The number
of shares of Common Stock outstanding after this offering includes
2,762,385 shares of Common Stock being offered for sale by the Company in
this offering.
(4) Consists of 3,495,820 shares of Common Stock and 414,837 shares of Common
Stock issuable upon exercise of Investor Warrants held by General Atlantic
Partners 44, L.P. ("GAP 44") and 717,662 shares of Common Stock and 85,162
shares of Common Stock issuable upon exercise of Investor Warrants held by
GAP Coinvestment Partners, L.P. ("GAP Coinvestment"). The general partner
of GAP 44 is General Atlantic Partners, LLC ("GAP LLC"). The managing
members of GAP LLC are also the general partners of GAP Coinvestment.
Peter L. Bloom is a managing member of GAP LLC. Mr. Bloom disclaims
beneficial ownership of such securities except to the extent of his
pecuniary interest therein.
(5) Includes 250,000 shares of Common Stock issuable upon exercise of
outstanding Investor Warrants. The general partner of JMI Equity Fund III,
L.P. is JMI Associates III, LLC. JMI Associates III, LLC disclaims
beneficial ownership of such securities except to the extent of its
pecuniary interest therein.
(6) Includes 875,000 shares of Common Stock issuable upon exercise of
outstanding options and warrants which are presently exercisable or will
become exercisable within 60 days of March 31, 1998. Also includes 5,000
shares held by Scott Plantowsky, Custodian for Hannah Plantowsky. Mr.
Plantowsky has voting power over such shares, however Mr. Plantowsky
disclaims beneficial ownership of such shares. In the event that Mr.
Plantowsky's employment with the Company is terminated by the Company
prior to January 1, 2000, for cause or upon Mr. Plantowsky's resignation,
the Company may purchase from him a portion of these shares at a purchase
price of $2.85 per share. See "Management -- Employment Agreements."
(7) Includes 69,997 shares of Common Stock issuable upon exercise of
outstanding options which will become exercisable within 60 days of March
31, 1998 and 647,325 shares of Common Stock issuable upon exercise of
outstanding options which will become exercisable upon the effective date
of this offering.
(8) Includes 187,500 shares of Common Stock issuable upon exercise of
outstanding options, all of which are presently exercisable. Also includes
125,000 shares held by David E. Pulaski, Trustee of the Pulaski Family
Charitable Remainder Trust (the "Pulaski Family Trust"). Mr. Pulaski has
voting power over shares held by the Pulaski Family Trust and has a
pecuniary interest in a portion of the income from the Pulaski Family
Trust. Mr. Pulaski disclaims beneficial ownership of shares held by the
Pulaski Family Trust except to the extent of his pecuniary interest
therein.
(9) Includes 48,750 shares of Common Stock issuable upon exercise at
outstanding options which will become exercisable within 60 days of March
31, 1998.
(10) Includes 1,828,572 shares of Common Stock issuable upon exercise of
outstanding options and warrants which are presently exercisable, will
become exercisable within 60 days of March 31, 1998 or will become
exercisable upon the effective date of this offering. Also includes
499,999 shares of Common Stock issuable upon exercise of Investor
Warrants.
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<PAGE> 57
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, the authorized capital stock of the
Company will consist of 100,000,000 shares of Common Stock, no par value.
COMMON STOCK
As of March 31, 1998, there were 8,275,657 shares of Common Stock
outstanding that were held of record by approximately 57 shareholders after
giving effect to a 2 1/2-for-1 exchange of the Common Stock. There will be
18,843,252 shares of Common Stock outstanding on a pro forma basis (assuming no
exercise of the Underwriters' over-allotment option and assuming no exercise
after March 31, 1998, of outstanding options except those being sold by the
Selling Shareholders) after giving effect to (i) a 2 1/2-for-1 exchange of the
Common Stock, (ii) the conversion of all outstanding shares of Preferred Stock
into Common Stock, (iii) the exercise of all outstanding warrants and (iv) the
sale of the shares of Common Stock to the public offered hereby.
The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the shareholders. Subject to preferences that may be
applicable to any outstanding Preferred Stock, the holders of Common Stock are
entitled to receive ratably such dividends, if any, as may be declared from time
to time by the Board of Directors out of funds legally available therefor. See
"Dividend Policy." In the event of the liquidation, dissolution, or winding up
of the Company, the holders of Common Stock are entitled to share ratably in all
assets remaining after payment of liabilities, subject to prior distribution
rights of Preferred Stock, if any, then outstanding. The Common Stock has no
preemptive or conversion rights or other subscription rights. There are no
redemption or sinking fund provisions applicable to the Common Stock. All
outstanding shares of Common Stock are fully paid and nonassessable, and the
shares of Common Stock to be issued upon completion of this offering will be
fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors has the authority to issue the Preferred Stock in
one or more series and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series or the designation
of such series, without further vote or action by the shareholders. The issuance
of Preferred Stock may have the effect of delaying, deferring or preventing a
change in control of the Company without further action by the shareholders and
may adversely affect the voting and other rights of the holders of Common Stock.
The issuance of Preferred Stock with voting and conversion rights may adversely
affect the voting power of the holders of Common Stock, including the loss of
voting control to others. At present, the Company has no plans to issue any of
the Preferred Stock.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE ARTICLES OF INCORPORATION, BYLAWS AND
TEXAS LAW
Articles of Incorporation and Bylaws
The Revised Articles of Incorporation provides that, upon the closing of
this offering, the Board of Directors will be divided into three classes of
directors, with each class serving a staggered three-year term. The
classification of the Board of Directors has the effect of generally requiring
at least two annual shareholder meetings, instead of one, to replace a majority
of the Board members. The Revised Articles of Incorporation also provide that,
effective upon the closing of this offering, all shareholder actions must be
effected at a duly called meeting and not by a consent in writing. Further,
provisions of the Bylaws and the Revised Articles of Incorporation provide that
the shareholders may amend the Bylaws or certain provisions of the Revised
Articles of Incorporation only with the affirmative vote of 80% of the Company's
capital stock. These provisions of the Revised Articles of Incorporation and
Bylaws could discourage potential acquisition proposals and could delay or
prevent a change in control of the Company. These provisions are intended to
enhance the likelihood of continuity and stability in the composition of the
Board of Directors and in the policies formulated by the Board of Directors and
to discourage certain types of transactions that may involve an actual or
threatened change of control of the Company. These provisions are designed to
reduce the vulnerability of the Company to an unsolicited acquisition proposal.
The provisions also are intended to discourage certain tactics that may be used
in proxy fights. However, such provisions could have the effect of
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<PAGE> 58
discouraging others from making tender offers for the Company's shares and, as a
consequence, they also may inhibit fluctuations in the market price of the
Company's shares that could result from actual or rumored takeover attempts.
Such provisions also may have the effect of preventing changes in the management
of the Company. See "Risk Factors -- Anti-Takeover Effects of Articles of
Incorporation, Bylaws and Texas Law."
Texas Takeover Statute
The Company is subject to Article 13.03 of the Texas Business Corporations
Act (the "TBCA"), which, subject to certain exceptions, prohibits a Texas
corporation from engaging in any business combination with any affiliated
shareholder, as defined under Article 13.01 of the TBCA, for a period of three
years following the date that such shareholder became an affiliated shareholder,
unless: (i) prior to such date, the board of directors of the corporation
approved either the business combination or the transaction that resulted in the
shareholder becoming an affiliated shareholder or (ii) the business combination
is approved and authorized by the affirmative vote of at least two-thirds of the
outstanding voting stock that is not owned or controlled by the interested
shareholder, at a meeting of shareholders and not by written consent, duly
called for that purpose not less than six months after the date that the
affiliated shareholder first became an affiliated shareholder of the
corporation.
Article 13.02 of the TBCA ("Article 13.02") defines business combination to
include: (i) any merger or consolidation involving the corporation and the
affiliated shareholder, (ii) any sale, transfer, pledge or other disposition of
10% or more of the assets of the corporation involving the affiliated
shareholder, (iii) subject to certain exceptions, any transaction that results
in the issuance or transfer by the corporation of any stock of the corporation
to the interested shareholder, (iv) the adoption of a plan or proposal for the
liquidation or dissolution of the corporation pursuant to an agreement with an
affiliated shareholder, (v) any transaction involving the corporation that has
the effect of increasing the proportionate share of the stock of any class or
series of the corporation beneficially owned by the interested shareholder or
(vi) the receipt by the affiliated shareholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or through
the corporation. In general, Article 13.02 defines an affiliated shareholder as
any entity or person beneficially owning 20% or more of the outstanding voting
stock of the corporation and any entity or person affiliated with or controlling
or controlled by such entity or person.
WARRANTS
Following this offering, and assuming that the Underwriters' over-allotment
options are not exercised, the Company will have outstanding warrants to
purchase an aggregate of 749,999 shares of Common Stock at an average exercise
price of $4.00 per share. All outstanding warrants contain customary
anti-dilution provisions.
REGISTRATION RIGHTS
The holders of approximately 13,700,000 shares of Common Stock, including
shares of Common Stock issuable upon exercise of certain outstanding warrants,
are entitled to certain rights with respect to the registration of such shares
under the Securities Act. Under the terms of certain employment agreements
between the Company and holders of such registrable securities, if the Company
proposes to register any of its securities under the Securities Act, either for
its own account or for the account of other security holders exercising
registration rights, such holders are entitled to notice of such registration
and are entitled to include shares of such Common Stock therein. Additionally,
such holders are also entitled to certain demand registration rights pursuant to
which they may require the Company to file a registration statement under the
Securities Act at its expense with respect to their shares of Common Stock, and
the Company is required to use its best efforts to effect such registration.
Further, holders may require the Company to file additional registration
statements on Form S-3 at the Company's expense. All of these registration
rights are subject to certain conditions and limitations, including, without
limitation, the right of the underwriters of an offering to limit the number of
shares included in such registration and the right of the Company not to effect
a requested registration within six months following an offering of the
Company's securities, including the offering made hereby.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is ,
and its telephone number is .
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<PAGE> 59
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 18,843,252 shares
of Common Stock outstanding. Of this amount, the 3,750,000 shares offered hereby
will be available for immediate sale in the public market as of the date of this
Prospectus. An additional 82,500 shares are not subject to a 180-day lockup, are
salable under Rule 144(k) and will be available for immediate sale in the public
market as of the date of this Prospectus. Approximately 14,194,106 additional
shares will be available for sale in the public market following the expiration
of 180-day lockup agreements with the Representatives of the Underwriters or the
Company, subject in some cases to compliance with the volume and other
limitations of Rule 144.
<TABLE>
<CAPTION>
APPROXIMATE SHARES
DAYS AFTER DATE OF THIS PROSPECTUS ELIGIBLE FOR FUTURE SALE COMMENT
- ---------------------------------- ------------------------ -------
<S> <C> <C>
Upon Effectiveness............. 3,832,500 Freely tradeable shares sold in offering and shares
salable under Rule 144(k) that are not subject to
180-day lockup
180 days....................... 14,194,106 Lockup released; shares salable under Rule 144,
144(k) or 701
Thereafter..................... 1,069,275 Restricted securities held for one year or less
</TABLE>
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares for at least one
year is entitled to sell within any three-month period commencing 90 days after
the date of this Prospectus a number of shares that does not exceed the greater
of (i) 1% of the then outstanding shares of Common Stock (approximately 188,432
shares immediately after this offering) or (ii) the average weekly trading
volume during the four calendar weeks preceding such sale, subject to the filing
of a Form 144 with respect to such sale. A person (or persons whose shares are
aggregated) who is not deemed to have been an affiliate of the Company at any
time during the 90 days immediately preceding the sale who has beneficially
owned his or her shares for at least two years is entitled to sell such shares
pursuant to Rule 144(k) without regard to the limitations described above.
Persons deemed to be affiliates must always sell pursuant to Rule 144, even
after the applicable holding periods have been satisfied.
The Company is unable to estimate the number of shares that will be sold
under Rule 144, since this will depend on the market price for the Common Stock
of the Company, the personal circumstances of the sellers and other factors.
Prior to this offering, there has been no public market for the Common Stock,
and there can be no assurance that a significant public market for the Common
Stock will develop or be sustained after this offering. Any future sale of
substantial amounts of the Common Stock in the open market may adversely affect
the market price of the Common Stock offered hereby.
The Company, its directors, executive officers, shareholders with
registration rights and certain other shareholders have agreed pursuant to the
Underwriting Agreement and other agreements that they will not sell any Common
Stock without the prior consent of BancAmerica Robertson Stephens for a period
of 180 days from the date of this Prospectus (the "180-day Lockup Period"),
except that the Company may, without such consent, grant options and sell shares
pursuant to the Company's stock plans.
Any employee or consultant to the Company who purchased his or her shares
pursuant to a written compensatory plan or contract is entitled to rely on the
resale provisions of Rule 701, which permits nonaffiliates to sell their Rule
701 shares without having to comply with the public information, holding period,
volume limitation or notice provisions of Rule 144 and permits affiliates to
sell their Rule 701 shares without having to comply with the Rule 144 holding
period restrictions, in each case commencing 90 days after the date of this
Prospectus. As of the date of this Prospectus, the holders of options
exercisable into approximately 4,717,388 shares of Common Stock will be eligible
to sell their shares upon the expiration of the 180-day Lockup Period, or
subject in certain cases to vesting of such options.
The Company intends to file a registration statement on Form S-8 under the
Securities Act to register shares of Common Stock issued or reserved for
issuance under the Company's stock plans within 180 days
58
<PAGE> 60
after the date of this Prospectus, thus permitting the resale of such shares by
nonaffiliates in the public market without restriction under the Securities Act.
The Company intends to register these shares on Form S-8, along with options
that have not been issued under the Company's stock plans as of the date of this
Prospectus.
In addition, after this offering, the holders of approximately 13,700,000
shares of Common Stock, including shares of Common Stock issuable upon exercise
of certain outstanding warrants, will be entitled to certain rights with respect
to registration of such shares under the Securities Act. Registration of such
shares under the Securities Act would result in such shares becoming freely
tradeable without restriction under the Securities Act (except for shares
purchased by affiliates of the Company) immediately upon the effectiveness of
such registration. See "Description of Capital Stock -- Registration Rights."
59
<PAGE> 61
UNDERWRITING
The Underwriters named below, acting through their representatives,
BancAmerica Robertson Stephens, BT Alex. Brown Incorporated and Donaldson,
Lufkin & Jenrette Securities Corporation (the "Representatives"), have severally
agreed with the Company and the Selling Shareholders, subject to the terms and
conditions of the Underwriting Agreement, to purchase the number of shares of
Common Stock set forth opposite their respective names below. The Underwriters
are committed to purchase and pay for all such shares if any are purchased.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
BancAmerica Robertson Stephens..............................
BT Alex. Brown Incorporated.................................
Donaldson, Lufkin & Jenrette Securities Corporation.........
-------
Total............................................. 3,750,000
=======
</TABLE>
The Representatives have advised the Company that the Underwriters propose
to offer the shares of Common Stock to the public at the initial public offering
price set forth on the cover page of this Prospectus and to certain dealers at
such price less a concession of not in excess of $ per share, of which
$ may be reallowed to other dealers. After the initial public offering, the
public offering price, concession, and reallowance to dealers may be reduced by
the Representatives. No such reduction shall change the amount of proceeds to be
received by the Company as set forth on the cover page of this Prospectus.
The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to 562,500
additional shares of Common Stock at the same price per share as the Company
will receive for the 3,750,000 shares that the Underwriters have agreed to
purchase. To the extent that the Underwriters exercise such option, each of the
Underwriters will have a firm commitment to purchase approximately the same
percentage of such additional shares that the number of shares of Common Stock
to be purchased by it shown in the above table represents as a percentage of the
3,750,000 shares offered hereby. If purchased, such additional shares will be
sold by the Underwriters on the same terms as those on which the shares are
being sold.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters, the Company and the Selling Shareholders against certain civil
liabilities, including liabilities under the Securities Act and liabilities
arising from breaches of representations and warranties contained in the
Underwriting Agreement.
Each officer and director who holds shares of the Company and certain
holders (including such officers and directors) of shares of Common Stock have
agreed, for the 180-day Lockup Period, subject to certain exceptions, not to
offer to sell, contract to sell, or otherwise sell, dispose of, loan or grant
any rights with respect to any shares of Common Stock, any options or warrants
to purchase any shares of Common Stock, or any securities convertible into or
exchangeable for shares of Common Stock owned as of the date of this Prospectus
directly by such holders or with respect to which they have the power of
disposition, without the prior written consent of BancAmerica Robertson
Stephens. However, BancAmerica Robertson Stephens may, in its sole discretion
and at any time without notice, release all or any portion of the securities
subject to lock-up agreements. There are no agreements between the
Representatives and any of the Company's shareholders providing consent by the
Representatives to the sale of shares prior to the expiration of the 180-day
Lockup Period. In addition, the Company has agreed that during the 180-day
Lockup Period, the Company will not, without the prior written consent of
BancAmerica Robertson Stephens, subject to certain exceptions, issue, sell,
contract to sell, or otherwise dispose of, any shares of Common Stock, any
options or warrants to purchase any shares of Common Stock or any securities
convertible into, exercisable for or exchangeable for shares of Common Stock
other than the Company's sale of shares in this offering, the issuance of Common
Stock upon the exercise of outstanding options, and the Company's issuance of
options and shares under existing employee stock option and stock purchase
plans. See "Shares Eligible For Future Sale."
The Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
60
<PAGE> 62
Prior to this offering, there has been no public market for the Common
Stock of the Company. Consequently, the initial public offering price for the
Common Stock offered hereby will be determined through negotiations among the
Company, the Selling Shareholders and the Representatives. Among the factors to
be considered in such negotiations are prevailing market conditions, certain
financial information of the Company, market valuations of other companies that
the Company and the Representatives believe to be comparable to the Company,
estimates of the business potential of the Company, the present state of the
Company's development and other factors deemed relevant.
The Representatives have advised the Company that, pursuant to Regulation M
under the Securities Act, certain persons participating in this offering may
engage in transactions, including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids, that may have the effect of
stabilizing or maintaining the market price of the Common Stock at a level above
that which might otherwise prevail in the open market. A "stabilizing bid" is a
bid for or the purchase of the Common Stock on behalf of the Underwriters for
the purpose of fixing or maintaining the price of the Common Stock. A "syndicate
covering transaction" is the bid for or the purchase of the Common Stock on
behalf of the Underwriters to reduce a short position incurred by the
Underwriters in connection with this offering. A "penalty bid" is an arrangement
permitting the Representatives to reclaim the selling concession otherwise
accruing to an Underwriter or syndicate member in connection with this offering
if the Common Stock originally sold by such Underwriter or syndicate member is
purchased by the Representatives in a syndicate covering transaction and has
therefore not been effectively placed by such Underwriter or syndicate member.
The Representatives have advised the Company that such transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company and certain of the Selling Shareholders by Fulbright & Jaworski L.L.P.,
Houston, Texas. Certain legal matters in connection with this offering will be
passed upon for the Underwriters by Gunderson Dettmer Stough Villeneuve Franklin
& Hachigian, LLP, Austin, Texas.
EXPERTS
The consolidated financial statements as of December 31, 1996 and the years
ended December 31, 1995 and 1996, included in this Prospectus have been so
included in reliance on the report of Grant Thornton LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The consolidated financial statements as of December 31, 1997 and for the
year then ended included in this Prospectus, except as they relate to the
unaudited three-month periods ended March 31, 1997 and 1998, have been so
included in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
61
<PAGE> 63
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement on Form S-1
under the Securities Act with respect to the Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules to the Registration Statement. For
further information with respect to the Company and such Common Stock offered
hereby, reference is made to the Registration Statement and the exhibits and
schedules filed as a part of the Registration Statement. Statements contained in
this Prospectus concerning the contents of any contract or any other document
referred to are not necessarily complete; reference is made in each instance to
the copy of such contract or document filed as an exhibit to the Registration
Statement. Each such statement is qualified in all respects by such reference to
such exhibit. The Registration Statement, including exhibits and schedules
thereto, may be inspected without charge at the Commission's principal office in
Washington, D.C., and copies of all or any part thereof may be obtained from
such office after payment of fees prescribed by the Commission. The Commission
maintains a Web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission at http://www.sec.gov.
62
<PAGE> 64
BINDVIEW DEVELOPMENT CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Price Waterhouse LLP.............................. F-2
Report of Grant Thornton LLP................................ F-3
Consolidated Balance Sheet at December 31, 1996 and 1997 and
March 31, 1998 (unaudited)................................ F-4
Consolidated Statement of Operations for each of the three
years in the period ended December 31, 1997 and for the
three months ended March 31, 1997 and 1998 (unaudited).... F-5
Consolidated Statement of Shareholders' Equity for each of
the three years in the period ended December 31, 1997 and
the three months ended March 31, 1998 (unaudited)......... F-6
Consolidated Statement of Cash Flows for each of the three
years in the period ended December 31, 1997 and for the
three months ended March 31, 1997 and 1998 (unaudited).... F-7
Notes to Consolidated Financial Statements.................. F-8
</TABLE>
F-1
<PAGE> 65
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS OF
BINDVIEW DEVELOPMENT CORPORATION
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of BindView
Development Corporation and its subsidiary at December 31, 1997, and the results
of their operations and their cash flows for the year in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Houston, Texas
March 31, 1998, except
as to Note 11, which
is as of May 15, 1998
F-2
<PAGE> 66
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Bindview Development Corporation
We have audited the accompanying balance sheet of Bindview Development
Corporation as of December 31, 1996, and the related statements of operations,
shareholders' equity, and cash flows for the years ended December 31, 1996 and
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Bindview Development
Corporation at December 31, 1996 and the results of its operations and its cash
flows for the years ended December 31, 1996 and 1995, in conformity with
generally accepted accounting principles.
GRANT THORNTON LLP
Houston, Texas
February 4, 1997
F-3
<PAGE> 67
BINDVIEW DEVELOPMENT CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- MARCH 31,
1996 1997 1998
------ ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 766 $ 7,203 $ 9,118
Accounts receivable, net.................................. 2,270 4,729 3,169
Other current assets...................................... 83 -- --
Deferred tax asset........................................ -- 3,150 3,028
------ ------- -------
Total current assets.............................. 3,119 15,082 15,315
Property and equipment, net................................. 805 1,370 1,746
Other assets................................................ 92 57 44
------ ------- -------
Total assets...................................... $4,016 $16,509 $17,105
====== ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 273 $ 785 $ 766
Accrued liabilities....................................... 334 831 697
Accrued compensation...................................... 192 614 508
Deferred revenue.......................................... 570 2,029 2,487
------ ------- -------
Total current liabilities......................... 1,369 4,259 4,458
------ ------- -------
Commitments and contingencies (Note 8)...................... -- -- --
Shareholders' equity:
Convertible preferred stock, $0.01 par value, 20,000,000
shares authorized, 0, 2,528,090 and 2,528,090 shares
issued and outstanding, respectively, liquidation
preference of $18,002.................................. -- 25 25
Common stock, no par value, 100,000,000 shares authorized,
7,740,000, 13,197,615 and 13,197,615 shares issued and
outstanding, respectively.............................. 1 1 1
Additional paid-in capital................................ 14 31,728 31,728
Common Stock Warrant to purchase 437,500 shares........... -- 550 550
Retained earnings (accumulated deficit)................... 2,632 (6,037) (5,640)
Treasury stock, 4,921,958 shares.......................... -- (14,017) (14,017)
------ ------- -------
Total shareholders' equity........................ 2,647 12,250 12,647
------ ------- -------
Total liabilities and shareholders' equity... $4,016 $16,509 $17,105
====== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 68
BINDVIEW DEVELOPMENT CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------- ---------------
1995 1996 1997 1997 1998
------ ------- -------- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Licenses......................................... $7,005 $ 9,720 $ 17,821 $2,950 $4,384
Services......................................... 328 1,282 3,017 473 1,456
------ ------- -------- ------ ------
Total revenues........................... 7,333 11,002 20,838 3,423 5,840
------ ------- -------- ------ ------
Cost of revenues:
Cost of licenses................................. 693 465 644 91 208
Cost of services................................. 139 362 624 105 215
------ ------- -------- ------ ------
Total cost of revenues................... 832 827 1,268 196 423
------ ------- -------- ------ ------
Gross profit....................................... 6,501 10,175 19,570 3,227 5,417
------ ------- -------- ------ ------
Costs and expenses:
Sales and marketing.............................. 3,234 4,197 9,088 1,369 2,708
Research and development......................... 1,249 2,088 3,573 622 1,643
General and administrative....................... 1,235 1,472 2,943 511 676
Stock compensation expense....................... -- 436 15,262 -- --
------ ------- -------- ------ ------
Operating income (loss)............................ 783 1,982 (11,296) 725 390
Other income (expense), net........................ (29) 8 118 14 129
------ ------- -------- ------ ------
Income (loss) before income tax provision.......... 754 1,990 (11,178) 739 519
Provision (benefit) for income taxes............... -- -- (3,150) -- 122
------ ------- -------- ------ ------
Net income (loss).................................. $ 754 $ 1,990 $ (8,028) $ 739 $ 397
====== ======= ======== ====== ======
Basic earnings per share........................... $ 0.05
Diluted earnings per share......................... $ 0.02
Pro forma information:
Net income (loss) as reported.................... $ 754 $ 1,990 $ (8,028) $ 739
Pro forma charge (benefit) in lieu of income
taxes......................................... 264 697 (765) 259
------ ------- -------- ------
Pro forma net income (loss)........................ $ 490 $ 1,293 $ (7,263) $ 480
====== ======= ======== ======
Pro forma basic net income (loss) per share........ $ 0.06 $ 0.16 $ (0.88) $ 0.06
====== ======= ======== ======
Pro forma diluted net income (loss) per share...... $ 0.06 $ 0.12 $ (0.88) $ 0.03
====== ======= ======== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 69
BINDVIEW DEVELOPMENT CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK ADDITIONAL COMMON EARNINGS TOTAL
PREFERRED ------------------- PAID-IN STOCK (ACCUMULATED TREASURY SHAREHOLDERS'
STOCK SHARES AMOUNT CAPITAL WARRANT DEFICIT) STOCK EQUITY
--------- ---------- ------ ---------- ------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1995..................... $ -- 7,740,000 $ 1 $ 14 -- $ 693 $ -- $ 708
S Corporation
distributions......... -- -- -- -- -- (248) -- (248)
Net income............... -- -- -- -- -- 754 -- 754
---- ---------- ---- ------- ------- ------- -------- --------
Balance at December 31,
1995..................... -- 7,740,000 1 14 -- 1,199 -- 1,214
S Corporation
distributions......... -- -- -- -- -- (557) -- (557)
Net income............... -- -- -- -- -- 1,990 -- 1,990
---- ---------- ---- ------- ------- ------- -------- --------
Balance at December 31,
1996.................. -- 7,740,000 1 14 -- 2,632 -- 2,647
S Corporation
distributions......... -- -- -- -- -- (1,274) -- (1,274)
Issuance of common stock
to satisfy 1993
acquisition
liability............. -- 502,850 -- 272 -- -- -- 272
Issuance of common stock
pursuant to
termination of Phantom
Stock Plan............ -- 4,944,800 -- 14,092 -- -- -- 14,092
Transfer of S Corporation
accumulated deficit
upon conversion to C
Corporation........... -- -- -- (633) -- 633 -- --
Issuance of convertible
preferred stock
(2,528,090 shares).... 25 -- -- 17,977 -- -- -- 18,002
Issuance of warrant to
purchase common stock
(437,500 shares)...... -- -- -- -- 550 -- -- 550
Purchase of treasury
stock (4,921,958
shares)............... -- -- -- -- -- -- (14,017) (14,017)
Exercise of stock
options............... -- 9,965 -- 6 -- -- -- 6
Net loss................. -- -- -- -- -- (8,028) -- (8,028)
---- ---------- ---- ------- ------- ------- -------- --------
Balance at December 31,
1997..................... 25 13,197,615 1 31,728 550 (6,037) (14,017) 12,250
Net income for three
months ended March 31,
1998 (unaudited)...... -- -- -- -- -- 397 -- 397
---- ---------- ---- ------- ------- ------- -------- --------
Balance at March 31, 1998
(unaudited).............. $ 25 13,197,615 $ 1 $31,728 550 $(5,640) $(14,017) $ 12,647
==== ========== ==== ======= ======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 70
BINDVIEW DEVELOPMENT CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------- ---------------
1995 1996 1997 1997 1998
------- ------ -------- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities: --
Net income (loss)........................... $ 754 $1,990 $ (8,028) $ 739 $ 397
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation and amortization expense.... 431 427 815 131 198
Stock compensation expense............... -- -- 14,642 -- --
Increase in provision for bad debts...... -- -- 170 -- --
Deferred income taxes.................... -- -- (3,150) -- 122
Changes in assets and liabilities:
(Increase) decrease in accounts
receivable.......................... (523) (902) (2,629) (337) 1,560
(Increase) decrease in other current
assets.............................. 7 (49) 83 59 --
Increase (decrease) in accounts
payable............................. 148 37 512 101 (19)
Increase (decrease) in accrued
liabilities......................... 26 51 1,191 17 (240)
Increase in deferred revenue........... 305 86 1,459 657 458
------- ------ -------- ------ ------
Net cash provided by operating
activities........................ 1,148 1,640 5,065 1,367 2,476
------- ------ -------- ------ ------
Cash flows from investing activities:
Purchase of property and equipment.......... (384) (583) (1,250) (248) (574)
Other....................................... (135) (130) (95) 26 13
------- ------ -------- ------ ------
Net cash used by investing
activities........................ (519) (713) (1,345) (222) (561)
------- ------ -------- ------ ------
Cash flows from financing activities:
S Corporation distributions................. (248) (557) (1,274) (125) --
Payments on notes payable and long-term
debt..................................... (2,755) (226) -- -- --
Proceeds from notes payable and long-term
debt..................................... 2,852 -- -- -- --
Proceeds from issuance of convertible
preferred stock and common stock
warrants................................. -- -- 18,002 -- --
Purchases of treasury stock................. -- -- (14,017) -- --
Exercise of stock options................... -- -- 6 -- --
------- ------ -------- ------ ------
Net cash provided (used) by
financing activities.............. (151) (783) 2,717 (125) --
------- ------ -------- ------ ------
Net increase in cash and cash equivalents..... 478 144 6,437 1,020 1,915
Cash and cash equivalents at beginning of
period...................................... 144 622 766 766 7,203
------- ------ -------- ------ ------
Cash and cash equivalents at end of period.... $ 622 $ 766 $ 7,203 $1,786 $9,118
======= ====== ======== ====== ======
Supplemental disclosures for cash flow
information:
Cash paid during the year for interest...... $ 27 $ 15 $ -- $ -- $ --
Noncash financing and investing activities:
Issuance of 502,850 shares of common stock
in 1997 to satisfy 1993 acquisition
liability
Issuance of warrant to purchase 437,500
shares of common stock in 1997 to satisfy
bonus obligation
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 71
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Operations
BindView Development Corporation (the Company), a Texas corporation, was
incorporated in May 1990. Previous to 1995, the Company was known as The LAN
Support Group, Inc. Pursuant to the sale of convertible preferred stock, the
Company's Subchapter S election terminated on October 16, 1997.
The Company develops, markets and supports a suite of systems management
software products that manage the security and integrity of complex, distributed
client/server networks operating on Microsoft Windows NT and Novell NetWare
environments.
Principles of Consolidation
The consolidated financial statements include the accounts of BindView
Development Corporation and BindView GmbH, its wholly-owned German subsidiary.
All significant intercompany transactions have been eliminated.
Revenue Recognition
In October 1997 the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") No. 97-2, "Software Revenue Recognition,"
which the Company adopted effective as of January 1, 1997. Such adoption had no
effect on the Company's method of recognizing revenue from its license and
subscription contract activities. Prior to 1997, the Company recognized revenue
in accordance with SOP No. 91-1, "Software Revenue Recognition." The Company
sells its products under perpetual licenses and recognizes its license revenue
upon meeting each of the following criteria: (i) execution of a written purchase
order, license agreement or contract; (ii) delivery of software or, if the
customer has previously received evaluation software, delivery of the software
license code; and (iii) issuance of the related license, with no significant
vendor obligations or customer acceptance rights outstanding; (iv) the license
fee is fixed or determinable; and (v) collectibility is assessed as being
probable. Revenues from perpetual licenses are recorded as license revenue in
the Statements of Operations. Service revenues include subscription contracts
and professional services. Subscription contracts are purchased separately by
customers at their discretion and revenues are an incremental component of each
contract and are recognized ratably over the one year contract term. The portion
of subscription contract revenues that have not yet been recognized as revenues
is reported as deferred revenue in the accompanying balance sheet.
The Company also derives a portion of its revenues through the sale of its
products by distributors, value-added resellers and system integrators.
Resellers have no return rights and end customers have, under the Company's
standard shrink-wrap license agreement, 30 days to return products. To date,
returns have been minor and, accordingly, the Company has not recorded a reserve
for returns. Revenues are recognized on these transactions upon (i) receipt of
an executed purchase order from the reseller and (ii) shipment of the software.
Postcontract Customer Support
Prior to January 1, 1998, the Company provided postcontract customer
support, consisting solely of telephone technical support, to its customers. The
costs of providing this support has been accrued and charged to expense at the
time the revenue is recognized. Accrued liabilities at December 31, 1996 and
1997 includes approximately $42 and $78, respectively, related to providing this
support.
F-8
<PAGE> 72
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
Advertising Costs
Advertising costs are charged to operations when incurred.
Research and Development
Research and development costs are charged to operations when incurred. In
accordance with the provisions of Statement of Financial Accounting Standards
No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed", the Company capitalizes costs incurred in the development
of software once technological feasibility has been determined. The Company
currently considers technological feasibility to have been established once a
working model of a product has been produced and tested. To date, costs incurred
and capitalizable subsequent to the establishment of technological feasibility
have not been material and are included in the Other Assets in the accompanying
consolidated balance sheet.
Stock-Based Compensation
The Company measures compensation expense for its stock-based employee
compensation plans using the intrinsic method, as prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees".
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the fair market value of the Company's stock at the date of the grant
over the amount the employee must pay to acquire the stock, and is recognized
over the related vesting period.
The Company provides supplemental disclosure of the effect on net income
and earnings per share as if the minimum value-based method had been applied in
measuring compensation expense, as prescribed for nonpublic enterprises in
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (Note 7).
Income Taxes
Prior to October 16, 1997, the Company had elected to be treated as an S
Corporation for federal income tax purposes. Accordingly, all federal income tax
liability prior to that date was the responsibility of the shareholders.
The provision for income taxes is computed based on income earned from the
termination date of the Company's Subchapter S election on October 16, 1997
through December 31, 1997. The asset and liability approach is used to recognize
deferred tax assets and liabilities for the expected future tax consequences of
temporary differences between the carrying amounts and the tax bases of the
assets and liabilities.
The pro forma results of operations of the Company reflect a pro forma
charge in lieu of income taxes prior to October 16, 1997.
Earnings Per Share
The Company's earnings per share data is presented in accordance with
Statement of Financial Accounting Standard No. 128, "Earnings Per Share". Basic
earnings per share is computed using the weighted average number of shares
outstanding. Diluted earnings per share is computed using the weighted average
number of shares outstanding adjusted for the incremental shares attributed to
outstanding securities with the ability to purchase or convert into common
stock.
Cash and Cash Equivalents
The Company considers investments with original maturity dates of three
months or less from the date of purchase to be cash equivalents.
F-9
<PAGE> 73
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
Concentration of Credit Risk
Financial instruments which subject the Company to concentrations of credit
risk consist primarily of cash equivalents and accounts receivable. The Company
maintains its cash equivalent balance in a money market fund invested in U.S.
Treasury Certificates. The fund is not FDIC insured. The Company has not
experienced any losses in such fund and believes it is not exposed to any
significant credit risk on cash equivalents.
Management believes that concentrations of credit risk with respect to
accounts receivable are limited due to the large number of customers comprising
the Company's customer base and their dispersion across many different
industries and geographic regions. The Company performs ongoing credit
evaluations of its customers to minimize credit risk. Approximately 16%, 10% and
13% of the Company's sales were made on an export basis, primarily to customers
in Europe and the United Kingdom in 1995, 1996 and 1997, respectively.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed by
applying the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are amortized over the lives of the respective leases or
the service lives of the improvements, whichever is shorter.
Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets, liabilities, sales and expenses and the disclosure of
contingent assets and liabilities. Actual results could differ from those
estimates. Management believes the estimates are reasonable.
Fair Value of Financial Instruments
The fair value of cash and cash equivalents, accounts receivable and
accounts payable reflected in the December 31, 1996 and 1997 Consolidated
Balance Sheet approximate their carrying value due to their short maturities.
Recent Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 130 "Reporting Comprehensive Income". This
standard is effective for fiscal years beginning after December 15, 1997. The
Company does not have any items of comprehensive income and therefore this
standard does not affect its financial statements or disclosures.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 131 "Disclosures About Segments of an
Enterprise and Related Information". This standard is effective for fiscal years
beginning after December 15, 1997. The Company currently operates in a single
industry and geographic segment and does not expect this standard to have a
material impact on disclosures with respect to the Company's financial condition
or results of operations.
F-10
<PAGE> 74
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
2. ACCOUNTS RECEIVABLE
Accounts receivable balances are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- MARCH 31,
1996 1997 1998
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Trade accounts receivable................................ $2,293 $4,911 $3,352
Other accounts receivable................................ 2 13 12
------ ------ ------
2,295 4,924 3,364
Less -- allowance for doubtful accounts.................. (25) (195) (195)
------ ------ ------
$2,270 $4,729 $3,169
====== ====== ======
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment balances are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
ESTIMATED ---------------- MARCH 31,
USEFUL LIVES 1996 1997 1998
------------ ------ ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Computer equipment and software............ 3 years $1,317 $ 2,296 $ 2,853
Office furniture and other equipment....... 3-7 years 250 378 395
Leasehold improvements..................... lease terms 108 206 206
------ ------- -------
1,675 2,880 3,454
Less -- accumulated depreciation........... (870) (1,510) (1,708)
------ ------- -------
$ 805 $ 1,370 $ 1,746
====== ======= =======
</TABLE>
Depreciation expense totaled $251, $326 and $685 in 1995, 1996 and 1997,
respectively, and $103 (unaudited) and $198 (unaudited) in the three months
ended March 31, 1997 and 1998.
4. CREDIT AGREEMENTS AND FINANCING ARRANGEMENTS
On June 10, 1997, the Company secured a $2,000 line of credit and a $500
line of credit. Any principal draws on the line of credit mature on June 10,
1998. Any principal draws on the $500 line of credit mature 30 months after the
date of such advances. The line is collateralized by accounts receivable and
property and equipment. There have been no borrowings outstanding under these
facilities.
5. INCOME TAXES
Effective October 16, 1997, the Company elected to be treated as a C
Corporation for federal income tax purposes. Accordingly, no federal income tax
expense was recorded by the Company for the years ended December 31, 1995 and
1996, and from January 1, 1997 through October 16, 1997 because operating
results are reported in the individual income tax returns of the shareholders.
The Company's income tax provision (benefit) was comprised of the
following:
<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 16,
1997 TO
DECEMBER 31,
1997
------------
<S> <C>
Deferred:
Federal............................................... $(3,060)
State................................................. (90)
-------
Total......................................... $(3,150)
=======
</TABLE>
F-11
<PAGE> 75
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
A reconciliation of the federal statutory tax rate and the Company's
provision for income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1995 1996 1997
----- ----- -------
<S> <C> <C> <C>
Income taxes at the applicable federal statutory rates... $ 256 $ 677 $(2,317)
State income taxes, net of federal benefit............... 8 20 (68)
Research and development credit.......................... -- -- --
Tax obligation allocated to S Corporation shareholders... (264) (697) (765)
----- ----- -------
Provision (benefit) for income taxes..................... $ -- $ -- $(3,150)
===== ===== =======
</TABLE>
Deferred tax assets at December 31, 1997 are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Assets:
Net operating loss carryforward........................... $2,849 $2,729
Allowance for bad debts................................... 68 68
Accrued liabilities....................................... 172 171
Other..................................................... 61 60
------ ------
$3,150 $3,028
====== ======
</TABLE>
The Company's net operating loss carryforward is attributable to the stock
compensation expense realized during the C Corporation period related to the
termination of the Company's phantom stock plan (Note 6). The Company's net
operating loss carryforward at December 31, 1997 of approximately $7,500 for
federal income tax purposes expires in 2012. The Company's ability to utilize
the net operating loss carryforward may be limited if certain changes of
ownership occur. Based on the historical earnings generated by the Company,
management believes it is more likely than not that the tax benefits related to
the net operating loss carryforward will be realized and has, therefore,
provided no valuation allowance for the related deferred tax asset.
6. STOCK COMPENSATION EXPENSE
Phantom Stock Plan Termination
In 1996, the Company implemented a phantom stock plan which granted phantom
stock units to certain employees. Each phantom stock unit provided the
participant with the right to receive shares of Company common stock upon the
occurrence of a change in control of the Company, an initial public offering of
the Company's common stock, liquidation of the Company or a sale of
substantially all of the Company's assets (the "Events"). Since the number of
shares of Common Stock a participant might receive would not be known until one
of the Events occurred, the Company has treated the Phantom Stock Plan as a
junior stock plan in accordance with Financial Accounting Standards Board
Interpretation No. 38 (FIN 38) and accordingly has not recognized stock
compensation expense upon the grant of the units. Stock compensation expense was
recognized by the Company in October 1997 when the plan participants voted to
have the Company terminate the Plan in connection with the sale of Convertible
Preferred Stock and Warrants and the number of shares to be issued under the
Plan were known.
The Company granted 6,598,250 phantom stock units during 1996. No grants
were made during 1997. The Company terminated the Phantom Stock Plan in October
1997 and issued 1,757,188 shares of common
F-12
<PAGE> 76
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
stock on October 13, 1997 and 3,187,612 shares of common stock on October 16,
1997 to retire the Phantom Stock Plan. The Company recognized a related stock
compensation charge of $14,712 in October 1997.
On October 16, 1997, the Company issued 1,303,740 common stock options
under the Company's 1997 Employee Stock Option Plan with an exercise price of
$2.85 per share to former participants in the Phantom Stock Plan (Note 7). No
compensation expense has been recorded related to these options as the exercise
price is equal to the fair market value of the Company's common stock on the
date of grant.
Stock compensation expense of $436 was recognized in 1996 in connection
with cash payments made for the extinguishment of certain rights to receive
Company common stock which were held by a terminated employee.
Officer Warrants
In November 1997 the Company issued a warrant to purchase 437,500 shares of
common stock at a price of $2.85 per share to an officer to terminate a
provision of the stock option agreement with that officer. The Company has
recognized compensation expense of $550 during the fourth quarter of 1997 based
upon the fair value of the warrant issued.
7. SHAREHOLDERS' EQUITY
Issuance of Convertible Preferred Stock and Warrants
In October 1997, the Company issued 2,528,090 shares of $0.01 par value
convertible preferred stock and warrants to purchase 749,999 shares of common
stock, at $4.00 per share in exchange for $18,002 of cash. The warrants are
immediately exercisable and expire April 16, 2000. In the event of a liquidation
of the Company, the Company's preferred stock has liquidation preference over
its common stock. The preferred stock has a liquidation value of $7.12 per
preferred share and is convertible at the option of the holder into common stock
on a 2.5-for-1 basis. In the event of an initial public offering, the Company's
preferred stock would automatically convert into common stock and any
unexercised warrants would automatically expire.
At December 31, 1997, there were 6,320,225 shares of common stock reserved
by the Board of Directors for issuance to the holders of the preferred stock and
749,999 shares of common stock reserved by the Board of Directors for issuance
to the holders of the warrants.
Treasury Stock Transactions
The Company repurchased 4,921,958 shares of common stock for $2.85 per
share in October 1997.
Issuance of Common Stock to Satisfy Acquisition Liability
In April 1997, the Company issued 502,850 shares to satisfy its 1993
obligation incurred related to the acquisition of certain technology rights.
Incentive Stock Option Plan
In 1996, the Company's Board of Directors adopted the Incentive Stock
Option Plan. At December 31, 1997, there were 1,875,000 shares of common stock
reserved by the Board of Directors for issuance under this plan. Options on
170,250 and 261,875 shares were exercisable at December 31, 1996 and 1997 with a
weighted average exercise price per share of $0.78 and $0.80, respectively.
F-13
<PAGE> 77
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
Nonqualified Stock Option Plan
In 1996, the Company's Board of Directors adopted the Nonqualified Stock
Option Plan. At December 31, 1997, there were 1,747,325 shares of common stock
reserved by the Board of Directors for issuance under this plan. There were no
options exercisable at December 31, 1996. Options on 218,750 shares were
exercisable at December 31, 1997, with a weighted average exercise price per
share of $1.34.
1997 Employee Stock Option Plan
In 1997, the Company's Board of Directors adopted the 1997 Employee Stock
Option Plan. At December 31, 1997, there were 1,303,740 shares of common stock
reserved by the Board of Directors for issuance under this plan. There were no
options exercisable at December 31, 1997.
Substantially all options reserved under the Company's Incentive Stock
Option Plan, the Nonqualified Stock Option Plan and the 1997 Employee Stock
Option Plan have been issued.
Options granted under the Incentive and Nonqualified Stock Option Plans
vest 20% per year over five years, except for 647,325 and 875,000 options
granted in 1996 and 1997, respectively, which vest as follows: 218,750 in 1997,
975,450 in 1998, 109,375 in 1999, 109,375 in 2000 and 109,375 in 2001. Options
granted under the 1997 Employee Stock Option Plan vest at varying rates through
the year 2001. Options must be exercised no later than ten years from the date
of grant.
Stock options have been granted at the fair market value of the Company's
stock at the date of grant as determined by the Company's Board of Directors. In
pricing the options issued prior to October 1997, the Board used a multiple of
revenues resulting from an independent valuation of the Company performed in
January 1996. In May 1996, the Company negotiated with a new executive officer
to grant 647,325 options to him with an exercise price of $2.47 per share. The
exercise price was substantially higher than the fair market value at that date
because the officer received a larger number of options than under the Company's
normal practices. Options issued in the fourth quarter of 1997 were issued at
the $2.85 price paid by third parties on October 16, 1997.
The following table summarizes combined activity under the stock option
plans for each of the three years ended December 31, 1997:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
PRICE PER PRICE PER
OPTIONS SHARE SHARE
--------- ------------- ---------
<S> <C> <C> <C>
Options outstanding, December 31, 1995
Options granted................................. 1,528,575 $0.75 - $2.47 $1.50
Options lapsed or canceled...................... (132,500) $0.75 $0.75
Options exercised............................... -- -- --
---------
Options outstanding, December 31, 1996............ 1,396,075 $0.75 - $2.47 $1.57
Options granted................................. 3,391,385 $1.10 - $2.85 $2.01
Options lapsed or canceled...................... (213,250) $0.75 - $2.85 $0.97
Options exercised............................... (10,000) $0.75 - $0.76 $0.75
---------
Options outstanding, December 31, 1997............ 4,564,210 $0.75 - $2.85 $1.92
Options granted (unaudited)..................... 479,418 $3.85 -$4.48 $4.01
Options lapsed or canceled (unaudited).......... (28,750) $0.95 - $2.85 $1.34
Options exercised............................... -- -- --
---------
Options outstanding, March 31, 1998 (unaudited)... 5,014,878 $0.75 - $4.48 $2.13
---------
</TABLE>
F-14
<PAGE> 78
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
The following table summarizes significant ranges of outstanding and
exercisable options at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------ --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
SHARES IN REMAINING EXERCISE SHARES IN EXERCISE
THOUSANDS LIFE IN YEARS PRICE THOUSANDS PRICE
--------- ------------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
under $0.80....................... 495,500 7.0 $0.76 223,000 $0.75
$0.81 to $1.60.................... 1,933,750 9.3 $1.34 257,625 $1.30
$1.61 to $2.40.................... 22,500 9.7 $1.69 -- $ --
over $2.41........................ 2,112,460 9.4 $2.73 -- $ --
</TABLE>
Stock Based Compensation Disclosures
The minimum value of stock based compensation was calculated in accordance
with Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," using the Black-Scholes model with the following
weighted average assumptions (the minimum value method does not include
volatility):
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Expected life (in years) 4 4
Interest rate.............................................. 6% 6%
Volatility................................................. N/A N/A
Dividend yield............................................. 0% 0%
</TABLE>
Stock based compensation costs would have reduced pretax income by $18 and
$164 in 1996 and 1997 ($12 and $107 after tax, respectively and $0.01 per share
in 1997) if the minimum values of such compensation in that year had been
recognized as compensation expense on a straight-line basis over the vesting
period of the grant.
8. COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company conducts its operations in leased facilities under operating
leases expiring at various dates through 2001. The leases are cancelable upon
payment of six months rent and reimbursement of the unamortized balance of the
leasehold allowance. Total lease expense amounted to approximately $98, $279 and
$575 at December 31, 1995, 1996 and 1997, respectively.
The minimum rental commitments under operating leases at December 31, 1997
were: $420 in 1998, $401 in 1999, $305 in 2000 and $4 in 2001.
9. 401(K) PLAN
Effective January 1, 1995, the Company adopted a 401(k) plan which is
available to all full-time employees. Employees contribute to the plan through
payroll deductions. The Company matches 50% of the participant's contribution up
to a maximum of 6% of a participant's compensation. Additionally, the Company
may make a discretionary contribution as determined by the Board of Directors.
Total Company contributions were $130, $165 and $174 in 1995, 1996 and 1997,
respectively.
F-15
<PAGE> 79
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
10. NET INCOME PER SHARE
As a result of the Company's change from an S Corporation to a C
Corporation in October 1997, presentation of pro forma net income per share is
necessary for the years ended December 31, 1995, 1996 and 1997. Shares issued as
a result of a 10-for-1 stock split in 1997, and 502,850 shares issued in 1997 to
satisfy a 1993 technology acquisition liability have been treated as if they had
been effective and outstanding as of January 1, 1995 and included in weighted
average shares outstanding.
The computation of basic and diluted net income per share and pro forma
basic and diluted net income (loss) per share follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------- -------------------
1995 1996 1997 1997 1998
------ ------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net income............................ $ -- $ -- $ -- $ -- $ 397
=======
Pro forma net income (loss)........... $ 490 $ 1,293 $(7,263) $ 480 $ --
====== ======= ======= =======
Shares used in basic calculation (in
thousands):
Total basic shares.................. 8,228 8,228 8,232 8,228 8,275
Additional shares for diluted
computation:
Effect of stock options............. -- 70 593 286 1,569
Effect of warrants.................. -- -- -- -- 158
Effect of convertible preferred
stock............................ -- -- 1,318 -- 6,320
Effect of phantom stock............. -- 2,748 5,075 5,800 --
Exclusion of share equivalents that
are anti-dilutive because a loss
was incurred..................... -- -- (6,986) -- --
------ ------- ------- ------- -------
Total diluted shares........ 8,228 11,046 8,232 14,314 16,322
====== ======= ======= ======= =======
Basic net income per share............ $ 0.05
Diluted net income per share.......... $ 0.02
Pro forma basic net income (loss) per
share............................... $ 0.06 $ 0.16 $ (0.88) $ 0.06
Pro forma diluted net income (loss)
per share........................... $ 0.06 $ 0.12 $ (0.88) $ 0.03
</TABLE>
11. SUBSEQUENT EVENTS
Effective May 15, 1998, the Company's Board of Directors amended its
Articles of Incorporation to change the level of its authorized stock to 20
million shares of $0.01 par value Preferred Stock and 100 million shares of no
par Common Stock. The Board also approved the reservation of 1,750,000 shares of
Common Stock for the 1998 Omnibus Incentive Plan and 250,000 shares of Common
Stock for the Non-Employee Director Plan. The Board also declared a 2.5-for-1
stock split of the Common Stock of the Company for holders of shares immediately
prior to the effective date of the board resolution above. All share and per
share amounts contained herein have been retroactively adjusted to give effect
for this stock split.
F-16
<PAGE> 80
[LOGO]
<PAGE> 81
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of Common Stock being registered. All amounts are estimates except
the SEC registration fee and the NASD filing fees.
<TABLE>
<S> <C>
SEC Registration fee........................................ $ 13,995
NASD fee.................................................... 4,928
Nasdaq National Market listing fee.......................... 100,000
Printing and engraving expenses............................. 150,000
Legal fees and expenses..................................... 400,000
Accounting fees and expenses................................ 200,000
Blue sky fees and expenses.................................. 25,000
Transfer agent fees......................................... 10,000
Miscellaneous fees and expenses............................. 72,010
----------
Total............................................. $ 975,000
==========
</TABLE>
- ---------------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article 2.02-1 of the Texas Business Corporations Act (the "TBCA")
authorizes a court to award or a corporation's Board of Directors to grant
indemnification to directors and officers in terms sufficiently broad to permit
such indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Securities Act"). Article IX of the Registrant's Bylaws
provides for mandatory indemnification of its directors and officers and
permissible indemnification of employees and other agents to the maximum extent
permitted by the TBCA.
The Registrant's Amended and Restated Articles of Incorporation (the
"Revised Articles of Incorporation") provide that, pursuant to Texas law, its
directors shall not be liable for monetary damages for breach of the directors'
fiduciary duty as directors to the Company and its shareholders. This provision
in the Articles of Incorporation does not eliminate the directors' fiduciary
duty, and in appropriate circumstances equitable remedies such as injunctive or
other forms of non-monetary relief will remain available under Texas law. In
addition, each director will continue to be subject to liability for breach of
the director's duty of loyalty to the Company for acts or omissions not in good
faith or involving intentional misconduct, for knowing violations of law, for
actions leading to improper personal benefit to the director, and for payment of
dividends or approval of stock repurchases or redemptions that are unlawful
under Texas law. The provision also does not affect a director's
responsibilities under any other law, such as the federal securities laws or
state or federal environmental laws. The Registrant has entered into
Indemnification Agreements with its officers and directors, a form of which is
attached as Exhibit 10.15 hereto and incorporated herein by reference. The
Indemnification Agreements provide the Registrant's officers and directors with
further indemnification to the maximum extent permitted by the TBCA. The
Registrant maintains directors and officers liability insurance. Reference is
made to Section 8 of the Underwriting Agreement contained in Exhibit 1.1 hereto,
indemnifying officers and directors of the Registrant against certain
liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In October 1997, the Registrant issued 6,320,224 shares of its Class A
Preferred Stock for an aggregate price of approximately $18 million. Of these
shares of Preferred Stock, 3,495,820 were issued to General Atlantic Partners
44, L.P., 717,662 were issued to GAP Coinvestment Partners, L.P., and 2,106,742
were issued to JMI Equity Fund III, L.P. In connection with this transaction,
the Registrant also issued warrants to
II-1
<PAGE> 82
purchase an aggregate of 749,999 shares of the Registrant's Common Stock at an
exercise price of $4.00 per share. Of these warrants, 414,837 were issued to
General Atlantic Partners 44, L.P., 85,162 were issued to GAP Coinvestment
Partners, L.P., and 250,000 were issued to JMI Equity Fund, III, L.P. The
issuance of the above securities were deemed to be exempt from registration
under the Securities Act in reliance on Section 4(2) thereof as transactions by
an issuer not involving any public offering. In addition, the recipients of
securities in such transactions represented their intentions to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends were affixed to the share
certificates issued in such transactions. To the Registrant's knowledge, all
recipients had adequate access, through their relationships with the Registrant,
to information about the Registrant.
In October 1997, the Registrant also issued 4,944,800 shares of Common
Stock in connection with the termination of the Registrant's Phantom Stock Plan.
The issuance was deemed to be exempt from registration under the Securities Act
in reliance on Rule 701 and Section 4(2) of the Securities Act as issuances to
employees, directors and consultants under a compensatory plan or arrangement.
In addition, from time to time since May 1995 the Registrant has issued an
aggregate of 10,000 shares of Common Stock pursuant to the exercise of options
outstanding under the Registrant's Stock Option Plans. Such issuances were
deemed to be exempt under the Securities Act in reliance on Rule 701 and Section
4(2) of the Securities Act as issuances to employees, directors and consultants
under a compensatory plan or arrangement.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
1.1* -- Form of Underwriting Agreement
3.1** -- Amended and Restated Articles of Incorporation of the
Registrant
3.2** -- Bylaws of the Registrant
4.1 -- Reference is hereby made to Exhibits 3.1 and 3.2
4.2 -- Specimen Common Stock certificate
5.1* -- Opinion of Fulbright & Jaworski L.L.P.
10.1 -- Incentive Stock Option Plan
10.2 -- Stock Option Plan
10.3 -- 1997 Incentive Plan
10.4** -- Omnibus Incentive Plan
10.5** -- 1998 Non-Employee Director Stock Option Plan
10.6 -- Letter Loan Agreement dated June 10, 1996 between the
Registrant and Southwest Bank of Texas, N.A.
10.7 -- Lease Agreement dated June 20, 1995 between the
Registrant and School Employees Holding Corp., including
all amendments thereto
10.8 -- Stock Ownership Agreement dated April 8, 1997 between the
Registrant and Nadeem Ghias
10.9 -- Registration Rights Agreement dated October 16, 1997
among Bindview Development Corporation, General Atlantic
Partners 44 L.P., GAP Coinvestment Partners, L.P., JMI
Equity Fund III, L.P. and Eric J. Pulaski
10.10* -- Registration Rights Agreement dated November 7, 1997
among Bindview Development Corporation and Scott R.
Plantowsky
10.11 -- Employee Agreement dated May 13, 1996 between the
Registrant and Christopher J. Sole, including all
amendments thereto
</TABLE>
II-2
<PAGE> 83
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
10.12 -- Amended and Restated Employment Agreement dated April 15,
1997 between the Registrant and Scott R. Plantowsky
10.13 -- Employee Agreement dated September 26, 1996 between the
Registrant and David E. Pulaski
10.14 -- Employee Agreement dated December 20, 1993 between the
Registrant and Nadeem Ghias, including all amendments
thereto
10.15* -- Form of Indemnification Agreement
16.1 -- Letter regarding Change in Certifying Accounting
23.1 -- Consent of Price Waterhouse LLP, Independent Accountants
(see page II-5)
23.2 -- Consent of Grant Thornton LLP, Independent Accountants
(see page II-6)
23.3* -- Consent of Counsel. Reference is hereby made to Exhibit
5.1
24.1** -- Power of Attorney (see page II-4)
27.1** -- Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the TBCA, the Revised Articles of Incorporation or the
Bylaws of the Registrant, the Underwriting Agreement, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered hereunder, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 84
SIGNATURES
Pursuant to the requirements of the securities act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the city of Houston,
State of Texas, on this 23rd day of June, 1998.
BINDVIEW DEVELOPMENT CORPORATION
/s/ ERIC J. PULASKI
--------------------------------------
Eric J. Pulaski,
President and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Eric J. Pulaski and Scott R. Plantowsky,
and each of them, his true and lawful attorneys-in-fact and agents with full
power of substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and to sign any registration statement for the
same offering covered by this Registration Statement that is to be effective
upon filing pursuant to Rule 462(b) promulgated under the Securities Act of
1933, and all post-effective amendments thereto, and to file the same, with all
exhibits thereto and all documents in connection therewith, with the Securities
and Exchange Commission, granting unto said attorneys-in-fact and agents, and
each of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or his or
their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ ERIC J. PULASKI Chairman of the Board, May 15, 1998
- ----------------------------------------------------- President and Chief
Eric J. Pulaski Executive Officer
/s/ CHRISTOPHER J. SOLE Director, Vice President May 15, 1998
- ----------------------------------------------------- and Chief Operating
Christopher J. Sole Officer
/s/ SCOTT R. PLANTOWSKY Director, Vice President May 15, 1998
- ----------------------------------------------------- and Chief Financial
Scott R. Plantowsky Officer
/s/ PETER L. BLOOM Director May 15, 1998
- -----------------------------------------------------
Peter L. Bloom
/s/ JOHN J. MOORES Director May 15, 1998
- -----------------------------------------------------
John J. Moores
/s/ RICHARD A. HOSLEY II Director May 15, 1998
- -----------------------------------------------------
Richard A. Hosley II
</TABLE>
II-4
<PAGE> 85
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated March 31, 1998, except as
to the stock split described in Note 11, which is as of May 15, 1998, relating
to the financial statements of BindView Development Corporation, which appears
in the Prospectus. We also consent to the references to us under the heading
"Experts" in such Prospectus. However, it should be noted that Price Waterhouse
LLP has not prepared or certified such "Selected Financial Data."
PRICE WATERHOUSE LLP
Houston, Texas
June 22, 1998
II-5
<PAGE> 86
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated February 4, 1997, accompanying the
financial statements of BindView Development Corporation contained in the
Registration Statement and Prospectus. We consent to the use of the
aforementioned report in the Registration Statement and Prospectus, and to the
use of our name as it appears under the caption "Experts".
GRANT THORNTON LLP
Houston, Texas
June 22, 1998
II-6
<PAGE> 87
APPENDIX
TEXT FOR ARTWORK ON INSIDE FRONT COVER
Have you ever experienced a
security breach?
Is your PC LAN ready for the Year 2000?
Have you ever run out
of disk space?
Do you have an accurate inventory of your LAN assets?
BindView answers the questions you have about your network.
BindView gives organizations a way to manage the security and integrity of
complex, distributed client/server networks while reducing the Total Cost of
Ownership for enterprise computing.
BindView's primary product line, BindView EMS, provides software solutions for
systems administration, security management, enterprise inventory of LAN assets,
and year 2000 assessment of PC hardware and software. BindView EMS can be used
proactively to diagnose, and in many cases fix, a wide range of specific
problems occurring in Windows NT and NetWare environments. In addition, BindView
EMS is built to scale with networks as they grow enterprise-wide in scope.
BindView EMS provides customers with a product that is both easy to use and easy
to deploy enterprise-wide.
BindView EMS/NOSadmin for Windows NT
* Security assessment
* User and server administration
* Disk space management
* Enforce network standards
* System documentation
BindView EMS/NOSadmin for NetWare
* Security assessment
* User and server administration
* Disk space management
* Enforce network standards
* Make enterprise-wide changes to system configuration
* System documentation
BindView EMS/NETinventory
* Year 2000 assessment of PC hardware and software
* Perform ongoing audits
* Improve help desk response times
* Track software license compliance
* Make better-informed strategic technology decisions
[PHOTO SHOWING PC SCREEN AND BUILDING]
[PHOTO SHOWING PERSON ON TOP OF NETWORK BUILDING]
Scrutinize the network.
Secure the network.
Analyze the network.
Update the network.
Identify risks.
Diagnose the network.
Manage the network.
Analyze disk space usage.
Analyze network security.
Plan for network migration.
Track hardware & software.
Get detailed network information.
Prepare the PC LAN for Year 2000.
Automate network reports.
Track software compliance.
Make more efficient IT investments.
Flexible.
Intelligent.
Scalable.
Usable.
Easy to deploy.
Easy to use.
The BindView Solution.
BindView:
Enterprise capable, workgroup simple
network management.
TEXT FOR ARTWORK ON INSIDE BACK COVER
Remember Your Kids?
[PHOTO OF JASON L., SUZY Q. AND SAMUEL R.]
Jason L.
Wants you to see his soccer game on Tuesday, basketball game on wednesday, and
drama contest on Friday.
Suzy Q.
Presently starring as The Cowardly Lion in her elementary school's spring
musical.
Samuel R.
forgot about the school science project - and needs your help!
BindView EMS
NOSadmin
Everyone has priorities in life and sometimes it's difficult to keep them all
straight. One simple way to squeeze in a little more free time is with BindView
EMS. It scrutinizes your network, pinpoints risks to network integrity, helps
you quickly address daily operational issues, and then provides reports that are
easy to understand and distribute. BindView EMS also looks at hundreds of risks
that other security products ignore.
[PHOTO OF BINDVIEW SOFTWARE PACKAGE]
Windows NT and NetWare
<PAGE> 88
INDEX TO EXHIBITS
(A) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
1.1* -- Form of Underwriting Agreement
3.1 -- Amended and Restated Articles of Incorporation of the
Registrant
3.2 -- Bylaws of the Registrant
4.1 -- Reference is hereby made to Exhibits 3.1 and 3.2
4.2* -- Specimen Common Stock certificate
5.1* -- Opinion of Fulbright & Jaworski L.L.P.
10.1* -- Incentive Stock Option Plan
10.2* -- Stock Option Plan
10.3* -- 1997 Incentive Plan
10.4 -- Omnibus Incentive Plan
10.5 -- 1998 Non-Employee Director Stock Option Plan
10.6* -- Letter Loan Agreement dated June 10, 1996 between the
Registrant and Southwest Bank of Texas, N.A.
10.7* -- Lease Agreement dated June 20, 1995 between the
Registrant and School Employees Holding Corp., including
all amendments thereto
10.8* -- Stock Ownership Agreement dated April 8, 1997 between the
Registrant and Nadeem Ghias
10.9* -- Registration Rights Agreement dated October 16, 1997
among Bindview Development Corporation, General Atlantic
Partners 44 L.P., GAP Coinvestment Partners, L.P., JMI
Equity Fund III, L.P. and Eric J. Pulaski
10.10* -- Registration Rights Agreement dated November 7, 1997
among Bindview Development Corporation, General Atlantic
Partners 44 L.P., GAP Coinvestment Partners, L.P., JMI
Equity Fund III, L.P. and Scott R. Plantowsky
10.11* -- Employee Agreement dated May 13, 1996 between the
Registrant and Christopher J. Sole, including all
amendments thereto
10.12* -- Amended and Restated Employment Agreement dated April 15,
1997 between the Registrant and Scott R. Plantowsky
10.13* -- Employee Agreement dated September 26, 1996 between the
Registrant and David E. Pulaski
10.14* -- Employee Agreement dated December 20, 1993 between the
Registrant and Nadeem Ghias, including all amendments
thereto
10.15* -- Form of Indemnification Agreement
23.1 -- Consent of Price Waterhouse LLP, Independent Accountants
(see page II-5)
23.2 -- Consent of Grant Thornton LLP, Independent Accountants
(see page II-6)
23.3* -- Consent of Counsel. Reference is hereby made to Exhibit
5.1
24.1 -- Power of Attorney (see page II-4)
27.1 -- Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 4.2
<TABLE>
<S> <C> <C>
ORGANIZED UNDER THE LAWS OF THE STATE OF TEXAS
NUMBER SHARES
BINDVIEW DEVELOPMENT CORPORATION
COMMON STOCK
THE CORPORATION IS AUTHORIZED TO ISSUE 1,000,000 SHARES COMMON STOCK - NO PAR VALUE
THIS CERTIFIES THAT SPECIMEN is the owner of _____________________________ fully paid and non-assessable Shares
of the Common Stock of BINDVIEW DEVELOPMENT CORPORATION
transferable only on the books of the Corporation by the holder hereof in person or by duly authorized Attorney upon
surrender of this Certificate properly endorsed.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be signed by its duly authorized officers and to be
sealed with the Seal of the Corporation.
Dated
--------------------------------------------
--------------------------------------------------------
PRESIDENT
</TABLE>
<PAGE> 1
EXHIBIT 10.1
BINDVIEW DEVELOPMENT CORPORATION
INCENTIVE STOCK OPTION PLAN
1.01 Purpose. The purposes of this Incentive Stock Option Plan
(the "Plan") are to: (1) closely associate the interests of certain key
employees of BINDVIEW DEVELOPMENT CORPORATION (the "Company") with the
shareholders by reinforcing the relationship between participants' rewards and
shareholder gains; and (2) maintain competitive compensation levels.
1.02 Administration.
(a) The Plan shall be administered by the Board of
Directors of Company as constituted from time to time.
(b) The Board of Directors of Company shall have the
authority, in its sole discretion and from time to time to:
(i) designate the employees or classes of
employees eligible to participate in the Plan;
(ii) grant options provided for in the Plan in
such form and amount as the Board of Directors of Company shall determine;
(iii) impose such limitations, restrictions and
conditions upon any such option as the Board of Directors of Company shall deem
appropriate; and
(iv) interpret the Plan, adopt, amend and rescind
rules and regulations relating to the Plan, and make all other determinations
and take all other action necessary or advisable for the implementation and
administration of the Plan.
(c) Decisions and determinations of the Board of
Directors of Company on all matters relating to the Plan shall be in its sole
discretion and shall be conclusive. No member of the Board of Directors of
Company shall be liable for any action taken or decision made in good faith
relating to the Plan or any option granted thereunder.
1.03 Eligibility for Participation.
Participants in the Plan shall be selected by the Board of Directors
of Company from the employees of the Company who occupy responsible positions
and who have the capability of making a substantial contribution to the success
of the Company. In
-1-
<PAGE> 2
making this selection and in determining the number of shares, the Board of
Directors of Company shall consider any factors deemed relevant, including the
individual's functions, responsibilities, value of services to the Company and
past and potential contributions to the Company's profitability and sound
growth.
1.04 Aggregate Limitation on Awards.
Shares of stock which may be issued under the Plan shall be authorized
and unissued or treasury shares of Common Stock of Company ("Common Stock").
The maximum number of shares of Common Stock which may be issued under the Plan
shall be ___________.
1.05 Effective Date and Term of Plan.
(a) The Plan shall become effective on the date approved
by the holders of a majority of the shares of Common Stock present in person or
by proxy at a special meeting of shareholders of Company called for such
purpose or on the date it is approved by a unanimous consent of shareholders
signed by all shareholders of Company.
(b) No options shall be granted under the Plan after
December 31, 2004 provided, however, that the Plan and all options granted
under the Plan prior to such date shall remain in effect until such options
have been exercised or terminate in accordance with the Plan and the terms of
such options.
2.01 Award of Incentive Stock Options.
The Board of Directors of Company may, from time to time and subject
to the provisions of the Plan and such other terms and conditions as the Board
of Directors of Company may prescribe, grant to any participant in the Plan one
or more "incentive stock options" (intended to qualify as such under the
provisions of Section 422 of the Internal Revenue Code of 1986, as amended
("Incentive Stock Options") to purchase for cash the number of shares of Common
Stock allotted by the Board of Directors of Company. The date an Incentive
Stock Option is granted shall mean the date selected by the Board of Directors
of Company as of which the Board of Directors of Company allots a specific
number of shares to a participant pursuant to the Plan. Notwithstanding the
foregoing, Incentive Stock Options shall not be granted to any owner of 10% or
more of the total combined voting power of all classes of stock of the Company
or of its parent or any subsidiary corporation.
-2-
<PAGE> 3
2.02 Incentive Stock Option Agreements.
The grant of an Incentive Stock Option shall be evidenced by a written
Grant of Incentive Stock Option Agreement, executed by the Company and by the
holder of the Incentive Stock Option (the "optionee"), stating the number of
shares of Common Stock subject to the Incentive Stock Option evidenced thereby,
and in such form as the Board of Directors of Company may from time to time
determine.
2.03 Incentive Stock Option Price.
The option price per share of Common Stock deliverable upon the
exercise of an Incentive Stock Option shall be 100% of the fair market value of
a share of Common Stock on the date the Incentive Stock Option is granted.
2.04 Term and Exercise.
Each Incentive Stock Option granted hereunder shall be exercisable
during the period set forth in the written Grant of Incentive Stock Option (the
"option term"); provided, however, in no event shall any Incentive Stock Option
granted hereunder be exercisable after the expiration of ten (10) years from
the date such option is granted. No Incentive Stock Option shall be
exercisable after the expiration of its option term.
2.05 Maximum Amount of Incentive Stock Option Grant.
The aggregate fair market value (determined on the date the option is
granted) of Common Stock subject to an Incentive Stock Option granted to an
optionee by the Board of Directors of Company in any calendar year shall not
exceed $100,000.
2.06 Death of Optionee.
Upon the death of the optionee while still employed by Company, any
Incentive Stock Option exercisable on the date of death may be exercised by the
optionee's estate or by a person who acquires the right to exercise such
Incentive Stock Option by bequest or inheritance or by reason of the death of
the optionee, provided that such exercise occurs within both the remaining
option term of the Incentive Stock Option and six (6) months after the
optionee's death.
2.7 Termination for other Reasons.
Except as provided in Section 2.6 above, all Incentive Stock
-3-
<PAGE> 4
Options shall immediately terminate on the date of termination of the
optionee's employment with Company.
2.08 Manner of Payment.
Each Stock Option Agreement shall set forth the procedure governing
the exercise of the Stock Option granted thereunder, and shall provide that,
upon such exercise in respect of any shares of Common Stock subject thereto,
the optionee shall pay to the Company, in full, the option price for such
shares with cash.
2.09 Issuance of Shares.
As soon as practicable after receipt of payment, the Company shall
deliver to the optionee a certificate or certificates for such shares of Common
Stock. The optionee shall become a shareholder of the Company with respect to
Common Stock represented by share certificates so issued and as such shall be
fully entitled to receive dividends, to vote and to exercise all other rights
of a shareholder.
3.01 General Restriction.
Each option granted under the Plan shall be subject to the requirement
that, if at any time the Board of Directors of Company shall determine that (i)
the listing, registration or qualification of the shares of Common Stock
subject or related thereto upon any securities exchange or under any state or
Federal law, or (ii) the consent or approval of any government regulatory body,
or (iii) an agreement by the grantee of an option with respect to the
disposition of shares of Common Stock, is necessary or desirable as a condition
of, or in connection with, the granting of such option or the issue or purchase
of shares of Common Stock thereunder, the exercise of such option may not be
consummated in whole or in part unless such listing, registration,
qualification, consent, approval or agreement shall have been effected or
obtained free of any conditions not acceptable to the Board of Directors of
Company.
3.02 Non-Assignability.
No option granted under the Plan shall be assignable or transferable
by the recipient thereof, except by will or by the laws of descent and
distribution. During the life of the recipient, such option shall be
exercisable only by such person.
-4-
<PAGE> 5
3.03 Withholding Taxes.
Whenever the Company proposes or is required to issue or transfer
shares of Common Stock pursuant to the exercise of an option under the Plan,
the Company shall have the right to require the grantee to remit to the Company
an amount sufficient to satisfy any Federal, state and/or local withholding tax
requirements prior to the delivery of any certificate or certificates for such
shares. For withholding tax purposes, the shares of Common Stock shall be
valued on the date the withholding obligation is incurred.
3.04 Right to Terminate Employment.
Nothing in the Plan or in any agreement entered into pursuant to the
Plan shall confer upon any participant the right to continue in the employment
of the Company or effect any right which the Company may have to terminate the
employment of such participant.
3.05 Non-Uniform Determination.
The Board of Directors' determinations under the Plan (including
without limitation determinations of the persons to receive options, the form,
amount and timing of such options, the terms and provisions of such options and
the agreements evidencing same) need not be uniform and may be made by it
selectively among persons who receive, or are eligible to receive options under
the Plan, whether or not such persons are similarly situated.
3.06 Rights as a Shareholder.
The recipient of any option under the Plan shall have no rights as a
shareholder with respect thereto unless and until certificates for shares of
Common Stock are issued to him.
3.07 Definitions.
In this Plan the following definitions shall apply:
(a) "Fair market value" as of any date and in respect of
any share of Common Stock means the fair market value of shares of Common Stock
as determined by the Board of Directors of Company in such manner as it may
deem appropriate. In no event shall the fair market value of any share of
Common Stock be less than its par value.
(b) "Option" means Incentive Stock Option.
-5-
<PAGE> 6
(c) "Option price" means the purchase price per share of
Common Stock deliverable upon the exercise of an Incentive Stock Option.
3.08 Leaves of Absence.
The Board of Directors of Company shall be entitled to make such
rules, regulations and determinations as it deems appropriate under the Plan in
respect of any leave of absence taken by the recipient of any Option. Without
limiting the generality of the foregoing, the Board of Directors of Company
shall be entitled to determine (i) whether or not any such leave of absence
shall constitute a termination of employment within the meaning of the Plan and
(ii) the impact, if any, of any such leave of absence on Options under the Plan
theretofore granted to any recipient who takes such leave of absence.
3.09 Newly Eligible Employees.
The Board of Directors of Company shall be entitled to make such
rules, regulations, determinations and grants as it deems appropriate in
respect of any employee who becomes eligible to participate in the Plan.
3.10 Adjustments.
In the event of any change in the outstanding Common Stock by reason
of a stock dividend or distribution, recapitalization, merger, consolidation,
split-up, combination, exchange of shares or the like, the Board of Directors
of Company may appropriately adjust the number of shares of Common Stock which
may be issued under the Plan, the number of shares of Common Stock subject to
Options theretofore granted under the Plan, the option price of Options
theretofore granted under the Plan, and any and all other matters deemed
appropriate by the Board of Directors.
3.11 Amendment of the Plan.
(a) The Board of Directors of Company may, without
further action by the shareholders and without receiving further consideration
from the participants, amend this Plan or condition or modify Options under
this Plan in response to changes in securities or other laws or rules,
regulations or regulatory interpretations thereof applicable to this Plan.
(b) The Board of Directors of Company may at any time and
from time to time terminate or modify or amend the Plan in any respect except
that without shareholder approval the Board of
-6-
<PAGE> 7
Directors of Company may not (i) increase the maximum number of shares of
Common Stock which may be issued under the Plan (other than increases pursuant
to Section 3.10), (ii) extend the period during which any Option may be granted
or exercised, or (iii) extend the term of the Plan. The termination or any
modification or amendment of the Plan, except as provided in subsection (a)
shall not without the consent of a participant, affect his or her rights under
an Option previously granted to him or her.
-7-
<PAGE> 1
EXHIBIT 10.2
BINDVIEW DEVELOPMENT CORPORATION
STOCK OPTION PLAN
1.01 Purpose.
The purposes of this Stock Option Plan (the "Plan") are to: (1)
closely associate the interests of certain key employees of BINDVIEW
DEVELOPMENT CORPORATION (the "Company") with the shareholders by reinforcing
the relationship between participants' rewards and shareholder gains; and (2)
maintain competitive compensation levels.
1.02 Administration.
(a) The Plan shall be administered by the Board of
Directors of Company as constituted from time to time.
(b) The Board of Directors of Company shall have the
authority, in its sole discretion and from time to time to:
(i) designate the employees or classes of
employees eligible to participate in the Plan;
(ii) grant options provided for in the Plan in
such form and amount as the Board of Directors of Company shall determine;
(iii) impose such limitations, restrictions and
conditions upon any such option as the Board of Directors of Company shall deem
appropriate; and
(iv) interpret the Plan, adopt, amend and rescind
rules and regulations relating to the Plan, and make all other determinations
and take all other action necessary or advisable for the implementation and
administration of the Plan.
(c) Decisions and determinations of the Board of
Directors of Company on all matters relating to the Plan shall be in its sole
discretion and shall be conclusive. No member of the Board of Directors of
Company shall be liable for any action taken or decision made in good faith
relating to the Plan or any option granted thereunder.
1.03 Eligibility for Participation.
Participants in the Plan shall be selected by the Board of Directors
of Company from the employees of the Company who occupy responsible positions
and who have the capability of making a substantial contribution to the success
of the Company. In making this selection and in determining the number of
shares, the Board
1
<PAGE> 2
of Directors of Company shall consider any factors deemed relevant, including
the individual's functions, responsibilities, value of services to the Company
and past and potential contributions to the Company's profitability and sound
growth.
1.04 Aggregate Limitation on Awards.
Shares of stock which may be issued under the Plan shall be authorized
and unissued or treasury shares of Common Stock of Company ("Common Stock").
The maximum number of shares of Common Stock which may be issued under the Plan
shall be 100,000.
1.05 Effective Date and Term of Plan.
(a) The Plan shall become effective on the date approved
by the holders of a majority of the shares of Common Stock present in person or
by proxy at a special meeting of shareholders of Company called for such
purpose or on the date it is approved by a unanimous consent of shareholders
signed by all shareholders of Company.
(b) No options shall be granted under the Plan after
December 31, 2005 provided, however, that the Plan and all options granted
under the Plan prior to such date shall remain in effect until such options
have been exercised or terminate in accordance with the Plan and the terms of
such options.
2.01 Award of Stock Options.
The Board of Directors of Company may, from time to time and subject
to the provisions of the Plan and such other terms and conditions as the Board
of Directors of Company may prescribe, grant to any participant in the Plan one
or more stock options ("Stock Options") to purchase for cash the number of
shares of Common Stock allotted by the Board of Directors of Company. To the
extent permitted by law, the Stock Options are intended to qualify as incentive
stock options under the provisions of Section 422 of the Internal Revenue Code
of 1986, as amended. The date a Stock Option is granted shall mean the date
selected by the Board of Directors of Company as of which the Board of
Directors of Company allots a specific number of shares to a participant
pursuant to the Plan.
2.02 Stock Option Agreements.
The grant of a Stock Option shall be evidenced by a written Grant of
Stock Option Agreement, executed by the Company and by the holder of the Stock
Option (the "optionee"), stating the number of shares of Common Stock subject
to the Stock Option evidenced thereby, and in such form as the Board of
Directors of Company may from time to time determine.
2
<PAGE> 3
2.03 Stock Option Price.
The option price of Common Stock deliverable upon the exercise of a
Stock Option shall be as stated in the written Grant of Stock Option Agreement.
2.04 Term and Exercise.
Each Stock Option granted hereunder shall be exercisable during the
period set forth in the written Grant of Stock Option (the "option term"). No
Stock Option granted hereunder shall be exercisable after the expiration of ten
(10) years from the date such option is granted. No Stock Option shall be
exercisable after the expiration of its option term. A Stock Option granted
hereunder shall only be treated as an incentive stock option to the extent that
the aggregate fair market value of Common Stock with respect to which such
Stock Option is exercisable for the first time in a calendar year does not
exceed $100,000. To the extent that the aggregate value of Common Stock with
respect to which the Stock Option is exercisable for the first time in such
calendar year exceeds $100,000, such portion of the Stock Option shall not be
treated as an incentive stock option. For purposes of this paragraph 2.04, the
fair market value of any share of Common Stock shall be determined as of the
time the Stock Option with respect to such Common Stock is granted.
2.05 Death or Termination of Optionee.
Upon the death of the optionee while still employed by Company or upon
the termination of the optionee's employment with Company, any Stock Option
exercisable on the date of death or termination may be exercised by the
optionee or the optionee's estate, as the case may be, provided that such
exercise occurs within both the remaining option term of the Stock Option and
no later than twenty-four (24) months after the date of the optionee's death or
the date of optionee's termination of employment with Company, whichever first
occurs.
2.06 Manner of Payment.
Each Stock Option Agreement shall set forth the procedure governing
the exercise of the Stock Option granted thereunder, and shall provide that,
upon such exercise in respect of any shares of Common Stock subject thereto,
the optionee shall pay to the Company, in full, the option price for such
shares with cash.
2.07 Issuance of Shares.
As soon as practicable after receipt of payment, the Company shall
deliver to the optionee a certificate or certificates for
3
<PAGE> 4
such shares of Common Stock. The optionee shall become a shareholder of the
Company with respect to Common Stock represented by share certificates so
issued and as such shall be fully entitled to receive dividends, to vote and to
exercise all other rights of a shareholder.
3.01 General Restriction.
Each option granted under the Plan shall be subject to the requirement
that, if at any time the Board of Directors of Company shall determine that (i)
the listing, registration or qualification of the shares of Common Stock
subject or related thereto upon any securities exchange or under any state or
Federal law, or (ii) the consent or approval of any government regulatory body,
or (iii) an agreement by the grantee of an option with respect to the
disposition of shares of Common Stock, is necessary or desirable as a condition
of, or in connection with, the granting of such option or the issue or purchase
of shares of Common Stock thereunder, the exercise of such option may not be
consummated in whole or in part unless such listing, registration,
qualification, consent, approval or agreement shall have been effected or
obtained free of any conditions not acceptable to the Board of Directors of
Company.
3.02 Non-Assignability.
No option granted under the Plan shall be assignable or transferable
by the recipient thereof, except by will or by the laws of descent and
distribution. During the life of the recipient, such option shall be
exercisable only by such person.
3.03 Withholding Taxes.
Whenever the Company proposes or is required to issue or transfer
shares of Common Stock pursuant to the exercise of an option under the Plan,
the Company shall have the right to require the grantee to remit to the Company
an amount sufficient to satisfy any Federal, state and/or local withholding tax
requirements prior to the delivery of any certificate or certificates for such
shares. For withholding tax purposes, the shares of Common Stock shall be
valued on the date the withholding obligation is incurred.
3.04 Right to Terminate Employment.
Nothing in the Plan or in any agreement entered into pursuant to the
Plan shall confer upon any participant the right to continue in the employment
of the Company or effect any right which the Company may have to terminate the
employment of such participant.
3.05 Non-Uniform Determination.
The Board of Directors' determinations under the Plan
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<PAGE> 5
(including without limitation determinations of the persons to receive options,
the form, amount and timing of such options, the terms and provisions of such
options and the agreements evidencing same) need not be uniform and may be made
by it selectively among persons who receive, or are eligible to receive options
under the Plan, whether or not such persons are similarly situated.
3.06 Rights as a Shareholder.
The recipient of any option under the Plan shall have no rights as a
shareholder with respect thereto unless and until certificates for shares of
Common Stock are issued to him.
3.07 Definitions.
In this Plan the following definitions shall apply:
(a) "Option" means a non-qualified Stock Option described
herein.
(b) "Option price" means the purchase price per share of
Common Stock deliverable upon the exercise of a non-qualified Stock Option
described herein.
3.08 Leaves of Absence.
The Board of Directors of Company shall be entitled to make such
rules, regulations and determinations as it deems appropriate under the Plan in
respect of any leave of absence taken by the recipient of any Option. Without
limiting the generality of the foregoing, the Board of Directors of Company
shall be entitled to determine (i) whether or not any such leave of absence
shall constitute a termination of employment within the meaning of the Plan and
(ii) the impact, if any, of any such leave of absence on Options under the Plan
theretofore granted to any recipient who takes such leave of absence.
3.09 Newly Eligible Employees.
The Board of Directors of Company shall be entitled to make such
rules, regulations, determinations and grants as it deems appropriate in
respect of any employee who becomes eligible to participate in the Plan.
3.10 Adjustments.
In the event of any change in the outstanding Common Stock by reason
of a stock dividend or distribution, recapitalization, merger, consolidation,
split-up, combination, exchange of shares or the like, the Board of Directors
of Company may appropriately adjust the number of shares of Common Stock which
may be issued
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under the Plan, the number of shares of Common Stock subject to Options
theretofore granted under the Plan, the option price of Options theretofore
granted under the Plan, and any and all other matters deemed appropriate by the
Board of Directors.
3.11 Amendment of the Plan.
(a) The Board of Directors of Company may, without
further action by the shareholders and without receiving further consideration
from the participants, amend this Plan or condition or modify Options under
this Plan in response to changes in securities or other laws or rules,
regulations or regulatory interpretations thereof applicable to this Plan.
(b) The Board of Directors of Company may at any time and
from time to time terminate or modify or amend the Plan in any respect except
that without shareholder approval the Board of Directors of Company may not (i)
increase the maximum number of shares of Common Stock which may be issued under
the Plan (other than increases pursuant to Section 3.10), (ii) extend the
period during which any Option may be granted or exercised, or (iii) extend the
term of the Plan. The termination or any modification or amendment of the
Plan, except as provided in subsection (a), shall not without the consent of a
participant, affect his or her rights under an Option previously granted to him
or her.
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EXHIBIT 10.3
BINDVIEW DEVELOPMENT CORPORATION
1997 INCENTIVE PLAN
1. PURPOSE. The purpose of this 1997 Incentive Plan (the "Plan")
of BindView Development Corporation, a Texas corporation (the "Company"), is to
advance the interests of the Company and its shareholders by providing a means
to attract, retain and reward executive officers and other key employees and
consultants of and service providers to the Company and its subsidiaries
(including consultants and others providing services of substantial value) and
to enable such persons to acquire or increase a proprietary interest in the
Company, thereby promoting a closer identity of interests between such persons
and the Company's shareholders.
2. DEFINITIONS. For purposes of the Plan and any Option
hereunder, the following additional terms shall be defined as set forth below:
(a) "Beneficiary" shall mean the person, persons, trust or trusts
which have been designated by a Participant in his or her most recent written
beneficiary designation filed with the Board to receive the benefits specified
under the Plan upon such Participant's death or, if there is no designated
Beneficiary or surviving designated Beneficiary, then the person, persons,
trust or trusts entitled by will or the laws of descent and distribution to
receive such benefits.
(b) "Board" means the Board of Directors of the Company; provided
that if the Board of Directors designates a the compensation committee of the
Board, or such other Board committee to administer the Plan, such committee
shall be deemed to be the "Board" for the purposes of the Plan.
(c) "Cause" when used in connection with the termination of a
Participant's employment with the Company, means the termination of the
Participant's employment by the Company by reason of (i) the conviction of the
Participant by a court of competent jurisdiction as to which no further appeal
can be taken of a crime involving moral turpitude; (ii) the proven commission
by the Participant of an act of fraud upon the Company; (iii) the willful and
proven misappropriation of any funds or property of the Company by the
Participant; (iv) the willful, continued and unreasonable failure by the
Participant to perform duties assigned to him and agreed to by him; (v) the
knowing engagement by the Participant in any direct, material conflict of
interest with the Company without compliance with the Company's conflict of
interest policy, if any, then in effect; (vi) the knowing engagement by the
Participant, without the written approval of the Board, in any activity which
competes with the business of the Company or which would result in a material
injury to the Company; or (vii) the knowing engagement in any activity which
would constitute a material violation of the provisions of the Company's
policies and procedures manual, if any, then in effect.
(d) A "Change in Control" shall be deemed to have occurred if any
person, other than the Company or an employee benefit plan of the Company,
acquires directly or indirectly the Beneficial Ownership (as defined in Section
13(d) of the Exchange Act) of any voting security of the Company and
immediately after such acquisition such Person is, directly or indirectly, the
Beneficial Owner of voting securities representing 50 percent or more of the
total voting power of all of the then-outstanding voting securities of the
Company.
<PAGE> 2
(e) "Code" means the Internal Revenue Code of 1986, as amended
from time to time. References to any provision of the Code shall be deemed to
include regulations thereunder and successor provisions and regulations
thereto.
(f) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time. References to any provision of the Exchange Act
shall be deemed to include rules thereunder and successor provisions and rules
thereto.
(g) "Fair Market Value" means, with respect to Stock or other
property, the fair market value of such Stock or other property determined by
such methods or procedures as shall be established from time to time by the
Board, PROVIDED, HOWEVER, that (i) if the Stock is listed on a national
securities exchange or quoted in an interdealer quotation system, the Fair
Market Value of such Stock on a given date shall be based upon the last sales
price or, if unavailable, the average of the closing bid and asked prices per
share of the Stock on such date (or, if there was no trading or quotation in
the Stock on such date, on the next preceding date on which there was trading
or quotation) as reported in the WALL STREET JOURNAL (or other reporting
service approved by the Board), (ii) the "Fair Market Value" of Stock subject
to Options granted effective upon commencement of the Initial Public Offering
shall be the Initial Public Offering price of the shares so issued and sold in
the Initial Public Offering, as set forth in the first final prospectus used in
such offering (the provisions of clause (i) notwithstanding) and (iii) the
"Fair Market Value" of Stock prior to the date of the Initial Public Offering
shall be as determined by the Board of Directors.
(h) "Initial Public Offering" shall mean an initial public
offering of shares of Stock in a firm commitment underwriting registered with
the Securities and Exchange Commission in compliance with the provisions of the
Securities Act of 1933, as amended.
(i) "ISO" means any Option intended to be and designated as an
incentive stock option within the meaning of Section 422 of the Code.
(j) "Option Agreement" means any written agreement, contract,
notice or other instrument or document evidencing an Option.
(k) "Participant" means a person who, at a time when eligible
under Section 5 hereof, has been granted an Option under the Plan.
(l) "Rule l6b-3" means Rule l6b-3, as from time to time in effect
and applicable to the Plan and Participants, promulgated by the Securities and
Exchange Commission under Section 16 of the Exchange Act.
(m) "Stock" means the Common Stock, no par value per share, of the
Company and such other securities as may be substituted for Stock or such other
securities pursuant to Section 4.
(n) "TBCA" shall mean the Texas Business Corporation Act, as
amended from time to time.
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<PAGE> 3
3. ADMINISTRATION.
(a) AUTHORITY OF THE BOARD. The Plan shall be administered by the
Board. The Board shall have full and final authority to take the following
actions, in each case subject to and consistent with the provisions of the
Plan:
(i) to select persons to whom Options may be granted;
(ii) to determine the type or types of Options to be
granted to each such person;
(iii) to determine the number of Options to be granted, the
number of shares of Stock to which an Option will relate, the terms
and conditions of any Option granted under the Plan (including, but
not limited to, any exercise price, grant price or purchase price, any
restriction or condition, any schedule for lapse of restrictions or
conditions relating to transferability or forfeiture, exercisability
or settlement of an Option, and waivers or accelerations thereof,
performance conditions relating to an Option, based in each case on
such considerations as the Board shall determine), and all other
matters to be determined in connection with an Option;
(iv) to determine whether, to what extent and under what
circumstances an Option may be settled, or the exercise price of an
Option may be paid, in cash, Stock, or other property, or an Option
may be canceled, forfeited, or surrendered;
(v) to determine whether, to what extent and under what
circumstances cash, Stock, or other property payable with respect to
an Option will be deferred either automatically, at the election of
the Board or at the election of the Participant;
(vi) to prescribe the form of each Option Agreement, which
need not be identical for each Participant;
(vii) to adopt, amend, suspend, waive and rescind such
rules and regulations and appoint such agents as the Board may deem
necessary or advisable to administer the Plan;
(viii) to correct any defect or supply any omission or
reconcile any inconsistency in the Plan and to construe and interpret
the Plan and any Option, rules and regulations, Option Agreement or
other instrument hereunder; and
(ix) to make all other decisions and determinations as may
be required under the terms of the Plan or as the Board may deem
necessary or advisable for the administration of the Plan.
(b) MANNER OF EXERCISE OF BOARD AUTHORITY. Unless authority is
specifically reserved to the Board under the terms of the Plan, the Company's
Certificate of Incorporation or Bylaws, or applicable law, the Board shall have
sole discretion in exercising authority under the Plan. Any action of the
Board with respect to the Plan shall be final, conclusive and binding on all
persons, including the Company, subsidiaries of the Company, Participants, any
person claiming any rights under the Plan from or through any Participant and
shareholders, except to the extent the Board may subsequently modify, or take
further action not consistent with, its prior action. If not specified in the
Plan, the time at which the Board must
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<PAGE> 4
or may make any determination shall be determined by the Board, and any such
determination may thereafter by modified by the Board (subject to Section
8(e)). The taking of any action by the Board shall not be construed as limiting
any power or authority of the Board. The Board may delegate to officers or
managers of the Company or any subsidiary of the Company the authority, subject
to such terms as the Board shall determine, to perform administrative functions
and, with respect to Participants not subject to Section 16 of the Exchange
Act, to perform such other functions as the Board may determine, to the extent
permitted under Rule 16b-3, if applicable, and other applicable law.
(c) LIMITATION OF LIABILITY. Each member of the Board shall be
entitled to, in good faith, rely or act upon any report or other information
furnished to him by any officer or other employee of the Company or any
subsidiary, the Company's independent certified public accountants or any
executive compensation consultant, legal counsel or other professional retained
by the Company to assist in the administration of the Plan. No member of the
Board, nor any officer or employee of the Company acting on behalf of the
Board, shall be personally liable for any action, determination or
interpretation taken or made in good faith with respect to the Plan, and all
members of the Board and any officer or employee of the Company acting on its
behalf shall, to the extent permitted by law, be fully indemnified and
protected by the Company with respect to any such action, determination or
interpretation.
4. STOCK SUBJECT TO PLAN.
(a) AMOUNT OF STOCK RESERVED. The total amount of Stock that may
be subject to outstanding awards, determined immediately after the grant of any
Option, shall not exceed 521,496 shares of Stock, subject to adjustment as
provided in Section 4(b), PROVIDED, HOWEVER, that shares subject to Options
shall not be deemed delivered if such Options are forfeited, expire or
otherwise terminate without delivery of shares to the Participant. To the
extent that an Option is only to be paid in cash or is paid in cash, any shares
of Stock subject to such Option shall again be available for the grant of an
Option. Any shares of Stock delivered pursuant to an Option may consist, in
whole or in part, of authorized and unissued shares, treasury shares or shares
acquired in the market for a Participant's Account.
(b) ADJUSTMENTS. In the event that the Board shall determine that
any dividend or other distribution (whether in the form of cash, Stock or other
property), recapitalization, forward or reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase or exchange of Stock or other
securities, liquidation, dissolution, or other similar corporate transaction or
event, affects the Stock such that an adjustment is appropriate in order to
prevent dilution or enlargement of the rights of Participants under the Plan,
then the Board shall, in such manner as it may deem equitable, adjust any or
all of (i) the number and kind of shares of Stock reserved and available for
Options under Section 4(a), including shares reserved for the ISOs, (ii) the
number and kind of other outstanding Options in connection with which shares
have been issued, (iii) the number and kind of shares that may be issued in
respect of other outstanding Options and (iv) the exercise price, grant price
or purchase price relating to any Option (or, if deemed appropriate, the Board
may make provision for a cash payment with respect to any outstanding Option).
In addition, the Board is authorized to make adjustments in the terms and
conditions of, and the criteria included in, Options in recognition of unusual
or nonrecurring events (including, without limitation, events described in the
preceding sentence) affecting the Company or any subsidiary or the financial
statements of the Company or any subsidiary, or in
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<PAGE> 5
response to changes in applicable laws, regulations, or accounting principles.
The foregoing notwithstanding, no adjustments shall be authorized under this
Section 4(b) with respect to ISOs to the extent that such authority would cause
the Plan to fail to comply with Section 422(b)(1) of the Code.
5. ELIGIBILITY. Executive officers and other key employees of the
Company and its subsidiaries, including any director or officer who is also
such an employee, and persons who provide consulting or other services to the
Company deemed by the Board to be of substantial value to the Company, are
eligible to be granted Options under the Plan. In addition, a person who has
been offered employment by the Company or its subsidiaries is eligible to be
granted an Option under the Plan, provided that such Option shall be cancelled
if such person fails to commence such employment, and no payment of value may
be made in connection with such Option until such person has commenced such
employment. The foregoing notwithstanding, no member of the Board shall be
eligible to be granted Options under the Plan.
6. SPECIFIC TERMS OF OPTIONS.
(a) GENERAL. Options may be granted on the terms and conditions
set forth in this Section 6. In addition, the Board may impose on any Option
or the exercise thereof such additional terms and conditions, not inconsistent
with the provisions of the Plan, as the Board shall determine, including terms
requiring forfeiture of Options in the event of termination of employment or
service of the Participant. Except as provided in Section 6(e) or 7(a), or to
the extent required to comply with requirements of the TBCA that lawful
consideration be paid for Stock, only services may be required as consideration
for the grant (but not the exercise) of any Option.
(b) OPTIONS. The Board is authorized to grant Options (including
"reload" options automatically granted to offset specified exercises of
Options) on the following terms and conditions ("Options"):
(i) EXERCISE PRICE. The exercise price per share of
Stock purchasable under an Option shall be determined by the Board;
PROVIDED, HOWEVER, that, except as provided in Section 7(a), such
exercise price shall be not less than the Fair Market Value of a share
on the date of grant of such Option.
(ii) TIME AND METHOD OF EXERCISE. The Board shall
determine the time or times at which an Option may be exercised in
whole or in part, the methods by which such exercise price may be paid
or deemed to be paid, the form of such payment, including, without
limitation, cash, Stock, other Options or awards granted under other
Company plans or other property (including notes or other contractual
obligations of Participants to make payment on a deferred basis, such
as through "cashless exercise" arrangements, to the extent permitted
by applicable law), and the methods by which Stock will be delivered
or deemed to be delivered to Participants.
(iii) ISOS. The terms of any ISO granted under the Plan shall
comply in all respects with the provisions of Section 422 of the Code,
including but not limited to the requirement that no ISO shall be
granted more than ten years after the effective date of the Plan.
Anything in the Plan to the contrary notwithstanding, no term of the
Plan
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relating to ISOs shall be interpreted, amended, or altered, nor shall
any discretion or authority granted under the Plan be exercised, so as
to disqualify either the Plan or any ISO under Section 422 of the
Code, unless requested by the affected Participant.
7. ADDITIONAL PROVISIONS APPLICABLE TO OPTIONS.
(a) ACCELERATION UPON A CHANGE OF CONTROL. Notwithstanding
anything contained herein to the contrary, unless otherwise provided by the
Board in an Option Agreement, all conditions and restrictions relating to an
Option, including limitations on exercisability, risks of forfeiture and
conditions and restrictions requiring the continued performance of services or
the achievement of performance objectives with respect to the exercisability or
settlement of such Option, shall immediately lapse upon a Change in Control.
(b) TERM OF OPTIONS. Subject to any other limitations set forth in
the Plan, the term of each Option shall be for such period as may be determined
by the Committee; PROVIDED, HOWEVER, that in no event shall the term of any ISO
exceed a period of ten years from the date of its grant (or such shorter period
as may be applicable under Section 422 of the Code).
(c) FORM OF PAYMENT UNDER OPTIONS. Subject to the terms of the
Plan and any applicable Option Agreement, payments to be made by the Company or
a subsidiary upon the grant, exercise or settlement of an Option may be made in
such forms as the Committee shall determine, including, without limitation,
cash, Stock, other Options or other property, and may be made in a single
payment or transfer, in installments or on a deferred basis.
(c) STOCKHOLDERS AGREEMENT. The Plan and all shares of Stock or
Stock equivalents granted pursuant hereto shall be subject to the terms of any
shareholders agreement entered into by the Company concurrent, or prior, to the
grant of any Option hereunder.
8. GENERAL PROVISIONS.
(a) COMPLIANCE WITH LAWS AND OBLIGATIONS. The Company shall not be
obligated to issue or deliver Stock in connection with any Option or take any
other action under the Plan in a transaction subject to the registration
requirements of the Securities Act of 1933, as amended, or any other federal or
state securities law, any requirement under any listing agreement between the
Company and any national securities exchange or automated quotation system or
any other law, regulation or contractual obligation of the Company until the
Company is satisfied that such laws, regulations, and other obligations of the
Company have been complied with in full. Certificates representing shares of
Stock issued under the Plan will be subject to such stop-transfer orders and
other restrictions as may be applicable under such laws, regulations and other
obligations of the Company, including any requirement that a legend or legends
be placed thereon.
(b) LIMITATIONS ON TRANSFERABILITY. Subject to the restrictions of
any other agreement of the Company and its shareholders, the Board shall have
the right to determine the any limitations upon transferability of the Options
and rights under the Plan; PROVIDED, HOWEVER, that ISOs granted under the Plan
will not be transferable by a Participant except by will or the laws of descent
and distribution or to a Beneficiary in the event of the Participant's
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<PAGE> 7
death, and, if exercisable, shall be exercisable during the lifetime of a
Participant only by such Participant or his guardian or legal representative.
(c) NO RIGHT TO CONTINUED EMPLOYMENT OR SERVICE. Neither the Plan
nor any action taken hereunder shall be construed as giving any employee or
other person the right to be retained in the employ or service of the Company
or any of its subsidiaries, nor shall it interfere in any way with the right of
the Company or any of its subsidiaries to terminate any employee's employment
or other person's service at any time.
(d) TAXES. The Company and any subsidiary is authorized to
withhold from any Option granted or to be settled, any delivery of Stock in
connection with an Option, any other payment relating to an Option or any
payroll or other payment to a Participant amounts of withholding and other
taxes due or potentially payable in connection with any transaction involving
an Option, and to take such other action as the Board may deem advisable to
enable the Company and Participants to satisfy obligations for the payment of
withholding taxes and other tax obligations relating to any Option. This
authority shall include authority to withhold or receive Stock or other
property and to make cash payments in respect thereof in satisfaction of a
Participant's tax obligations.
(e) CHANGES TO THE PLAN AND OPTIONS. The Board may amend, alter,
suspend, discontinue or terminate the Plan or the Board's authority to grant
Options under the Plan without the consent of shareholders or Participants,
except that any such action shall be subject to the approval of the Company's
shareholders at or before the next annual meeting of shareholders for which the
record date is after such Board action if such shareholder approval is required
by any federal or state law or regulation or the rules of any stock exchange or
automated quotation system on which the Stock may then be listed or quoted, and
the Board may otherwise, in its discretion, determine to submit other such
changes to the Plan to shareholders for approval; PROVIDED, HOWEVER, that,
without the consent of an affected Participant, no such action may materially
impair the rights of such Participant under any Option theretofore granted to
him. The Board may waive any conditions or rights under, or amend, alter,
suspend, discontinue, or terminate, any Option theretofore granted and any
Option Agreement relating thereto; PROVIDED, HOWEVER, that, without the consent
of an affected Participant, no such action may materially impair the rights of
such Participant under such Option.
(f) NO RIGHTS TO OPTIONS; NO SHAREHOLDER RIGHTS. No Participant
or employee shall have any claim to be granted any Option under the Plan, and
there is no obligation for uniformity of treatment of Participants and
employees. No Option shall confer on any Participant any of the rights of a
shareholder of the Company unless and until Stock is duly issued or transferred
and delivered to the Participant in accordance with the terms of the Option or,
in the case of an Option, the Option is duly exercised.
(g) UNFUNDED STATUS OF OPTIONS; CREATION OF TRUSTS. The Plan is
intended to constitute an "unfunded" plan for incentive and deferred
compensation. With respect to any payments not yet made to a Participant
pursuant to an Option, nothing contained in the Plan or any Option shall give
any such Participant any rights that are greater than those of a general
creditor of the Company; PROVIDED, HOWEVER, that the Board may authorize the
creation of trusts or make other arrangements to meet the Company's obligations
under the Plan to deliver cash, Stock or other property pursuant to any Option,
which trusts or other
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<PAGE> 8
arrangements shall be consistent with the "unfunded" status of the Plan unless
the Board otherwise determines with the consent of each affected Participant.
(h) NONEXCLUSIVITY OF THE PLAN. Neither the adoption of the Plan
by the Board nor its submission to the shareholders of the Company for approval
shall be construed as creating any limitations on the power of the Board to
adopt such other compensatory arrangements as it may deem desirable, including,
without limitation, the granting of stock options otherwise than under the
Plan, and such arrangements may be either applicable generally or only in
specific cases.
(i) NO FRACTIONAL SHARES. No fractional shares of Stock shall be
issued or delivered pursuant to the Plan or any Option. The Board shall
determine whether cash, other Options, or other property shall be issued or
paid in lieu of such fractional shares or whether such fractional shares or any
rights thereto shall be forfeited or otherwise eliminated.
(j) COMPLIANCE WITH CODE SECTION 162(m). It is the intent of the
Company that employee Options shall constitute "qualified performance-based
compensation" within the meaning of Code Section 162(m). Accordingly, if any
provision of the Plan or any Option Agreement relating to such an Option does
not comply or is inconsistent with the requirements of Code Section 162(m),
such provision shall be construed or deemed amended to the extent necessary to
conform to such requirements, and no provision shall be deemed to confer upon
the Board or any other person discretion to increase the amount of compensation
otherwise payable in connection with any such Option upon attainment of the
performance objectives.
(k) GOVERNING LAW. The validity, construction and effect of the
Plan, any rules and regulations relating to the Plan and any Option Agreement
shall be determined in accordance with the laws of the State of Texas, without
giving effect to principles of conflicts of laws, and applicable federal law.
(l) EFFECTIVE DATE; PLAN TERMINATION. The Plan shall become
effective as of the date of its adoption by the Board, subject to shareholder
approval prior to the commencement of the Initial Public Offering, and shall
continue in effect until terminated by the Board.
IN WITNESS WHEREOF, the undersigned authorized representative of the
Company does hereby certify that the Plan was duly adopted by the Board of
Directors of the Company by resolution dated September ___, 1997.
By:
-------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
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<PAGE> 9
IN WITNESS WHEREOF, the undersigned authorized representative of the
Company does hereby certify that the Plan was approved by the vote of at least
a majority all of the shareholders of the Company by resolution dated September
___, 1997.
By:
-------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
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EXHIBIT 10.6
LETTER LOAN AGREEMENT
June 10, 1996
Southwest Bank of Texas, N.A.
P.O. Box 27459
Houston, Texas 77227-7459
Attn: Brooks McGee
Gentlemen:
The undersigned, BINDVIEW DEVELOPMENT CORPORATION, a Texas corporation
("Borrower"), duly organized and existing under the laws of the State of Texas,
has requested that SOUTHWEST BANK OF TEXAS, N.A. ("Lender") lend to Borrower
the aggregate sum of $1,300,000.00. Lender has advised Borrower that Lender is
willing to lend such funds to Borrower upon the terms and subject to the
conditions set forth in this letter loan agreement (the "Agreement"). In
consideration for the above premises and the mutual promises and covenants
herein contained, Borrower and Lender do hereby agree as follows:
1. Loans. On the terms and subject to the conditions hereinafter
set forth, Lender agrees to lend to Borrower the aggregate sum of $1,300,000.00
(collectively, the "Loan"). The Loan shall be evidenced by (i) a master
revolving credit note (the "Revolving Note") in a form satisfactory to Lender,
duly executed by Borrower in the principal amount of $1,000,000.00 and made
payable to the order of Lender, and (ii) guidance line of credit notes (the
"Guidance Notes") in a form satisfactory to Lender, duly executed from time to
time by Borrower in an aggregate principal amount not to exceed $300,000.00 and
made payable to the order of Lender. The principal and interest on the
Revolving Note shall be due and payable in the manner and at the times set
forth in the Revolving Note with final maturity on June 10, 1997 (the "Maturity
Date"). Principal and interest on the Guidance Notes shall be due and payable
upon maturity, with final maturity on each individual note being thirty (30)
months from the execution of said note and final maturity on the guidance line
of credit being the Maturity Date. The Revolving Note and the Guidance Notes,
and any renewals, extensions and modifications thereof are collectively
referred to as the "Notes."
2. Revolving Credit Advances. Subject to the terms hereof,
Borrower may borrow, pay, reborrow and repay under the Revolving Note,
provided, however, the maximum principal outstanding under the Revolving Note
shall not exceed the lesser of (i) $1,000,000.00, or (ii) the Borrower's Loan
Limit, as such term is defined in Schedule "A" attached hereto and made a part
hereof. Borrower's requests for advances under the Revolving Note shall
specify the aggregate amount of the advance and the date of such advance.
Borrower shall furnish to Lender a request for borrowing in a form reasonably
satisfactory to Lender by 11:00 a.m. on the date of the requested borrowing.
After receiving notice of a requested advance in the manner provided herein,
Lender shall make the requested funds available to Borrower on the requested
borrowing date at Lender's principal banking office in Houston, Texas. The
funds advanced under the Revolving Note are to enable Borrower to finance
working capital needs. If at any time prior to the Maturity Date, the
outstanding advances under the Revolving Note exceed the Borrower's
<PAGE> 2
Loan Limit, Borrower shall prepay on the Revolving Note such amount as may be
necessary to eliminate such excess.
3. Guidance Notes. Subject to the terms hereof, Borrower may
borrow under the Guidance Notes, provided however, that the maximum principal
outstanding thereunder does not exceed an aggregate amount of $300,000.00.
Each of the Guidance Notes shall (i) mature no later than thirty (30) months
from the date thereof, and (ii) provide for payment of principal and accrued,
unpaid interest at maturity. Borrower's request for advances under the
Guidance Notes shall specify the amount of the requested advance, the date of
the requested advance, and be in a form and with such information as are
reasonably satisfactory to Lender, with adequate time for Lender to comply with
such request. The funds advanced under the Guidance Notes are to enable
Borrower to purchase equipment; however, in no event shall the funds advanced
under the Guidance Notes be used to purchase equipment or inventory the
ownership of which is evidenced by a Certificate of Title. With respect to
equipment purchases, Lender agrees to loan up to one hundred (100%) of the
actual cost of such purchase.
4. Conditions Precedent.
(a) The obligation of Lender to make the initial advance
under the Revolving Note is subject to the conditions precedent that, as of the
date of such advance, (i) Lender shall have received duly executed copies of
each document listed on the last page hereof relating to the Loan (except the
Subordination Agreement which must be provided to Lender within thirty (30)
days from the date hereof), in form and substance reasonably acceptable to
Lender and its legal counsel (all the documents listed on the last page hereof,
together with this Agreement and any other security documents relating to the
Loan, and any modifications thereof, are hereinafter collectively referred to
as the "Loan Documents") and (ii) Lender's approval of a pre-closing field
audit acceptable to Lender.
(b) Lender's obligation to make any advances under the
Loan shall be subject to the additional conditions precedent that, as of the
date of such advance and after giving effect thereto: (i) all representations
and warranties made by Borrower to Lender are true and correct, in all material
respects, as if made on such date, (ii) all documents and proceedings shall be
reasonably satisfactory to legal counsel for Lender, (iii) no condition or
event exists which constitutes an Event of Default (as hereinafter defined) or
which, with the lapse of time and/or giving of notice, would constitute an
Event of Default, and (iv) all conditions precedent set forth in subparagraph
(a) above shall have been satisfied.
5. Representations and Warranties. In order to induce Lender to
make the Loan, Borrower represents and warrants to Lender that:
(a) The Loan Documents are the legal and binding
obligations of Borrower, enforceable in accordance with their respective terms,
except as limited by bankruptcy, insolvency or other laws of general
application relating to the enforcement of creditors' rights;
(b) All financial statements delivered by Borrower to
Lender prior to the date hereof, fairly present the financial condition of
Borrower and its subsidiaries and have been prepared in accordance with
generally accepted accounting principles, consistently applied; as of the date
hereof, there are no obligations, liabilities or indebtedness (including
contingent and indirect
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<PAGE> 3
liabilities) which are material to Borrower or its subsidiaries taken as a
whole and not reflected in such financial statements; and no material adverse
changes have occurred in the financial condition or business of Borrower or its
subsidiaries since the date of the most recent financial statements which
Borrower has delivered to Lender;
(c) Neither the execution and delivery of this Agreement
and the other Loan Documents, nor consummation of any of the transactions
herein or therein contemplated, nor compliance with the terms and provisions
hereof or thereof, will, in a manner which could have a material adverse
effect, contravene or conflict with any provision of law, statute or regulation
to which Borrower is subject or any judgment, license, order or permit
applicable to Borrower or any material indenture, mortgage, deed of trust or
other instrument to which Borrower may be subject; no consent, approval,
authorization or order of any court, governmental authority or third party is
required in connection with the execution and delivery by Borrower of this
Agreement or transactions contemplated herein or therein;
(d) No litigation, investigation, or governmental
proceeding is pending, or, to the knowledge of any of Borrower's officers,
threatened against or affecting Borrower or any of its subsidiaries, which may
result in any material adverse change in Borrower's or its subsidiaries'
business, properties or operations taken as a whole;
(e) There is no specific fact known to Borrower that
Borrower has not disclosed to Lender in writing which is likely to result in
any material adverse change in Borrower's or its subsidiaries' business,
properties or operations taken as a whole;
(f) Borrower (or its subsidiaries) owns all of the assets
reflected on its most recent consolidated balance sheet free and clear of all
liens, security interests or other encumbrances, except (i) as previously
disclosed in writing to Lender, (ii) inchoate liens for taxes which are not
delinquent or which are being contested as good faith, (iii) liens arising by
operation of law or (iv) purchase money liens which do not exceed $10,000.00;
(g) The principal office, chief executive office and
principal place of business of Borrower is in Houston, Texas;
(h) All taxes required to be paid by Borrower and its
subsidiaries that are currently due have been paid, except for taxes being
contested in good faith by appropriate proceedings for which adequate reserves
have been established;
(i) Borrower is not in violation, in a manner which could
have a material adverse effect, of any law, ordinance, governmental rule or
regulation to which it is subject, and is not in default under any material
agreement, contract or understanding to which it is a party; and
(j) No written certificate or written statement herewith
or heretofore delivered by Borrower to Lender in connection herewith, or in
connection with any transaction contemplated hereby, contains any untrue
statement of a material fact or fails to state any material fact necessary to
keep the statements contained therein, in light of the circumstances in which
made, from being misleading.
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<PAGE> 4
6. Affirmative Covenants. Until payment in full of the Notes and
all other obligations and liabilities of Borrower hereunder, Borrower agrees
and covenants that (unless Lender shall otherwise consent in writing):
(a) As soon as available, and in any event within
twenty-five (25) days after the end of each month in which principal and or
interest is outstanding on the Revolving Note and/or the Guidance Notes,
Borrower shall deliver to Lender (i) a Borrowing Base Report and Compliance
Certificate in the form of Schedule "B" attached hereto together with such
other information as may be.deemed reasonably necessary or appropriate by
Lender, and (ii) an aging and listing of all accounts receivable of Borrower in
a form reasonably acceptable to Lender;
(b) As soon as available, and in any event within
forty-five (45) days after the end of each calendar quarter, Borrower shall
deliver to Lender an unaudited financial statement showing the financial
condition of Borrower and its subsidiaries at the close of each such quarter
and the results of operations during such quarter, which financial statements
shall include, but shall not be limited to, a profit and loss statement,
balance sheet, and such other matters as Lender may reasonably request; all
such quarterly financial statements shall be certified on the face thereof by
the chief financial officer of Borrower, or any person acceptable to Lender,
and shall be forwarded to Lender with a letter of transmittal from him in which
he shall certify that Borrower is in compliance with all of the covenants
contained in Paragraph 5 and Paragraph 6 hereof, and further stating that no
Event of Default exists in the performance by Borrower of any of the other
terms, conditions and covenants required under this Agreement to be performed
by Borrower;
(c) As soon as available, and in any event within ninety
(90) days after the end of each fiscal year of Borrower (December 31), Borrower
shall deliver to Lender a copy of the annual audited financial statement of
Borrower prepared in conformity with generally accepted accounting principles,
certified (with no material qualifications or exceptions) by Grant Thornton,
L.L.P. or other independent public accountants selected by Borrower and
reasonably acceptable to Lender, which show the financial condition of Borrower
and it subsidiaries at the close of such fiscal year and the results of
operations during such fiscal year, and shall include, but not be limited to, a
profit and loss statement, balance sheet and such other matters as Lender may
reasonably request;
(d) Commencing on June 30, 1997 Borrower shall furnish to
Lender within thirty (30) days after the end of each June 30, field audit
reports prepared by a company acceptable to Lender, in a form reasonably
acceptable to Lender; provided, however, that Lender shall pay for all costs
associated with each field audit in excess of $500.00;
(e) As soon as available, and in any event within thirty
(30) days after the end of each calendar year, Borrower shall cause each
Guarantor to deliver to Lender an unaudited financial statement showing the
financial condition of each Guarantor, which financial statements shall
include, but shall not be limited to, a balance sheet, an income statement, a
cash flow statement, statement of contingent liabilities and such other matters
as Lender may reasonably request; all such financial statements shall be
certified on the face thereof by such Guarantor;
(f) Borrower shall conduct its business in a manner
consistent with prior business practices and in accordance with all valid
regulations, laws and orders of any
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<PAGE> 5
governmental authority and will act in accordance with customary industry
standards in maintaining and operating its assets, properties and investments;
(g) Borrower shall maintain complete and accurate books
and records of its transactions in accordance with generally accepted
accounting principles, and will give Lender access during business hours to all
books, records and documents of Borrower and permit Lender to make and take
away copies thereof;
(h) Borrower shall furnish to Lender, immediately upon
becoming aware of the existence of any condition or event constituting an Event
of Default or event which, with the lapse of time and/or giving of notice,
would constitute an Event of Default, written notice specifying the nature and
period of existence thereof and any action which Borrower is taking or proposes
to take with respect thereto;
(i) Borrower shall promptly notify Lender of (i) any
material adverse change in its consolidated financial condition or business;
(ii) any default under any material agreement, contract or other instrument to
which Borrower is a party or by which any of its properties are bound, which
could have a material adverse effect on Borrower, or any acceleration of any
maturity of any indebtedness owing by Borrower, which could have a material
adverse effect on Borrower, (iii) any material adverse claim against or
affecting Borrower or any of its subsidiaries or properties; and (iv) any
litigation, or any claim or controversy which might become the subject of
litigation, against Borrower or its subsidiaries affecting any property, if
such litigation or potential litigation might, in the event of an unfavorable
outcome, have a material adverse effect on Borrower's consolidated financial
condition or business or might cause an Event of Default;
(j) Borrower shall promptly pay all lawful claims,
whether for labor, materials or otherwise, which might or could, if unpaid,
become a lien or charge on any property or assets of Borrower, unless and to
the extent only that the same are permitted hereby or are being contested in
good faith by appropriate proceedings and reserves deemed adequate by Lender
have been established therefor;
(k) Borrower shall maintain or cause to be maintained
insurance from responsible and reputable companies in such amounts and covering
such risks as are reasonably acceptable to Lender, is prudent and is usually
carried by companies engaged in businesses similar to that of Borrower;
Borrower shall furnish Lender, on request, with certified copies of insurance
policies or other appropriate evidence of compliance with the foregoing
covenant;
(l) Borrower shall preserve and maintain all licenses,
privileges, franchises, and certificates necessary for the operation of its
business;
(m) Borrower shall promptly furnish to Lender, at
Lender's request, such additional financial or other information concerning
assets, liabilities, operations and transactions of Borrower as Lender may from
time to time reasonably request;
(n) Borrower shall make, execute or endorse, and
acknowledge and deliver or file or cause the same to be done, all such
vouchers, invoices, notices, certifications and additional agreements,
undertakings, conveyances, deeds of trust, mortgages, transfers, assignments,
financing statements or other assurances, and take any and all such other
action, as
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<PAGE> 6
Lender may, from time to time, deem reasonably necessary or proper in
connection with any of the Loan Documents, the obligations of Borrower, or for
better assuring and confirming unto Lender all or any part of the security for
any of such obligations; and
(o) Borrower shall establish a lock box arrangement with
Lender in accordance with Lender's normal practices in connection with the
payment and collection of Borrower's accounts receivable.
7. Negative Covenants. Until payment in full of the
Notes and all other obligations and liabilities of Borrower hereunder, Borrower
covenants that it shall not (unless Lender shall otherwise consent in writing):
(a) Permit at any time its ratio of current assets to
current liabilities (excluding deferred revenues which are cash collected and
non-refundable) to be less than 1.50 to 1.00;
(b) Permit at any time Borrower's Tangible Net Worth to
be less than $1,000,000.00, as used herein, the term "Tangible Net Worth" shall
mean the total assets of Borrower, minus its total liabilities, plus deferred
revenues which are cash collected and non-refundable, minus all intangibles,
expenses and other items deducted in arriving at tangible net worth;
(c) Permit at any time its ratio of total liabilities to
Tangible Net Worth to be more than 1.80 to 1.00.
(d) Incur or assume any indebtedness or borrow money in
excess of $100,000 annually without the prior written approval of Lender except
for (i) the Loan; (ii) debt incurred in the ordinary course of business; and
(iii) debt reflected on Borrower's most recent balance sheet; or sell any of
its accounts receivable, with or without recourse;
(e) Endorse, guarantee, or otherwise become liable for
the obligations of any person, firm or corporation except for endorsements of
negotiable instruments by Borrower in the ordinary course of business;
(f) Mortgage, assign, encumber, incur, assume or grant a
security interest in or lien upon any of Borrower's assets, except to Lender
and as permitted herein (provided, however, that the foregoing shall not apply
to an inchoate lien for taxes which are not delinquent or which are being
contested in good faith and liens resulting from deposits to secure the
payments of worker's compensation or social security or to secure the
performance of bids or contracts in the ordinary course of business or others
arising by operation of law);
(g) Liquidate, dissolve or reorganize; or merge or
consolidate with, or acquire all or substantially all of the assets of, any
other company, firm or association in excess of $1,000,000.00; or make any
other substantial change in its capitalization or its business;
(h) Permit any transfer, pledge or other change in the
controlling interest of the stock of Borrower during the term of the Loan,
other than such pledges to the Lender, as used herein, the term "controlling
interest" shall mean fifty-one percent (51%) of the stock of Borrower; or
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<PAGE> 7
(i) Expend or enter into any commitment to expend any
amount for the acquisition or lease of tangible, fixed or capital assets,
including repairs, replacements and improvements, which are capitalized under
proper accounting practice, and which exceeds, in the aggregate, $250,000.00.
8. Default. An "Event of Default" shall exist if any one or more
of the following events (herein collectively called "Events of Default") shall
occur:
(a) Borrower shall fail to pay when due any principal of,
or interest on, the Notes or any other fee or payment due hereunder or under
any of the Loan Documents within twenty (20) days of Lender's sending written
demand therefor; provided, however, Lender shall not be obligated to send such
demand more than twice per any twelve month period, and thereafter Borrower
shall be in default upon its failure to pay such sums when due;
(b) Any representation or warranty made in any of the
Loan Documents shall prove to be untrue or inaccurate in any material respect
as of the date on which such representation or warranty is made;
(c) Default shall occur in the performance of any of the
covenants or agreements of Borrower contained herein or in any of the other
Loan Documents and with respect to the Affirmative Covenants set forth herein
([except subparagraphs 6(g), (h), (i) and (m)] and Negative Covenants as set
forth herein [except subparagraphs 7(a), (b) and (c)] such default shall
continue for more than thirty (30) days after Lender's sending written notice
thereof,
(d) Borrower shall fail to pay when due any principal of,
or interest on, any other indebtedness of Borrower owing to Lender, or any
other default shall occur in the performance of any of the covenants or
agreements of Borrower contained in any other loan documents with Lender;
(e) Borrower shall (i) apply for or consent to the
appointment of a receiver, custodian, trustee, intervenor or liquidator of it
or of all or a substantial part of its assets, (ii) voluntarily become the
subject of a bankruptcy, reorganization or insolvency proceeding or be
insolvent or admit in writing that it is unable to pay debts as they become
due, (iii) make a general assignment for the benefit of creditors, (iv) file a
petition or answer seeking reorganization or an arrangement with creditors or
to take advantage of any bankruptcy or insolvency laws, (v) file an answer
admitting the material allegations of, or consent to, or default in answering,
a petition filed against it in any bankruptcy, reorganization or insolvency
proceeding, (vi) become the subject of an order for relief under any
bankruptcy, reorganization or insolvency proceeding, or (vii) fail to pay any
money judgment against it before the expiration of thirty (30) days after such
judgment becomes final and no longer subject to appeal;
(f) An order, judgment or decree shall be entered by any
court of competent jurisdiction or other competent authority approving a
petition appointing a receiver, custodian, trustee, intervenor or liquidator of
Borrower or of all or substantially all of its assets, and such order, judgment
or decree shall continue unstayed and in effect for a period of thirty (30)
days; or a complaint or petition shall be filed against Borrower seeking or
instituting a bankruptcy, insolvency, reorganization, rehabilitation or
receivership proceeding of Borrower, and such petition or complaint shall not
have been dismissed within thirty (30) days; or
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<PAGE> 8
(g) Borrower shall default in the payment of any
indebtedness of Borrower or in the performance of any of Borrower's obligations
and such default shall continue for more than any applicable period of grace.
9. Remedies Upon Event of Default. If an Event of Default shall
have occurred, then Lender, at its option, may, except as otherwise provided
herein, (i) declare the principal of, and all interest then accrued on, the
Notes and any other liabilities of Borrower to Lender to be forthwith due and
payable, whereupon the same shall forthwith become due and payable without
notice, presentment, demand, protest, notice of intention to accelerate, or
other notice of any kind, all of which Borrower hereby expressly waives,
anything contained herein or in the Notes to the contrary notwithstanding, (ii)
reduce any claim to judgment, and/or (iii) without notice of default or demand,
pursue and enforce any of Lender's rights and remedies under the Loan Documents
or otherwise provided under or pursuant to any applicable law or agreement.
10. Collateral and Guaranty.
(a) Payment of the Notes and performance of the
obligations described herein shall be secured, directly or indirectly, by a
first lien on Borrower's equipment, inventory, leases, chattel paper, general
intangibles and accounts.
(b) Payment of the Notes and performance of the
obligations described herein shall be guaranteed by Eric J. Pulaski (the
"Guarantor").
11. Miscellaneous.
(a) Waiver. No failure to exercise, and no delay in
exercising, on the part of Lender, any right hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right. The
rights of Lender hereunder and under the other Loan Documents shall be in
addition to all other rights provided by law. No notice or demand given in any
case shall constitute a waiver of the right to take other action in the same,
similar or other instances without such notice or demand.
(b) Notices. Any notices or other communications
required or permitted to be given by any of the Loan Documents must be given in
writing and must be personally delivered, or mailed by prepaid certified or
registered mail to the party to whom such notice or communication is directed
at the address of such party as follows:
(i) Borrower: BindView Development Corporation
3355 West Alabama, 12th Floor
Houston, Texas 77098
Attention: Scott R. Plantowsky
(ii) Lender: Southwest Bank of Texas
P.O. Box 27459
Houston, Texas 77227-7459
Attn: Brooks H. McGee
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<PAGE> 9
Any such notice or other communication shall be deemed to have been given
(whether actually received or not) on the day it is personally delivered as
aforesaid, or, if mailed, on the third day after it is mailed as aforesaid.
Any party may change its address for purposes of this Agreement by giving
notice of such change to all other parties pursuant to this Paragraph.
(c) Governing Law. This Agreement and the other Loan
Documents are being executed and delivered, and are intended to be performed,
in the State of Texas, and the substantive laws of Texas shall govern the
validity, construction, enforcement and interpretation of this Agreement and
all other Loan Documents, except to the extent: (i) otherwise specified
therein; (ii) the federal or state laws governing national banking associations
expressly supersede and have contrary application; or (iii) federal laws
governing maximum interest rates shall provide for rates of interest higher
than those permitted under the laws of the State of Texas.
(d) Invalid Provisions. If any provision of this
Agreement is held to be illegal, invalid or unenforceable under present or
future laws effective during the term of this Agreement, such provision shall
be fully severable and this Agreement shall be construed and enforced as if
such illegal, invalid or unenforceable provision had never comprised a part of
this Agreement, and the remaining provisions of this Agreement shall remain in
full force and effect and shall not be affected by the illegal, invalid or
unenforceable provision or by its severance from this Agreement.
(e) Maximum Interest Rate. It is the intention of the
parties hereto to comply with the usury laws of the State of Texas and the
United States; accordingly, it is agreed that notwithstanding any provision to
the contrary in the Notes, or in any of the documents securing payment hereof
or otherwise relating hereto, no such provision shall require the payment or
permit the collection of interest in excess of the maximum permitted by
applicable state or federal law. If any excess of interest in such respect is
provided for, or shall be adjudicated to be so provided for, in the Notes or in
any of the documents securing payment hereof or otherwise relating hereto, or
in the event the maturity of the indebtedness evidenced by the Notes is
accelerated in whole or in part, or in the event that all or part of the
principal or interest of the Notes shall be prepaid, so that under any of such
circumstances the amount of interest contracted for, charged or received under
the Notes or under any of the instruments securing payment hereof or otherwise
relating hereto, on the amount of principal actually outstanding from time to
time under the Notes shall exceed the maximum amount of interest permitted by
the usury laws of the State of Texas and the United States, then, in any such
event, (i) the provisions of this paragraph shall govern and control, (ii)
neither Borrower nor its legal representatives or assigns or any other party
liable for the payment hereof shall be obligated to pay the amount of such
interest to the extent that it is in excess of the maximum amount permitted by
applicable state or federal law, (iii) any such excess which may have been
collected shall be, at the holder's option (at maturity or in the Event of
Default hereunder), either applied as a credit against the then unpaid
principal amount hereof or refunded to Borrower, and (iv) the effective rate of
interest shall be automatically subject to reduction to the maximum lawful
contract rate allowed under the usury laws of the State of Texas or the United
States as now or hereafter construed by the courts having jurisdiction. It is
further agreed that without limitation of the foregoing, all calculations of
the rate of interest contracted for, charged or received under the Notes or
under such other documents which are made for the purpose of determining
whether such rate exceeds the maximum lawful rate of interest, shall be made,
to the extent permitted by the laws of the State of Texas and the United
States, by amortizing, prorating, allocating and spreading in equal parts
during the period
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<PAGE> 10
of the full stated term of the Loans, all interest at any time contracted for,
charged or received from Borrower or otherwise by the holder of the Notes in
connection with such Loan.
(f) Entirety and Amendments. The Loan Documents embody
the entire agreement between the parties and supersede all prior agreements and
understandings, if any, relating to the subject matter hereof and thereof, and
this Agreement and the other Loan Documents may be amended only by an
instrument in writing executed by the party, or an authorized officer of the
party, against whom such amendment is sought to be enforced.
(g) Parties Bound. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective heirs,
legal representatives, successors and assigns; provided, however, that Borrower
may not, without the prior written consent of Lender, assign any rights,
powers, duties or obligations hereunder.
(h) Headings. Paragraph and section headings are for
convenience of reference only and shall in no way affect the interpretation of
this Agreement.
(i) Financial Terms. As used in this Agreement, all
financial and accounting terms not otherwise defined herein shall be defined
and calculated in accordance with generally accepted accounting principles
consistently applied.
(j) Expenses of Lender. Borrower will, on demand,
reimburse Lender for all expenses except as otherwise provided herein,
including, but not limited to, the reasonable fees and expenses of legal
counsel for Lender, incurred by Lender in connection with the preparation,
administration, amendment, modification or enforcement of this Agreement, the
Notes and the Loan Documents and the collection or the attempted collection of
the Notes.
(k) Construction and Conflicts. The provisions of this
Agreement shall be in addition to those of the Notes, the Loan Documents and
any guaranty, pledge or security agreement, note or other evidence of liability
held by Lender, all of which shall be construed as complementary to each other.
Nothing herein contained shall prevent Lender from enforcing the Notes, the
Loan Documents and any and all other notes, guaranty, pledge or security
agreements in accordance with their respective terms. To the extent of any
irreconcilable conflict between the terms hereof and the terms of the Notes,
the Loan Documents or any other document executed in connection herewith, the
terms of this Agreement shall control.
12. Agreement for Binding Arbitration. The parties agree to be
bound by the terms and provisions of the Arbitration Agreement by and among the
parties hereto, which Agreement is incorporated by reference herein, pursuant
to which any and all disputes shall be resolved by mandatory binding
arbitration upon the request of any party.
13. NO ORAL AGREEMENTS. THE WRITTEN LOAN AGREEMENT REPRESENTS THE
FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE
ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
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<PAGE> 11
If Lender agrees to the foregoing, Lender should execute this
Agreement in the space indicated below.
"BORROWER"
BINDVIEW DEVELOPMENT CORPORATION, a
Texas corporation
By: /s/ ERIC PULASKI
------------------------------------
Name: Eric Pulaski
----------------------------------
Title: President
---------------------------------
ACCEPTED:
"LENDER"
SOUTHWEST BANK OF TEXAS, N.A.
By: /s/ BROOKS H. MCGEE, SENIOR VICE PRESIDENT
---------------------------------------------
Brooks H. McGee, Senior Vice President
List of Loan Documents
1. Letter Loan Agreement
2. Master Revolving Credit Note
3. Guidance Notes (Bank Form)
4. Security Agreement
5. Corporate Resolutions
6. UCC-1 Financing Statements
7. Notice of Invalidity of Oral Agreements
8. Subordination Agreement (Landlord)
9. Arbitration Agreement
10. Continuing Guaranty-Eric Pulaski
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<PAGE> 12
SCHEDULE "A"
DEFINITIONS
"BORROWER'S LOAN LIMIT", as used herein, shall mean the Borrowing Base
(as defined below) less the total principal amount outstanding under the
Revolving Note at the time of calculation.
"BORROWING BASE", as used herein, shall mean an amount equal to eighty
percent (80%) of Borrower's Eligible Accounts (as defined below) outstanding on
the date of a request for a Loan advance.
An "ELIGIBLE ACCOUNT" shall mean an account which is and shall at all
times continue to be acceptable to Lender in all reasonable respects. In
general, an account which continuously meets each of the following requirements
is an Eligible Account: (i) it is lawfully owned by Borrower, and Borrower has
the right to transfer any interest therein; (ii) it arises from the sale or
lease of goods, the goods have been shipped or delivered to the person who is
obligated on the account (the "account debtor"); (iii) it arises from the
performance of services, such services have been fully rendered, to the extent
of the billing; (iv) it is a valid obligation of the account debtor,
enforceable in accordance with its terms and free and clear of all liens,
security interests, restrictions, setoffs, adverse claims, assessments,
defaults, prepayments, defenses and conditions precedent other than the
security interest created by the Security Agreement executed in connection with
the Loan; (v) it is rendered to the account debtor and is not evidenced by any
instrument or chattel paper; (vi) it is not aged more than ninety (90) days
from the date of invoice; and (vii) it is not owed by any account debtor
closely affiliated with, related to or employed by Borrower.
-12-
<PAGE> 13
SCHEDULE "B"
BORROWING BASE REPORT
AND COMPLIANCE CERTIFICATE
I. Total Accounts Receivable of Borrower: $
------------
Less: Ineligible Accounts - $
------------
Eligible Accounts Receivable =
$
-----------------------------------------------------------------------------
II. 80% x Eligible Accounts Receivable $
------------
Borrower's Loan Limit: =
$
-----------------------------------------------------------------------------
(maximum $1,000,000)
III Current Principal Balance: $
------------
IV. Available Funds: $
------------
V. Advance Request: $
------------
VI. Total Outstanding After Advance: $
------------
-----------------------
I. Minimum Current Ratio (1.50 to 1.00) $
------------
II. Minimum Tangible Net Worth ($1,000,000) $
------------
III. Maximum Debt to Worth Ratio (1.80 to 1.00) $
------------
-----------------------
The undersigned officer of Borrower, hereby certifies to Lender that
to the best of his knowledge (i) the computations set forth above are true,
correct and complete as of the date set forth above or as of the date of
execution hereof, as the case may be, (ii) such computations have been made in
full compliance with and conformity to the Letter Loan Agreement (the "Loan
Agreement") between Borrower and Lender, (iii) the matters set forth in
Paragraph 5 of the Loan Agreement are true and correct in all material
respects, and (iv) there has not been an Event of Default under the Loan
Agreement.
All capitalized terms used herein which have been defined in the Loan
Agreement have been used in accordance with the definitions ascribed to them in
the Loan Agreement.
EXECUTED this ___ day of ______________________, 19_______.
BINDVIEW DEVELOPMENT CORPORATION
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
-13-
<PAGE> 1
EXHIBIT 10.7
3355 WEST ALABAMA
LEASE AGREEMENT
BY AND BETWEEN
SCHOOL EMPLOYEES HOLDING CORP., AS LANDLORD
AND
THE LAN SUPPORT GROUP, INC., AS TENANT
June 20, 1995
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
ARTICLE I
Premises
--------
1.1 Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Measurement of Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Preferential Right to Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II
Term
----
2.1 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.2 Early Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.3 Cancellation Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.4 Renewal Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE III
Rental Payments
---------------
3.1 Payments of Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.2 Base Rental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.3 Additional Rental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.4 Operating Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.5 Security Deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE IV
Landlord Services
-----------------
4.1 Services to be Provided by Landlord . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.2 Interruption of Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.3 Payment for Non-Standard Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.4 Keys and Locks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.5 Graphics and Building Directory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.6 Courtesy Personnel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE V
Use and Care of the Premises
----------------------------
5.1 Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.2 Care of the Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.3 Entry for Repairs and Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.4 Laws and Regulations; Rules of Building . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.5 Legal Use and Violations of Insurance Coverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.6 Hazardous Substances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.7 Parking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE VI
Leasehold Improvements
----------------------
6.1 Acceptance of Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.2 Alterations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.3 Property of Landlord . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.4 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.5 Repairs by Landlord . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.6 Repairs by Tenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE VII
Condemnation and Casualty
-------------------------
7.1 Condemnation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.2 Damages from Certain Causes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
7.3 Fire or Other Casualty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
7.4 Landlord Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
7.5 Tenant Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
7.6 Hold Harmless . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
7.7 Waiver of Subrogation Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE VIII
Tenant Default
--------------
8.1 Lien for Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.2 Default by Tenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
8.3 Non-Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.4 Holding Over . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.5 Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE IX
Transfers
---------
9.1 Assignment or Sublease by Tenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.2 Transfer by Landlord . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
9.3 Peaceful Enjoyment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
9.4 Limitation of Landlord's Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE X
Additional Provisions
---------------------
10.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
10.2 Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
10.3 Estoppel Certificate or Three-Party Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
10.4 Intentionally Omitted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
10.5 Brokerage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
10.6 Disclaimers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
10.7 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
10.8 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
EXHIBITS:
- --------
Exhibit A - Land Description
Exhibit B - Floor Plans
Exhibit C - Certificate of Substantial Completion/Commencement Date
Exhibit D - Building Rules and Regulations
Exhibit E - Leasehold Improvements
Exhibit F - Preferential Right to Lease
Exhibit G - Cancellation Option
Exhibit H - Renewal Option
Exhibit I - Initial Tenant Improvements
Exhibit J - Projected 1995 Operating Expenses
</TABLE>
iii
<PAGE> 5
LEASE AGREEMENT
THIS LEASE AGREEMENT (this "Lease") is made and entered into as of the
_____ day of June, 1995, by and between SCHOOL EMPLOYEES HOLDING CORP., a Texas
corporation ("Landlord"), whose address for purposes hereof is c/o L&B
Institutional Property Managers, Inc., 3355 West Alabama, Suite 890, Houston,
Texas 77098, and THE LAN SUPPORT GROUP, INC., a Texas corporation ("Tenant'(1),
whose address for purposes hereof is 2425 Fountainview, Suite 390, Houston,
Texas 77057, prior to the Commencement Date (as defined below), and thereafter
shall be that of the Building (as defined below).
WITNESSETH:
ARTICLE I
Premises
1.1 Premises. (a) Subject to and upon the terms, provisions and
conditions hereinafter set forth, and each in consideration of the duties,
covenants and obligations of the other under this Lease, Landlord does hereby
lease to Tenant, and Tenant does hereby lease from Landlord, approximately
20,013 square feet of Net Rentable Area (as defined below) on the twelfth
(12th) floor (being Suite No. 1200) of the building located at 3355 West
Alabama, Houston, Harris County, Texas (the "Building"), and situated on that
parcel of real property described on Exhibit "A" attached hereto (the "Land").
The Building, together with the Land and any additional land used in connection
with the Building, the parking facilities serving the Building (whether on the
Land or within the Building), any additional parking areas serving or used in
connection with the Building and all other improvements situated on the Land or
directly benefiting the Building, shall collectively be referred to herein as
the "Project". The area leased in the Building under this Lease is hereinafter
called the "Premises" and is shown on the floor plan(s) attached hereto as
Exhibit "B".
(b) In addition to Tenant's rights with respect to the
Premises and subject to and upon the terms, provisions and conditions set forth
in this Lease, Tenant and Tenant's agents, employees, invitees and guests shall
also have the non-exclusive right, in common with Landlord and the other
tenants in the Project (and such tenants' agents, employees, invitees and
guests), to use the common areas within the Project which, from time to time
benefit and serve, or are designed to benefit and serve, all tenants of the
Project; provided, that Landlord shall have the right, from time to time, to
change such common areas within the Project without the consent of Tenant and
without providing Tenant with prior notice thereof, so long as such changes do
not materially affect Tenant's access to or from the Premises or the parking
areas serving the Building.
<PAGE> 6
1.2 Measurement of Premises. Landlord and Tenant hereby stipulate
and agree that the Premises contains 20,0l3 square feet of Net Rentable Area
(hereinafter defined). For Purposes hereof the term "Net Rentable Area" shall
mean the unit of measurement for space in the Building leased or held for lease
to tenants for general office purposes. The Net Rentable Area for the Premises
shall mean the floor area in the Building available for the exclusive use of
the Tenant, and a proportional allocation of the floor area of the Building and
other Building areas available for the non-exclusive use of Tenant together
with other Tenants in the Building, including without limitation, entrance
lobbies, fire-rated exit corridors, elevator lobbies and mechanical rooms. For
purposes of this Lease, Landlord and Tenant hereby stipulate and agree that the
Building contains 234,231 square feet of Net Rentable Area.
1.3 Preferential Right to Lease. Tenant shall have the
preferential right to lease certain space as set forth in Exhibit F attached
hereto.
ARTICLE II
Term
2.1 Term. Subject to and upon the terms and conditions set forth
in this Lease, the term of this Lease (the "Term") shall be for a period of
sixty (60) months, commencing on November l, 1995 (the "Commencement Date") and
expiring on October 31, 2000 (the Expiration Date"), unless earlier terminated
as provided in this Lease.
2.2 Early Occupancy. In the event Substantial Completion of the
Initial Tenant Work (as such terms are defined in Exhibit I attached hereto)
has occurred prior to the Commencement Date, Tenant shall have the right to
occupy the Premises upon such Substantial Completion without any obligation to
pay Rent (as herein defined) with respect to such early occupancy prior to the
Commencement Date; provided, however such early occupancy shall otherwise be
subject to, and conditioned upon, Tenant's compliance with all other terms and
conditions of this Lease (including, without limitation, the insurance
provisions set forth in Article VII hereof). Landlord and Tenant agree that in
the event Substantial Completion of the Initial Tenant Work has not occurred on
or before August 6, 1995, Tenant's obligation to pay Base Rental hereunder
shall be abated one (1) day for each day from and after August 1, 1995 that
such Substantial Completion has not occurred; provided, however, that such
daily abatement shall be reduced by the number of days that Substantial
Completion of the Initial Tenant Work is delayed as a result of Tenant Delay
(as such term is defined in Exhibit I attached hereto). Upon Substantial
Completion of the Initial Tenant Work, Landlord and Tenant shall execute a
certificate confirming the date of such Substantial Completion and the
Commencement Date in the form attached hereto as Exhibit "C".
2.3 Cancellation Option. Tenant shall have the option to cancel
this Lease as set forth in Exhibit G attached hereto.
2
<PAGE> 7
2.4 Renewal Onion. Tenant shall have the right and option to renew
the Term of this Lease as set forth in Exhibit H attached hereto.
ARTICLE III
Rental Payments
3.1 Payments of Rent. (a) Commencing on the Commencement Date and
continuing thereafter throughout the Term, Tenant shall pay the Base Rental as
described in Section 3.2, plus Tenant's Estimated Additional Rental and
Tenant's Additional Rental, as described in Section 3.3 (the Base Rental,
Tenant's Estimated Additional Rent, Tenant's Additional Rental, and all other
amounts payable to Landlord under this Lease are sometimes hereinafter
collectively referred to as "Rent"), in the manner and at such times as are
provided in this Lease. Base Rental, together with Tenant's Estimated
Additional Rental, shall be due and payable in twelve (12) equal installments
on the first day of each calendar month during the Term, in legal tender of the
United States of America, and Tenant shall pay such Rent to Landlord at
Landlord's address specified in the preamble paragraph of this Lease (or to
such other person or at such other address as may be designated by Landlord
from time to time), so that Landlord has received such installments monthly on
or before the first day of each such calendar month.
(b) If the Commencement Date is other than the first day
of a calendar month or if this Lease terminates on other than the last day of a
calendar month, then the installments of Base Rental, Tenant's Estimated
Additional Rental and Tenant's Additional Rental for such month or months shall
be prorated and the installment or installments so prorated shall be paid in
advance. The payment for such prorated month shall be calculated by multiplying
the sum of Base Rental and Tenant's Estimated Additional Rental or Tenant's
Additional Rental, as the case may be, by a fraction, the numerator of which
shall be the number of days of the Term occurring during said commencement or
termination month, as the case may be, and the denominator of which shall be
three hundred sixty-five (365).
(c) Tenant shall pay all Rent that becomes payable by
Tenant to Landlord under this Lease at the times and in the manner provided in
this Lease, without demand, abatement, deduction, set-off or counterclaim,
except as otherwise expressly provided herein. All Rent owed by Tenant to
Landlord under this Lease shall bear interest from the date due until properly
paid at the lesser of (i) eighteen percent (18%) per annum, or (ii) the maximum
lawful contract rate per annum.
3.2 Base Rental. Throughout the Term, Tenant shall pay a base
annual rental ("Base Rental") equal to the product of Eleven and 50/100 Dollars
($11.50) (the "Base Rental Rate") multiplied by the number of square feet of
Net Rentable Area within the Premises, which annual Base Rental shall be
$230,149.50 annually, payable in monthly installments of $19,179.13.
3
<PAGE> 8
3.3 Additional Rental. (a) Tenant shall also pay Tenant's
Proportionate Share of any increases in Operating Expenses in excess of
Operating Expenses for the "Base Year" ("Tenant's Additional Rental"). The
"Base Year" is hereby stipulated and agreed for all purposes to be the calendar
year 1996. Prior to the commencement of each calendar year during the Term, or
as soon thereafter as reasonably practicable, Landlord shall provide Tenant a
statement of Landlord's reasonable estimate of Tenant's Additional Rental
("Tenant's Estimated Additional Rental") for such calendar year, or portion
thereof as the case may be, and Tenant shall thereafter pay Tenant's Estimated
Additional Rental for such calendar year in accordance with Section 3.1 above.
(b) Within one hundred fifty (150) days after the end of
the calendar year during the Term, and as soon as possible after the
termination of this Lease (Landlord and Tenant agreeing that the provisions of
this Section 3.3 shall survive the termination of this Lease), Landlord shall
provide Tenant a statement showing the Operating Expenses for said calendar
year, and a statement prepared by Landlord comparing Tenant's Estimated
Additional Rental with Tenant's Additional Rental. If Tenant's Estimated
Additional Rental exceeds Tenant's Additional Rental for said calendar year,
Landlord shall, at Landlord's discretion, either refund to Tenant the excess
paid by Tenant within thirty (30) days after providing Tenant the statement, or
credit the next installment of Base Rental due and payable by Tenant hereunder
with an amount equal to such overpayment. If Tenant's Additional Rental exceeds
Tenant's Estimated Additional Rental for said calendar year, Tenant shall pay
to Landlord within thirty (30) days of receipt of the statement an amount equal
to such difference.
(c) "Tenant's Proportionate Share" shall mean the
fraction, stated as a percentage, the numerator of which is the Net Rentable
Area of the Premises and the denominator of which is the total Net Rentable
Area of the Building. Landlord and Tenant hereby stipulate that Tenant's
Proportionate Share equals eight and five hundred forty-four one thousandths
percent (8.544%); provided, however, that Tenant's Proportionate Share may
change from time to time based upon increases in the Net Rentable Area of the
Premises pursuant to Section 1.3 above, and in the event of any such change,
Tenant's Proportionate Share shall be adjusted to reflect such change, which
adjustments shall be effective as of the dates of such changes.
3.4 Operating Expenses. (a) The term "Operating Expenses" shall
mean all expenses, costs and disbursements relating to or incurred or paid in
connection with the ownership, operation and maintenance of the Project,
computed on an accrual basis and determined in accordance with generally
accepted accounting principles consistently applied, including but not limited
to the following:
4
<PAGE> 9
(i) wages and salaries and reasonable and
customary incentive-based compensation of all persons (exclusive of
Landlord's executive personnel above the level of property manager)
engaged in the operation, maintenance or access control of the
Project, and personnel who provide traffic control relating to ingress
and egress to and from the Building and Parking Facilities (as
hereinafter defined) to the adjacent public streets, including all
taxes, insurance, and benefits relating thereto;
(ii) the cost of all supplies, tools, equipment,
and materials used in the operation and maintenance of the Project;
(iii) the cost of all utilities for the Project,
including but not limited to the cost of water and power for heating,
lighting, air conditioning, and ventilating the Building (excluding
those costs separately billed to specific tenants);
(iv) the cost of all maintenance and service
agreements for the Project and the equipment therein, including but
not limited to access control, window cleaning, elevator maintenance,
and janitorial service;
(v) the cost of repairs, replacements and general
maintenance (excluding repairs and general maintenance paid by
proceeds of insurance, by Tenant or by other third parties);
(vi) amortization (together with reasonable financing
charges to the extent allowable under generally accepted accounting
principles) of the cost of capital investment items that are installed
for the purpose of reducing Operating Expenses, promoting safety,
complying with governmental requirements, or maintaining the quality
of the Project; however, in no event shall the amortization cost in
any one calendar year for any capital investment items installed to
reduce Operating Expenses exceed the actual cost savings attributable
thereto;
(vii) the cost of all insurance relating to the
Project, including but not limited to the cost of casualty, rental
loss and liability insurance applicable to the Project and Landlord's
personal property used in connection therewith and the cost of
deductibles paid on claims made by Landlord, *
(viii) all taxes, assessments, and governmental
charges, whether directly paid by Landlord, whether federal, state,
county, or municipal and whether imposed by taxing districts of
authorities presently taxing the Project or by others subsequently
created or otherwise, and any other taxes and assessments attributable
to the Project or its operation, including all costs and expenses
incurred by Landlord, in Landlord's reasonable discretion, in
contesting any such taxes and assessments (or the valuation of the
Project), but excluding federal and state taxes on income, death
taxes, franchise taxes, and any taxes
* provided however, that if Landlord does not carry an insurance
policy of at least 80% co-insurance, with no more than a fifty
thousand dollar ($50,000.00) deductible, then Landlord shall not be
allowed to include any amount for insurance which would be greater
than the cost, had such policy been in effect;
5
<PAGE> 10
imposed or measured on or by the income of Landlord from the operation
of the Project (other than ad valorem taxes on the Project determined
by reference to Landlord's income from the Project) or imposed in
connection with any change of ownership of the Project; provided,
however, that if at any time during the Term, the present method of
taxation or assessment shall be so changed that the whole or any part
of the taxes, assessments, levies, impositions, or charges now levied,
assessed or imposed on real estate and the improvements thereof, shall
be changed and as a substitute therefor, or in lieu of or in addition
thereto, taxes, assessments, levies, impositions, or changes shall be
levied, assessed, or imposed wholly or partially as a capital levy or
otherwise on the rents received from the Project or the Rent reserved
herein or any part thereof, then such substitute or additional taxes,
assessments, levies, impositions or charges, to the extent so levied,
assessed, or imposed, shall be deemed to be included within the
Operating Expenses to the extent that such substitute or additional
tax would be payable if the Project were the only property of the
Landlord subject to such tax;
(ix) all landscape maintenance costs for the
Project;
(x) any lease payments made by Landlord for any
equipment used in the operation or maintenance of the Project,
excluding, however, any part of such lease payments that constitutes a
capital expenditure under generally accepted accounting principles and
could not be included as an Operating Expense under clause (vi) of
this Section 3.4; and
(xi) actual cost incurred by Landlord for
management of the Project if Landlord has the Project managed by a
third party, or, if Landlord or an affiliate of Landlord manages the
Project, a management fee to Landlord or such affiliate, but in no
event to exceed three percent (3%) of all gross rentals of the
Building during such period (provided, however, said three percent
(3%) cap shall not be applicable to any extension or renewal term; and
for any extension or renewal terms, the management fee shall be the
then prevailing market rate charged for management service for
comparable buildings in the vicinity of the Building).
(xii) Landlord's (or Landlord's managing agent's)
accounting and audit costs and attorneys' fees applicable to the
Project.
(xiii) any and all other expenses paid in connection
with the ownership, operation and maintenance of the Project which are
properly chargeable against income from the Project.
(b) Notwithstanding the foregoing, the following items
shall be expressly excluded from Operating Expenses:
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(i) repairs or other work occasioned by fire,
windstorm or other casualty, to the extent that the costs of which are
reimbursed to Landlord by insurers or by governmental authorities in
eminent domain;
(ii) costs, expenses and fees relating to
negotiating with or entering into leases for space in the Building, or
in connection with disputes with and/or enforcement of agreements with
prospective tenants, tenants or other occupants of the Project,
including leasing commissions and attorney's fees;
(iii) costs incurred in renovating or otherwise
improving, decorating or redecorating space for tenants or other
occupants in the Building;
(iv) Landlord's cost of electricity and other
services sold to tenants and which are not standard for the Building,
for which Landlord has contracted to be reimbursed by tenants as an
additional charge or rental;
(v) except as provided in clause (vi) of Section
3.4(a) above, any capital investment items or other expenditures
properly classified as "capital expenditures" under generally accepted
accounting principles;
(vi) material expenses in connection with services
or other benefits of a type which are not standard for the Building
and which are not available to Tenant without specific charge
therefor, but which are provided to another tenant or occupant and for
which such tenant or occupant is specifically charged, or contracted
to be charged, by Landlord;
(vii) principal and interest on debt or
amortization payments on any mortgage, or mortgages, and rental under
any ground or underlying lease, or leases, except to the extent the
same may be made to pay or reimburse, or may be measured by ad valorem
taxes;
(viii) costs incurred in installing, operating and
maintaining any specialty not normally installed, operated and
maintained in buildings comparable to the Building, and not necessary,
at Landlord's sole discretion for Landlord's operation, repair,
maintenance, and providing of required services for the Building, such
as an observatory, broadcasting facilities (other than the Building's
music system and life support and security systems), luncheon club,
athletic or recreational club;
(ix) advertising and promotional expenses incurred
to publicize the Building for leasing purposes;
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(x) depreciation and amortization, except as set
forth in clause (vi) of Section 3.4(a) above;
(xi) Landlord's general overhead not related to
the operation of the Project;
(xii) any compensation paid to clerks, attendants
or other persons in any commercial concession (such as a snack bar,
restaurant, or newsstand) operated by Landlord;
(xiii) equipment rental and related expenses if the
cost thereof would constitute a capital expenditure, except that
Landlord may include in Operating Expenses (A) reasonable rental costs
and related expenses for equipment for temporary use in connection
with the maintenance or operation of the Project, and (B) the
reasonable rental costs and related expenses of equipment, the costs
of which would be a capital expenditure and could be amortized and
included in Operating Expenses pursuant to Section 3.4(a)(vi), but
only to the extent permitted under Section 3.4(a)(vi); and
(xiv) acquisition costs for sculptures, paintings
or other objects of art.
In addition to the exclusions set forth above, Landlord agrees that Operating
Expenses shall be "net" of and reduced by the amounts of insurance and
condemnation proceeds which are paid in respect of Operating Expenses, and all
other rebates, reimbursements, recoveries, recoupments, discounts, credits,
reductions, allowances or the like paid to or received by Landlord as to any
item of Operating Expenses.
(c) Notwithstanding any other provision herein to the
contrary, for any calendar year (including the Base Year) of the Term during
which the average occupancy of the Building is less than one hundred percent
(100%) of the Net Rentable Area in the Building, or which is occupied at such
100% level for less than the full calendar year, an adjustment shall be made in
computing each component of Operating Expenses for such year so that Operating
Expenses shall be computed for such year as though the Building had been one
hundred percent (100%) occupied during the entirety of such year and as though
one hundred percent (100%) of the Building had been provided with Building
standard services during the entirety of such calendar year. The estimated
Operating Expenses, at 100%, for the year 1995 are attached hereto as Exhibit
"J".
(d) Notwithstanding anything herein to the contrary,
Landlord and Tenant hereby agree that, for the purpose of calculating Tenant's
Additional Rental and Tenant's Estimated Additional Rental, any increase in
Operating Expenses for any calendar year during the Term of this Lease other
than with respect to the Operating Expenses described in Sections 3.4(a)(iii),
(vii) and (viii) above shall be limited to an amount which does not exceed a
five percent (5%) increase over such Operating Expenses for the immediately
preceding
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calendar year. In addition, during the initial five (5) year Term of this Lease
only, in no event shall Operating Expenses include any additional expenses
described in Sections 3.4(a)(iii), (vii) and (viii) above that are attributable
solely to additional improvements to the Project other than improvements to the
Building, Parking Facilities and other portions of the Project existing as of
the date of this Lease.
3.5 Security Deposit. (a) Tenant shall deposit with Landlord on
the date Tenant executes this Lease the sum of $9,589.57 as a security deposit
(the "Security Deposit"). Landlord has agreed to invest the Security Deposit in
a certificate of deposit issued by Bank One Texas or another commercial bank
chosen by Landlord and reasonably acceptable to Tenant (the "Certificate of
Deposit"). The Certificate of Deposit shall be issued in the name of Landlord,
shall provide for a maturity date of one year from the date of issuance and
shall accrue interest at the published rate of the issuer. Tenant understands
that Landlord is investing the Security Deposit at Tenant's request and that
Landlord shall have no liability to Tenant because an alternative investment
might have earned a higher rate of interest. Additionally, Tenant agrees that
Landlord shall have no liability to Tenant on account of any loss of the
Security Deposit resulting from the failure or insolvency of the issuing bank,
and that in the event of such a failure or insolvency, Tenant shall pay to
Landlord upon demand any amount necessary to restore the Security Deposit to
its original amount.
(b) Upon maturity of the Certificate of Deposit, and
provided that no default has occurred under this Lease, the interest that has
accrued on such certificate shall be paid to Tenant and the principal thereof
shall be reinvested by Landlord in a new one-year Certificate of Deposit
satisfying the same conditions as set forth above. This procedure shall
continue throughout the term of the Lease. However, if at any time a default
should occur under this Lease, Landlord may at its option, without further
notice or demand, cash the Certificate of Deposit and apply the proceeds
thereof, in whole or in part, to the curing of any default, without prejudice
to any other remedy or remedies which the Landlord may have on account thereof,
and upon such application Tenant shall pay Landlord on demand the amount so
applied which shall be added to the Security Deposit so the same will be
restored to its original amount. Once a default has occurred under this Lease,
Landlord shall have no further obligation to invest the Security Deposit or to
pay any interest on the Security Deposit, and may commingle it with other funds
of Landlord. Provided there is no uncured default, the remaining balance of
the Security Deposit, if any, shall be returned to Tenant within thirty (30)
days after (i) the termination of this Lease (provided such termination is not
the result of a default by Tenant), (ii) delivery of possession of the Premises
to Landlord, and (iii) payment of all sums due to Landlord. Upon sale or lease
of the Building, Landlord shall have the right to transfer the Security Deposit
(or Certificate of Deposit), and upon said transfer, Landlord shall be released
by Tenant from all liability for the return of such Security Deposit (and any
interest thereon); and Tenant agrees to look solely to the new landlord for the
return of the Security Deposit (and any interest thereon). It is agreed that
the foregoing sentence shall apply to every transfer or assignment made of the
Security Deposit to a new landlord.
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(c) On the request of either party hereto, whether made
before or after the institution of any legal proceedings, any action, dispute,
claim or controversy arising between the parties hereto in connection with the
return of the Security Deposit as provided in Section 3.5(b) above (a "Security
Deposit Dispute") shall be resolved by binding arbitration in accordance with
the terms hereof. Either party hereto may, by summary proceedings, bring an
action in court to compel arbitration of a Security Deposit Dispute. Any
arbitration shall be administered by the American Arbitration Association (the
"AAA") in accordance with the terms of this Section 3.5(c), the Commercial
Arbitration Rules of the AAA, and, to the maximum extent applicable, the
Federal Arbitration Act. Judgment on any award rendered by an arbitrator may be
entered in any court having jurisdiction. Any arbitration shall be conducted
before one (l) arbitrator. The arbitrator shall be a practicing attorney
licensed to practice in the State of Texas who is knowledgeable in the subject
matter of the Dispute selected by agreement of the parties hereto. If the
parties cannot agree on an arbitrator within thirty (30) days after the request
for an arbitrator, then either party may request the AAA to select an
arbitrator. The arbitrator may engage engineers, accountants or other
consultants that the arbitrator deems necessary to render a conclusion in the
arbitration proceeding. To the maximum extent practicable, an arbitration
proceeding hereunder shall be concluded within 180 days of the filing of the
Dispute with the AAA. Arbitration proceedings shall be conducted in Houston,
Texas. The arbitrator shall be empowered to impose sanctions and to take such
other actions as the arbitrator deems necessary to the same extent a judge
could impose sanctions or take such other actions pursuant to the Federal Rules
of Civil Procedure and applicable law. At the conclusion of any arbitration
proceeding, the arbitrator shall make specific written findings of fact and
conclusions of law. The arbitrator shall have the power to award recovery of
all costs and fees to the prevailing party. Each party agrees to keep a
Security Deposit Dispute and the arbitration proceedings relating thereto
strictly confidential except for disclosure of information required by
applicable law. All statutes of limitations that would otherwise be applicable
shall apply to any arbitration proceeding hereunder. In any arbitration
proceeding conducted subject to these provisions, the arbitrator is specially
empowered to decide any question pertaining to limitations, and may do so by
documents or with a hearing, in his or her sole discretion. In this regard,
the arbitrator may authorize the submission of pre-hearing motions similar to a
motion to dismiss or for summary adjudication for purposes of considering this
matter. The parties further agree to abide by and perform any award rendered by
the arbitrator. In rendering the award, the arbitrator shall state the reasons
therefor, including any computations of actual damages or offsets, if
applicable. A judgment of the court having jurisdiction may be entered upon the
award. All fees of the arbitrator and any engineer, accountant or other
consultant engaged by the arbitrator shall be paid by Landlord and Tenant
equally, unless otherwise ordered by the arbitrator.
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ARTICLE IV
Landlord Services
4.1 Services to be Provided by Landlord. For the consideration to
be paid by Tenant, Landlord will furnish to Tenant while Tenant is occupying
the Premises and while Tenant is not in default under this Lease the following:
(a) domestic water at those points of supply provided for
general use of tenants in the Building;
(b) heating, ventilation and air conditioning ("HVAC
Service") in season, subject to curtailment required by governmental laws,
rules, or regulations, in such amounts as are considered by Landlord to be
standard, reasonably required in Landlord's judgment for the comfortable use
and occupancy of the Premises. Landlord shall furnish HVAC Service to Tenant
between the hours of 7:00 a.m. and 6:00 p.m. Monday through Friday, and 8:00
a.m. and 1:00 p.m. Saturdays (herein referred to as "Normal Business Hours"),
excluding the following holidays: New Year's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, Friday following Thanksgiving
Day, Christmas Day and any other holiday recognized and taken by tenants
occupying at least one-half (1/2) of the total Net Rentable Area of the
Building ("Holidays").
(c) routine maintenance and electric lighting service for
all public areas and special service areas of the Project in the manner and to
the extent deemed by Landlord to be standard, and lighting in the ground floor
lobby areas of the Building and the Parking Facilities at all times;
(d) janitorial service on a five (5) day week basis;
provided, that if Tenant's floor coverings or other improvements are other than
Building standard (Landlord agreeing to notify Tenant in writing whether any of
Tenant's floor coverings or other improvements reflected in the Initial Space
Plan, as defined in Exhibit I attached hereto, are other than Building
standard, which notice shall be given to Tenant simultaneously with Landlord's
notice to Tenant approving or disapproving the Initial Space Plan), Tenant
shall pay the additional cleaning cost, if incurred, attributable thereto, plus
fifteen percent (15%) for overhead;
(e) equipment or personnel (in Landlord's sole
discretion) to limit access to the Project after Normal Business Hours;
provided, however, Landlord shall have no responsibility to prevent, and shall
not be liable to Tenant for, any liability or loss of Tenant, its agents,
contractors, customers, employees, invitees, licensees, servants, and visitors
arising out of losses due to theft, burglary, or damage or injury to persons or
property caused by persons gaining access to the Project or the Premises, and
Tenant hereby releases Landlord from all
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liability relating thereto, except to the extent such losses are caused by the
gross negligence or wilful misconduct of Landlord;
(f) electrical facilities to furnish sufficient
electricity to operate kitchen equipment, typewriters, voice writers,
calculating machines, copiers, personal computers, and all other equipment
and/or machines used by a typical software computer company specializing in
P.C. and Network software development, excluding any mainframe computer use;
but not including electricity required for special lighting in excess of
Building standard, and any other items of electrical equipment (other than
specifically described above) which requires a voltage of more than one hundred
twenty (120) volts single phase; provided, however, if any electrical equipment
requires air conditioning in excess of Building standard, the same shall be
installed at Tenant's expense and Tenant shall pay all operating costs relating
thereto;
(g) all Building standard bulb and ballast replacement in
all areas and all incandescent bulb replacement in public areas, toilet and
restroom areas and stairwells (provided, that if Tenant desires to use any
lighting, other than fluorescent lighting, in the Premises, Tenant must obtain
Landlord's written approval that such other lighting is Building standard); and
(h) nonexclusive passenger elevator service twenty-four
(24) hours per day for access to and egress from the Premises.
(i) twenty-four (24) hour electrical service, including
lighting, to the premises.
4.2 Interruption of Services. (a) To the extent the services
described in Section 4.1 require electricity, gas or water supplied by public
utilities, Landlord's covenants thereunder shall only impose on Landlord the
obligation to use its reasonable efforts to cause the applicable public
utilities to furnish the same. Failure by Landlord to any extent to furnish the
facilities, utilities or services described in Section 4.1, or any cessation in
the furnishing of same, shall not render Landlord liable in any respect for
damages to either person or property, nor be construed as an eviction of
Tenant, nor constitute a breach of any implied warranty, nor work an abatement
of Rent, nor relieve Tenant from fulfillment of any covenant or agreement under
this Lease. In addition to the foregoing, should any of the equipment or
machinery break down, cease to function properly for any cause, or be
intentionally turned off for testing or maintenance purposes, Tenant shall have
no claim for abatement or reduction of Rent or damages on account of an
interruption in service occasioned thereby or resulting therefrom; provided,
however, Landlord agrees to use reasonable efforts to promptly repair said
equipment or machinery and to restore said services during Normal Business
Hours.
(b) Notwithstanding anything in this Lease to the
contrary, in the event of any material interruption of any HVAC Service,
electricity, water or elevator service (an "Essential Service") which renders
all or any portion of the Premises untenantable for a period of four
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(4) consecutive business days, then all Rent shall abate as to that portion of
the Premises that is rendered untenantable. The abatement shall commence upon
the expiration of said fourth (4th) consecutive business day, and shall
continue for so long as the material interruption rendering the Premises (or
applicable portion thereof) untenantable exists. Notwithstanding the foregoing
to the contrary, in the event all or a portion of the Premises are rendered
untenantable as a result of a material interruption of an Essential Service,
which interruption is solely the result of the Landlord's failure to pay the
applicable utility company for such service, then Tenant's abatement of rent
shall commence on the day of such interruption and shall continue for so long
as such material interruption exists. As used in this Lease, the term
"untenantable" shall mean the condition whereby Tenant's use and enjoyment of
the Premises or any portion thereof is interrupted or interfered with in any
material respect such that the Leased Premises (or the applicable portion
thereof) cannot reasonably be used for the purpose of office space as provided
in Section 5.1 below.
4.3 Payment for Non-Standard Services. (a) Landlord shall provide
HVAC Service for such additional times as Tenant shall request; provided, that
Tenant shall (i) give Landlord notice of any evening HVAC Service required not
later than 2:00 p.m. on the date such service is required and not later than
2:00 p.m. on Friday or the prior business day for any weekend or Holiday
service, and (ii) pay to Landlord for providing such HVAC Services an amount
equal to Landlord's incremental out-of-pocket costs (excluding any charges for
additional wear and tear resulting therefrom) incurred in connection therewith,
which costs are currently $25.00 per hour for overtime HVAC Service, and which
costs shall increase from time to time, but only in the event (and to the
extent) that Landlord's actual cost therefor increases. Landlord agrees to
provide Tenant with prior written notice of any increase in the charges for
overtime HVAC service.
(b) Tenant shall pay Landlord, upon demand, such
additional amounts as are necessary to recover additional costs incurred by
Landlord in performing or providing additional janitorial, maintenance,
security or other services or requirements of Tenant or in performing any
services (and in paying additional taxes) as to any non-Building standard
installations in the Premises. Tenant shall pay Landlord upon demand, actual
or estimated costs for all non-standard electricity required by Tenant at the
Premises, plus fifteen percent (15%) for overhead.
(c) Tenant shall have the right, at its sole cost and
expense, to install, maintain and operate supplemental HVAC Service to the
Premises ("Supplemental HVAC System and Equipment"). The components of the
Supplemental HVAC and Equipment shall be located on the roof of the Building,
and such components and the specific location thereof shall be subject to the
approval of Landlord, which approval shall not be unreasonably withheld,
delayed or conditioned. The Supplemental HVAC System and Equipment shall
comply with all Legal Requirements, and shall be installed only by a contractor
approved by Landlord and otherwise in accordance with the provisions of Section
6.2 below and Exhibit "I", attached hereto. Tenant shall be responsible
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for all repairs and maintenance of the Supplemental HVAC System and Equipment.
Tenant shall indemnify and hold Landlord harmless from and against any and all
liabilities and damages arising out of the use, installation maintenance,
repair or removal of the Supplemental HVAC System and Equipment, and Tenant
shall have the right (but not the obligation), at its sole cost and expense, to
remove the Supplemental HVAC System and Equipment so long as such removal is
accomplished within seven (7) days following the expiration or earlier
termination of this Lease, and in the case of such removal, Tenant shall repair
all portions of the Building and the Premises affected thereby to their
pre-existing condition, ordinary wear and tear and casualty loss excepted;
provided, however, the foregoing indemnity by Tenant shall not apply to any
damages to the Building incurred solely with respect to the installation of the
Supplemental HVAC System and Equipment if such installation is performed in
connection with the Initial Tenant Work described in Exhibit I attached hereto.
Tenant will be separately charged for and shall pay for the actual electric
charges incurred in connection with the electrical consumption of the
Supplemental HVAC System and Equipment, with such consumption to be determined
by the installation of a separate metering device installed (and maintained) at
Tenant's expense, and Tenant shall pay all such charges to Landlord immediately
upon receipt of invoices therefor.
4.4 Keys and Locks. Landlord shall initially furnish Tenant with
up to fifty (50) keys for all Building standard locks to exterior entrance
doors to the Premises, at Landlord's expense. Additional keys will be furnished
by Landlord upon an order signed by Tenant and at Tenant's expense. All keys
furnished to Tenant by Landlord shall remain the property of Landlord. No
additional locks shall be allowed on any door of the Premises without
Landlord's consent, and Tenant shall not make or permit to be made any
duplicate keys, except those furnished by Landlord. Upon termination of this
Lease, Tenant shall surrender to Landlord all keys to any locks on doors
entering or within the Premises, and shall give to Landlord the explanation of
the combination of all locks for safes, safe cabinets, and vault doors, if any,
left in the Premises. Notwithstanding any of the foregoing to the contrary,
Tenant shall have the right to establish special security areas within the
Premises and in connection therewith to install additional interior locks on
any interior door within the Premises. Landlord shall be given keys and
combinations to any such additional locks for emergency access only, but no
janitors are to have said keys or combinations. Landlord shall not be obligated
to provide janitorial service to any such special security area at any time
when the doors to such area are locked.
4.5 Graphics and Building Directory. Landlord shall initially
provide and install all signage, letters or numerals at the entrance to the
Premises and a strip containing a listing of Tenant's name on the Building
directory board to be placed in the main lobby of the Building. All such
signage, letters and numerals shall be in the Building standard graphics.
Landlord shall not be liable for any inconvenience or damage occurring as a
result of any error or omission in any directory or graphics. No signs,
numerals, letters or other graphics shall be used or permitted on the exterior
of, or which may be visible from outside, the Premises, unless
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approved in writing by Landlord. In addition, Tenant shall not, except to
designate Tenant's business address, use the name of the Building for any
purpose, and Landlord shall have the right at any time from time to time to
rename the Building. In addition, so long as Tenant is in possession of the
Premises and this Lease has not terminated or Tenant's right to possession of
the Premises has not been terminated, Landlord agrees (at Landlord's sole cost
and expense) to (i) place Tenant's name on the monument sign currently
maintained by Landlord at the Project using standard Building graphics for such
sign, and (ii) maintain such monument sign and Tenant's name thereon throughout
the Term; provided, however, any changes (as opposed to maintenance) to said
sign shall be at Tenant's sole cost and expense.
4.6 Courtesy Personnel. As of the date of this Lease, Landlord
provides as a service to the Building one (l) courtesy person at all times.
Landlord acknowledges and agrees that in the event Landlord elects, in its sole
and absolute discretion, to discontinue providing such courtesy service, or if,
as a change in policy, such courtesy service discontinues the current practice
of escorting tenants from the Premises to the parking facilities servicing the
Building, Tenant shall have the right to obtain its own courtesy personnel
service (providing only one (l) courtesy person at any one time for Tenant's
sole benefit), subject to the further provisions of this Section 4.6. Prior to
exercising its right to obtain courtesy personnel services pursuant to the
immediately preceding sentence, Tenant shall obtain the prior written consent
of Landlord therefor, which consent shall not be unreasonably withheld. Tenant
agrees that the courtesy personnel obtained by Tenant (i) shall be employed by
a company which carries comprehensive general liability insurance and worker's
compensation insurance in amounts and with insurance companies reasonably
acceptable to Landlord, and which insurance shall name Landlord and the
management company for the Building as additional insureds thereunder, (ii)
shall not carry or utilize any weapons or other protection/detention devices
(e.g., nightsticks, handcuffs, Mace, etc.), (iii) shall be stationed within the
Premises, and (iv) shall not perform any services other than those services
being performed as of the date of this Lease by the courtesy personnel provided
by Landlord; and, in the event any such courtesy personnel obtained by Tenant
does not comply with or satisfy the foregoing criteria, Landlord shall have the
right to prohibit such courtesy personnel from entering the Building and the
Project, and, at Landlord's request, Tenant shall immediately discontinue such
service with such courtesy personnel; provided however, Tenant shall have the
right to obtain courtesy personnel services from a different company provided
that Tenant again complies with the provisions of this Section 4.6 with respect
thereto. In the event Tenant is entitled to obtain courtesy personnel services
as provided above, Tenant agrees to obtain three (3) bids from three (3)
separate companies (with Landlord, at its option, having the right to select
one of such companies) for such service, and Tenant agrees to select the
company submitting the lowest bid. Landlord agrees that Tenant shall have the
right to offset from the Base Rent due hereunder, the costs incurred by Tenant
in connection with such courtesy service selected in accordance with the terms
of the immediately preceding sentence: provided, however, that simultaneously
with delivering the rental payments due hereunder for which Tenant has offset
expenses relating to such service, Tenant shall provide Landlord with copies of
paid invoices reflecting the expenses incurred by Tenant with respect to such
service (and the periods of time actually covered by such invoices).
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ARTICLE V
Use and Care of the Premises
5. 1 Use. The Premises shall be used and occupied by Tenant (and
its permitted assignees and subtenants) solely for the purpose of office space
(which shall include the use of the Premises for development and marketing of
computer software products) and for no other purpose. Without limiting the
foregoing, the Premises shall not be used for any purpose which would (i) tend
to lower the quality or character of the Building, (ii) exceed the utility
(including water, wastewater, electricity or gas) capacity limits of the
Building, create unreasonable structural or elevator loads, or otherwise
interfere with standard Building operations, (iii) violate any applicable Legal
Requirements (as hereinafter defined), (iv) create any public or private
nuisance, or interfere with or pose any threat to the health or safety of, any
other tenant of the Building (including without limitation, any such
interference that may be caused by smells, noise, vibration or visual
conditions), (v) create within the Premises (or any portion thereof) a working
environment with a density of greater than five (5) persons per 1,000 square
feet of Net Rentable Area, or (vi) increase the existing rate of insurance on
the Project or any portion thereof or cause any cancellation of any insurance
policy covering the Project or any portion thereof.
5.2 Care of the Premises. Tenant shall not commit any waste or
drainage to any portion of the Premises or the Project, and at the termination
of this Lease, by lapse of time or otherwise, Tenant shall surrender and
deliver up the Premises to Landlord in as good condition as existed on the date
of possession by Tenant, ordinary wear and tear, damage arising by fire or
other casualty, and condemnation, excepted. Upon such termination of this
Lease, Landlord shall have the right to reenter and resume possession of the
Premises.
5.3 Entry for Repairs and Inspection. Landlord and its
contractors, agents, or representatives shall have the right to enter into and
upon any part of the Premises (i) at all times to access the roof of the
Building, and (ii) at all reasonable hours (after providing Tenant with
reasonable prior notice) to inspect or clean the same, make repairs,
alterations or additions, or show the same to prospective lenders, purchasers
or tenants (but only during the last six (6) months of the Term with respect to
prospective tenants), and Tenant shall not be entitled to any abatement or
reduction of Rent by reason thereof; provided, however, Landlord shall have the
right to enter the premises at all times (without notifying Tenant) in the case
of an emergency.
5.4 Laws and Regulations; Rules of Building. Tenant shall comply
with, and Tenant shall cause its agents, contractors, customers, employees,
invitees, licensees and servants to
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comply with, all laws, ordinances, orders, rules, regulations (of state,
federal, municipal, and other agencies or bodies having any jurisdiction
thereof) and restrictive covenants of record relating to the use, condition, or
occupancy of the Premises, or the conduct of Tenant's business therein,
including environmental laws, and all amendments thereto (collectively, the
"Legal Requirements"), with the rules and regulations of the Building set forth
on Exhibit "D" attached hereto and with such other rules and regulations as are
reasonably adopted by Landlord from time to time for the safety, care or
cleanliness of the Premises, the Building or the Project, or for preservation
of good order therein, all of which will be sent by Landlord to Tenant in
writing and shall be thereafter carried out and observed by Tenant, its agents,
contractors, customers, employees, invitees, licensees and servants.
5.5 Legal Use and Violations of Insurance Coverage. Without
limiting any of the provisions of this Article V, Tenant shall not occupy or
use the Premises, or permit any portion of the Premises to be occupied or used,
for any business or purpose which unlawful, disreputable, or deemed to be
hazardous on account of fire or other hazards, or permit anything to be done
which would in any way cause the cancellation of or increase the rate of fire
or liability or any other insurance coverage on the Building or its contents.
5.6 Hazardous Substances. (a) Without limiting any of the
foregoing provisions of this Article V, Tenant shall not generate, cause or
permit to be released (whether by way of uncapping, pouring, spilling,
spraying, spreading, attaching, leaking or otherwise) into or onto the
Premises, the Building, the Project or the surrounding areas (including the
ground and ground water thereunder and the sewer and drainage systems therein)
any hazardous substances (as defined or established from time to time by
applicable local, state or federal law). The term "hazardous substances"
includes, among other things, hazardous waste. Tenant shall immediately notify
Landlord if any such release occurs, and, as to any such release that has been
caused or permitted by Tenant: (i) Tenant shall, at its sole cost and expense,
immediately and entirely remove such released hazardous substance in a manner
fully in compliance with all laws pertaining to the removal and storage or
disposal thereof, and provide Landlord with evidence that Tenant has fully
complied with such removal obligation; and (ii) Tenant hereby agrees to
indemnify and hold harmless Landlord, Landlord's mortgagee, Landlord's
management company, and their partners, officers, directors, employees and
agents (collectively, the "Landlord Indemnified Parties") of and from any
liability, public or private, resulting to Landlord as a result of such release
and agrees to, and does hereby, indemnify such Landlord Indemnified Parties
from and against any expense or cost incurred by Landlord, of any nature
whatsoever, which results, in whole or in part, directly or indirectly, from a
release of a hazardous substance which is caused or permitted by Tenant. In
addition to the foregoing, Tenant shall at all times be and occupy the Premises
in compliance with all Legal Requirements. The provisions of this Section
5.6(a) shall survive the expiration or termination of this Lease for any
reason.
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(b) Without limiting any of the foregoing provisions of
this Article V, Landlord shall not generate, cause or permit to be released
(whether by way of uncapping, pouring, spilling, spraying, spreading,
attaching, leaking or otherwise) into or onto the Premises, the Building, the
Project or the surrounding areas (including the ground and ground water
thereunder and the sewer and drainage systems therein) any hazardous substances
(as defined or established from time to time by applicable local, state or
federal law). The term "hazardous substances" includes, among other things,
hazardous waste. Landlord shall immediately notify Tenant if any such release
occurs, and, as to any such release that has been caused or permitted by
Landlord: (i) Landlord shall, at its sole cost and expense, immediately and
entirely remove such released hazardous substance in a manner fully in
compliance with all laws pertaining to the removal and storage or disposal
thereof, and provide Tenant with evidence that Landlord has fully complied with
such removal obligation; and (ii) Landlord hereby agrees to indemnify and hold
harmless Tenant and Tenant's officers, directors, employees and agents
(collectively, the "Tenant Indemnified Parties") of and from any liability,
public or private, resulting to Tenant as a result of such release and agrees
to, and does hereby, indemnify such Tenant Indemnified Parties from and against
any expense or cost incurred by Tenant, of any nature whatsoever, which
results, in whole or in part, directly or indirectly, from a release of a
hazardous substance which is caused or permitted by Landlord. The provisions
of this Section 5.6(b) shall survive the expiration or termination of this
Lease for any reason.
5.7 Parking. (a) Landlord hereby agrees to make available to
Tenant during the full Term of this Lease, free of charge during the initial
Term of this Lease, permits to self-park up to one hundred (100) automobiles on
an unassigned basis, and up to five (5) automobiles on an assigned basis
(hereinafter collectively called the "Parking Permits"), in the parking garage
or on the surface parking (hereinafter called the "Parking Facilities")
servicing the Building. The five (5) assigned parking spaces shall be located
in the spaces currently designated by Landlord as assigned spaces 90, 91, 92,
93 and 94. In the event Tenant is required to pay rental for the Parking
Permits, said rental shall be due and payable on the first day of each calendar
month during the Term of this Lease, and the failure of Tenant to pay the same
when due shall constitute a default by Tenant under this Lease. In the event
Tenant desires any additional parking spaces other than those provided to
Tenant pursuant to this Section 5.7(a), Landlord may (but shall not be
obligated to) provide such additional parking to Tenant; provided, however,
that Tenant shall be required to pay Landlord the then prevailing rates charged
by Landlord (or the operator of the Parking Facilities), which rates are
currently $25.00 per month per each unassigned space, and $45.00 per month per
each assigned space, plus applicable local and state taxes.
(b) Landlord may make, modify and enforce reasonable
rules and regulations relating to the parking of automobiles in the Parking
Facilities, and Tenant will abide by and cause its agents, employees and
invitees to comply with such rules and regulations. Any unauthorized use of
any parking areas or any violation of the provisions of this Section or of
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any of the rules and regulations adopted by Landlord with respect to such
parking by Tenant or its agents, employees or invites shall constitute a
default of Tenant under this Lease.
(c) Landlord agrees to maintain visitor parking in the
Parking Facilities at no charge to Tenant or Tenant's visitors; provided,
however, in the event Landlord elects to charge a fee for general visitor
parking, Landlord agrees to enter into an arrangement with Tenant to validate
Tenant's visitor parking at no charge to Tenant.
ARTICLE VI
Leasehold Improvements
6.1 Acceptance of Premises. Tenant has made a complete inspection
of the Premises and agrees it will accept the Premises in its "AS-IS,"
"WHERE-IS" and "WITH ALL FAULTS" condition on the Commencement Date without
recourse to Landlord, subject to the terms of Exhibit I attached hereto.
6.2 Alterations. Tenant shall not make or allow to be made
(except as otherwise specifically provided in this Lease) any alterations,
improvements or physical additions (including fixtures) in or to the Premises,
or place safes, vaults, filing systems, libraries or other heavy furniture or
equipment within the Premises, without first obtaining the written consent of
Landlord which consent shall not be unreasonably withheld so long as such
improvements do not affect the mechanical, electrical, plumbing or structural
portions of the Premises. Any alterations or physical additions in or to the
Premises by Tenant shall be done in accordance with the terms and conditions of
Exhibit "E" and Exhibit "I".
6.3 Property of Landlord. All alterations, physical additions,
and improvements in or to the Premises (including fixtures) shall, when made,
become the property of Landlord and shall be surrendered to Landlord without
compensation to Tenant upon termination of this Lease, whether by lapse of time
or otherwise; provided, however, that Landlord may require Tenant to remove all
of Tenant's personal property and any or all of such alterations, additions and
improvements that are not Building standard within seven (7) days following the
expiration or earlier termination of this Lease or the termination of Tenant's
right to possession of the Premises subject to paragraph 4.3(c), herein.
Notwithstanding the foregoing to the contrary, Tenant may remove all trade
fixtures, movable equipment or furniture owned or leased by Tenant, and all
demountable partitions placed in the Premises by Landlord or Tenant; provided,
that such removal is made within seven (7) days following the expiration or
earlier termination of this Lease, or the termination of Tenant's right to
possession of the Premises, and Tenant is not in default under this Lease at
the time of such removal. Tenant shall bear the costs of all removal of
Tenant's property and removal of any non-Building standard items from the
Premises and all repairs to the Premises, Building or Project caused by such
removal. Tenant shall not be required to pay any
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terminate pursuant to this Section 7.1 within thirty (30) days after receipt of
notice of such taking or condemnation. If only a portion of the Premises shall
be so taken so as not to render the remainder untenantable, this Lease shall
continue in full force and effect but all Rent shall abate with respect to the
portion so taken. All amounts awarded upon taking of any part or all of the
Project or the Premises shall belong to Landlord and Tenant shall be entitled
to, and expressly assigns all claims, rights and interests to, any such
compensation to Landlord. Notwithstanding any of the foregoing to the contrary,
in the event any taking renders twenty-five percent (25%) or more of the
Premises untenantable and Landlord is unable to relocate such untenantable
portion of the Premises to other internally contiguous space located on another
floor of the Building at the Landlord's expense, then Tenant shall have the
right to terminate this Lease by providing written notice thereof to Landlord.
7.2 Damages from Certain Causes. Neither Landlord nor any
mortgagee shall be liable or responsible to Tenant, its agents, contractors,
customers, employees, officers, directors, invitees, licensees, servants or
visitors for any loss or damage to any property or person occasioned by theft,
fire, act of God, public enemy, injunction, riot, strike, insurrection, war,
court order, requisition, or order of governmental body or authority, or any
cause beyond Landlord's control, or for any damage or inconvenience which may
arise through repair or alteration of any part of the Project.
7.3 Fire or Other Casualty. (a) In the event of a fire or other
casualty to the Premises, Tenant shall immediately give notice thereof to
Landlord upon learning of the same.
(b) Except as otherwise provided in this Section, if the
Premises are partially-destroyed by fire or other casualty so as to render less
than twenty-five percent (25%) of the Premises untenantable, the Rent provided
for herein shall abate thereafter as to the portion of the Premises rendered
untenantable until such time as the Premises are made tenantable as reasonably
determined by Landlord. Landlord will have sixty (60) days to start restoration
of the Premises and ninety (90) days to complete the same. If the restoration
has not been completed within the ninety (90) day period, Landlord will have
additional time to complete the restoration, provided Landlord has proceeded in
a diligent manner to complete such restoration and does proceed to complete
such restoration.
(c) Except as otherwise provided in this Section, if the
Premises or the Building are totally or substantially damaged [over twenty-five
percent (25%)] or destroyed from any cause either Tenant or Landlord may
terminate this Lease by giving written notice of its decision, within sixty
(60) days after such damage or destruction.
(d) Landlord and/or Tenant shall be given sixty (60) days
after any such damage or destruction to give written notice of its decisions,
estimates or elections under this Section.
(e) If Landlord decides to rebuild the Premises, and
Tenant has not given written notice to terminate this Lease as stated in 7.2(d)
above, Landlord shall be obligated only to restore or rebuild the Premises to
the condition of the Premises as it exists as of the date
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hereof, as improved by the improvements paid for by Landlord under Article IV
of Exhibit l attached hereto; provided, however, Tenant may cause Landlord to
rebuild or restore the Premises to the condition they were in prior to such
damage or destruction, if Tenant bears the cost (including rentals which are
lost due to any excess construction time) of such restoration or rebuilding to
the extent the same exceeds the costs Landlord would have incurred had Landlord
only constructed the improvements as described above.
(f) Notwithstanding anything to the contrary set forth in
this Lease, if the Premises or any other portion of the Building is damaged by
fire or other casualty resulting from the gross negligence or wilful misconduct
of Tenant or its agents, contractors, customers, employees, invitees, licensees
or servants, the Rent shall not abate to the portion of the Premises rendered
untenantable and Tenant shall be liable to Landlord for the cost of repair and
restoration of the Premises to the extent such Rent and costs are not covered
by insurance proceeds.
7.4 Landlord Insurance. Landlord shall maintain (i) standard fire
and extended coverage insurance on the Building (excluding leasehold
improvements) and on all Building standard leasehold improvements (including
the improvements to the Premises paid for by Landlord pursuant to Exhibit I
attached hereto), and (ii) comprehensive general liability insurance with
respect to the Building. Said insurance shall be in amounts desired by
Landlord and at the expense of Landlord (but with the same to be included in
the Operating Expenses) and payments for losses thereunder shall be made solely
to Landlord. If the annual premiums to be paid by Landlord shall exceed the
standard rates because of Tenant's operations or contents within the Premises
or because of any additional improvements to the Premises that are not paid for
by Landlord pursuant to Exhibit I attached hereto, Tenant shall promptly pay
the excess amount of the premium upon request by Landlord (and, if necessary,
Landlord may allocate the insurance costs of the Building to give effect to
this sentence).
7.5 Tenant Insurance. Tenant shall maintain at its expense
standard fire and extended coverage (including water damage and sprinkler
leakage) insurance on all of its personal property, including removable trade
fixtures, located in the Premises and on its non-Building standard leasehold
improvements and all other additions and improvements (including fixtures) made
by Tenant and not required to be insured by Landlord above, in the amount of
their full replacement cost. Additionally, Tenant shall maintain at its expense
a policy or policies of comprehensive general liability insurance with respect
to the Premises, with the premiums thereon fully paid on or before the due
dates, such insurance to afford minimum protection (which may be effected by
primary and excess coverage) of not less than one million dollars ($1,000,000)
combined single limit bodily injury or property damage in any one occurrence,
provided Tenant's coverage shall include contractual liability insurance
sufficient to cover Tenant's indemnity obligations under this Lease. The
insurance required to be maintained by Tenant hereunder shall be written by
solvent insurance companies legally qualified to issue such insurance in the
state in which the Building is located, and shall name as insured parties
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Landlord and Tenant as their interests appear in accordance with the terms of
this Lease. All such policies maintained by Tenant shall provide that the same
will not be cancelled and shall not be cancelled or reduced except after not
less than thirty (30) days' written notice to Landlord. Tenant shall deliver
to Landlord certificates of insurance evidencing the existence of all insurance
which is required to be maintained by Tenant hereunder prior to the
Commencement Date hereof, and at least thirty (30) days prior to the earlier to
occur of Tenant's occupancy of the Premises or the expiration date of any such
insurance policy.
7.6 Hold Harmless. Tenant shall not be liable to Landlord, or to
Landlord's agents, contractors, customers, employees, invitees, licensees,
servants or visitors for any damage to person or property caused by any act,
omission, or neglect of Landlord, its agents, contractors, customers,
employees, invitees, licensees, servants or visitors and Landlord agrees,
subject to Section 7.7, to indemnify and hold Tenant harmless from all claims
for such damage. Neither Landlord nor any mortgagee shall be liable to Tenant,
its agents, contractors, customers, employees, invitees, licensees, servants or
visitors for any damage to person or property caused by any act, omission or
neglect of Tenant, its agents, contractors, customers, employees, invitees,
licensees, servants or visitors, and Tenant agrees, subject to Section 7.7, to
indemnify and hold Landlord and any mortgagee harmless from all liability and
claims for any such damage.
7.7 Waiver of Subrogation Rights. Anything in this Lease to the
contrary notwithstanding, Landlord and Tenant hereby waive any and all rights
of recovery, claim, action, or cause of action, against the other, its agents,
employees, officers, directors, partners, servants, or shareholders, for any
loss or damage that may occur to the Premises, the Building, the Project or any
improvements thereto, or any personal property of such party therein, by reason
of fire, the elements, or any other cause which is or could be insured against
under the terms of the fire and extended coverage insurance policies obtained
or required to be obtained pursuant to this Lease, regardless of cause or
origin, including negligence of the other party hereto, its agents, employees,
officers, directors, partners, servants, or shareholders, contractors,
customers, invites or licensees and each party covenants that no insurer shall
hold any right of subrogation against such other party.
ARTICLE VIII
Tenant Default
8. 1 Lien for Rent. In consideration of the mutual benefits
arising under this Lease, Tenant hereby grants to Landlord a lien and security
interest on all property of Tenant now or hereafter placed in or upon the
Premises, and all proceeds therefrom, and also upon all proceeds of any
insurance which may have accrued to Tenant by reason of the damage or
destruction of any such property. Such property shall be and remain subject to
such lien and security interest of Landlord for payment of all Rent payable by
Tenant herein. The provisions of this Section relating to said lien and
security interest shall constitute a security agreement
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under the Uniform Commercial Code (the "UCC") so that Landlord shall have and
may enforce a security interest on all property of Tenant now or hereafter
placed in or on the Premises, including but not limited to all fixtures,
machinery, equipment, furnishings, and other articles of personal property now
or hereafter placed in or upon the Premises by Tenant. Tenant agrees to
execute, as debtor, such financing statements as Landlord may now or hereafter
reasonably request in order that such security interest may be continuously
perfected pursuant to the UCC. Landlord may, at its election at any time, file
a copy of this Lease as a financing statement. Landlord, as secured party,
shall be entitled to all of the rights and remedies afforded a secured party
under the UCC in addition to and cumulative of Landlord's liens and rights
provided by law or by the other terms and provisions of this Lease. Landlord
agrees that the foregoing lien shall be subordinate to all "purchase-money"
liens that Tenant may desire to grant in connection with any purchases of
personal property and Landlord agrees to provide an instrument of subordination
to third-party lenders in connection with "purchase-money" financings of
Tenant's personal property purchases.
8.2 Default by Tenant. (a) The occurrence of any one or more of
the following events shall constitute a default under this Lease:
(i) the failure by Tenant to pay when due any sum
of money to be paid by Tenant under this Lease; provided, however, so
long as (A) Tenant is not past-due in any payments due hereunder more
than three (3) times in any twelve (12) month period during the Term,
and (B) Tenant pays each such past-due amount on or before the fifth
(5) day following the respective due dates therefor, Tenant shall not
be in default hereunder;
(ii) the failure by Tenant to comply with or
perform any of the other terms, provisions, covenants, or conditions
which Tenant is required to observe and to perform, and such failure
or action continues for a period of thirty (30) days after notice
thereof; provided, however, if the nature of the default is such that
it cannot be cured with the exercise of Tenant's best efforts within
the thirty (30) day period set forth above, Tenant shall not be in
default hereunder so long as Tenant undertakes such curative action
within such thirty (30) day period and thereafter diligently and
continuously proceeds with such curative action using Tenant's best
efforts;
(iii) [intentionally deleted];
(iv) if Tenant is a corporation, if Tenant ceases
to exist as a corporation in good standing in the state of its
incorporation; or, if Tenant is a partnership or other entity, if
Tenant is dissolved or otherwise liquidated;
(v) a general assignment by Tenant for the
benefit of creditors;
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(vi) the filing of any voluntary petition in
bankruptcy by Tenant, or the filing of an involuntary petition by
Tenant's creditors, which involuntary petition remains undischarged or
unstayed for a period of sixty (60) days. In the event that under
applicable law the trustee in bankruptcy or Tenant has the right to
affirm this Lease and continue to perform the obligations of Tenant
hereunder, such trustee or Tenant shall, in such time period as may be
permitted by the bankruptcy court having jurisdiction, cure all
defaults of Tenant hereunder outstanding as of the date of the
affirmance of this Lease and prove to Landlord such adequate
assurances as may be necessary to ensure Landlord of the continued
performance of Tenant's obligations under this Lease;
(vii) the admission by Tenant in writing of its
inability to pay its debts as they become due, the filing by Tenant of
a petition seeking any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any
present or future statute, law or regulation, the filing by Tenant of
any answer admitting or failing timely to contest a material
allegation of a petition filed against Tenant in any such proceeding
or, if within sixty (60) days after the commencement of any proceeding
against Tenant seeking any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any
present or future statute, law or regulation, such proceeding shall
not have been dismissed;
(viii) the attachment, execution, or other judicial
seizure of all or substantially all of Tenant's assets or the
Premises, and such attachment or other seizure remains undismissed or
undischarged for a period of ten (10) business days after the levy
thereof; and
(ix) the employment of a receiver to take
possession of substantially all of Tenant's assets or the Premises, if
such receivership remains undissolved for a period of ten (10)
business days after creation thereof.
(b) If Tenant defaults under this Lease, Landlord may (i)
terminate this Lease, or (ii) terminate Tenant's right to possession to the
Premises without termination of this Lease. In addition to these remedies,
Landlord shall continue to have all of the rights and remedies provided
Landlord at law or in equity.
(c) Upon any termination of this Lease, whether by lapse
of time or otherwise, or upon any termination of Tenant's right to possession
without termination of this Lease, Tenant shall surrender possession and vacate
the Premises immediately, and deliver possession thereof to Landlord. If
Tenant fails to surrender possession and vacate the Premises, Landlord shall
have full and free license to enter into and upon the Premises with or without
process of law for the purpose of repossessing the Premises, expelling or
removing Tenant and any others who may be occupying or within the Premises,
removing any and all property therefrom, and changing all door locks of the
Premises. Landlord may take these actions without being
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deemed in any manner guilty of trespass, eviction or forcible entry or
detainer, and without incurring any liability for any damage resulting
therefrom, including any liability arising under Section 93.002 of the Texas
Property Code, as amended ("TPC"), or any successor statute governing the right
of Landlord to change door locks of commercial tenants, and without
relinquishing Landlord's right to Rent or any other right given to Landlord
hereunder or by operation of law; Tenant hereby waiving any right to claim
damage for such reentry and expulsion, including any rights granted to Tenant
by Section 93.002 of the TPC, or any successor statute governing the right of
Landlord to change door locks of commercial tenants.
(d) If Landlord elects to terminate this Lease, or
terminate Tenant's right to possession of the Premises without terminating this
Lease, there shall immediately become due and payable the amount by which the
present value (determined using a discount rate of six percent (6%) per annum)
of the total Rent and other benefits which would have accrued to Landlord under
this Lease for the remainder of the Term (as the same may have been extended in
the event Tenant exercises any renewal options expressly granted under this
Lease), if the terms and provisions of this Lease had been fully complied with
by Tenant, exceeds the total present fair market rental value (determined using
a discount rate of six percent (6%) per annum) of the Premises for the balance
of the Term (as the same may have been extended in the event Tenant exercises
any renewal options expressly granted under this Lease), it being the agreement
of both parties hereto that Landlord shall receive the benefit of its bargain.
For purposes of this Section, the fair market rental value of the Premises
shall be prevailing market base rental rate (similarly defined) for similar
space in comparable office buildings in comparable locations in Houston, Texas
for a lease term equal to the remaining Term (as the same may have been
extended by the exercise by Tenant of any renewal options expressly granted
under this Lease). In addition, there shall be recoverable from Tenant: (i) the
cost of restoring the Premises to Building standard condition, normal wear and
tear, and damages caused by fire and other casualty insured (or required to be
insured) by Landlord hereunder), excepted (ii) all accrued, unpaid sums, plus
interest at the rate set forth in Section 3.1(c) for the past due sums up to
the date of termination, (iii) Landlord's cost of recovering possession of the
Premises, (iv) Rent accruing subsequent to the date of termination pursuant to
the holdover provisions of Section 8.4, and (v) any other sum of money or
damages owed by Tenant to Landlord.
(e) If Landlord elects to terminate Tenant's right to
possession of the Premises without terminating this Lease, but elects not to
pursue the remedies set forth in Section 8.2(d), Tenant shall continue to be
liable for all Rent, and Landlord shall use reasonable efforts to relet the
Premises on such terms and conditions as Landlord in its sole discretion may
determine (including a term different from the Term, rental concessions, and
alterations to, and improvement of, the Premises); however, Landlord shall not
be obligated to relet the Premises before leasing other portions of the
Building. Landlord shall not be liable for, nor shall Tenant's obligations
under this Lease be diminished because of, Landlord's failure to relet the
Premises or to collect rent due for such reletting. Tenant shall be given a
credit against the
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Rent due from Tenant to Landlord during the remainder of the Term, in the net
amount of rent received from the new tenant; however, the net amount of rent
received from the new tenant shall first be applied to: (i) the costs incurred
by Landlord in reletting the Premises (including, without limitation,
remodeling costs, brokerage fees, legal fees, advertising costs, and the like),
(ii) the accrued sums, plus interest and late charges if in arrears, under the
terms of this Lease, (iii) Landlord's cost of recovering possession of the
Premises, and (iv) the cost of storing any of Tenant's property left on the
Premises after reentry. Tenant shall not be entitled to the excess of any
consideration obtained by the reletting over the Rent due under this Lease.
Notwithstanding any such reletting without termination of this Lease, Landlord
may at any time thereafter elect to exercise its rights under Section 8.2(d)
for such previous breach. Notwithstanding any provision in this Section 8.2(e)
to the contrary, upon the default of any substitute tenant or upon the
expiration of the lease term of such substitute tenant before the expiration of
the Term, Landlord may, at Landlord's election, either relet to still another
substitute tenant, or exercise its rights under Section 8.2(d).
(f) Any and all property which may be removed from the
Premises by Landlord pursuant to the authority of this Lease or of law, to
which Tenant is or may be entitled, may be handled, removed and stored, as the
case may be, by or at the direction of Landlord at the risk, cost and expense
of Tenant, and Landlord shall in no event be responsible for the value,
preservation, or safekeeping thereof. Tenant shall pay to Landlord, upon
demand, any and all expenses incurred in such removal and all storage charges
against such property so long as the same shall be in Landlord's possession or
under Landlord's control. Any such property of Tenant not retaken by Tenant
from storage within thirty (30) days after removal from the Premises shall, at
Landlord's option, be deemed conveyed by Tenant to Landlord under this Lease as
a bill of sale without further payment or credit by Landlord or Tenant.
8.3 Non-Waiver. Neither acceptance of Rent by Landlord nor failure
by Landlord to declare any default immediately upon occurrence thereof, or
delay in taking any action in connection therewith, shall waive such default
but Landlord may declare any such default at any time and take such action as
might be lawful or authorized hereunder, either at law or in equity. Waiver by
Landlord of any right for any default by Tenant shall not constitute a waiver
of any right for either a subsequent default of the same obligation or any
other default. Receipt by Landlord of Tenant's keys to the Premises shall not
constitute an acceptance of surrender of the Premises.
8.4 Holding Over. If Tenant holds over after expiration or
termination of this Lease without the written consent of Landlord, Tenant shall
pay as liquidated damages an amount equal to one hundred and fifty percent
(150%) of the Base Rental and Tenant's Estimated Additional Rental or Tenant's
Additional Rental, as the case may be, then payable as described in Sections
3.2 and 3.3 for the entire holdover period. No holding over by Tenant after the
Term shall be construed to extend this Lease. In the event of any unauthorized
holding over, Tenant shall indemnify Landlord (i) against all claims for
damages by any other tenant to
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whom Landlord may have leased all or any part of the Premises effective upon
the termination of this Lease, and (ii) for all other losses, costs and
expenses, including reasonable attorneys' fees, incurred by reason of such
holding over. Any holding over with the consent of Landlord in writing shall
thereafter constitute this Lease a lease from month to month.
8.5 Attorneys' Fees. If either party defaults in the performance
of any of the terms, agreements, or conditions contained in this Lease and the
other party places the enforcement of this Lease, or any part hereof, or the
collection of any Rent due or to become due hereunder, or recovery of the
possession of the Premises, in the hands of an attorney who files suit upon the
same, and should such non-defaulting party prevail in such suit, the defaulting
party agrees to pay the other party's reasonable attorneys' fees.
ARTICLE IX
Transfers
9.l Assignment or Sublease by Tenant. (a) Notwithstanding anything
to the contrary contained within this Article IX or this Lease, Tenant shall
not assign or sublet any portion of the Premises to any party or affiliate of
any party which is then a tenant in the Building without Landlord's prior
written consent, which consent shall not be unreasonably withheld, delayed or
conditioned so long as the occupancy resulting from such assignment or
subletting is consistent and compatible with the general use and character of
the Building, and any such attempted assignment or subletting shall be void and
of no force and effect. If Tenant should desire to assign this Lease or sublet
the Premises or any part thereof following initial occupancy of the Premises by
Tenant, Tenant shall give Landlord written notice of such desire at least sixty
(60) days in advance of the date on which Tenant desires to make such
assignment or sublease. The notice shall include the identity of the proposed
assignee or sublessee, current financial data of the proposed subleseee or
assignee, its nature of business, and intended use of the Premises, and shall
specify the financial terms, including rental, commissions, tenant buildout
allowances and other inducements, and the term of the proposed sublease or
assignment. Landlord shall then have a period thirty (30) days following
receipt of such notice within which to notify Tenant in writing that Landlord
elects to either (i) suspend this Lease as to the space so affected as to the
date and for the duration so specified by Tenant in its notice, in which event
Tenant will be relieved of all obligations hereunder as to such space during
said suspension (but after said suspension, Tenant shall once again become
liable hereunder as to the applicable space), (ii) permit Tenant to assign or
sublet this Lease to the party specified in the notice, or (iii) reject the
proposed assignee or sublessee as unsuitable because such party is not
creditworthy or of a kind and type customarily found in the Building, or whose
operations in the Building or proposed use of the Premises would not be in
keeping with, or would detract from, the operations of other tenants in the
Building, and continue this Lease in full force and effect as to the space so
affected. If Landlord should fail to notify Tenant in writing of such election
within said thirty (30) day period, Landlord
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shall be deemed to have elected option (ii) above. Tenant shall be responsible
for all costs of Landlord related to such proposed assignment or subletting,
including, without limitation, administrative costs, any build-out or tenant
improvements or restoration costs incurred by Landlord and attorneys' fees, and
Tenant shall pay the same to Landlord on demand.
(b) Each sublessee or assignee shall fully observe all
covenants of this Lease, including without limitation, the provisions of
Article V, and no consent by Landlord to an assignment or sublease shall be
deemed in any manner to be a consent to a use not theretofore permitted under
Article V. No assignment or subletting by Tenant shall relieve Tenant of any
obligation under this Lease, and Tenant shall remain fully liable hereunder.
Any attempted assignment or sublease by Tenant in violation of the terms and
covenants of this Section 9.1 shall be void and shall constitute a default by
Tenant hereunder. Any consent by Landlord to a particular assignment or
sublease shall not constitute Landlord's consent to any other or subsequent
assignment or sublease, and any proposed sublease or assignments by a sublessee
of Tenant shall be subject to the provisions of this Section 9.l as if it were
a proposed sublease or assignment by Tenant. The restriction against an
assignment or sublease described in this Section 9.1 shall be deemed to include
a restriction against tenant's mortgaging its leasehold estate, as well as
against an assignment or sublease which may occur by operation of law. If, at
the time a default occurs under this Lease, the Premises or any part thereof
have been assigned or sublet, Landlord, in addition to any other remedies
herein provided or available at law or in equity, may, at its option, collect
directly from such assignee or subtenant all rents due and becoming due to
Tenant under such assignment or sublease and apply such rent against the Rent
due to Landlord from Tenant hereunder, and no such collection shall be
construed to constitute a novation or a release of Tenant from the further
performance of its obligations hereunder.
(c) Notwithstanding anything contained in this Section 9.
l to the contrary, Landlord's consent shall not be required for an assignment
of this Lease to an Affiliate, Subsidiary or Successor of Tenant. For purposes
of this paragraph, an "Affiliate," a "Subsidiary" and a "Successor" of Tenant
are defined as follows:
(i) An "Affiliate" is a corporation which
directly or indirectly controls or is controlled or is under common
control with Tenant. For this purpose, "control" shall mean the
possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of such corporation,
whether through the ownership of voting securities or by contract or
otherwise.
(ii) A "Subsidiary" shall mean any corporation not
less than fifty-one percent (51%) of whose outstanding stock shall, at
the time, be owned directly or indirectly by Tenant.
(iii) A "Successor" shall mean:
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(A) A corporation in which or with which
Tenant is merged or consolidated, in accordance with
applicable statutory provisions for merger or
consolidation of corporation, provided that by
operation of law or by effective provisions contained
in the instruments of merger or consolidation, the
liabilities of the corporations participating in such
merger or consolidation are assumed by the
corporation surviving such merger or created by such
consolidation; or
(B) A corporation acquiring the rights
of Tenant hereunder and a substantial portion of the
property and assets of Tenant.
9.2 Transfer by Landlord. Landlord shall have the right to
transfer and assign, in whole or in part, all its rights and obligations
hereunder and in the Project, and all other property referred to herein, and in
such event and upon such transfer (any such transferee to have the benefit of,
and be subject to, the provisions of Sections 9.3 and 9.4), no further
liability or obligations shall thereafter accrue against Landlord.
9.3 Peaceful Environment. Landlord covenants that Tenant shall
and may peacefully have, hold, and enjoy the Premises subject to the other
terms of this Lease, provided that Tenant pays the Rent and other sums herein
recited to be paid by Tenant and performs all of Tenant's covenants and
agreements herein contained. It is understood and agreed that this covenant
and any and all other covenants of Landlord contained in this Lease shall be
binding upon Landlord and its successors only with respect to breaches
occurring during its and their respective ownership of the Landlord's interest
hereunder.
9.4 Limitation of Landlord's Liability. The liability of Landlord
to Tenant for any judgment against Landlord shall be limited to Tenant's actual
direct, but not consequential, damages therefor, which damages shall be
recoverable solely from the interest of Landlord in the Project, it being
agreed that neither Landlord (and its partners, agents, officers, directors,
and shareholders) nor any mortgagees shall ever be personally liable for any
such judgment.
ARTICLE X
Additional Provisions
10.l Notices. Any notice or other communications to Landlord or
Tenant required or permitted to be given under this Lease must be in writing
and shall be effectively given if delivered to the addresses for Landlord and
Tenant stated in the preamble paragraph of this Lease or if sent by United
States mail, certified or registered, return receipt requested, to said
addresses. Any notice mailed shall be deemed to have been given on the regular
business day next following the date of deposit of such item in a depository of
the United States Postal Service. Notice effected other than by mail shall be
deemed to have been given at the time
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<PAGE> 34
of actual delivery. Either party shall have the right to change its address to
which notices shall thereafter be sent by giving the other party thirty (30)
days' prior written notice thereof.
10.2 Subordination. (a) This Lease is subject and subordinate to
all mortgages, deed of trust, and related security instruments which may now or
hereafter encumber the Project and to all renewals, modifications,
consolidations, replacements, and extensions thereof and to each advance made
or hereafter to be made thereunder. This subordination shall be self-operative
and no further instrument of subordination is required. In confirmation of such
subordination, however, Tenant shall, at Landlord's request and without cost to
Tenant, execute promptly any appropriate subordination certificate or
instrument that Landlord may reasonably request, which certificate or
instrument shall provide that notwithstanding such subordination, so long as
Tenant is not in default hereunder, neither this Lease nor Tenant's rights
hereunder shall be disturbed, terminated or subject to termination by any
trustee's sale, any action to enforce the security or by any proceeding or
action in foreclosure or in lieu of foreclosure. In the event of the
enforcement by the trustee or the beneficiary under any such mortgage or deed
of trust of the remedies provided for by law or by such mortgage or deed of
trust, Tenant will, automatically upon the request of any person or party
succeeding to the interest of said trustee or beneficiary, as a result of such
enforcement, become the Tenant of, and attorn to, such successor in interest
without change in the terms or provisions of this Lease; provided, however,
that such successor in interest shall not be bound (i) by any payment of Rent
for more than one month in advance except prepayments in the nature of security
for the performance by Tenant of its obligations under this Lease, or (ii) by
any amendment or modification of this Lease made without the written consent of
such trustee or such beneficiary or such successor in interest or (iii) to
account to Tenant for the Security Deposit provided for hereunder to the extent
such Security Deposit is not delivered to such successor-in-interest. Upon
request by such successor in interest, Tenant shall execute and deliver an
instrument or instruments, prepared by and at the expense of such
successor-in-interest, confirming the attornment as herein provided for;
provided, that in the event such instrument contains any provisions which are
substantively different from the provisions herein provided, such provisions
shall be subject to the consent of Tenant, not to be unreasonably withheld,
delayed or conditioned.
(b) Tenant agrees to give the holder of any mortgage or
holder of a deed of trust covering Landlord's interest in the Project
("Landlord's Mortgagee") a copy of any notice of default given by Tenant to
Landlord, which notice shall be sent by U.S. registered mail, postage prepaid,
addressed to Landlord's Mortgagee at the address furnished to Tenant for
purposes of notice to such Landlord's Mortgagee. Tenant further agrees that if
Landlord shall have failed to cure a default in Landlord's performance under
this Lease within the time provided for in this Lease (or if no time is
specified, then within a reasonable time under the circumstances), then any
Landlord's Mortgagee shall have an additional thirty (30) days within which to
cure such default or if such default cannot be cured within that time, then
such additional time as may be necessary if within such thirty (30) days any
Landlord's Mortgagee
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has commenced and is diligently pursuing the remedies necessary to cure such
default (including but not limited to commencement of foreclosure proceedings,
if necessary to effect such cure), in which event this Lease shall not be
terminated and Tenant shall not be relieved of any obligations under this Lease
while such remedies are being pursued with reasonable diligence by Landlord's
Mortgagee.
10.3 Estoppel Certificate or Three-Party Agreement. At Landlord's
request, Tenant will promptly execute either an estoppel certificate or a
three-party agreement (prepared at no expense to Tenant) among Landlord, Tenant
and any third party dealing with Landlord certifying to such facts (if and to
the extent true) and agreeing to such reasonable notice provisions and other
matters as such third party may reasonably require in connection with the
business dealings of Landlord and such third party.
10.4 Intentionally Omitted.
10.5 Brokerage. Landlord and Tenant represent and warrant to each
other that they have dealt with, and only with, MacWilliam & Lichtenstein
Properties ("MLP") and Project Leasing Advisors, L.C. ("PLA") as broker(s) in
connection with this Lease, and that, insofar as Landlord and Tenant know, no
other broker(s) negotiated this Lease or is entitled to any commission in
connection with this Lease. Tenant and Landlord shall each indemnify the other
from and against all costs, expenses, attorneys' fees, and other liability for
commissions or other compensation claimed by any broker or agent claiming the
same by, through, or under the indemnifying party; provided, however, Landlord
agrees to be responsible for the payment of commissions due to MLP and PLA
pursuant to separate agreements by and between Landlord and such parties.
10.6 Disclaimers. LANDLORD AND TENANT EXPRESSLY DISCLAIM ANY
IMPLIED WARRANTY THAT THE PREMISES ARE SUITABLE FOR TENANT'S INTENDED
COMMERCIAL PURPOSE. TENANT'S OBLIGATION TO PAY RENT UNDER THIS LEASE IS NOT
DEPENDENT UPON THE CONDITION OF THE PREMISES, THE PROJECT, OR THE PERFORMANCE
BY LANDLORD OF ITS OBLIGATIONS UNDER THIS LEASE, AND, UNLESS AND EXCEPT AS
OTHERWISE EXPRESSLY PROVIDED IN THIS LEASE TO THE CONTRARY (INCLUDING,
SPECIFICALLY, THE PROVISIONS OF SECTION 4.2(b) ABOVE), TENANT SHALL CONTINUE TO
PAY THE RENT, WITHOUT DEMAND, ABATEMENT, DEDUCTION, SET-OFF OR COUNTERCLAIM,
NOTWITHSTANDING ANY BREACH BY LANDLORD OF ITS DUTIES AND OBLIGATIONS UNDER THIS
LEASE, WHETHER EXPRESS OR IMPLIED NONE OF THE FOREGOING SHALL BE APPLICABLE TO,
OR AFFECT, ANY CONTRACTOR WARRANTIES ASSIGNED TO TENANT PURSUANT TO ARTICLE II,
PARAGRAPH 3 OF EXHIBIT I ATTACHED TO THIS LEASE.
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10.7 Financial Statements. Tenant to provide Landlord the above
statements upon request for a sale or refinancing of the Building.
10.8 Miscellaneous. (a) This Lease shall be binding upon and inure
to the benefit of Landlord, its successors and assigns, and shall be binding
upon and inure to the benefit of Tenant, its successors and assigns (provided
that the benefits of this Lease shall inure only to the benefit of assignees of
Tenant permitted under Article IX).
(b) The pronouns of any gender shall include the other
genders, and either the singular or the plural shall include the other.
(c) All rights and remedies of Landlord under this Lease
shall be cumulative and none shall exclude any other rights or remedies allowed
by law; and this Lease is declared to be a Texas contract, and all of the terms
hereof shall be construed according to the laws of the State of Texas.
(d) This Lease may not be altered, changed, or amended,
except by an instrument in writing executed by all parties hereto. Further, the
terms and provisions of this Lease shall not be construed against or in favor
of a party hereto merely because such party is the "Landlord" or the "Tenant"
hereunder or such party or its counsel is the draftsman of this Lease.
(e) The terms and provisions of Exhibits A through I,
inclusive, attached hereto are hereby made a part hereof for all purposes.
(f) Each party (and each individual signing for such
party) represents and warrants that all consents or approvals required of third
parties (including, but not limited to, its Board of Directors or partners) for
the execution, delivery, and performance of this Lease have been obtained and
that each party has the right and authority to enter into and perform its
covenants contained in this Lease.
(g) If any term or provision of this Lease, or the
application thereof to any person or circumstance, shall to any extent be
invalid or unenforceable, the remainder of this Lease, or the application of
such provision to persons or circumstances other than those as to which it is
invalid or unenforceable, shall not be affected thereby, and each provision of
this Lease shall be valid and shall be enforceable to the extent permitted by
law.
(h) All references to days in this Lease and any exhibits
or riders thereto mean calendar days, not working or business days unless
otherwise stated.
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(i) Captions and headings herein are for Landlord's and
Tenant's convenience only, and neither limit nor amplify the provisions of this
Lease.
(j) In all instances where Tenant is required hereunder
to pay any sum or do any act at a particular time or within any indicated
period, it is understood that time is of the essence. Other than for Tenant's
monetary obligations under this Lease, whenever a period of time is prescribed
in this Lease for action to be taken by either party hereto, such party shall
not be liable or responsible for, and there shall be excluded from the
computation for any such period of time, any delays due to strikes, riots, acts
of God, shortages or labor or materials, war, governmental laws, regulations,
or restrictions, or any other similar causes which are beyond the control of
such parry.
IN TESTIMONY WHEREOF, the parties hereto have executed this Lease as
of the date first set forth above.
LANDLORD:
SCHOOL EMPLOYEES HOLDING CORP. (Owner)
By: L & B Institutional Property Managers,
Inc.
(Managing Agent)
By:
---------------------------------
Daniel L. Plumlee,
President and COO
TENANT:
THE LAN SUPPORT GROUP, INC.
By:
---------------------------------
Eric Pulaski,
President
If this Lease is not signed by Landlord and returned to Tenant, no later than
June 25, 1995, then this Lease shall become null and void and of no further
force and effect.
34
<PAGE> 1
EXHIBIT 10.8
STOCK OWNERSHIP AGREEMENT
STOCK OWNERSHIP AGREEMENT ("Agreement") made this 8th day of
April, 1997, between Bindview Development Corporation, a Texas corporation (the
"Company"), and Nadeem Ghias ("Employee") and his spouse.
WHEREAS, Employee is the owner 19,500 shares of the issued and
outstanding stock of the Company; and
WHEREAS, the Company and Employee have agreed to impose certain
restrictions and obligations on the shares of stock of the Company owned by
Employee;
NOW, THEREFORE, in consideration of the mutual promises
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, it is hereby agreed as follows:
1.0 ARTICLE I: DEFINITIONS
I.I Definitions.
(a) "Adverse Tax Effect" shall mean any change in
ownership such that the Company would not qualify or
would no longer qualify to make or maintain an
election to be taxed as a partnership pursuant to
subchapter S of the Internal Revenue Code of 1986, as
amended.
(b) "Board of Directors" or "Board" shall mean the Board
of Directors of Company.
(c) "Disability" means the inability of Employee through
physical or mental illness or other cause, to
continue in the employment of the Company performing
all of his normal duties for a consecutive period of
three (3) months. If the Board of Directors makes a
determination that Employee is disabled, it shall
notify Employee of such determination. If Employee
does not disagree with such determination within
thirty (30) days after being so notified, Employee
shall be deemed to be disabled for purposes hereof
effective as of the date indicated in the notice from
the Board of Directors. If Employee disagrees with
such determination of disability, then within thirty
(30) days after receiving the notice from the Board
of Directors, Employee shall notify the Board of
Directors of such disagreement and each the Board of
Directors and Employee shall promptly appoint a
physician. The Company shall pay the cost of the
physician selected by the Board of Directors and
Employee shall pay the cost of the physician selected
by Employee. Such two physicians shall proceed to
promptly examine Employee and make a joint
determination of whether Employee is disabled as
defined herein. If such two appointed physicians
cannot agree on such determination within thirty (30)
days after the date Employee's notice of disagreement
is given to the Board of Directors, then such two
physicians shall promptly appoint a third physician
who shall make the determination of whether Employee
is disabled as defined herein. The cost of such
third physician shall be paid one-half by the Company
and one-half by Employee. The decision of the two
physicians or the decision of the third physician, as
the case may be, shall be final and binding on all
parties.
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<PAGE> 2
(d) "Disposition" shall mean any inter vivos transfer,
pledge, mortgage or other encumbrance, or any other
disposition of Stock whatsoever, whether voluntary or
involuntary. A Disposition shall be deemed to be
involuntary if it involves any transaction,
proceeding, or action by or in which the Employee or
holder shall be involuntarily deprived or divested of
any right, title, or interest in or to any shares of
Stock (including, without limitation, any seizure
under levy of attachment or execution, transfer in
connection with bankruptcy or other court proceeding
to a trustee in bankruptcy or receiver or other
officer or agency or any transfer to a state or to a
public officer or agency pursuant to any statute
pertaining to escheat or abandoned property).
(e) "Fair Market Value" as of any date and in respect to
any shares of Stock means the fair market value of
shares of Stock determined pursuant to the following
valuation formula. The value of the entire Company
as of any date shall be an amount equal to 1.56 times
the net sales of Company for the twelve month period
ending as of the last day of the calendar month
immediately preceding the calendar month in which the
valuation date occurs. The Fair Market Value of a
share of Stock as of such date shall be equal to the
quotient obtained by dividing the value of the entire
Company so determined by the sum of the total number
of outstanding shares of common stock of the Company
and the total number of outstanding Units awarded
pursuant to the Company's Phantom Stock Plan and any
other phantom stock plan maintained by Company as of
such date.
(f) "Repurchase Value" as of any date and in respect to
any shares of Stock means 1.5 times the Fair Market
Value per share calculated pursuant to subparagraph
(e) hereof.
(g) "Stock" shall mean all issued and outstanding shares
of stock of the Company, together with all shares of
stock of the Company of any class or series which may
hereafter be issued. Moreover, all references herein
to Stock owned by Employee includes the community
interest, if any, of the spouse of Employee in such
Stock.
(h) "Termination Date" means the date of Employee's
severance from employment with the Company by death,
disability, resignation, discharge or otherwise.
(i) "Triggering Events" shall mean any of the events
described in Paragraph 2.1 of this Agreement.
2.0 ARTICLE II: Purchase Option. Without first receiving the express
written consent of the Company, Employee shall not make any Disposition of any
Stock (i) which would have an Adverse Tax Effect and (ii) without first
complying with the provisions of this Agreement.
2.1 Triggering Events. Upon the occurrence of any of the events
described in paragraphs 2.1(a), (b), (d), (e) or (f) below,
the Employee or Employee's estate or personal representative
shall immediately notify the Company of the occurrence of such
Triggering Event. Upon receipt of such notice, the Company
shall have the option, exercisable within sixty (60) days
after receipt of such notice, to purchase from Employee all
(but not less than all) of the Stock owned by Employee. Upon
the occurrence of the termination of employment of Employee
the Company shall have the option, exercisable within sixty
(60) days after the date of termination of employment, to
purchase from Employee all (but not less than all) of the
Stock owned by Employee. In the event the Company shall elect
not to purchase all of the Employee's Stock within the sixty
(60) day exercise
2
<PAGE> 3
period, then the option to purchase such Stock shall lapse and
such Stock shall be retained by Employee or the personal
representative of Employee, as the case may be, or transferred
in accordance with the terms of Section 2.1(e) or (f),
whichever is applicable. Any Stock retained by Employee,
Employee's estate or the personal representative of Employee
after a failure of the Company to exercise its option
hereunder shall remain subject to the terms hereof, such that,
for example (without limitation), Stock not purchased by the
Company pursuant to Paragraph 2.1(a) shall remain subject to
the provisions of Paragraphs 2.1(e) and (f). Any option
granted to Company hereby shall be exercisable by notice from
Company in writing of its desire to exercise such option being
delivered, or mailed, properly addressed, to Employee or the
personal representative of Employee, as the case may be. The
date of exercise shall be the date the notice of exercise is
personally delivered or the date it is placed in the U.S.
mail, as the case may be. The purchase of the Stock shall be
deemed to have occurred on the date of exercise and the Stock
shall be transferred on the Company's stock ledger as of such
date.
(a) Death of Employee. If the Company exercises its
option upon the death of Employee, the purchase price
shall be the Repurchase Value per share (as described
in paragraph 1.1 (f) of this Agreement) as of the
date of death and shall be paid by the Company to
personal representative of Employee's estate, in
equal annual installments over a five-year period,
with the first such annual installment being due six
months following the date of Employee's death and an
additional annual installment being due on each
annual anniversary date of such first installment
until all five annual installment payments have been
made. The amount due shall bear interest from the
date of death until paid with accrued interest being
due with each installment payment of principal.
Subject to the minimum and maximum interest rates
hereinafter set forth, the interest shall initially
be computed at a rate equal to the national prime
rate as published in the Wall Street Journal on the
date of death (or the next business day if the date
of death is not a business day). Such rate of
interest shall be applicable for one year after the
date of death. The rate of interest shall be
adjusted on the date exactly one year after the date
of death and on each annual anniversary date
thereafter to the national prime rate as published in
the Wall Street Journal on such date (or the next
business day if such date is not a business day).
Each time the interest rate is adjusted, it shall be
applicable for the one year period following the date
of adjustment. Notwithstanding the preceding
language of this paragraph 2.1(a), in no event shall
the interest rate ever be less than seven percent
(7%) per annum or more than thirteen percent (13%)
per annum. The Company may prepay the amount due at
any time without premium or penalty.
(b) Disability of Employee. If the Company exercises its
option upon the disability of Employee, the purchase
price shall be the Repurchase Value per share (as
described in paragraph 1.1(f) of this Agreement) as
of the date the employment with Company terminated
and shall be paid by the Company to Employee in equal
annual installments over a five-year period, with the
first such annual installment being due six months
following the date Employee's employment with Company
terminates and an additional annual installment shall
be due on each annual anniversary date of such first
installment until all five annual installment
payments have been made. The amount due shall bear
interest from the date Employee's employment with
Company terminates until paid with accrued interest
being due with each installment payment of principal.
Subject to the minimum and maximum interest rates
hereinafter set forth, the interest shall initially
be computed at a rate equal to the national prime
rate as published in the Wall Street
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<PAGE> 4
Journal on the date such disabled Employee's
employment with Company terminates (or the next
business day if such date is not a business date).
Such rate of interest shall be applicable for one
year after the date Employee's employment with the
Company terminates. The rate of interest shall be
adjusted on the date exactly one year after the date
such disabled Employee's employment with the Company
terminates and on each annual anniversary date
thereafter to the national prime rate as published in
the Wall Street Journal on such date (or the next
business day if such date is not a business day).
Each time the interest rate is adjusted, it shall be
applicable for the one year period following the date
of adjustment. Notwithstanding the preceding
language of this paragraph 2.1(b), in no event shall
the interest rate ever be less than seven percent
(7%) per annum or more than thirteen percent (13%)
per annum. The Company may prepay the amount due at
any time without premium or penalty. In the event
Employee dies during the five-year pay-out period,
any remaining unpaid installments shall be paid in
accordance with Paragraph 2.1(a) hereof.
(c) Termination of Employment. In the event Employee's
employment with the Company is terminated for any
reason other than pursuant to Paragraph 2.1(a) or
2.1(b), if the Company exercises its option, the
purchase price shall be the Repurchase Value per
share (as described in paragraph 1.1(f) of this
Agreement) as of the date of termination of
employment and shall be paid by the Company to
Employee in equal monthly installments over a
twenty-four (24) month period with the first such
monthly installment being due one month following the
date of termination of employment and an additional
monthly installment shall be due on the same date of
each calendar month thereafter until all twenty-four
(24) monthly installment payments have been made.
The amount due to Employee shall bear interest from
the date of termination of employment until paid with
accrued interest being due with each installment of
principal. Subject to the minimum and maximum
interest rates hereinafter set forth, the interest
shall initially be computed at a rate equal to the
national prime rate as published in the Wall Street
Journal on the date of termination of employment (or
the next business day if such date is not a business
day). Such rate of interest shall be applicable for
one year after the date of termination of employment.
The rate of interest shall be adjusted on the date
exactly one year after the date of termination of
employment to the national prime rate as published in
the Wall Street Journal on such date (or the next
business day if such date is not a business day).
Each time the interest rate is adjusted, it shall be
applicable for the one year period following the date
of adjustment. Notwithstanding the preceding
language of this paragraph 2.1(c), in no event shall
the interest rate ever be less than seven percent
(7%) per annum or more than thirteen percent (13%)
per annum. The Company may prepay the amount due at
any time without premium or penalty.
(d) Divorce: Death of Spouse.
(i) The Spouse of Employee ("Spouse") hereby
agrees that in the event of their divorce or
of Spouse's death, Employee shall have the
right and option to purchase all or any part
of any interest in the Stock owned by
Employee to which Spouse (or Spouse's estate)
is entitled by virtue of any marital property
laws or any decree of separation, divorce or
property division. Such option period shall
commence on the date of entry of a decree of
divorce, in the event of a divorce, or upon
the date of qualification of the personal
representative of the Spouse, in the event of
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<PAGE> 5
Spouse's death, and shall extend for sixty
(60) days. The purchase price of such
interest shall be the Repurchase Value per
share (as described in paragraph 1.1(f) of
this Agreement) to which such Spouse is
entitled. In the event Employee shall fail
to purchase all of the Spouse's interest as
provided in this Paragraph 2.1(d), then
Employee or the Spouse shall notify the
Company of the same and the Company shall
have the option for an additional sixty (60)
days after the date it receives such notice
to purchase such Spouse's interest not
purchased by Employee at the purchase price
stated hereinabove. Notwithstanding the
preceding language, if Spouse shall die and
the ownership interest of the deceased Spouse
in the Stock of Employee is transferred to
Employee by the terms of the Spouse's Will or
by operation of law, or in the event of a
divorce and Employee is awarded the entire
ownership interest in all such Stock, then as
to all such Stock in which the entire
ownership interest is acquired by Employee,
no option to purchase such Stock shall come
into existence.
(ii) The option granted to Employee and the
Company by the Spouse under this Agreement
shall be considered as exercised when notice
in writing thereof has been delivered or
mailed, properly addressed, to the Spouse, or
personal representative of the Spouse, as the
case may be. The purchase of all of the
interest of the Spouse in Stock with regard
to which the option is exercised shall be
deemed to have occurred when the option is
exercised.
(iii) The purchase price stated in subparagraph (i)
of this Paragraph 2.1(d) shall be paid, at
the election of the purchaser either (i) in
one lump sum payable within forty-five (45)
days from the date the Spouse or the Spouse's
representative is notified of the exercise of
Employee's or the Company's option, as the
case may be, or (ii) in twenty-four (24)
equal monthly installments with the first
such monthly installment being due one month
following the date of exercise of the option
and an additional monthly installment being
due on the same date of each subsequent
calendar month thereafter until all
twenty-four (24) monthly installment payments
have been made. The amount due hereunder
shall bear interest from the date of the
exercise of the option until paid with
accrued interest being due with each
installment of principal. Subject to the
minimum and maximum interest rates
hereinafter set forth, the interest shall
initially be computed at a rate equal to the
national prime rate as published in the Wall
Street Journal on the date of exercise of
option (or the next business day if such date
is not a business day). Such rate of
interest shall be applicable for one year
after the date of exercise of the option.
The rate of interest shall be adjusted on the
date exactly one year after the date of
exercise of the option to the national prime
rate as published in the Wall Street Journal
on such date (or the next-business day if
such date is not a business day). Each time
the interest rate is adjusted, it shall be
applicable for the one year period following
the date of adjustment. Notwithstanding the
preceding language of this paragraph
2.l(d)(iii), in no event shall the interest
rate ever be less than seven percent (7%) per
annum or more than thirteen percent (13%) per
annum. The purchaser may prepay the amount
due at any time without premium or penalty.
5
<PAGE> 6
(e) Voluntary Disposition. In the event Employee (for
the purposes of this Paragraph such term includes
Employee's estate or the heirs thereof holding Stock
from Employee and his personal representative)
receives a bona fide offer from a third party to
purchase his shares of Stock and Employee desires to
accept such Offer, Employee shall first make an offer
(the "Offer") to sell such Stock to the Company by
providing notice as provided above and including
therein the number of shares involved, the names of
any proposed purchasers and the purchase price and
terms of such proposed purchase. If the Company
exercises its option, the price per share to be paid
upon the purchase of Stock and the other terms
relating thereto shall be the price to be paid and
terms offered by any proposed purchasers of the
Stock; provided that any non-cash consideration
offered by a proposed purchaser may be paid by the
Company in cash in an amount equal to the fair value
of such property as agreed by the Company and
Employee. The Offer may be withdrawn prior to the
exercise of the Company's option. If the Company
does not purchase all the Stock subject to an Offer,
Employee shall be permitted, at any time or times
within, but not after, six months after the lapse of
the option arising in connection with such Offer to
sell the Stock which was the subject of such Offer;
provided, however, that no such sale shall be made at
a lower price or to any person other than specified
in such Offer. If after the lapse of the six-month
period such Stock has not been sold, Employee must
make a new offer prior to selling such Stock.
(f) Involuntary Disposition. Prior to or upon any
involuntary Disposition of Stock, Employee (for the
purposes of this Paragraph such term includes
Employee's estate or the heirs thereof holding Stock
from Employee and his personal representative) shall
send notice thereof as provided above disclosing in
full to the Company the nature and details of such
involuntary Disposition. If the Company exercises
its option to purchase such Stock, the purchase price
shall be the Repurchase Value per share (as described
in paragraph 1.1(f) of this Agreement) as of the date
of such notice and shall be paid by the Company to
the holder of the Stock, if such involuntary
Disposition has occurred, or Employee, if it has not,
in equal annual installments over a five-year period,
with the first such annual installment being due six
months following the date of the purchase and an
additional annual installment being due on each
annual anniversary date of such first installment
until all five annual installment payments have been
made. The amount due shall bear interest from the
date of purchase until paid with accrued interest
being due with each installment payment of principal.
Subject to the minimum and maximum interest rates
hereinafter set forth, the interest shall initially
be computed at a rate equal to the national prime
rate as published in the Wall Street Journal on the
date of purchase. Such rate of interest shall be
applicable for one year after the date of purchase.
The rate of interest shall be adjusted on the date
exactly one year after the date of purchase and on
each annual anniversary date thereafter to the
national prime rate as published in the Wall Street
Journal on such date (or the next business day if
such date is not a business day). Each time the
interest rate is adjusted, it shall be applicable for
the one year period following the date of adjustment.
Notwithstanding the preceding language of this
paragraph 2.1(f), in no event shall the interest rate
ever be less than seven percent (7%) per annum or
more than thirteen percent (13%) per annum. The
Company may prepay the amount due at any time without
premium or penalty.
6
<PAGE> 7
3.0 ARTICLE V: MISCELLANEOUS
3.1 Governing Law. The validity, construction, interpretation and
effect of this Agreement and all rights of any and all persons
having or claiming to have any interest in this Agreement
shall be governed by the laws of the State of Texas.
3.2 Severability. All provisions herein are severable and in the
event any one of them shall be held invalid by any court of
competent jurisdiction, this Agreement shall be interpreted as
if such invalid provision was not contained herein.
3.3 Headings. The headings of the sections of this Agreement are
inserted for convenience only and shall not be deemed to
constitute a part of this Agreement.
3.4 Non-Waiver. Failure on the part of any party in any one or
more instances to enforce any of its rights which arise in
connection with this Agreement or to insist upon the strict
performance of any of its terms, conditions, or covenants of
this Agreement shall not be construed as a waiver or a
relinquishment for the future of any such rights, terms,
conditions, or covenants. No waiver of any condition of this
Agreement shall be valid unless it is in writing.
3.5 Agreement on File. The Company shall place this Agreement on
file in the office of its principal place of business.
3.6 Notices. Any notices to be given hereunder by either party to
the other may be effected either by personal delivery in
writing or by mail, registered or certified, postage prepaid
with return receipt requested. Mailed notices shall be
addressed to the parties at the addresses set forth on the
signature pages hereto. Each party may change his address by
written notice in accordance with this paragraph. Notices
delivered personally shall be deemed communicated as of the
actual receipt; mailed notices shall be deemed communicated as
of the date of mailing.
3.7 Endorsement of Stock Certificates. All certificates of Stock
of the Company now owned or that may hereafter be acquired by
Employee shall be endorsed on the back thereof either as
follows or as otherwise required by law:
"BY AGREEMENT AMONG THE CORPORATION AND THE HOLDER OF
THE SHARES REPRESENTED BY THIS CERTIFICATE, RESTRICTIONS HAVE
BEEN PLACED UPON THE TRANSFER OF THESE SHARES. A COPY OF THE
AGREEMENT, WHICH CONTAINS A FULL STATEMENT OF THE
RESTRICTIONS, IS ON FILE AT THE PRINCIPAL BUSINESS OFFICE OF
THE CORPORATION. A COPY OF SUCH AGREEMENT WILL BE PROVIDED TO
ANY HOLDER UPON WRITTEN REQUEST."
Such certificates shall be endorsed on the front thereof as
follows:
"SEE RESTRICTIONS ON TRANSFER HEREOF ON REVERSE SIDE."
3.8 Successors and Assigns. This Agreement shall be binding upon
the Company, Employee, the spouse of the Employee and their
heirs, executors, administrators, successors and assigns.
7
<PAGE> 8
3.9 Amendment. This Agreement may be amended from time to time by
an instrument in writing signed by all those who are parties
to this Agreement at the time of such amendment, such
instrument being designated on its face as an "Amendment" to
this Agreement.
3.10 Termination. This Agreement may also be terminated by an
instrument in writing signed by all those who are parties to
this Agreement at the time of the signing of such instrument.
3.11 Spousal Consent. The spouse of Employee is fully aware of,
understands, and fully consents and agrees to the provisions
of this Agreement and its binding effect upon any community
property interests she may now or hereafter own, and agree
that the termination of the marital relationship with Employee
for any reason shall not have the effect of removing any Stock
of the Company otherwise subject to this Agreement from the
coverage hereof and that her awareness, understanding, consent
and agreement are evidenced by her signing this Agreement
3.12 Dispositions in Breach of Agreement. Any attempted
Disposition in breach of this Agreement shall be void and of
no effect, and shall trigger the options established herein,
is appropriate, constitute an Offer, and provided that the
date of the notice shall be deemed to be the date as of which
the Company has actual knowledge of such attempted
Disposition. Each party hereto acknowledges that a remedy at
law for any breach or attempted breach of any section of this
Agreement will be inadequate, agrees that each other party
hereto shall be entitled to specific performance and
injunctive and other equitable relief in case of any such
breach or attempted breach and further agrees to waive any
requirement for the securing or posting of any bond in
connection with the obtaining of any such injunctive or other
equitable relief.
3.13 Arbitration. Any dispute, controversy or claim arising out of
or relating to this Agreement shall be finally settled by
arbitration in Houston, Texas, U.S.A. in accordance with the
Commercial Arbitration Rules of the American Arbitration
Association in effect on the date of this Agreement and
judgment upon the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof.
8
<PAGE> 9
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date
first set forth above.
Date: 8 Apr 1997 /s/ Nadeem Ghias
---------------------- ---------------------------------------
Nadeem Ghias
/s/ Uzma Ghias
---------------------------------------
Spouse
Printed Name: Uzma Ghias
--------------------------
Address: 13450 Katy Knoll Ct.
--------------------------
Houston, TX 77082
--------------------------
--------------------------
--------------------------
BINDVIEW DEVELOPMENT CORPORATION
/s/ Eric Pulaski
---------------------------------------
Eric Pulaski, President
BINDVIEW DEVELOPMENT CORPORATION
3355 West Alabama, Suite 1200
Houston, TX 77098
[Notarize signature of Spouse]
THE STATE OF TEXAS )
)
COUNTY OF HARRIS )
BEFORE ME, the undersigned authority, on this day personally appeared
Nadeem Ghias/Uzma Ghias, known to me to be the person whose name is subscribed
to the foregoing instrument, and acknowledged to me that he or she executed the
same for the purposes and consideration therein expressed.
GIVEN under my hand and seal of office this 26 day of March, 1997.
/s/ Gwen Eaglin
-------------------------------------------
Notary Public in and for the State of Texas
9
<PAGE> 1
EXHIBIT 10.9
EXECUTION COPY
================================================================================
REGISTRATION RIGHTS AGREEMENT
among
BINDVIEW DEVELOPMENT CORPORATION
GENERAL ATLANTIC PARTNERS 44, L.P.,
GAP COINVESTMENT PARTNERS, L.P.,
JMI EQUITY FUND III, L.P.
and
ERIC J. PULASKI
------------------------
Dated: October 16, 1997
------------------------
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. General; Securities Subject to this Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(a) Grant of Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(b) Registrable Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(c) Holders of Registrable Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3. Demand Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(a) Request for Demand Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(b) Incidental or "Piggy-Back" Rights with Respect to a Demand
Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(c) Effective Demand Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(d) Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(e) Underwriting Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(f) Selection of Underwriters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4. Incidental or "Piggy-Back" Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(a) Request for Incidental Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(b) Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5. Form S-3 Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(a) Request for a Form S-3 Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(b) Form S-3 Underwriting Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(c) Limitations on Form S-3 Registrations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(d) Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(e) No Demand Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6. Holdback Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(a) Restrictions on Public Sale by Designated Holders . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(b) Restrictions on Public Sale by the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7. Registration Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(a) Obligations of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(b) Seller Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(c) Notice to Discontinue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(d) Registration Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
8. Indemnification; Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(a) Indemnification by the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(b) Indemnification by Designated Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
(c) Conduct of Indemnification Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(d) Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
9. Rule 144 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
10. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(a) Recapitalizations, Exchanges, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(b) No Inconsistent Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(c) Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(d) Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(e) Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(f) Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(g) Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(h) Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(i) Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(j) GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(k) Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(l) Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(m) Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>
<PAGE> 4
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated October 16, 1997 (this
"AGREEMENT"), among BindView Development Corporation, a Texas corporation (the
"COMPANY"), General Atlantic Partners 44, L.P., a Delaware limited partnership
("GAP LP"), GAP Coinvestment Partners, L.P., a New York limited partnership
("GAP COINVESTMENT"), JMI Equity Fund III, L.P., a Delaware limited partnership
("JMI") and Eric J. Pulaski ("PULASKI").
This Agreement is made in connection with the Preferred Stock and
Warrant Purchase Agreement, dated October 16, 1997 (the "STOCK PURCHASE
AGREEMENT"), among the Company, GAP LP, GAP Coinvestment and JMI, pursuant to
which the Company has agreed to, among other things, issue and sell to (a) GAP
LP, GAP Coinvestment and JMI, pursuant to which the Company has agreed to,
among other things, issue and sell to (a) GAP LP, and GAP LP has agreed to
purchase from the Company, (i) an aggregate of 1,398,328 shares of Series A
Convertible Preferred Stock, par value $.01 per share, of the Company (the
"PREFERRED STOCK") and (ii) a warrant (the "GAP LP WARRANT") to purchase,
subject to the terms and conditions thereof, an aggregate of up to 165,935
shares of Common Stock, no par value per share, of the Company (the "COMMON
STOCK") and (b) GAP Coinvestment, and GAP Coinvestment has agreed to purchase
from the Company, (i) an aggregate of 287,065 shares of Preferred Stock and
(ii) a warrant (the "GAPCO WARRANT") to purchase, subject to the terms and
conditions thereof, an aggregate of up to 34,065 shares of Common Stock and (c)
JMI, and JMI has agreed to purchase from the Company, (i) an aggregate of
842,697 shares of Preferred Stock and (ii) a Warrant (the "WARRANT" and
together with the GAP LP Warrant and the GAPCO Warrant, the "WARRANTS") to
purchase, subject to the terms and conditions thereof, an aggregate of up to
100,000 shares of Common Stock.
WHEREAS, concurrently herewith, the Company GAP LP, GAP Coinvestment,
JMI and Pulaski are entering into the Shareholders' Agreement (as hereinafter
defined), pursuant to which the parties thereto have agreed to, among other
things, certain first offer, tag-along and preemptive rights, and corporate
governance rights and obligations.
WHEREAS, in order to induce (i) Pulaski to enter into the
Shareholders' Agreement and (ii) each of GAP LP, GAP Coinvestment and JMI to
purchase its shares of Preferred Stock and to enter into the Shareholders'
Agreement, the Company has agreed to grant registration rights with respect to
the Registrable Securities (as hereinafter defined) as set forth in this
Agreement.
The parties hereby agree as follows:
1. Definitions. As used in this Agreement the following terms
have the meanings indicated:
<PAGE> 5
2. "Affiliate" shall mean, with respect to any Person, any other
Person who is an "affiliate" as defined in Rule 12b-2 of the General Rules and
Regulations under the Exchange Act. In addition, the following shall be deemed
to be Affiliates of GAP LP: (a) GAP LLC, the members of GAP LLC and the limited
partners of GAP LP; (b)any Affiliate of GAP LLC, the members of GAP LLC and the
limited partners of GAP LP; and (c) any limited liability company or
partnership a majority of whose members or partners, as the case may be, are
members of GAP LLC. In addition, GAP LP and GAP Coinvestment shall be deemed
to be Affiliates of one another. In addition, the following shall be deemed to
be Affiliates of JMI: (a) JMI L.L.C., the members of JMI L.L.C. and the limited
partners of JMI; and (b)any Affiliate of JMI L.L.C., the members of JMI L.L.C.
and the limited partners of JMI.
"Approved Underwriter" has the meaning set forth in Section
3(f) of this Agreement.
"Business Day" means any day other than a Saturday, Sunday or
other day on which commercial banks in the State of Texas are authorized or
required by law or executive order to close.
"Common Stock" has the meaning assigned to such term in the
recital to this Agreement. "Common Stock" shall also include any other equity
securities of the Company into which such securities are converted,
reclassified, reconstituted or exchanged.
"Company" has the meaning assigned to such term in the recital
to this Agreement.
"Company Underwriter" has the meaning set forth in Section
4(a) of this Agreement.
"Demand Registration" has the meaning set forth in Section
3(a) of this Agreement.
"Designated Holder" means each of the Pulaski Shareholders,
each of the General Atlantic Shareholders and each of the JMI Shareholders and
any transferee of any of them to whom Registrable Securities have been
transferred in accordance with the provisions of the Shareholders' Agreement
and Section 9(f) of this Agreement, other than a transferee to whom such
securities have been transferred pursuant to a registration statement under the
Securities Act or Rule 144 or Regulation S under the Securities Act.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
<PAGE> 6
"GAP Coinvestment" has the meaning assigned to such term in
the recital to this Agreement.
"GAP LLC" means General Atlantic Partners, LLC, a Delaware
limited liability company and the general partner of GAP LP, and any successor
to such entity.
"GAP LP" has the meaning assigned to such term in the recital
to this Agreement.
"GAP LP Warrant" has the meaning assigned such term in the
recital to this Agreement.
"GAPCO Warrant" has the meaning assigned such term in the
recital to this Agreement.
"General Atlantic Shareholders" means GAP LP, GAP Coinvestment
and any Affiliate thereof to which Registrable Securities are transferred in
accordance with Section 2.2 of the Shareholders' Agreement.
"Holders' Counsel" has the meaning set forth in Section
7(a)(i) of this Agreement.
"Incidental Registration" has the meaning set forth in Section
4(a) of this Agreement.
"Indemnified Party" has the meaning set forth in Section 8(c)
of this Agreement.
"Indemnifying Party" has the meaning set forth in Section 8(c)
of this Agreement.
"Initial Public Offering" means an underwritten initial public
offering pursuant to an effective Registration Statement flied under the
Securities Act covering the offer and sale of shares of Common Stock for the
account of the Company.
"Initiating Holder" has the meaning set forth in Section 3(a)
of this Agreement.
"Inspector" has the meaning set forth in Section 7(a)(vii) of
this Agreement
<PAGE> 7
"IPO Effectiveness Date" means the date upon which the Company
commences its Initial Public Offering.
"JMI L.L.C." means JMI Associates III, L.L.C., a Delaware
limited liability company and the general partner of JMI and any successor to
such entity.
"JMI Shareholders" means JMI and any Affiliate thereof and any
Permitted Transferee (as defined in the Shareholders' Agreement) thereof to
which Registrable Securities are transferred in accordance with Section 2.2 of
the Shareholders Agreement.
"JMI Warrants" has the meaning assigned to such term in the
recital to this Agreement.
"NASD" has the meaning set forth in Section 7(a)(xii) of this
Agreement.
"Person" means any individual, firm, corporation, partnership,
limited liability company, trust, incorporated or unincorporated association,
joint venture, joint stock company, limited liability company, government (or
an agency or political subdivision thereof) or other entity of any kind, and
shall include any successor (by merger or otherwise) of such entity.
"Preferred Stock" has the meaning assigned to such term in the
recital to this Agreement.
"Pulaski" has the meaning assigned to such term in the recital
to this Agreement.
"Pulaski Shareholders" means Pulaski and any Permitted
Transferee (as defined in the Shareholders' Agreement) thereof to which
Registrable Securities are transferred in accordance with Section 2.2 of the
Shareholders' Agreement.
"Records" has the meaning set forth in Section 7(a) (vii) of
this Agreement.
"Registrable Securities" means each of the following: (a) any
and all shares of Common Stock owned or acquired after the date hereof by the
Designated Holders or issued or issuable upon conversion of shares of Preferred
Stock or exercise:of the Warrants, including, without limitation, any
additional shares of Common Stock issuable upon conversion or exercise of any
warrants or preferred stock acquired by any of the Designated Holders after the
date hereof, (b) any other
<PAGE> 8
shares of Common Stock acquired or owned by any of the Designated Holders prior
to the IPO Effectiveness Date, or acquired or owned by any of the Designated
Holders after the IPO Effectiveness Date if such Designated Holder is an
Affiliate of the Company and (c) any shares of Common Stock issued or issuable
to any of the Designated Holders with respect to shares of Common Stock or
shares of Preferred Stock by way of stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization or otherwise and shares of Common Stock
issuable upon conversion, exercise or exchange thereof.
"Registration Expenses" has the meaning set forth in Section
7(d) of this Agreement.
"Registration Statement" means a registration statement filed
pursuant to the Securities Act.
"SEC" means the Securities and Exchange Commission or any
similar agency then having jurisdiction to embrace the Securities Act.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"Shareholders' Agreement" means the Shareholders' Agreement,
dated the date hereof, among the Company, GAP LP, GAP Coinvestment, JMI and
Pulaski.
"Stock Purchase Agreement" has the meaning assigned to such
term in the recital to this Agreement.
2. General: Securities Subject to this Agreement.
(a) Grant of Rights. The Company hereby grants
registration rights to the Pulaski Shareholders, the General Atlantic
Shareholders and the JMI Shareholders upon the terms and conditions set forth
in this Agreement.
(b) Registrable Securities. For the purposes of this
Agreement, Registrable Securities will cease to be Registrable Securities when
(i) a registration statement covering such Registrable Securities has been
declared effective under the Securities Act by the SEC and such Registrable
Securities have been disposed of pursuant to such effective registration
statement, (ii) the entire amount of Registrable Securities proposed to be sold
by a Designated Holder in a single sale, in the opinion of counsel satisfactory
to the Company and the Designated Holder, each in their reasonable judgment,
may be distributed to the public without any limitation as to volume pursuant
to Rule 144 (or any successor provision then in effect) under the Securities
Act or (iii) the Registrable Securities are proposed to be
<PAGE> 9
sold or distributed by a Person not entitled to the registration rights granted
by this Agreement.
(c) Holders of Registrable Securities. A Person is
deemed to be a holder of Registrable Securities whenever such Person owns of
record Registrable Securities, or holds an option to purchase, or a security
convertible into or exercisable or exchangeable for, Registrable Securities
whether or not such acquisition or conversion has actually been effected and
disregarding any legal restrictions upon the exercise of such rights. If the
Company receives conflicting instructions, notices or elections from two or
more Persons with respect to the same Registrable Securities, the Company may
act upon the basis of the instructions, notice or election received from the
registered owner of such Registrable Securities. Registrable Securities
issuable upon exercise of an option or upon conversion of another security
shall be deemed outstanding for the purposes of this Agreement.
3. Demand Registration.
(a) Request for Demand Registration. At any time after
the IPO Effectiveness Date, (i) one or more of the General Atlantic
Shareholders as a group, acting through GAP LLC or its written designee, (ii)
one or more of the JMI Shareholders as a group, acting through JMI or its
written designee or (iii) the Pulaski Shareholders as a group, acting through
Pulaski (the "Initiating Holder(s)") may make a written request to the Company
to register, under the Securities Act (other than pursuant to a registration
statement on Form S-4 or S-8 or any successor thereto) and under the securities
or "blue sky" laws of any jurisdiction designated by such holder or holders (a
"DEMAND REGISTRATION"), the number of Registrable Securities stated in such
request; provided, however, that the Company shall not be obligated to effect
more than one (1) Demand Registration for each of the General Atlantic
Shareholders, the JMI Shareholders and the Pulaski Shareholders pursuant to
this Section 3; provided, further, however, that the Company shall not be
obligated to effect more than one such Demand Registration in any twelve month
period. If at the time of any request to register Registrable Securities
pursuant to this Section 3(a), the Company is engaged in, or has fixed plans to
engage in within thirty (30) days of the time of such request, a registered
public offering or is engaged in any other activity which, in the good faith
determination of the Board of Directors of the Company, would be adversely
affected by the requested registration to the material detriment of the
Company, then the Company may at its option direct that such request be delayed
for a reasonable period not in excess of three (3) months from the effective
date of such offering or the date of completion of such other material
activity, as the case may be, such right to delay a request to be exercised by
the Company not more than once in any one-year period. In addition, the
Company shall not be required to effect any registration within ninety (90)
days after the effective date of any other Registration Statement of the
Company. Each request for a Demand Registration by the Initiating Holder(s)
shall state the amount of the Registrable Securities proposed to
<PAGE> 10
be sold and the intended method of disposition thereof. Upon a request for a
Demand Registration, the Company shall promptly take such steps as are
necessary or appropriate to prepare for the registration of the Registrable
Securities to be registered.
(b) Incidental or "Piggy-Back" Rights with Respect to a
Demand Registration. Each of the Designated Holders (other than the
Initiating Holders) may offer its or his Registrable Securities under any
Demand Registration pursuant to this Section 3. Within ten (10) days after the
receipt from an Initiating Holder of a request for a Demand Registration, the
Company shall (i) give written notice thereof to all of the Designated Holders
(other than the Initiating Holder) and (ii) subject to Section 3(e), include in
such registration all of the Registrable Securities held by such Designated
Holders from whom the Company has received a written request for inclusion
therein within ten (10) days of the receipt by such Designated Holders of such
written notice referred to clause (i) above. Each such request by such
Designated Holders shall specify the number of Registrable Securities proposed
to be registered and the intended method of disposition thereof. The failure
of any Designated Holder to respond within such 10-day period referred to in
clause (ii) above shall be deemed to be a waiver of such Designated Holder's
rights under this Section 3, provided that any Designated Holder may waive its
rights under this Section 3 prior to the expiration of such 10-day period by
giving written notice to the Company, with a copy to the Initiating Holder.
(c) Effective Demand Registration. The Company shall
use its reasonable efforts to cause any such Demand Registration to become and
remain effective as soon as practicable, but in any event not later than 120
days after it receives a request under Section 3(a) hereof. A registration
shall not constitute a Demand Registration until it has become effective and
remains continuously effective for the lesser of (i) the period during which all
Registrable Securities registered in the Demand Registration are sold and (ii)
120 days; provided, however, that a registration shall not constitute a Demand
Registration if (x) after such Demand Registration has become effective, such
registration or the related offer, sale or distribution of Registrable
Securities thereunder is interfered with by any stop order, injunction or other
order or requirement of the SEC or other governmental agency or court for any
reason not attributable to the Initiating Holders and such interference is not
thereafter eliminated, (y) the conditions to closing specified in the
underwriting agreement, if any, entered into in connection with such Demand
Registration are not satisfied or waived, other than by reason of a failure by
the Initiating Holders or (z) if the request for such Demand Registration is
withdrawn by the Initiating Holder and such Initiating Holder reimburses the
Company for any expenses incurred in relation thereto.
(d) Expenses. In any registration initiated as a Demand
Registration, the Company shall pay all Registration Expenses (other than
<PAGE> 11
underwriting discounts and commissions) in connection therewith, whether or not
such Demand Registration becomes effective.
(e) Underwriting Procedures. If the Initiating Holders
holding a majority of the Registrable Securities held by all of the Initiating
Holders to which the requested Demand Registration relates so elect, the
offering of such Registrable Securities pursuant to such Demand Registration
shall be in the form of a firm commitment underwritten offering and the
managing underwriter or underwriters selected for such offering shall be the
Approved Underwriter (as hereinafter defined) selected in accordance with
Section 3(f). In connection with any Demand Registration under this Section 3
involving an underwriting, none of the Registrable Securities held by any
Designated Holder making a request for inclusion of such Registrable Securities
pursuant to Section 3(b) hereof shall be included in such underwriting unless
such Designated Holder accepts the terms of the underwriting as agreed upon by
the Company, the Initiating Holders and the Approved Underwriter, and then only
in such quantity as will not, in the opinion of the Approved Underwriter,
jeopardize the success of such offering by the Initiating Holders. If the
Approved Underwriter advises the Company in writing that in its opinion the
aggregate amount of such Registrable Securities requested to be included in
such offering is sufficiently large to have a material adverse effect on the
success of such offering, then the Company shall include in such registration
only the aggregate amount of Registrable Securities that in the opinion of the
Approved Underwriter may be sold without any such material adverse effect and
shall reduce, first as to the Designated Holders (who are not Initiating
Holders and who requested to participate in such registration pursuant to
Section 3(b) hereof) as a group, if any; and second as to the Initiating
Holders as a group, pro rata within each group based on the number of
Registrable Securities included in the request for Demand Registration, the
amount of Registrable Securities to be included in such registration; provided,
however, that if the number of Registrable Securities to be included in a
Demand Registration by an Initiating Holder is reduced by the Approved
Underwriter, then such Initiating Holder shall be entitled to retain a Demand
Registration with respect to such number of Registrable Securities excluded by
the Approved Underwriter, provided that such Initiating Holder may not initiate
such Demand Registration within nine months of the effective date of the
Registration Statement with respect to the Demand Registration in which the
Approved Underwriter excluded such Initiating Holder's Registrable Securities.
(f) Selection of Underwriters. If any Demand
Registration of Registrable Securities is in the form of an underwritten
offering, the Company shall select and obtain an investment banking firm of
national reputation to act as the managing underwriter of the offering (the
"APPROVED UNDERWRITER"); provided, however, that the Approved Underwriter
shall, in any case, be reasonably acceptable to the Initiating Holders holding
a majority of the Registrable Securities to be included in such registration
<PAGE> 12
4. Incidental or "Piggy-Back" Registration.
(a) Request for Incidental Registration. At any time
after the IPO Effectiveness Date, if the Company proposes to file a
Registration Statement under the Securities Act with respect to an offering by
the Company for its own account (other than a registration statement on Form
S-4 or S-8 or any successor thereto), then the Company shall give written
notice of such proposed filing to each of the Designated Holders of Registrable
Securities at least thirty (30) days before the anticipated filing date, and
such notice shall describe the proposed registration and distribution and offer
such Designated Holders the opportunity to register the number of Registrable
Securities as each such holder may request (an "INCIDENTAL REGISTRATION"). The
Company shall, and shall use its reasonable efforts (within ten (10) days of
the notice provided for in the preceding sentence) to cause the managing
underwriter or underwriters of a proposed underwritten offering (the "COMPANY
UNDERWRITER") to permit each of the Designated Holders who have requested in
writing to participate in the Incidental Registration to include its or his
Registrable Securities in such offering on the same terms and conditions as the
securities of the Company included therein. In connection with any Incidental
Registration under this Section 4(a) involving an underwriting, the Company
shall not be required to include any Registrable Securities in such
underwriting unless the holders thereof accept the terms of the underwriting as
reasonably agreed upon between the Company and the Company Underwriter, and
then only in such quantity as will not, in the opinion of the Company
Underwriter, jeopardize the success of the offering by the Company. If in the
written opinion of the Company Underwriter the registration of all or part of
the Registrable Securities which the Designated Holders have requested to be
included would materially adversely affect such offering, then the Company
shall be required to include in such Incidental Registration, to the extent of
the amount that the Company Underwriter believes may be sold without causing
such adverse effect, first, all of the securities to be offered for the account
of the Company; second, the Registrable Securities to be offered for the
account of the Designated Holders pursuant to this Section 4, pro rata based on
the amount recommended by the Company Underwriter; and third, any other
securities requested to be included in such underwriting.
(b) Expenses. The Company shall bear all Registration
Expenses (other than underwriting discounts and commissions) in connection with
any Incidental Registration pursuant to this Section 4, whether or not such
Incidental Registration becomes effective.
5. Form S-3 Registration
(a) Request for a Form S-3 Registration. In the event
that the Company shall receive from any Designated Holder (the "S-3 Initiating
Holder") a written request that the Company register, under the Securities Act
and the
<PAGE> 13
securities and "blue sky" laws of any jurisdiction reasonably designated by
such Designated Holder, on Form S-3 (or any successor form then in effect), all
or a portion of the Registrable Securities owned by such S-3 Initiating Holder,
the Company shall give written notice of such request to each of the other
Designated Holders at least 30 days before the anticipated filing date of such
Form S-3, and such notice shall describe the proposed registration and offer
such other Designated Holders the opportunity to register the number of
Registrable Securities as each such Designated Holder may request in writing to
the Company, given within 15 days after their receipt from the Company of the
written notice of such registration. The Company shall (i) take such steps as
are necessary or appropriate to prepare for the registration of the Registrable
Securities to be registered and (ii) use its reasonable best efforts to (x)
cause such registration pursuant to this Section 5(a) to become and remain
effective as soon as practicable, but in any event not later than three months
after it receives a request therefor and (y)cause the Company Underwriter to
permit the Designated Holders who have requested in writing to participate in
such registration to include their Registrable Securities in such offering on
the same terms and conditions as the Registrable Securities of the S-3
Initiating Holder included therein.
(b) Form S-3 Underwriting Procedures. If the S-3
Initiating Holder so elects, the Company shall use its reasonable efforts to
cause the offering on Form S-3 pursuant to this Section 5 to be in the form of
a firm commitment underwritten offering and the Company shall select an
investment banking firm of national reputation to act as the managing
underwriter of such offering; provided, however, that such underwriter shall,
in any cases be acceptable to the S-3 Initiating Holder in its reasonable
judgment. In connection with any offering under Section 5(a) involving an
underwriting, the Company shall not be required to include any Registrable
Securities in such underwriting unless the Designated Holders thereof accept
the terms of the underwriting as agreed upon between the Company, such selected
underwriter and the S-3 Initiating Holder, and then only in such quantity as
will not, in the opinion of such underwriter, jeopardize the success of the
offering by the S-3 Initiating Holder. If in the written opinion of such
underwriter the registration of all or part of the Registrable Securities which
the S-3 Initiating Holder and the other Designated Holders have requested to be
included would materially adversely affect such public offering, then the
Company shall be required to include in the underwriting, to the extent of the
amount that such underwriter believes may be sold without causing such adverse
effect, first, all of the Registrable Securities to be offered for the account
of the S-3 Initiating Holder; second, the Registrable Securities to be offered
for the account of the other Designated Holders who requested inclusion of
their Registrable Securities pursuant to Section 5(a), pro rata based on the
number of Registrable Securities proposed to be offered for the account of such
Designated Holders; and third, any other securities requested to be included in
such underwriting.
<PAGE> 14
(c) Limitations on Form S-3 Registrations. If at the
time of any request to register Registrable Securities pursuant to Section
5(a), the Company is engaged in, or has fixed plans to engage in within three
months (3) of the time of such request, a registered public offering or is
engaged in any other activity which, in the good faith determination of the
Board of Directors of the Company, would be adversely affected by the requested
registration on Form S-3 (or any successor form then in effect) to the material
detriment of the Company, then the Company may at its option direct that such
request be delayed for a reasonable period not in excess of three (3) months
from the effective date of such offering or the date of completion of such
other material activity, as the case may be, such right to delay a request to
be exercised by the Company not more than once in any one-year period. In
addition, the Company shall not be required to effect any registration pursuant
to Section 5(a), (i) within three months after the effective date of any other
Registration Statement of the Company, (ii) if within the 12-month period
preceding the date of such request, the S-3 Initiating Holder has included its
Registrable Securities in an offering on Form S-3, (iii) if Form S-3 is not
available for such offering by the Initiating S-3 Holder, (iv) if the S-3
Initiating Holder has already requested one registration on Form S-3 and all of
the Registrable Securities requested to be included in such registration were
so included or (v) if the S-3 Initiating Holder, together with the Designated
Holders (other than the S-3 Initiating Holder) registering Registrable
Securities in such registration, propose to sell their Registrable Securities
at an aggregate price (calculated based upon the Market Price of the
Registrable Securities on the date of filing of the Form S-3 with respect to
such Registrable Securities) to the public of less than $15,000,000. The
parties acknowledge and agree that the limitation in subsection (iv) of the
preceding sentence is for the purpose of limiting the General Atlantic
Shareholders (acting as a group through GAP LLC), the JMI Shareholders (acting
as a group through JMI) and the Pulaski Shareholders (acting as a group through
Pulaski) to one registration each on From S-3, regardless of the number of
Designated Holders in each group.
(d) Expenses. In connection with any registration
pursuant to this Section 5, the Company shall pay all Registration Expenses
(other than underwriting discounts and commissions), whether or not such
registration becomes effective.
(e) No Demand Registration. No registration requested
by any Designated Holder pursuant to this Section 5 shall be deemed a Demand
Registration pursuant to Section 3.
<PAGE> 15
6. Holdback Agreements.
(a) Restrictions on Public Sale by Designated Holders.
Each of the Designated Holders agrees not to effect any public sale or
distribution of any Registrable Securities being registered or of any
securities convertible into or exchangeable or exercisable for such Registrable
Securities, including a sale pursuant to Rule 144 under the Securities Act,
during the 90-day period beginning on the effective date of such registration
statement (except as part of such registration), (i) in the case of a
non-underwritten public offering, if and to the extent requested by the
Initiating Holders (in the event of a Demand Registration pursuant to Section
3) or the Company (in the event of an Incidental Registration pursuant to
Section 4(a)), as the case may be, or (ii) in the case of an underwritten
public offering, if and to the extent requested by the Approved Underwriter (in
the event of a Demand Registration pursuant to Section 3) or the Company
Underwriter (in the event of an Incidental Registration pursuant to Section
4(a)), as the case may be.
(b) Restrictions on Public Sale by the Company. The
Company agrees not to effect any public sale or distribution of any of its
securities, or any securities convertible into or exchangeable or exercisable
for such securities (except pursuant to registrations on Form S-5 or S-8 or any
successor thereto), during the period beginning on the effective date of any
registration statement in which the Designated Holders of Registrable
Securities are participating and ending on the earlier of (i) the date on which
all Registrable Securities registered on such registration statement are sold
and (ii) 180 days after the effective date of such registration statement.
7. Registration Procedures.
(a) Obligations of the Company. Whenever registration of
Registrable Securities has been requested pursuant to Section 3, Section 4 or
Section 5 of this Agreement, the Company shall use its reasonable efforts to
effect the registration and sale of such Registrable Securities in accordance
with the intended method of distribution thereof as quickly as practicable, and
in connection with any such request, the Company shall, as expeditiously as
reasonably possible:
(i) use its reasonable efforts to prepare and
file with the SEC a registration statement on any form for which the Company
then qualifies or which counsel for the Company shall deem appropriate and
which form shall be available for the sale of such Registrable Securities in
accordance with the intended method of distribution thereof, and use its best
efforts to cause such registration statement to become effective; provided,
however, that (x) before filing a registration statement or prospectus or any
amendments or supplements thereto, the Company shall provide counsel selected
by the Designated Holders holding a majority of the Registrable Securities
being registered in such registration ("Holders' Counsel")
<PAGE> 16
and any other Inspector (as hereinafter defined) with an adequate and
appropriate opportunity to participate in the preparation of such registration
statement and each prospectus included therein (and each amendment or
supplement thereto) to be filed with the SEC, which documents shall be subject
to the review of Holders' Counsel, and (y) the Company shall notify the
Holders' Counsel and each seller of Registrable Securities of any stop order
issued or threatened by the SEC and take all reasonable action required to
prevent the entry of such stop order or to remove it if entered;
(ii) prepare and file with the SEC such amendments
and supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective for the lesser of (x) 180 days and (y) such shorter period which will
terminate when all Registrable Securities covered by such registration
statement have been sold, and comply with the provisions of the Securities Act
with respect to the disposition of all securities covered by such registration
statement during such period in accordance with the intended methods of
disposition by the sellers thereof set forth in such registration statement;
(iii) as soon as reasonably possible, furnish to
each seller of Registrable Securities, prior to filing a registration
statement, copies of such registration statement as is proposed to be filed,
and thereafter such number of copies of such registration statement, each
amendment and supplement thereto (in each case including all exhibits thereto),
the prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as each such seller may
reasonably request in order to facilitate the disposition of the Registrable
Securities owned by such seller;
(iv) use its reasonable efforts to register or
qualify such Registrable Securities under such other securities or "blue sky"
laws of such jurisdictions as any seller of Registrable Securities may
reasonably request, and to continue such qualification in effect in such
jurisdiction for 180 days or for as long as any such seller requests or until
all of such Registrable Securities are sold, whichever is shortest, and do any
and all other acts and things which may be reasonably necessary or advisable to
enable any such seller to consummate the disposition in such jurisdictions of
the Registrable Securities owned by such seller; provided, however, that the
Company shall not be required to (x) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 7(a)(iv), (y) subject itself to taxation in any such jurisdiction or
(z) consent to general service of process in any such jurisdiction;
(v) use its reasonable efforts to cause the
Registrable Securities covered by such registration statement to be registered
with or approved by such other governmental agencies or authorities as may be
necessary by virtue of the
<PAGE> 17
business and operations of the Company to enable the seller or sellers of
Registrable Securities to consummate the disposition of such Registrable
Securities;
(vi) notify each seller of Registrable Securities
at any time when a prospectus relating thereto is required to be delivered
under the Securities Act, upon discovery that, or upon the happening of any
event as a result of which, the prospectus included in such registration
statement contains an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances under which they were
made, and the Company shall promptly prepare a supplement or amendment to such
prospectus and furnish to each seller a reasonable number of copies of a
supplement to or an amendment of such prospectus as may be necessary so that,
after delivery to the purchasers of such Registrable Securities, such
prospectus shall not contain an untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances under which
they were made;
(vii) enter into and perform customary agreements
(including an underwriting agreement in customary form with the Approved
Underwriter or Company Underwriter, if any, selected as provided in Section 3,
Section 4 or Section 5, as the case may be) and take such other actions as are
prudent and reasonably required in order to expedite or facilitate the
disposition of such Registrable Securities;
(viii) make available for inspection by any seller
of Registrable Securities, any managing underwriter participating in any
disposition pursuant to such registration statement, Holders' Counsel and any
attorney, accountant or other agent retained by any such seller or any managing
underwriter (each, an "Inspector" and collectively, the "Inspectors"), all
financial and other records, pertinent corporate documents and properties of
the Company and its subsidiaries (collectively, the "Records") as shall be
reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the Company's and its subsidiaries' officers,
directors and employees, and the independent public accountants of the Company,
to supply all information reasonably requested by any such Inspector in
connection with such registration statement. Records that the Company
determines, in good faith, to be confidential and which it notifies the
Inspectors are confidential shall not be disclosed by the Inspectors unless (x)
the disclosure of such Records is necessary to avoid or correct a misstatement
or omission in the registration statement, (y) the release of such Records is
ordered pursuant to a subpoena or other order from a court of competent
jurisdiction or (z) the information in such Records was known to the Inspectors
on a non-confidential basis prior to its disclosure by the Company or has been
made generally available to the public. Each seller of Registrable Securities
agrees that it shall, upon learning that disclosure of such Records is sought
in a court of competent jurisdiction, give notice to the Company
<PAGE> 18
and allow the Company, at the Company's expense, to undertake appropriate
action to prevent disclosure of the Records deemed confidential;
(ix) if such sale is pursuant to an underwritten
offering, use its best efforts to obtain a "cold comfort" letter from the
Company's independent public accountants in customary form and covering such
matters of the type customarily covered by "cold comfort" letters as Holders'
Counsel or the managing underwriter reasonably request;
(x) use its reasonable efforts to furnish, at the
request of any seller of Registrable Securities on the date such securities are
delivered to the underwriters for sale pursuant to such registration or, if
such securities are not being sold through underwriters, on the date the
registration statement with respect to such securities becomes effective, an
opinion, dated such date, of counsel representing the Company for the purposes
of such registration, addressed to the underwriters, if any, and to the seller
making such request, covering such legal matters with respect to the
registration in respect of which such opinion is being given as such seller may
reasonably request and are customarily included in such opinions and are
reasonably acceptable to counsel representing the Company;
(xi) otherwise use its reasonable efforts to
comply with all applicable rules and regulations of the SEC, and make available
to its security holders, as soon as reasonably practicable but no later than
fifteen (15) months after the effective date of the registration statement, an
earnings statement covering a period of twelve (12) months beginning after the
effective date of the registration statement, in a manner which satisfies the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder;
(xii) cause all such Registrable Securities to be
listed on each securities exchange on which similar securities issued by the
Company are then listed, provided that the applicable listing requirements are
able to be satisfied;
(xiii) keep Holders' Counsel advised in writing as
to the initiation and progress of any registration under Section 3 or Section 4
hereunder;
(xiv) cooperate with each seller of Registrable
Securities and each underwriter participating in the disposition of such
Registrable Securities and their respective counsel in connection with any
filings required to be made with the National Association of Securities
Dealers, Inc. (the "NASD"); and
(xv) use reasonable efforts to take all other
steps necessary to effect the registration of the Registrable Securities
contemplated hereby.
<PAGE> 19
(b) Seller Information. The Company may require each
seller of Registrable Securities as to which any registration is being effected
to furnish to the Company such information regarding the distribution of such
securities as the Company may from time to time reasonably request in writing.
Failure of any seller of Registrable Securities to provide any requested
information in a reasonably timely manner shall be grounds for removal of the
Registrable Securities of such seller from the offering.
(c) Notice to Discontinue. Each Designated Holder of
Registrable Securities agrees that, upon receipt of any notice from the Company
of the happening of any event of the kind described in Section 7(a)(vi), such
Designated Holder shall forthwith discontinue disposition of Registrable
Securities pursuant to the registration statement covering such Registrable
Securities until such Designated Holder's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 7(a)(vi) and, if so
directed by the Company, such Designated Holder shall deliver to the Company
(at the Company's expense) all copies, other than permanent file copies then in
such Designated Holder's possession, of the prospectus covering such
Registrable Securities which is current at the time of receipt of such notice.
If the Company shall give any such notice, the Company shall extend the period
during which such registration statement shall be maintained effective pursuant
to this Agreement (including, without limitation, the period referred to in
Section 7(a) (ii)) by the number of days during the period from and including
the date of the giving of such notice pursuant to Section 7(a) (vi) to and
including the date when the Designated Holder shall have received the copies of
the supplemented or amended prospectus contemplated by and meeting the
requirements of Section 7(a) (vi).
(d) Registration Expenses. The Company shall pay all
expenses (other than as set forth in Sections 3(d), 4(b) and 5(d)) arising from
or incident to the performance of, or compliance with, this Agreement,
including, without limitation, (i) SEC, stock exchange and NASD registration
and filing fees, (ii) all fees and expenses incurred in complying with
securities or "blue sky" laws (including reasonable fees, charges and
disbursements of counsel in connection with "blue sky" qualifications of the
Registrable Securities), (iii) all printing, messenger and delivery expenses,
(iv) the fees, charges and expenses of counsel to the Company and of its
independent public accountants and any other accounting fees, charges and
expenses incurred by the Company (including, without limitation, any expenses
arising from any "cold comfort" letters and any special audits incident to or
required by any registration or qualification) and the reasonable legal fees,
charges and expenses of one counsel engaged by the Initiating Holders to
represent their interests in connection with a Demand Registration and (v) any
liability insurance or other premiums for insurance obtained by the Company in
connection with any Demand Registration, Incidental Registration or
registration on Form S-3 pursuant to the terms of this Agreement, regardless of
whether such registration statement is declared
<PAGE> 20
effective. All of the expenses described in this Section 7(d) are referred to
herein as "REGISTRATION EXPENSES."
8. Indemnification: Contribution.
(a) Indemnification by the Company. The Company agrees
to indemnify and hold harmless, to the fullest extent permitted by law, each
Designated Holder, its officers, directors, trustees, partners, employees,
advisors and agents and each Person who controls (within the meaning of the
Securities Act or the Exchange Act) such Designated Holder from arid against
any and all losses, claims, damages, liabilities and expenses (including
reasonable costs of investigation) arising out of or based upon any untrue, or
allegedly untrue, statement of a material fact contained in any registration
statement, prospectus or preliminary prospectus or notification or offering
circular (as amended or supplemented if the Company shall have furnished any
amendments or Supplement( thereto) or arising out of or based upon any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, except
insofar as the same are caused by or contained in any information concerning
such Designated Holder furnished in writing to the Company by such Designated
Holder expressly for use therein. The Company shall also provide customary
indemnities to any underwriters of the Registrable Securities, their officers,
directors and employees and each Person who controls such underwriters (within
the meaning of the Securities Act and the Exchange Act) to the same extent as
provided above with respect to the indemnification of the Designated Holders of
Registrable Securities.
(b) Indemnification by Designated Holders. In connection
with any registration statement in which a Designated Holder is participating
pursuant to Section 3, Section 4 or Section 5 hereof, each such Designated
Holder shall furnish to the Company in writing such information with respect to
such Designated Holder as the Company may reasonably request or as may be
required by law for use in connection with any such registration statement or
prospectus and each Designated Holder agrees to indemnify and hold harmless to
the fullest extent permitted by law, the Company, any underwriter, retained by
the Company and their respective directors, officers, employees, advisors and
agents and each Person who controls the Company or such underwriter (within the
meaning of the Securities Act and the Exchange Act) to the same extent as the
foregoing indemnity from the Company to the Designated Holders, but only with
respect to any such information with respect to such Designated Holder
furnished in writing to the Company by such Designated Holder expressly for use
therein; provided, however, that the total amount to be indemnified by such
Designated Holder pursuant to this Section 8(b) shall be limited to the net
proceeds received by such Designated Holder in the offering to which the
registration statement or prospectus relates.
<PAGE> 21
(c) Conduct of Indemnification Proceedings. Any Person
entitled to indemnification hereunder (the "INDEMNIFIED PARTY") agrees to give
prompt written notice to the indemnifying party (the "INDEMNIFYING PARTY")
after the receipt by the Indemnified Party of any written notice of the
commencement of any action, suit, proceeding or investigation or threat thereof
made in writing for which the Indemnified Party intends to claim
indemnification or contribution pursuant to this Agreement; provided, however,
that the failure so to notify the Indemnifying Party shall not relieve the
Indemnifying Party of any liability that it may have to the Indemnified Party
hereunder. If notice of commencement of any such action is given to the
Indemnifying Party as above provided, the Indemnifying Party shall be entitled
to participate in and, to the extent it may wish, jointly with any other
Indemnifying Party similarly notified, to assume the defense of such action at
its own expense, with counsel chosen by it and reasonably satisfactory to such
Indemnified Party. The Indemnified Party shall have the right to employ
separate counsel in any such action and participate in the defense thereof, but
the fees and expenses of such counsel (other than reasonable costs of
investigation) shall be paid by the Indemnified Party unless (i) the
Indemnifying Party agrees to pay the same, (ii) the Indemnifying Party fails to
assume the defense of such action with counsel reasonably satisfactory to the
Indemnified Party in its reasonable judgment or (iii) the named parties to any
such action (including any impleaded parties) have been advised by such counsel
that either (x) representation of such Indemnified Party and the Indemnifying
Party by the same counsel would be inappropriate under applicable standards of
professional conduct or (y) there may be one or more legal defenses available
to it which are different from or additional to those available to the
Indemnifying Party. In either of such cases, the Indemnifying Party shall not
have the right to assume the defense of such action on behalf of such
Indemnified Party. No Indemnifying Party shall be liable for any settlement
entered into without its written consent, which consent shall not be
unreasonably withheld.
(d) Contribution. If the indemnification provided for in
this Section 8 from the Indemnifying Party is unavailable to an Indemnified
Party hereunder in respect of any losses, claims, damages, liabilities or
expenses referred to therein, then the Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such losses, claims, damages,
liabilities or expenses in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Party and Indemnified Party in connection
with the actions which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The relative
faults of such Indemnifying Party and Indemnified Party shall be determined by
reference to, among other things, whether any action in question, including any
untrue or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact, has been made by, or relates to information
supplied by, such Indemnifying Party or Indemnified Party, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such action. The amount
<PAGE> 22
paid or payable by a party as a result of the losses, claims, damages,
liabilities and expenses referred to above shall be deemed to include, subject
to the limitations set forth in Sections 8(a), 8(b) and 8(c), any legal or
other fees, charges or expenses reasonably incurred by such party in connection
with any investigation or proceeding; provided that the total amount to be
contributed by such Designated Holder shall be limited to the net proceeds
received by such Designated Holder in the offering.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 8(d) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding
paragraph. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person.
9. Rule 144. The Company hereby covenants that after it has
filed (and such Registration Statement has become effective) a Registration
Statement pursuant to Section 12 of the Exchange Act or a Registration
Statement pursuant to the Securities Act in respect of any Shares it shall file
(a) any reports required to be filed by it under the Exchange Act and (b) take
such further action as each Designated Holder of Registrable Securities may
reasonably request (including providing any information necessary to comply
with Rules 144 under the Securities Act), all to the extent required from time
to time to enable such Designated Holder to sell Registrable Securities without
registration under the Securities Act within the limitation of the exemptions
provided by (i) Rule 144 under the' Securities Act, as such rule may be amended
from time to time, or (ii) any similar rules or regulations hereafter adopted
by the SEC. The Company shall, upon the request of any Designated Holder of
Registrable Securities, deliver to such Designated Holder a written statement
as to whether it has complied with such requirements.
10. Miscellaneous.
(a) Recapitalizations, Exchanges, etc. The provisions of
this Agreement shall apply, to the full extent set forth herein with respect to
(i) the shares of Common Stock and (ii) any and all equity securities of the
Company or any successor or assign of the Company (whether by merger,
consolidation, sale of assets or otherwise) which may be issued in respect of,
in conversion of, in exchange for or in substitution of, the shares of Common
Stock and shall be appropriately adjusted for any stock dividends, splits,
reverse splits, combinations, recapitalizations and the like occurring after
the date hereof. The Company shall cause any successor or assign (whether by
merger, consolidation or otherwise) to enter into a new registration rights
agreement with the Designated Holders on terms substantially similar to this
Agreement as a condition of any such transaction.
<PAGE> 23
(b) No Inconsistent Agreements. The Company represents
and warrants that it has not granted to any Person the right to request or
require the Company to register any securities issued by the Company, other
than the rights granted to the Designated Holders herein. The Company shall
not enter into any agreement with respect to its securities that is
inconsistent with the rights granted to the Designated Holders in this
Agreement or grant any additional registration rights to any Person or with
respect to any securities which are not Registrable Securities which are prior
in right to or inconsistent with the rights granted in this Agreement.
(c) Remedies. The Designated Holders, in addition to
being entitled to exercise all rights granted by law, including recovery of
damages, shall be entitled to specific performance of their rights under this
Agreement. The Company agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of the
provisions of this Agreement and hereby agrees to waive in any action for
specific performance the defense that a remedy at law would be adequate.
(d) Amendments and Waivers. Except as otherwise provided
herein, the provisions of this Agreement may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless consented to in writing by (i) the Company and (ii) the
Designated Holders holding Registrable Securities representing (after giving
effect to any adjustments) at least 85% of the aggregate number of Registrable
Securities owned by all of the Designated Holders; provided, however, that any
such amendment, modification, supplement, waiver or consent shall not be
effective to withdraw, deny or adversely affect the rights of any Designated
Holder who has not consented in writing thereto. Subject to the proviso in the
preceding sentence, any such written consent shall be binding upon the Company
and all of the Designated Holders.
(e) Notices. All notices, demands and other
communications provided for or permitted hereunder shall be made in writing and
shall be made by registered or certified first class mail, return receipt
requested, telecopier, courier service, overnight mail or personal delivery:
(i) if to the Company:
BindView Development Corporation
3355 West Alabama, Suite 1200
Houston Texas 77098-1718
Telecopy: (713) 881-9200
Attention: Eric J. Pulaski,
President
<PAGE> 24
with a copy to:
Brown, Parker & Leahy, L.L.P.
1200 Smith Street, Suite 3600
Houston, Texas 77002-4595
Telecopy: (713) 654-1871
Attention: Barry Davis, Esq.
(ii) if to the Pulaski Shareholders:
BindView Development Corporation
3355 West Alabama, Suite 1200
Houston, Texas 77098-1718
Telecopy:
Attention: Eric J. Pulaski, President
with a copy to:
Brown, Parker & Leahy, L.L.P.
1200 Smith Street, Suite 3600
Houston, Texas 77002-4595
Telecopy: (713) 654-1871
Attention: Barry Davis, Esq.
(iii) if to GAP LP or GAP Coinvestment:
c/o General Atlantic Service Corporation
3 Pickwick Plaza
Greenwich, Connecticut 06830
Telecopy: (203) 622-8818
Attention: Mr. Stephen P. Reynolds
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Telecopy: (212) 757-3990
Attention: Matthew Nimetz, Esq.
<PAGE> 25
(iv) if to JMI:
c/o JMI Equity Fund III, L.P.
12860 High Bluff Road, Suite 200
San Diego, California 92130
Telecopy: (619) 259-4843
Attention: Charles E. Noell, III
(v) if to any other Designated Holder, at its
address as it appears on the record books of
the Company.
All such notices and communications shall be deemed to have been duly
given when delivered by hand, if personally delivered; when delivered by
courier or overnight mail, if delivered by commercial courier service or
overnight mail; five (5) Business Days after being deposited in the mail,
postage prepaid, if mailed; and when receipt is mechanically acknowledged, if
telecopied.
(f) Successors and Assigns. This Agreement shall inure
to the benefit of and be binding upon the successors and permitted assigns of
each of the parties hereto. The Demand Registration rights of the General
Atlantic Shareholders, the JMI Shareholders and the Pulaski Shareholders
contained in Section 3 hereof and the other rights of each of the General
Atlantic Shareholders, JMI Shareholders and the Pulaski Shareholders with
respect thereto shall be, with respect to any Registrable Security, (i)
automatically transferred among the General Atlantic Shareholders, (ii)
automatically transferred among the JMI Shareholders, (iii) automatically
transferred among the Pulaski Shareholders and (iv) in all other cases,
transferred only with the consent of the Company. The incidental or
"piggy-back" registration rights of the Designated Holders contained in
Sections 3(b) and 4 hereof, the Form S-3 registration rights contained in
Section 5 hereof and the other rights of each of the Designated Holders with
respect thereto shall be, with respect to any Registrable Security,
automatically transferred by such Designated Holder to any Person who is the
transferee of such Registrable Security. All of the obligations of the Company
hereunder shall survive any such transfer; provided, however, that the
"piggyback" registration rights of the Other Shareholders (as set forth in
subsection (g) below) may be transferred only with the consent of the Company.
(g) Third Party Beneficiaries. The parties to this
Agreement agree that the shareholders of the Company listed on Schedule 1 (the
"OTHER SHAREHOLDERS") shall be entitled to certain "piggy-back" registration
rights under Sections 3(b), 4(a) and 5(a) of this Agreement. The rights
granted pursuant to the preceding sentence are expressly conditioned on the
agreement of each such Other Shareholder to abide by the obligations set forth
herein as if such Other Shareholder was an original signatory to this Agreement
including, without limitation, the
<PAGE> 26
obligations set forth in Sections 3(b), 4(a), 5(b), 6(a) 7(a) and 8(b). The
Company shall provide notice to the Other Shareholders of an event that
triggers the Other Shareholders' "piggy-back" registration rights. The number
of Registrable Securities of the Other Shareholders requested to be included in
any such registration shall be included in the Registrable Securities of the
Pulaski Shareholders for purposes of any calculation the number of Registrable
Securities that may be included in such registration. Other than as set forth
in this Section 10(g) and Sections 8(a) and 8(b), no Person other than the
parties hereto and their successors and permitted assigns is intended to be a
beneficiary of any of the rights granted hereunder.
(h) Counterparts. This Agreement may be executed in any
number of counterparts and by the parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
(i) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(J) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD
TO THE PRINCIPLES OF CONFLICTS OF LAW THEREOF.
(k) Severability. If any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions hereof shall not be in any way impaired, it being
intended that all of the rights and privileges of the Designated Holders shall
be enforceable to the fullest extent permitted by law.
(l) Entire Agreement. This Agreement is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties
hereto in respect of the subject matter contained herein. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein and in the Stock Purchase Agreement. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
(m) Further Assurances. Each of the parties shall
execute such documents and perform such further acts as may be reasonably
required or desirable to carry out or to perform the provisions of this
Agreement.
<PAGE> 27
IN WITNESS WHEREOF, the undersigned have executed, or have caused to
be executed, this Agreement on the date first written above.
BINDVIEW DEVELOPMENT CORPORATION
By: /s/ Eric J. Pulaski
---------------------------------------------
Name: Eric J. Pulaski
Title: President and Chief Executive Officer
GENERAL ATLANTIC PARTNERS 44, L.P.
By: GENERAL ATLANTIC PARTNERS, LLC,
Its General Partner
By: /s/ Stephen F. Reynolds
--------------------------------------
Name: Stephen F. Reynolds
Title: A Managing Member
GAP COINVESTMENT PARTNERS, L.P.
By: /s/ Stephen P. Reynolds
--------------------------------------------
Name: Stephen P. Reynolds
Title: A General Partner
JMI EQUITY FUND III, L.P.
By: JMI ASSOCIATES III, L.L.C.
Its General Partner
By: /s/ Charles E. Noell
--------------------------------------------
Name: Charles E. Noell
Title: Member
/s/ Eric J. Pulaski
-----------------------------------------
Eric J. Pulaski
<PAGE> 28
SCHEDULE 1
<PAGE> 29
OTHER SHAREHOLDERS
Scott R. Plantowsky
Nadeem Ghias
Irl Nathan
Christopher J. Sole
David Pulaski
<PAGE> 1
EXHIBIT 10.11
EMPLOYEE AGREEMENT
PLEASE READ THIS AGREEMENT CAREFULLY. THIS AGREEMENT DESCRIBES THE BASIC LEGAL
AND ETHICAL RESPONSIBILITIES THAT YOU ARE REQUIRED TO OBSERVE AS AN EMPLOYEE
EXPOSED TO HIGHLY SENSITIVE TECHNOLOGY AND STRATEGIC INFORMATION IN PERFORMING
YOUR DUTIES AT BINDVIEW DEVELOPMENT CORPORATION. BINDVIEW DEVELOPMENT
CORPORATION BELIEVES THAT THIS AGREEMENT STRIKES A FAIR BALANCE BETWEEN ITS
INTERESTS AND THE EMPLOYEE'S NEEDS AND EXPECTATIONS. THIS AGREEMENT IS LONG
BECAUSE AN EFFORT HAS BEEN MADE TO PROTECT BOTH THE YOU AND BINDVIEW
DEVELOPMENT CORPORATION BY BEING AS CLEAR AND PRECISE AS POSSIBLE.
The Terms and Conditions of this Agreement are listed below, effective as of
the date shown below, by and between employer, BINDVIEW DEVELOPMENT CORPORATION
("BINDVIEW") and Christopher J. Sole ("Employee"), as employee:
1.0 COMPENSATION AND BENEFITS
Employee's compensation shall be as provided in Appendix A to this
Agreement, or as otherwise agreed by the parties in writing from time
to time. However, the parties expressly agree that Appendix A is not
otherwise a part of this Agreement, and that this Agreement
constitutes the sole and entire agreement of the parties.
2.0 SCOPE OF DUTIES
2.1 EMPLOYMENT BY BINDVIEW AS SOLE OCCUPATION. Employee agrees to
devote substantially all of Employee's business time,
attention, skill, and effort to the performance of the duties
that BINDVIEW may assign Employee from time to time.
It is the policy of BINDVIEW never to allow its personnel to
work for any competitive enterprise during their employment,
including after hours, on weekends, or during vacation time,
even if only organizational assistance or limited consultation
is involved.
2.2 NONINTERFERENCE WITH THIRD-PARTY RIGHTS. Employee warrants
and represents that, in entering into this Agreement and
performing the obligations imposed by this Agreement, Employee
is not violating any contractual, fiduciary, or other legal
duty which Employee may owe to some other person, and that
only BINDVIEW is entitled to the benefit of the Employee's
work. BINDVIEW has no interest in using any other person's
patents, copyrights, trade secrets, or trademarks in an
unlawful manner. Employee agrees that Employee will not
misapply proprietary rights of other persons by accepting
employment with BINDVIEW or in the course of his/her
employment with BINDVIEW.
Page 1
<PAGE> 2
2.3 CONTINUANCE OF EMPLOYMENT. Employment will give at least two
weeks' notice in advance of any termination by Employee of
employment. Under applicable Texas law, an employee may
normally be terminated without notice and without cause. In
exchange for Employee's promises in this Agreement, BINDVIEW
agrees that it will only terminate Employee's employment as
follows:
A. For Cause. BINDVIEW may terminate your employment
for cause. The following shall constitute cause:
1. Any misconduct which BINDVIEW deems unethical
or detrimental to BINDVIEW's legitimate
interests;
2. Conviction by final action of any court of
any offense punishable as a felony or
involving moral turpitude;
3. Any unreasonable failure to perform assigned
duties;
4. The death of Employee or the insolvency of
BINDVIEW; and
5. For any breach of this Agreement
In the case of a termination for cause, BINDVIEW
shall have no further obligation to Employee except
as provided in this Agreement, in any applicable law,
or under the terms of any benefit plan sponsored by
BINDVIEW in which Employee participates.
B. For Convenience. BINDVIEW may terminate your
employment at any time at its sole discretion.
However, if employee is terminated for convenience,
employee shall be entitled to pay for vacation time
accrued but not yet taken, as well as severance pay
in the amount of at least one-half month's salary at
time of termination.
3.0 CONFIDENTIALITY
3.1 CONSEQUENCES OF ENTRUSTMENT WITH SENSITIVE INFORMATION.
Employee should recognize that Employee's position with
BINDVIEW requires considerable responsibility and trust
Relying on Employee's ethical responsibility and undivided
loyalty, BINDVIEW expects to entrust Employee with highly
sensitive confidential, restricted, and proprietary
information involving Trade Secrets (as defined in Section
3.2). Employee should recognize that it could prove very
difficult to isolate these Trade Secrets from business
activities that Employee might consider pursuing after
termination of Employee's employment, and in some instances,
Employee may not be able to compete with BINDVIEW in certain
ways because of the risk that BINDVIEW's Trade Secrets might
be compromised. Employee is legally and ethically responsible
for protecting and preserving BINDVIEW's rights for use only
for BINDVIEW's benefit, and these responsibilities may,
therefore, impose unavoidable limitations on Employee's
ability to pursue some kinds of business opportunities that
might interest Employee during or after Employee's employment.
Page 2
<PAGE> 3
3.2 TRADE SECRETS DEFINED. For purposes of this Agreement, a
"Trade Secret" is any information, including, but not limited
to, technical or nontechnical data, formulas, patterns,
compilations, programs, devices, methods, techniques,
information, drawings, processes, financial data, financial
plans, marketing plans, product plans, or lists of actual or
potential customers or suppliers that: (1) derive economic
value, actual or potential, from not being generally known to,
and not being readily ascertainable by proper means by, other
persons who can obtain economic value from their disclosure or
use; and (2) are the subject of efforts that are reasonable
under the circumstances to maintain their secrecy. "Trade
Secrets" also includes any information or materials deemed to
be proprietary or trade secrets under applicable law.
3.3 RESTRICTIONS ON USE AND DISCLOSURE OF TRADE SECRETS. Employee
agrees not to use or disclose any Trade Secrets of BINDVIEW
during Employee's employment and for so long afterwards as the
pertinent information or data remain Trade Secrets, regardless
of whether the Trade Secrets are in written or tangible form,
except as required to perform any duties for BINDVIEW.
3.4 SCREENING OF PUBLIC RELEASES OF INFORMATION. In addition, and
without any intention of limiting Employees other obligations
under this Agreement in any way, Employee should not, during
Employee's employment, reveal any non-public information
concerning the technology pertaining to the proprietary
products and manufacturing processes of BINDVIEW (particularly
technology under current development or improvement), unless
Employee has obtained approval from BINDVIEW in advance. In
that connection, Employee should submit to BINDVIEW for review
any proposed scientific or technical articles and text, notes,
or display materials for any public speeches relating to any
BINDVIEW work or product which has not yet been publicly
disclosed. BINDVIEW has the right to disapprove and prohibit,
or delete any parts of, such articles or speeches that might
disclose BINDVIEW'S Trade Secrets or other confidential
information or otherwise be contrary to BINDVIEW's business
interests.
4.0 OWNERSHIP OF EMPLOYEE DEVELOPMENTS
4.1 OWNERSHIP OF WORK PRODUCT
A. BINDVIEW shall own all Work Product (as defined in
Section 4.1(E)). All Work Product shall be
considered work made for hire by Employee and owned
by BINDVIEW.
B. If any of the Work Product may not, by operation of
law, be considered work made for hire by Employee for
BINDVIEW, or if ownership of all right, title, and
interest of the intellectual property rights therein
shall not otherwise vest exclusively in BINDVIEW,
Employee agrees to assign, and upon creation thereof
automatically assign, without further consideration,
the ownership of all Trade Secrets (as defined in
Section 3.2), U.S. and international copyrights,
patentable inventions and related patents and patent
applications if any, and other intellectual property
Page 3
<PAGE> 4
rights therein to BINDVIEW, its successors, and
assigns.
C. BINDVIEW, its successors, and assigns, shall have the
right to obtain and hold in its or their own name
copyrights, registrations, and any other protection
available in the foregoing.
D. Employee agrees to perform, upon the reasonable
request of BINDVIEW, during or after Employee's
employment, such further acts as may be necessary or
desirable to transfer, perfect, and defend BINDVIEW's
ownership of the Work Product When requested,
Employee will:
1. Execute, acknowledge, and deliver any
requested affidavits and documents of
assignment and conveyance;
2. Obtain and aid in the enforcement of
copyrights and, if applicable, patents with
respect to the Work Product in any countries;
3. Provide testimony in connection with any
proceeding affecting the right, title, or
interest of BINDVIEW in any Work Product; and
4. Perform any other reasonable acts deemed
necessary or desirable to carry out the
purposes of this Agreement.
BINDVIEW shall reimburse all reasonable out-of-pocket
expenses incurred by Employee at Employee's request
in connection with the foregoing.
E. For purposes hereof, "Work Product" shall mean all
intellectual property rights, including all Trade
Secrets, U.S. and international copyrights,
patentable inventions, discoveries and improvements,
and other intellectual property rights, in any
programming, documentation, technology, or other Work
Product that relates to the business and interests of
BlNDVIEW and that Employee may conceive, develop, or
deliver to BINDVIEW at any time during the term of
Employee's employment. Work Product shall also
include all intellectual property rights in any
programming, documentation, technology, or other work
product that is now contained in any of the products
or systems, including development and support
systems, of BINDVIEW to the extent Employee
conceived, developed, or delivered such Work Product
to BINDVIEW prior to the date of this Agreement while
Employee was engaged as an independent contractor or
an employee of BINDVIEW. Employee hereby irrevocably
relinquishes for the benefit of BINDVIEW and its
assigns any moral rights in the Work Product
recognized by applicable law.
4.2 INVENTION ASSIGNMENT. BINDVIEW shall be the sole owner of any
and all "Discoveries" and "Work Product." Discoveries means
all inventions, discoveries, and improvements (including
without limitation any information relating to manufacturing
techniques, processes, formulas, developments or experimental
Page 4
<PAGE> 5
work, work in progress, or business trade secrets), that are
related to BINDVIEW's business. Work Product means any and
all other work product relating to Discoveries and related to
BINDVIEW's business.
A Discovery or Work Product is Related to BINDVIEW business if
it is made or conceived or reduced to practice by Employee (in
whole or in part, either alone or jointly with others),
whether or not potentially patentable or copyrightable in the
U.S. or elsewhere, and it: (a) involves equipment, supplies,
facilities, or trade secret information of BINDVIEW, or (b)
involves the time for which Employee was compensated by
BINDVIEW, or (c) relates to the business of BINDVIEW or to its
actual or demonstrably anticipated research and development,
or (d) results, in whole or in part, from work performed by
Employee for BINDVIEW.
Employee shall promptly disclose to BINDVIEW or its nominee
all Discoveries and Work Product. The terms "Discoveries" and
"Work Product" are intended to encompass Computer Software,
which is defined to encompass all Computer Programs and
associated Documentation and all Copies thereof. All such
disclosures shall include furnishing complete and accurate
copies of all Source Code, Object Code, Documentation, work
notes, test data, reports, samples, and other tangible
evidence or results (collectively referred to as "Tangible
Embodiments") of such Discoveries or Work Product. All
Tangible Embodiments of any Discoveries or Work Product shall
be deemed to have been assigned to BINDVIEW as a result of the
act of expressing any Discovery or Work Product therein.
Employee assigns and agrees to assign to BINDVIEW all his/her
interest in any country in any and all Discoveries and/or Work
Product, whether such interest arises under patent law,
copyright law, trade-secret law, semiconductor chip protection
law, or otherwise. Without limiting the generality of the
foregoing, Employee hereby authorizes BINDVIEW to make any
desired changes to any part of any Discoveries or Work Product,
to combine it with other materials in any manner desired, and
to withhold Employee's identity in connection with any
distribution or use thereof alone or in combination with other
materials.
This assignment and assignment obligation applies to all
Discoveries and/or Work Product arising during Employee's
employment, whether arising before or after the execution of
this Agreement
At the request of BINDVIEW, Employee shall promptly and
without additional compensation execute any and all patent
applications, copyright registration applications, waivers of
moral rights, assignments, or other instruments which BINDVIEW
deems necessary or appropriate to apply for or obtain Letters
Patent of the United States or any foreign country or
otherwise to protect BINDVIEW's interest in such Discovery
and/or Work Product
To the extent that any Discovery or Work Product constitutes
copyrightable or similar subject matter that is eligible to be
treated as a "work made for hire" or as having similar status
in the United States or elsewhere, it shall be so deemed.
This provision does not alter or limit Employee's other
obligations to assign intellectual property rights hereunder.
Page 5
<PAGE> 6
The obligations set forth in this Section shall continue
beyond the termination of Employee's employment with respect
to Discoveries and/or Work Product conceived or made by
Employee alone or in concert with others during Employee's
employment. Those obligations shall be binding upon Employee,
his/her assigns permitted hereunder, executors, administrators
and other representatives.
4.3 CLEARANCE PROCEDURE FOR PROPRIETARY RIGHTS NOT CLAIMED BY
BINDVIEW. If Employee ever wishes to create or develop, on
Employee's own time and with Employee's own resources,
anything that may be considered Work Product but to which
Employee believes Employee should be entitled to the personal
benefit of, Employee is required to follow the clearance
procedure set forth in this section in order to ensure that
BINDVIEW has no claim to the proprietary rights that may
arise.
Before Employee begins any such work on Employee's own time,
Employee must give BINDVIEW advance notice of Employee's plans
and supply a description of the work under consideration.
Unless otherwise agreed in a writing signed by BINDVIEW prior
to receipt, BINDVIEW shall have no obligation of confidence
with respect to such description. BINDVIEW will determine, in
good faith, within thirty (30) days after Employee has fully
disclosed Employee's plans to BINDVIEW, whether the work is
claimed by BINDVIEW. If BINDVIEW determines that it does not
claim such work, Employee will be notified in writing and may
retain ownership of the development to the extent of what has
been disclosed to BINDVIEW. Employee should submit for
further clearance any significant improvement, modification,
or adaptation so that it can be determined whether the
improvement, modification, or adaptation relates to the
business or interests of BINDVIEW.
5.0 RETURN OF MATERIAL
Upon the request of BINDVIEW and, in any event, upon the termination
of Employee's employment, Employee must return to BINDVIEW and leave
at its disposal all memoranda, notes, records, drawings, manuals,
computer programs, documentation, diskettes, computer tapes, and other
documents or media pertaining to the business of BINDVIEW or
Employee's specific duties for BINDVIEW including all copies of such
material Employee must also return to BINDVIEW and leave at its
disposal all materials involving any Trade Secrets of BINDVIEW. This
Section 5 is intended to apply to all material made or compiled by
Employee as well as to all materials furnished to Employee by anyone
else in connection with Employee's employment
6.0 PROHIBITION AGAINST UNFAIR BUSINESS PRACTICES
6.1 UNFAIR BUSINESS PRACTICES. Employment activities at computer
software companies such as BlNDVIEW may be susceptible to
unfair or questionable business practices. For example, Trade
Secrets and other confidential information can be
misappropriated and valuable documents can be copied and taken
for improper purposes. Industrial espionage can be a serious
concern for businesses
Page 6
<PAGE> 7
that depend on sensitive technology for commercial success.
Employees at such companies can be targets of, or participants
in, unfair business practices, because of the special
attractiveness of the advanced technology, computer programs,
product development strategies, and business opportunities
they come to know by virtue of their employment. It would be
unfair for a former employee or contractor of BINDVIEW to
recruit personnel directly from the ranks of BINDVIEW's own
employees by using connections and inside information
previously acquired from BINDVIEW. BINDVIEW puts great
emphasis on selecting, training, and promoting talented
individuals for positions of significant responsibility. The
time, effort, and capital invested by BINDVIEW in its work
force should not be diverted by someone operating on an inside
track. In addition, it would be unfair for individuals still
employed by BINDVIEW to form and pursue a competitive business
while receiving wages and other benefits from BINDVIEW.
6.2 REFRAINING FROM HARMFUL ACTIONS. During Employee's employment
with BINDVIEW, Employee is required to refrain from engaging
in any action that might be harmful to BINDVIEW or its
business, unless BINDVIEW consents in advance. Employee's
responsibility to promote and support BINDVIEW's business by
its very nature requires Employee to prevent BINDVIEW from
suffering injury or hardship, if it can be avoided. This
obligation is intentionally broad and general because it is
difficult to anticipate all possible circumstances, and
Employee should resolve all doubts by consulting BINDVIEW on
how best to proceed. By way of example, during Employee's
employment with BINDVIEW, Employee may not solicit or recruit
any other BINDVIEW employee to form or join another business.
BINDVIEW cannot prohibit Employee from terminating Employee's
employment and pursuing other kinds of work, but if Employee
should decide to form or join another business Employee is
required to advise BINDVIEW promptly, so that projects in
progress and under consideration are not needlessly disrupted
and so that even the possibility that Trade Secrets or other
confidential information may be compromised can be avoided.
6.3 REFRAINING FROM SOLICITATION OF CUSTOMERS. During the term of
your employment with BlNDVIEW and for a period of twelve (12)
months from the voluntary or involuntary termination of your
employment with BINDVIEW for any reason whatsoever, you shall
not solicit, induce or attempt to induce any past or current
supplier or customer of BINDVIEW to cease doing business in
whole or in part with or through BINDVIEW.
7.0 IMPLEMENTATION
7.1 SEVERABILITY. The terms and conditions of this Agreement are
severable. The invalidity or unenforceability of any clause
or provision of this Agreement shall not affect the
applicability or any other clause or provision of this
Agreement The unenforceability of any clause or provision of
this Agreement in one case or in some circumstance shall not
affect its application in other cases or under other
circumstances.
Page 7
<PAGE> 8
7.2 SURVIVAL OF OBLIGATIONS. The covenants in Section 3 through
Section 7 of this Agreement shall not survive termination of
Employee's employment, regardless of who causes the
termination and under what circumstances.
7.3 NOTICES. All notices required under this Agreement shall be
made in writing and shall be deemed given when (1) delivered
in person, (2) deposited in the U.S. mail, first class, with
proper postage prepaid and properly addressed, or (3) sent
through the interoffice delivery service of BINDVIEW, if
Employee is still employed by BINDVIEW at the time.
7.4 RELATED PARTIES. This Agreement shall inure to the benefit
of, and be binding upon, BINDVIEW and its parents or
subsidiaries and its affiliates, together with their
successors and assigns, and Employee, together with Employee's
executor, administrator, personal representative, heirs, and
legatees.
7.5 MERGER. This Agreement represents the entire Agreement of the
parties. This Agreement merges and supersedes all prior and
contemporaneous agreements, undertakings, covenants, or
conditions, whether oral or written, express or implied.
7.6 CHOICE OF LAW. The waiver of he breach of any term or
condition of this Agreement will not be deemed to constitute
waiver of any other subsequent breach of the same or any other
term or condition. This Agreement shall be governed by and
interpreted according to the laws of the United States of
America and to the laws of the State of Texas applicable to
agreements made between Texas residents in and for performance
entirely in Texas.
IN WITNESS WHEREOF, Employee, as an employee of BINDVIEW, has entered and
executed this Agreement under seal, and BINDVIEW has accepted Employee's
undertaking.
EMPLOYEE: Chris Sole
---------------
/s/ Chris Sole
- ------------------------
Signature
Date: May 13, 1996
Accepted by BINDVIEW DEVELOPMENT CORPORATION:
/s/ Eric Pulaski
- ------------------------
ERIC PULASKI
President, BINDVIEW DEVELOPMENT CORPORATION
Page 8
<PAGE> 9
Appendix "A"
Christopher J. Sole
COMPENSATION (SALARY AND BONUSES)
Your base salary will be $110,000 per year, paid in accordance to the
existing payroll schedule.
From time to time, management of BindView Development may, at its sole
discretion, issue bonuses to you. Future bonuses are not guaranteed,
but are generally related to profitability of the Company, achievement
of personal milestones, and exemplary work performance.
BENEFITS
BindView Development has a comprehensive health, dental, and
disability insurance plan, which you can join for a deduction of $15
per paycheck or $75 per paycheck for you and your entire family ($30
or $150 per month respectively). BindView also provides a Flexible
Spending Account Plan so that you may get the tax advantages of
medical and dependent care costs and unreimbursed medical expenses as
the plan allows.
4O1K
BindView Development has a 401K plan. Enrollment dates are twice a
year and the plan has a mandatory 90 day grace period before
enrollment. You are allowed to participate in this plan within the
limits of the IRS and the plan document. Currently, the Company
guarantees to match your contribution with up to 50% of the first 6%
of your salary that you contribute to the plan and there may be a
discretionary match, based on company performance at year end.
STOCK PLAN
See attached stock plan.
<PAGE> 10
BINDVIEW DEVELOPMENT CORPORATION
EMPLOYMENT AGREEMENT - AMENDMENT NO. 1
THIS AMENDMENT NO. 1 dated May 13, 1996 ("Amendment") to the
EMPLOYMENT AGREEMENT (the "Original Agreement"), dated 13th day of May, 1996 by
and between BindView Development Corporation ("BINDVIEW") and Christopher J.
Sole ("Employee"), modifies the Original Agreement, by section (Original
Agreement as modified is the "Agreement"), as follows:
1.0 COMPENSATION AND BENEFITS. Original Agreement Section 1.0 is
modified as follows:
a. The second sentence of Section 1.0 is deleted, and in
its place there is inserted: "Appendix A consists of Sections 3, 4, 5, 6, and 7
of BINDVIEW's offer letter of March 1, 1996 to Employee as to Employee's salary
compensation, bonus and employee benefits and phantom stock and stock option
rights."
b. A second paragraph is added to Section 1.0, as
follows:
Additionally, BINDVIEW shall pay directly or reimburse the Employee for other
reasonable travel, entertainment, conferences and other expenses incurred or
paid by the Employee in connection with, or related to, the performance of his
responsibilities under this Agreement, and his remaining current in the
industry, on presentation by Employee of receipts for such expenses. As part of
these expenses, BINDVIEW will pay or reimburse all Employee's cost for
temporary apartment or home rental, living expenses and car rental in the
Houston area, and his legal costs including transaction costs for his BINDVIEW
employment and stock option clarification. Such costs are being incurred for
the convenience of BINDVIEW and shall be employer expenses, not part of
Employee's compensation. To the extent that the above categories of expenses
exceed the offered $15,000 costs, BINDVIEW agrees to review augmenting this
amount.
2.0 SCOPE OF DUTIES. Original Agreement Section 2.0 is modified
as follows:
a. Original Agreement Section 2.1 is modified with a
revised heading and new first sentence added, to read, "EMPLOYMENT BY BINDVIEW
OF SOLE. The Board of Directors of Company ("the Board") has duly elected
Employee, Christopher J. Sole, and Employee shall serve, as Chief Operating
Officer of BINDVIEW reporting to the Chief Executive Officer. The Employee
will have duties set forth in Section 2 of the offer letter, as attached in
Appendix A, together with such other appropriate responsibilities, duties,
authority and support as are commensurate with such a position.
1
<PAGE> 11
b. Original Agreement Section 2.3 is modified by
inserting a new first sentence after the heading, to read, "CONTINUANCE OF
EMPLOYMENT. BINDVIEW confirms its offer and Employee accepts employment with
BINDVIEW on the terms set forth in the Agreement, with employment intended for
the period of five (5) years unless sooner terminated by Employee or BINDVIEW
with or without cause in accordance with the provisions of this Section 2.3.
c. Original Agreement Section 2.3 is modified by
inserting a new paragraph after clause A.5.:
"BINDVIEW" may terminate the Employee for cause, provided that in the case of
causes A.l, 3 and 5 above, the Employee shall be first given express notice of
the specific reasons and, on Employee's request, a reasonable opportunity to
correct his actions, so that, if cause is cured, employment may continue, and,
if not cured, termination for cause would then become effective.
e. Original Agreement Section 2.3 is modified by
inserting in clause B second sentence after "convenience", the words: "by
BINDVIEW or for cause by Employee due to breach of agreement by BINDVIEW", and
replacing "one-half" with "six (6)".
3.0 CONFIDENTIALITY.
Trade Secrets shall not cover any documents, materials or
other information generally known in the industry, known to Employee before
taking such position or independently acquired by him afterward. The parties
recognize that because of the broad definition employed, documents should be
marked Trade Secret and Confidential when confidentiality is expected by
BINDVIEW.
4.0 OWNERSHIP OF EMPLOYEE DEVELOPMENTS
5.0 RETURN OF MATERIAL
7.0 PROHIBITION AGAINST UNFAIR BUSINESS PRACTICE
The Original Agreement shall not restrict Employee in (a) use or
disclosure of information known prior to employment with BINDVIEW or
independently acquired by him, or (b) from competition with BINDVIEW including
solicitation of its customers and employees for any period longer than twice
the period Employee continues to receive severance pay under Section 2.3.B. of
the Agreement.
8.0 IMPLEMENTATION. ORIGINAL AGREEMENT Section 8.0 IS MODIFIED AS
FOLLOWS:
a. Original Agreement Section 8.6 is modified by
inserting after "Agreement", "as modified by this Amendment No. l"
2
<PAGE> 12
b Insertion of an additional section, as follows:
"8.8 BINDING ARBITRATION; COSTS. Any dispute, difference or
question arising under this Agreement shall be resolved at the request of
either party through binding arbitration. Such arbitration shall be conducted
under the rules and procedures of the American Arbitration Association by one
or more arbitrators appointed in accordance with such rules. Judgment upon any
award by the arbitrator may be entered in any court having jurisdiction. In the
event that either party must resort to legal action to enforce its right under
this Agreement, the prevailing party, in addition to other relief will be
entitled to collect its costs and expenses including reasonable attorney's fee
and costs, whether or not suit is actually brought. All late payments shall
bear interest at the Wall Street Journal prime rate.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year set forth above.
EMPLOYEE: CHRISTOPHER J. SOLE
/s/ Christopher J. Sole
-----------------------------------
CHRISTOPHER J. SOLE
BINDVIEW DEVELOPMENT CORPORATION
By /s/ Eric Pulaski
---------------------------------
Eric Pulaski, President & CEO
3
<PAGE> 1
EXHIBIT 10.12
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into
as of November 7, 1998, to be effective as of April 15, 1997, by and between
BINDVIEW DEVELOPMENT CORPORATION, a Texas corporation (the "Corporation"), and
Scott Plantowsky (hereinafter referred to as "Employee").
W I T N E S S E T H:
WHEREAS, the Corporation is primarily engaged in the development,
service and maintenance of Network and Systems Management Software and other
related endeavors ancillary to such activities (hereinafter referred to as the
"Business"); and
WHEREAS, Employee has particular skills, knowledge and abilities
useful to the Business, and the Corporation desires to employ the Employee, and
the Employee desires to be employed by Corporation, pursuant to the terms and
provisions contained herein; and
NOW, THEREFORE, for and in consideration of the promises and mutual
covenants and conditions contained herein, including employment or continued
employment for the term specified hereafter, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties agree as follows:
ARTICLE I
EMPLOYMENT
Section 1.01. Employment and Title. (a) The Corporation hereby agrees
to employ Employee, and Employee hereby accepts employment, as Vice-President
and Chief Financial Officer upon and subject to the terms and conditions
hereinafter set forth. This agreement supersedes any and all prior agreements
and understandings, both written and oral, concerning such employment and each
party hereto expressly revokes and cancels any and all such agreements and
understandings. As Vice-President and Chief Financial Officer, Employee shall
serve the Corporation on a full-time basis (except as provided in Section
1.01(c) hereof) subject to the supervision and control of the Corporation's
Board of Directors (hereinafter referred to as the "Board") and other
designated and/or authorized officers and managers ("Supervisor"). Employee
hereby agrees to serve the Corporation in such capacity during the Employment
Term (as hereinafter defined).
(b) During the Employment Term, Employee shall perform services
hereunder (i) for the compensation set forth herein and without additional
compensation unless otherwise agreed to in writing between the Corporation and
Employee, and (ii) in such employment capacity for the Corporation or any
successor thereof to which Employee may be directed by the Corporation's Board
or the Board of Directors of any such successor. The Corporation may also
utilize Employee in any other work or activity in furtherance of the Business
in which Employee's talents may be applied in a manner commensurate with
Employee's position, training, knowledge, skills and abilities.
<PAGE> 2
(c) Employee agrees to serve the Corporation faithfully and to the
best of Employee's abilities in furtherance of the Business, and to perform any
and all duties directed by the Board or Supervisor, during the course of
Employee's employment. Except as otherwise may be approved by the
Corporation's Board or Supervisor, Employee further agrees to devote
substantially all of Employee's business time, attention, abilities and energy
exclusively to the business of the Corporation throughout the Employment Term,
except for vacation periods and periods of sick leave in accordance with the
Corporation's policies as may be adopted or amended from time to time; provided
however, that Employee shall be specifically permitted to maintain his current
activities in connection with his involvement in the businesses listed on
Exhibit I hereto commensurate with his past practices while employed by the
Corporation.
(d) Employee further agrees to abide by the Corporation's Articles
of Incorporation, Bylaws, rules and regulations as may be in effect, amended
and/or established from time to time by the Board and/or Supervisor.
(e) Employee shall keep the Board informed, as the Board may
request, as to all activities which Employee proposes to be or is engaged on
behalf of the Corporation.
ARTICLE II
COMPENSATION, BONUS AND BENEFITS
Section 2.01. Compensation. As compensation for all services rendered
pursuant to this Agreement, Employee shall initially be entitled to receive
from the Corporation an aggregate base salary (hereinafter referred to as the
"Base Salary") at the rate of One Hundred Ten Thousand Dollars ($110,000) per
annum commencing with the execution hereof. Thereafter, Employee's annual Base
Salary shall be determined by the Board on an annual basis. The annual Base
Salary to be paid to Employee hereunder shall be paid in twenty four (24) equal
installments less applicable withholding, FICA, other taxes and authorized
deductions, if any.
Section 2.02. Stock Options; Bonus. As additional compensation for
all services rendered pursuant to this Agreement, the Corporation shall grant
Employee a stock option in substantially the form attached hereto as Exhibit II
("Option Agreement").
Section 2.03. Reimbursement for Expenses. As permitted by the Board
from time to time, Employee shall be authorized to incur reasonable business
expenses in connection with performing his duties herein and promoting the
business. The Corporation shall reimburse Employee for all of his reasonable
business expenses (including reasonable expenditures for travel, meals and
hotel accommodations) incurred in the course of his employment by the
Corporation pursuant to this Agreement. All reimbursements shall be in
accordance with the Corporation's established expense reimbursement policies
and shall be expressly conditioned upon the Corporation's receipt of all
required information or documentation as generally
-2-
<PAGE> 3
determined by the Corporation, including, without limitation, all information
or documentation necessary or appropriate for deduction of the payments by the
Corporation on its federal and/or state income tax returns and all appropriate
information relating to (i) the amount of the expenditure, (ii) the time, place
and designation of the type of entertainment, travel or other expense, (iii)
the business or other reason for the expenditure, and (iv) the names,
occupations and addresses of each person entertained.
Section 2.04. Fringe Benefits. Employee shall be entitled to
participate in fringe benefits generally made available to senior management of
the Corporation, as from time to time determined by the Board. In this regard,
Employee shall be responsible for any costs generally charged to such employees
for participation therein.
Section 2.05. Vacation. Employee shall be entitled to take vacation
with pay each year according to the policies of the Corporation. Vacation time
shall be taken with due consideration to the services required of Employee and
the requirements of the Corporation.
Section 2.06. Bonuses and Other Compensation. Employee shall be
entitled to bonuses and other compensation when specifically approved in
writing in advance by the Board.
ARTICLE III
TERM, TERMINATION, RESIGNATION AND/OR DISABILITY, SEVERANCE
Section 3.01. Term. The "Employment Term" pursuant to this Agreement
shall begin upon execution hereof, and shall continue until January 1, 2000,
unless (i) terminated sooner pursuant to the terms hereof or (ii) extended
beyond such date by mutual agreement of the Corporation and the Employee.
Section 3.02. Termination of Employment by the Corporation for Cause.
The Corporation may terminate the employment of Employee for "Cause" if the
Company's Board of Directors determines, in good faith, that the Employee has:
(a) breached or habitually neglected the material duties
which he was required to perform under any provision of this Agreement, which
breach or habitual neglect continues after written notice to the Employee by
the Corporation;
(b) misappropriated funds or property of the Corporation or
otherwise engaged in acts of dishonesty, fraud, misrepresentation or other acts
of moral turpitude, even if not in connection with the performance of his
duties hereunder, which would result in serious prejudice to the interests of
the Corporation if he were retained as an employee;
(c) secured any personal profit not disclosed to and
approved by the Corporation in connection with any transaction entered into on
behalf of or with the Corporation or any affiliate of the Corporation; or
-3-
<PAGE> 4
(d) is convicted by a court of competent jurisdiction of any
felony.
In the event of termination of his employment for Cause, Employee shall be
entitled to receive his salary due or accrued on a pro rata basis to the date
of termination, any annual incentive award earned for fiscal years ending
before his termination date but unpaid, and reimbursement of expenses properly
incurred but not yet reimbursed.
Section 3.03. Termination by the Corporation Without Cause. The
Corporation may terminate the employment of Employee with fourteen days'
written notice for any reason other than those enumerated in Section 3.02
hereof, in which event such termination shall be deemed a termination without
Cause.
Section 3.04. Termination of Employment by Employee for Good Reason.
The Employee may terminate his employment for Good Reason with sixty (60) days'
written notice to the Corporation. As used herein, "Good Reason" means the
occurrence of any of the following events without Employee's prior written
consent:
(a) Eric J. Pulaski ceasing to serve as Chief Executive
Officer of the Corporation for any reason other than death or disability;
(b) a reduction by the Corporation in Employee's gross pay
such that it no longer is commensurate with the gross pay of other executives
of the Corporation; and
(c) a failure by the Corporation to provide Employee with a
package of fringe benefits that (taken as a whole) is of at least equivalent
benefit to Employee when compared with the fringe benefits (when taken as a
whole) in effect for Employee at the inception of this Agreement.
Section 3.05. Employee's Resignation. Employee shall have the right
to terminate employment and this Agreement at any time upon 60 days' written
notice to the Corporation. In the event Employee voluntarily terminates
employment and this Agreement and the Corporation is not in material breach of
this Agreement. Employee shall only be entitled to receive compensation and
benefits which accrued prior to the effective date of such resignation.
Section 3.06. Termination due to Death, Disability, Retirement or
Liquidation of the Business. The employment of the Employee and this Agreement
may be terminated by the Corporation upon the occurrence of any of the
following events, which termination shall be deemed a termination for reasons
other than "Cause":
(a) Employee's employment hereunder shall automatically
terminate upon the death of Employee.
(b) Employee's employment hereunder shall automatically
terminate upon a determination by the Corporation's President or its Board that
Employee is subject to a "Permanent Disability." For purposes of this
Agreement, the terms "Permanently Disabled" or "Permanent Disability" shall
mean a disability by reason of the occurrence
-4-
<PAGE> 5
of an injury or disease (including a mental illness) or a physical or mental
condition which, in the opinion of the Board, results in Employee becoming
unable to adequately perform, with or without reasonable accommodation, the
essential functions of the Employee's customary duties for the Corporation, or
otherwise results in the employee being unable to meet the definition of "a
qualified individual with a disability," found in Section 12.111 of the
Americans With Disabilities Act (42 U.S.C. ' 12.111[8]).
(c) Employee's employment hereunder shall automatically
terminate upon "Retirement." For purposes of this Agreement, the term
"Retirement" means withdrawal from active employment with the Corporation at
the age of sixty-five (65) years old, or older, with the intent not to be
actively employed by the Corporation in the future. Employee shall not be
deemed to be actively employed if the time anticipated to be devoted to the
Business by Employee will average less than thirty (30) hours per week on an
annualized basis.
(d) Employee's employment hereunder shall automatically
terminate upon the (1) liquidation and/or dissolution of the Corporation, or
(2) discontinuance of substantially all active operations of the Business in
the primary area where Employee generally works. Termination of Employee's
employment pursuant to this subparagraph shall be effective on the date that
the event described above occurs unless otherwise determined by the Board.
Section 3.07. Corporation's Option to Purchase Shares of Common Stock
Upon Termination for Cause or Employee's Resignation. Upon the termination of
the employment of Employee for any reason enumerated in Section 3.02 or Section
3.05 hereof, prior to the following dates (an "Option Event"), the Corporation
may, at its option (the "Option"), purchase up to the following number of
shares of common stock, no par value per share (the "Common Stock"), as set
forth opposite such Option Event date, from Employee:
<TABLE>
<CAPTION>
Employee Shares of Common
Option Event Prior to Stock Subject to Company Option
--------------------- -------------------------------
<S> <C>
July 1, 1998 87,500
January 1, 1999 65,625
July 1, 1999 43,750
January 1, 2000 21,875
</TABLE>
The per share cash purchase price for the Option shall be $7.12 per share (the
"Option Price"). The Option granted hereunder may be exercised from time to
time by the Corporation delivering to the Employee (i) a written notification
specifying the number of shares that the Corporation desires to purchase and
(ii) cash, certified check, bank draft, postal or express money order payable
to the order of the Employee for an amount equal to the Option Price of such
shares of Common Stock. The Option granted hereunder is not transferable by
the Corporation. If the Corporation shall, with respect to shares of the
Common Stock held of record on or after the date of this Agreement, effect a
subdivision or consolidation of shares or other capital readjustment,
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<PAGE> 6
the payment of a stock dividend, or other increase or reduction of the number
of shares of the Common Stock outstanding, without receiving compensation
therefor in money, services or property, then the number, class and per share
Option Price of the shares of Common Stock subject to the Option hereunder
shall be appropriately adjusted in such a manner as to entitle the Corporation
to receive upon its exercise of the Option granted hereunder, for the same
aggregate cash consideration, the same total number and class of shares as it
would have received as a result of the event requiring the adjustment had it
exercised the Option granted hereunder in full immediately prior to such event.
Except as hereinbefore expressly provided, the issue by the Corporation of
shares of stock of any class, or securities convertible into shares of stock of
any class, for cash or property, or for labor or services either upon direct
sale or upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares or obligations of the Corporation convertible into such
shares or other securities, shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number or the Option Price of shares
of Common Stock then subject to the Option granted hereunder.
ARTICLE IV
COVENANT NOT TO COMPETE AND CONFIDENTIAL INFORMATION
Section 4.01. Restrictive Covenant. (a) During the Employment Term
and for a period of two (2) years following the termination of Employee's
employment with the Corporation for any reason including, without limitation,
termination occasioned by Employee's resignation or the expiration of this
Agreement, Employee shall not:
(i) Directly or indirectly engage in, or work for, or own,
manage, operate, control or participate in the ownership, management, operation
or control of, or be connected with, or have any financial interest in, any
individual, partnership, firm, corporation or institution engaged in the same
or similar business activities to those now or hereafter carried on by the
Corporation within the Area of Interest (as hereinafter defined);
(ii) Interfere with the relationship of the Corporation and
any of its employees, agents, representatives or Customers (as hereinafter
defined);
(iii) Directly or indirectly divert or attempt to divert from
the Corporation any business in which the Corporation has been actively engaged
during the Employment Term, or interfere with the relationships of the
Corporation with its dealers, distributors, sources of supply or Customers; or
(iv) Contact or otherwise seek or solicit business as now or
hereafter carried on by the Corporation from any Customer of the Corporation
within the Area of Interest. For purposes of this Agreement, a "Customer" is
defined as any (A) individual, entity or member for whom services are provided
or to whom products are sold by, or who has engaged in business with, the
Corporation or any of its affiliates or subsidiaries as of the date of
termination, or within the two (2) year period prior to the date of
termination, of the Employee's employment hereunder, (B) person or entity which
has been contacted by the Employee in the course of Employee's employment with
the Corporation or its affiliates or subsidiaries, or (C) past, present and
prospective Customers.
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(b) Employee's covenants against competition as set forth in
subparagraph (a) above shall commence on the date of this Agreement and shall
continue for a period of two (2) years after the date of termination of
Employee's employment hereunder for any reason. The restraints against
competition imposed upon and agreed to by Employee hereunder shall apply to,
and be enforceable in, the United States (the area covered by these covenants
against competition is herein referred to as the "Area of Interest").
Section 4.02. Nondisclosure of Confidential Information. (a) Employee
acknowledges that the Corporation may disclose to Employee, and that Employee
may otherwise come into contact with, certain confidential information during
the Employment Term Employee hereby covenants and agrees that Employee will
not, without prior written consent of the Corporation, during the Term of this
Agreement or at any time thereafter, disclose or permit to be disclosed to any
third party by any method whatsoever any of the confidential information of the
Corporation. For purposes of this Agreement, "confidential information" shall
include, but not be limited to, any and all records, notes, memoranda, data,
ideas, processes, methods, techniques, systems, formulas, patents, models,
devices, programs, computer software, writings, research, personnel
information, plans, customer lists, pricing materials and policies, purchasing
methods and policies, billing and usage reports, or any other information of
whatever nature in the possession or control of the Corporation which has not
been published or disclosed to the general public, or which gives to the
Corporation an opportunity to obtain an advantage over competitors who do not
know of or currently use such confidential information. Employee further
agrees that if Employee's employment hereunder is terminated for any reason,
Employee will leave with the Corporation and will not take originals or copies
of any and all confidential information and all other matters of whatever
nature which bear secret or confidential information of the Corporation.
(b) The foregoing paragraph shall not be applicable if and to the
extent Employee is required to testify in a judicial or regulatory proceeding.
(c) The foregoing covenants will not prohibit Employee from
disclosing confidential or other information to other employees of the
Corporation or to third parties to the extent that such disclosure is approved
in writing by the Board prior to such disclosure and is necessary for the
performance of Employee's duties under this Agreement.
Section 4.03. Assignment. Employee will disclose immediately to the
Corporation any discoveries or improvements (including without limitation any
information relating to the development of software or any enhancements
thereto) which are developed, in whole or in part, at the request of the
Corporation or in the course of Employee's duties pursuant to this Agreement
("Discoveries"). As further consideration by Employee to the Corporation
hereunder, Employee hereby assigns and agrees to assign any Discoveries to the
Corporation, whether such Discoveries arise under patent, copyright or other
laws. The Corporation shall have the right to make
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any changes or modifications to the Discoveries. The Corporation hereby agrees
to take such actions and execute and deliver such instruments or documents to
carry out the provisions of this Section 4.03.
Section 4.04. Survival of Covenants. The covenants of Article IV
hereof shall survive any termination of Employee's employment and any
termination of this Agreement, and shall be enforceable according to their
terms.
Section 4.05. Remedy for Breach. (a) Employee expressly recognizes
and acknowledges that the terms and conditions of this Agreement and
specifically Article IV hereunder are (i) reasonable as to time, geographical
area and activity to be restrained, (ii) necessary to protect the good will or
other legitimate business interest of the Corporation, and (iii) not unduly
burdensome to Employee. Furthermore, the parties hereto recognize that
irreparable injury will result to the Corporation, its business and property in
the event of a breach or threatened breach of any of the above covenants by the
Employee and that Employee's continued employment and compensation are based in
large measure upon the covenants against competition and disclosure and the
assurances made herein. Therefore, the parties hereto agree that in the event
of a violation of any of the covenants herein against competition or disclosure
of confidential information by the Employee:
(i) all payments due to the Employee hereunder or under any
other arrangement between the Employee and the Corporation shall be terminated
and Employee shall have no contractual right to such unpaid sums;
(ii) Employee's employment hereunder may be terminated;
(iii) the Corporation shall be entitled to any remedies and
damages available to the Corporation at law or equity; and
(iv) in addition to any other legal or equitable remedies and
damages available, the Corporation shall be entitled to the issuance of
restraining orders or injunctions, both temporary and permanent, in order to
restrict the violation thereof by the Employee, Employee's partners, agents,
servants, employees and employers, and all persons acting directly or
indirectly for or with Employee.
(b) Employee represents and admits that in the event of the
termination of Employee's employment for any reason whatsoever, Employee's
experience and capabilities are such that Employee can obtain employment in
business engaged in other lines or of a different nature which would not
violate this Agreement and that the enforcement of the remedy against Employee
under this Agreement by way of an injunction or restraining order will not
prevent Employee from earning a livelihood.
(c) If any court of competent jurisdiction should hereinafter
determine in the course of litigation that the provisions of this paragraph are
unreasonable with respect to length of time, geographical area, or activities
so restrained, then this clause shall be construed to operate for such period
of time and such geographical area or areas and in respect of such activities
as said court shall determine to be the maximum reasonable
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restraint in the circumstances, and the parties agree to submit such question
or questions to such court in the event of any such determination of
unreasonableness.
ARTICLE V
MISCELLANEOUS
Section 5.01. Notices. All notices, demands or other communications
required or provided hereunder shall be in writing and shall be deemed to have
been given at the earlier of (i) actual receipt, or (ii) three (3) days after
deposit in the United States mail as provided below. Notice may be sent by
personal service, or by deposit in the United States mail, certified or
registered, postage prepaid, return receipt requested, addressed to the parties
at the addresses set forth below or at such other addresses as such parties may
designate by notice to the other parties.
If to the Corporation: Bindview Development Corporation
3355 West Alabama, Suite 1200
Houston, Texas 77098
If to Employee: Scott Plantowsky
3369 Maroneal
Houston, Texas 77025
Section 5.02. Applicable Law. THIS AGREEMENT AND THE OBLIGATIONS OF
THE PARTIES HEREUNDER SHALL BE INTERPRETED, CONSTRUED, GOVERNED AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
Section 5.03. Entire Agreement. This Agreement contains the entire
agreement between the parties relative to the matters covered herein, and
supersedes any and all other oral and written agreements, express or implied,
concerning the subject matter of this Agreement. No variations, modifications
or changes in this Agreement shall be binding upon a party unless set forth in
a document duly executed by or on behalf of such party.
Section 5.04. Assignability. The Corporation, its transferees,
successors and assigns reserve the right to assign this Agreement, and all of
the rights and obligations of Corporation hereunder, to any of their respective
successors, affiliates or future subsidiaries. Neither this Agreement, nor the
rights and obligations created under it, may be assigned by Employee without
the prior written consent of the Corporation.
Section 5.05. Independent Covenants. The provisions contained in this
Agreement are independent and separate. In the event that any provision is
declared unenforceable, the other provisions shall not be affected or impaired
but shall remain valid and enforceable.
Section 5.06. Consent and Waiver. No consent or waiver, express or
implied, by any party hereto of any breach or default by the other party shall
be deemed or
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construed to be a consent or waiver to or of any other breach or default.
Failure on the part of any party to complain of any act or failure to act of
the other party or to declare the other party in default, irrespective of how
long such failure continues, shall not constitute a waiver by such party of its
rights hereunder.
Section 5.07. Severability. If any provision of this Agreement or the
application thereof to any person or circumstance shall be held invalid or
unenforceable to any extent, such illegality or unenforceability shall extend
to that provision only, and the remainder of this Agreement shall be enforced
to the greatest extent permitted by law as if such illegal or unenforceable
provision were not incorporated herein.
Section 5.08. Relationship of the Employee. The relationship between
Employee and the Corporation shall be limited to the performance of duties and
responsibilities contemplated by and in accordance with the terms of this
Agreement. Nothing herein shall be construed to authorize Employee to act as
agent of the Corporation for any other purposes.
Section 5.09. Successors. Subject to the provisions of Section 5.04
hereof, this Agreement shall be binding upon the parties hereto, their heirs,
administrators, successors, executors and assigns, and the parties hereto
covenant and agree that they and their respective heirs, executors, successors,
administrators and assigns will execute any and all instruments, releases,
assignments and consents that may be reasonably required to fully implement the
provisions of this Agreement. Except as otherwise provided herein, this
Agreement shall inure to the benefit of and be enforceable by and against the
respective heirs, executors, administrators, legal representatives, successors
and assigns of the Employee.
Section 5.10. Third Party Beneficiary. Nothing in this Agreement
shall be deemed to create any right in any creditor or other person not a party
hereto (other than the successors and assigns of a party hereto), and this
instrument shall not be construed in any respect to be a contract in whole or
in part for the benefit of any other person or entity except as aforesaid.
Section 5.11. Additional Acts. In connection with this Agreement, as
well as all transactions contemplated by this Agreement, Employee agrees to
execute and deliver such additional documents or perform such additional acts
as may be necessary or appropriate to effectuate, carry out and perform all of
the terms, provisions and conditions of this Agreement.
Section 5.12. Counterparts. This Agreement may be executed in several
counterparts, each of which shall serve as an original for all purposes, but
all copies of which shall constitute but one and the same Agreement.
Section 5.13. Headings and Captions. The Article and Section headings
and other captions contained in this Agreement are inserted only as a matter of
convenience, do not form a part of this Agreement and in no way define, limit,
extend or describe the scope, meaning, construction or effect of this Agreement
or any provision hereof or the intent of the parties.
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Section 5.14. Enforcement. In the event it becomes necessary for any
party hereto to file suit to enforce this Agreement or any provision contained
herein, the prevailing party in such action shall be entitled to recover, in
addition to all other remedies or damages, court costs, expenses of litigation
and reasonable attorneys' fees incurred in such suit.
Section 5.15. Business Days. Whenever the terms of this Agreement
call for the performance of a specific act on a specified date, which date
falls on a Saturday, Sunday or legal holiday, the date for the performance of
such act shall be postponed to the next succeeding regular business day
following such Saturday, Sunday or legal holiday.
Section 5.16. Dispute Resolution. If any dispute arises pursuant to
this Agreement or the interpretation thereof, the party believing such dispute
exists shall provide written notice thereof and the reasons therefore to the
other party. The parties shall then promptly meet and review such dispute. If
they cannot agree on a resolution thereof within thirty (30) days after receipt
of the notice of dispute, the dispute shall be settled by arbitration in
accordance with the rules of the American Arbitration Association in Houston,
Texas. The decision of the arbitration panel shall be final and binding upon
the parties. In no event, however, shall any dispute, claim or disagreement
arising under Article IV of this Agreement be submitted to arbitration pursuant
to this Section 5.16 or otherwise.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to
be effective as of April 15, 1997.
BINDVIEW DEVELOPMENT CORPORATION
By: /s/ Eric J. Pulaski
------------------------------------------
Eric J. Pulaski, President
EMPLOYEE:
/s/ Scott R. Plantowsky
---------------------------------------------
Scott R. Plantowsky
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EXHIBIT I
Businesses
Student Furniture Partnership I
Student Furniture Partnership II
Student Furniture Partnership III
Student Furniture Partnership IV
Student Furniture Partnership V
Plantowsky Family Limited Partnership
PFLP Holdings, Inc.
Max Capital Corporation
MK Capital Corporation
Plantowsky's Contract Furniture
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<PAGE> 1
EXHIBIT 10.13
EMPLOYEE AGREEMENT
PLEASE READ THIS AGREEMENT CAREFULLY. THIS AGREEMENT DESCRIBES THE BASIC LEGAL
AND ETHICAL RESPONSIBILITIES THAT YOU ARE REQUIRED TO OBSERVE AS AN EMPLOYEE
EXPOSED TO HIGHLY SENSITIVE TECHNOLOGY AND STRATEGIC INFORMATION IN PERFORMING
YOUR DUTIES AT BINDVIEW DEVELOPMENT CORPORATION. BINDVIEW DEVELOPMENT
CORPORATION BELIEVES THAT THIS AGREEMENT STRIKES A FAIR BALANCE BETWEEN ITS
INTERESTS AND THE EMPLOYEE'S NEEDS AND EXPECTATIONS. THIS AGREEMENT IS LONG
BECAUSE AN EFFORT HAS BEEN MADE TO PROTECT BOTH YOU AND BINDVIEW DEVELOPMENT
CORPORATION BY BEING AS CLEAR AND PRECISE AS POSSIBLE.
The Terms and Conditions of this Agreement are listed below, effective as of
the date shown below, by and between employer, BINDVIEW DEVELOPMENT CORPORATION
("BINDVIEW") and David Pulaski ("Employee"), as employee:
1.0 COMPENSATION AND BENEFITS
Employee's compensation shall be as provided in Appendix A to this
Agreement, or as otherwise agreed by the parties in writing from time
to time. However, the parties expressly agree that Appendix A is not
otherwise a part of this Agreement, and that this Agreement
constitutes the sole and entire agreement of the parties.
2.0 SCOPE OF DUTIES
2.1 EMPLOYMENT BY BINDVIEW AS SOLE OCCUPATION. Employee agrees to
devote substantially all of Employee's business time,
attention, skill, and effort to the performance of the duties
that BINDVIEW may assign Employee from time to time.
It is the policy of BlNDVIEW never to allow its personnel to
work for any competitive enterprise during their employment,
including after hours, on weekends, or during vacation time,
even if only organizational assistance or limited consultation
is involved.
2.2 NONINTERFERENCE WITH THIRD-PARTY RIGHTS. Employee warrants
and represents that, in entering into this Agreement and
performing the obligations imposed by this Agreement, Employee
is not violating any contractual, fiduciary, or other legal
duty which Employee may owe to some other person, and that
only BINDVIEW is entitled to the benefit of the Employee's
work. BINDVIEW has no interest in using any other person's
patents, copyrights, trade secrets, or trademarks in an
unlawful manner. Employee agrees that Employee will not
misapply proprietary rights of other persons by accepting
employment with BINDVIEW or in the course of his/her
employment with BINDVIEW.
2.3 CONTINUANCE OF EMPLOYMENT. Employee will give at least two
weeks' notice in
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advance of any termination by Employee of employment. Under
applicable Texas law, an employee may normally be terminated
without notice and without cause. In exchange for Employee's
promises in this Agreement, BINDVIEW agrees that it will only
terminate Employee's employment as follows:
A. For Cause. BINDVIEW may terminate your employment
for cause. The following shall constitute cause:
1. Any misconduct which BINDVIEW deems unethical
or detrimental to BINDVIEW's legitimate
interests;
2. Conviction by final action of any court of
any offense punishable as a felony or
involving moral turpitude;
3. Any unreasonable failure to perform assigned
duties;
4. The death of Employee or the insolvency of
BINDVIEW; and
5. For any breach of this Agreement
In the case of a termination for cause, BINDVIEW
shall have no further obligation to Employee except
as provided in this Agreement, in any applicable law,
or under the terms of any benefit plan sponsored by
BINDVIEW in which Employee participates.
B. For Convenience. BINDVIEW may terminate your
employment at any time at its sole discretion.
However, if employee is terminated for convenience,
employee shall be entitled to pay for vacation time
accrued but not yet taken, as well as severance pay
in the amount of at least one-half month's salary at
time of termination.
3.0 CONFIDENTIALITY
3.1 CONSEQUENCES OF ENTRUSTMENT WITH SENSITIVE INFORMATION.
Employment should recognize that Employee's position with
BINDVIEW requires considerable responsibility and trust
Relying on Employee's ethical responsibility and undivided
loyalty, BINDVIEW expects to entrust Employee with highly
sensitive confidential, restricted, and proprietary
information involving Trade Secrets (as defined in Section
3.2). Employee should recognize that it could prove very
difficult to isolate these Trade Secrets from business
activities that Employee might consider pursuing after
termination of Employee's employment, and in some instances,
Employee may not be able to compete with BINDVIEW in certain
ways because of the risk that BINDVIEW's Trade Secrets might
be compromised. Employee is legally and ethically responsible
for protecting and ethically responsible for protecting and
preserving BINDVIEW's proprietary rights for use only for
BINDVIEW's benefit, and these responsibilities may, therefore,
impose unavoidable limitations on Employee's ability to pursue
some kinds of business opportunities that might interest
Employee during or after Employee's employment.
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3.2 TRADE SECRETS DEFINED. For purposes of this Agreement, a
"Trade Secret" is any information, including, but not limited
to, technical or nontechnical data, formulas, patterns,
compilations, programs, devices, methods, techniques,
information, drawings, processes, financial data, financial
plans, marketing plans, product plans, or lists of actual or
potential customers or suppliers that: (1) derive economic
value, actual or potential, from not being generally known to,
and not being readily ascertainable by proper means by, other
persons who can obtain economic value from their disclosure or
use; and (2) are the subject of efforts that are reasonable
under the circumstances to maintain their secrecy. "Trade
Secrets" also includes any information or materials deemed to
be proprietary or trade secrets under applicable law.
3.3 RESTRICTIONS ON USE AND DISCLOSURE OF TRADE SECRETS. Employee
agrees not to use or disclose any Trade Secrets of BINDVIEW
during Employee's employment and for so long afterwards as the
pertinent information or data remain Trade Secrets, regardless
of whether the Trade Secrets are in written or tangible form,
except as required to perform any duties for BINDVIEW.
3.4 SCREENING OF PUBLIC RELEASES OF INFORMATION. In addition, and
without any intention of limiting Employees other obligations
under this Agreement in any way, Employee should not, during
Employee's employment, reveal any notary public information
concerning the technology pertaining to the proprietary
products and manufacturing processes of BINDVIEW (particularly
technology under current development or improvement), unless
Employee has obtained approval from BINDVIEW in advance. In
that connection, Employee should submit to BINDVIEW for review
any proposed scientific or technical articles and text, notes,
or display materials for any public speeches relating to any
BINDVIEW work or product which has not yet been publicly
disclosed. BINDVIEW has the right to disapprove and prohibit,
or delete any parts of, such articles or speeches that might
disclose BINDVIEW's Trade Secrets or other confidential
information or otherwise be contrary to BINDVIEW's business
interests.
4.0 OWNERSHIP OF EMPLOYEE DEVELOPMENTS
4.1 OWNERSHIP OF WORK PRODUCT.
A. BINDVIEW shall own all Work Product (as
defined in Section 4.1(E)). All Work Product
shall be considered work made for hire by
Employee and owned by BINDVIEW.
B. If any of the Work Product may not, by
operation of law, be considered work made for
hire by Employee for BINDVIEW, or if
ownership of all right, title, and interest
of the intellectual property rights therein
shall not otherwise vest exclusively in
BINDVIEW, Employee agrees to assign, and upon
creation thereof automatically assign,
without further consideration, the ownership
of all Trade Secrets (as defined in Section
3.2), U.S. and international copyrights,
patentable inventions and related patents and
patent applications if any, and other
intellectual property
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rights therein to BINDVIEW, its successors,
and assigns.
C. BINDVIEW, its successors, and assigns, shall
have the right to obtain and hold in its or
their own name copyrights, registrations, and
any other protection available in the
foregoing.
D. Employee agrees to perform, upon the
reasonable request of BINDVIEW during or
after Employee's employment, such further
acts as may be necessary or desirable to
transfer, perfect, and defend BINDVIEW's
ownership of the Work Product When requested,
Employee will:
1. Execute, acknowledge, and deliver
any requested affidavits and
documents of assignment and
conveyance;
2. Obtain and aid in the enforcement of
copyrights and, if applicable,
patents with respect to the Work
Product in any countries;
3. Provide testimony in connection with
any proceeding affecting the right,
title, or interest of BINDVIEW in
any Work Product; and
4. Perform any other reasonable acts
deemed necessary or desirable to
carry out the purposes of this
Agreement
BINDVIEW shall reimburse all reasonable
out-of-pocket expenses incurred by Employee
at Employee's request in connection with the
foregoing.
E. For purposes hereof, "Work Product" shall
mean all intellectual property rights,
including all Trade Secrets, U.S. and
international copyrights, patentable
inventions, discoveries and improvements, and
other intellectual property rights, in any
programming, documentation, technology, or
other Work Product that relates to the
business and interests of BlNDVIEW and that
Employee may conceive, develop, or deliver to
BINDVIEW at any time during the term of
Employee's employment. Work Product shall
also include all intellectual property rights
in any programming, documentation,
technology, or other work product that is now
contained in any of the products or systems,
including development and support systems, of
BINDVIEW to the extent Employee conceived,
developed, or delivered such Work Product to
BINDVIEW prior to the date of this Agreement
while Employee was engaged as an independent
contractor or an employee of BINDVIEW.
Employee hereby irrevocably relinquishes for
the benefit of BINDVIEW and its assigns any
moral rights in the Work Product recognized
by applicable law.
4.2 INVENTION ASSIGNMENT. BINDVIEW shall be the sole owner of any
and all "Discoveries" and "Work Product". Discoveries means
all inventions, discoveries, and improvements (including
without limitation any information relating to manufacturing
techniques, processes, formulas, developments or experimental
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work, work in progress, or business trade secrets), that are
related to BINDVIEW's business. Work Product means any and
all other work product relating to Discoveries and related to
BINDVIEW's business.
A Discovery or Work Product is Related to BINDVIEW business if
it is made or conceived or reduced to practice by Employee (in
whole or in part, either alone or jointly with others),
whether or not potentially patentable or copyrightable in the
U.S. or elsewhere, and it: (a) involves equipment, supplies,
facilities, or trade secret information of BINDVIEW, or (b)
involves the time for which Employee was compensated by
BINDVIEW, or (c) relates to the business of BINDVIEW or to its
actual or demonstrably anticipated research and development,
or (d) results, in whole or in part, from work performed by
Employee for BINDVIEW.
Employee shall promptly disclose to BINDVIEW or its nominee
all Discoveries and Work Product. The terms "Discoveries" and
"Work Product" are intended to encompass Computer Software,
which is defined to encompass all Computer Programs and
associated Documentation and all Copies thereof. All such
disclosures shall include furnishing complete and accurate
copies of all Source Code, Object Code, Documentation, work
notes, test data, reports, samples, and other tangible
evidence or results (collectively referred to as "Tangible
Embodiments") of such Discoveries or Work Product. All
Tangible Embodiments of any Discoveries or Work Product shall
be deemed to have been assigned to BINDVIEW as a result of the
act of expressing any Discovery or Work Product therein.
Employee assigns and agrees to assign to BINDVIEW all his/her
interest in any country in any and all Discoveries and/or Work
Product, whether such interest arises under patent law,
copyright law, trade- secret law, semiconductor chip
protection law, or otherwise. Without limiting the generality
of the foregoing, Employee hereby authorizes BINDVIEW to make
any desired changes to any part of any Discoveries or Work
Product, to combine it with other materials in any manner
desired, and to withhold Employee's identity in connection
with any distribution or use thereof alone or in combination
with other materials.
This assignment and assignment obligation applies to all
Discoveries and/or Work Product arising during Employee's
employment, whether arising before or after the execution of
this Agreement
At the request of BINDVIEW, Employee shall promptly and
without additional compensation execute any and all patent
applications, copyright registration applications, waivers of
moral rights, assignments, or other instruments which BINDVIEW
deems necessary or appropriate to apply for or obtain Letters
Patent of the United States or any foreign country or
otherwise to protect BINDVIEW's interest in such Discovery
and/or Work Product
To the extent that any Discovery or Work Product constitutes
copyrightable or similar subject matter that is eligible to be
treated as a "work made for hire" or as having similar status
in the United States or elsewhere, it shall be so deemed.
This provision does not alter or limit Employee's other
obligations to assign intellectual property rights hereunder.
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The obligations set forth in this Section shall continue
beyond the termination of Employee's employment with respect
to Discoveries and/or Work Product conceived or made by
Employee alone or in concert with others during Employee's
employment. Those obligations shall be binding upon Employee,
his/her assigns permitted hereunder, executors, administrators
and other representatives.
4.3 CLEARANCE PROCEDURE FOR PROPRIETARY RIGHTS NOT CLAIMED BY
BINDVIEW. If Employee ever wishes to create or develop, on
Employee's own time and with Employee's own resources,
anything that may be considered Work Product but to which
Employee believes Employee should be entitled to the personal
benefit of, Employee is required to follow the clearance
procedure set forth in this section in order to ensure that
BINDVIEW has no claim to the proprietary rights that may
arise.
Before Employee begins any such work on Employee's own time,
Employee must give BINDVIEW advance notice of Employee's plans
and supply a description of the work under consideration.
Unless otherwise agreed in a writing signed by BINDVIEW prior
to receipt, BINDVIEW shall have no obligation of confidence
with respect to such description. BINDVIEW will determine, in
good faith, within thirty (30) days after Employee has fully
disclosed Employee's plans to BINDVIEW, whether the work is
claimed by BINDVIEW. If BINDVIEW determines that it does not
claim such work, Employee will be notified in writing and may
retain ownership of the development to the extent of what has
been disclosed to BINDVIEW. Employee should submit for
further clearance any significant improvement, modification or
adaptation so that it can be determined whether the
improvement, modification, or adaptation relates to the
business or interests of BINDVIEW.
5.0 RETURN OF MATERIAL
Upon the request of BINDVIEW and, in any event, upon the termination
of Employee's employment, Employee must return to BINDVIEW and leave
at its disposal all memoranda, notes, records, drawings, manuals,
computer programs, documentation, diskettes, computer tapes, and other
documents or media pertaining to the business of BINDVIEW or
Employee's specific duties for BINDVIEW including all copies of such
materials. Employee must also return to BINDVIEW and leave at its
disposal all materials involving any Trade Secrets of BINDVIEW. This
Section 5 is intended to apply to all materials made or compiled by
Employee as well as to all materials furnished to Employee by anyone
else in connection with Employee's employment.
6.0 PROHIBITION AGAINST UNFAIR BUSINESS PRACTICES
6.1 UNFAIR BUSINESS PRACTICES. Employment activities at computer
software companies such as BINDVIEW may be susceptible to
unfair or questionable business practices. For example, Trade
Secrets and other confidential information can be
misappropriated and valuable documents can be copied and taken
for improper purposes. Industrial espionage can be a serious
concern for businesses
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that depend on sensitive technology for commercial success.
Employees at such companies can be targets of, or participants
in, unfair business practices, because of the special
attractiveness of the advanced technology, computer programs,
product development strategies, and business opportunities
they come to know by virtue of their employment. It would be
unfair for a former employee or contractor of BINDVIEW to
recruit personnel directly from the ranks of BINDVIEW's own
employees by using connections and inside information
previously acquired from BINDVIEW. BINDVIEW puts great
emphasis on selecting, training, and promoting talented
individuals for positions of significant responsibility. The
time, effort, and capital invested by BINDVIEW in its work
force should not be diverted by someone operating on an inside
track. In addition, it would be unfair for individuals still
employed by BINDVIEW to form and pursue a competitive business
while receiving wages and other benefits from BINDVIEW.
6.2 REFRAINING FROM HARMFUL ACTIONS. During Employee's employment
with BINDVIEW, Employee is required to refrain from engaging
in any action that might be harmful to BINDVIEW or its
business, unless BINDVIEW consents in advance. Employee's
responsibility to promote and support BINDVIEW's business by
its very nature requires Employee to prevent BINDVIEW from
suffering injury or hardship, if it can be avoided. This
obligation is intentionally broad and general because it is
difficult to anticipate all possible circumstances, and
Employee should resolve all doubts by consulting BINDVIEW on
how best to proceed. By way of example, during Employee's
employment with BINDVIEW, Employee may not solicit or recruit
any other BINDVIEW employee to form or join another business.
BINDVIEW cannot prohibit Employee from terminating Employee's
employment and pursuing other kinds of work, but if Employee
should decide to form or join another business Employee is
required to advise BINDVIEW promptly, so that projects in
progress and under consideration are not needlessly disrupted
and so that even the possibility that Trade Secrets or other
confidential information may be compromised can be avoided.
6.3 REFRAINING FROM SOLICITATION OF CUSTOMERS. During the term of
your employment with BINDVIEW and for a period of twelve (12)
months from the voluntary or involuntary termination of your
employment with BINDVIEW for any reason whatever, you shall
not solicit, induce or attempt to induce any past or current
supplier or customer of BINDVIEW to cease doing business in
whole or in part with or through BINDVIEW.
7.0 IMPLEMENTATION
7.1 SEVERABILITY. The terms and conditions of this Agreement are
severable. The invalidity or unenforceability of any clause or
provision of this Agreement shall not affect the applicability
or any other clause or provision of this Agreement The
unenforceability of any clause or provision of this Agreement
in one case or in some circumstance shall not affect its
application in other cases or under other circumstances.
Page 7
<PAGE> 8
7.2 SURVIVAL OF OBLIGATIONS. The covenants in Section 3 through
Section 7 of this Agreement shall survive termination of
Employee's employment, regardless of who causes the
termination and under what circumstances.
7.3 NOTICES. All notices required under this Agreement shall be
made in writing and shall be deemed given when (l) delivered
in person, (2) deposited in the U.S. mail, first class, with
proper postage prepaid and properly addressed, or (3) sent
through the interoffice delivery service of BINDVIEW, if
Employee is still employed by BINDVIEW at the time.
7.4 RELATED PARTIES. This Agreement shall inure to the benefit
of, and be binding upon, BINDVIEW and its parents or
subsidiaries and its affiliates, together with their
successors and assigns, and Employee, together with Employee's
executor, administrator, personal representative, heirs, and
legatees.
7.5 MERGER. This Agreement represents the entire Agreement of the
parties. This Agreement merges and supersedes all prior and
contemporaneous agreements, undertakings, covenants, or
conditions, whether oral or written, express or implied.
7.6 CHOICE OF LAW. The waiver of the breach of any term or
condition of this Agreement will not be deemed to constitute
waiver of any other subsequent breach of the same or any other
term or condition. This Agreement shall be governed by and
interpreted according to the laws of the United States of
America and to the laws of the State of Texas applicable to
agreements made between Texas residents in and for performance
entirely in Texas.
IN WITNESS WHEREOF, Employee, as an employee of BINDVIEW, has entered and
executed this Agreement under seal, and BINDVIEW has accepted Employee's
undertaking.
EMPLOYEE: David Pulaski
-----------------------------------
/s/ David Pulaski
- -------------------------------------------
Signature
Date: 9/26/96
Accepted by BINDVIEW DEVELOPMENT CORPORATION:
/s/ Eric Pulaski
- -------------------------------------------
ERIC PULASKI
President, BINDVIEW DEVELOPMENT CORPORATION
Page 8
<PAGE> 9
APPENDIX "A"
DAVID PULASKI
COMPENSATION (SALARY AND BONUSES)
Your base salary will be $65,000 per year, paid in accordance to the
existing payroll schedule.
From time to time, management of BindView Development may, at its sole
discretion, issue bonuses to you. Future bonuses are not guaranteed,
but are generally related to profitability of the Company, achievement
of personal milestones, and exemplary work performance.
BENEFITS
BindView Development has a comprehensive health, dental, and
disability insurance plan, which you can join for a deduction of $15
per paycheck or $75 per paycheck for you and your entire family ($30
or $150 per month respectively). BindView also provides a Flexible
Spending Account Plan so that you may get the tax advantages of
medical and dependent care costs and unreimbursed medical expenses as
the plan allows.
4O1K
BindView Development has a 401K plan. Enrollment dates are twice a
year and the plan has a mandatory 90 day grace period before
enrollment. You are allowed to participate in this plan within the
limits of the IRS and the plan document. Currently, the Company
guarantees to match your contribution with up to 50% of the first 6%
of your salary that you contribute to the plan and there may be a
discretionary match, based on company performance at year end.
STOCK PLAN
See attached stock plan.
<PAGE> 1
EXHIBIT 10.14
EMPLOYEE AGREEMENT
PLEASE READ THIS AGREEMENT CAREFULLY. THIS AGREEMENT DESCRIBES THE BASIC LEGAL
AND ETHICAL RESPONSIBILITIES THAT YOU ARE REQUIRED TO OBSERVE AS AN EMPLOYEE
EXPOSED TO HIGHLY SENSITIVE TECHNOLOGY AND STRATEGIC INFORMATION IN PERFORMING
RESEARCH AND DEVELOPMENT. THE LAN SUPPORT GROUP, INC. BELIEVES THAT THIS
AGREEMENT STRIKES A FAIR BALANCE BETWEEN ITS INTERESTS AND PROGRAMMER'S NEEDS
AND EXPECTATIONS. THIS AGREEMENT IS LONG BECAUSE AN EFFORT HAS BEEN MADE TO
PROTECT BOTH THE YOU AND THE LAN SUPPORT GROUP, INC. BY BEING AS CLEAR AND
PRECISE AS POSSIBLE.
THIS AGREEMENT, effective as of the date shown below, by and between employer,
THE LAN SUPPORT GROUP ("LSG") and NADEEM GHIAS ("Programmer"), as employee:
SECTION I
SCOPE OF DUTIES
1.1 EMPLOYMENT BY LSG AS SOLE OCCUPATION. Subject only to the
exceptions provided in this Agreement, Programmer agrees to devote Programmer's
full business time, attention, skill, and effort exclusively to the performance
of the duties that LSG may assign Programmer from time to time.
Programmer may engage in Personal Business Activities that do not require a
significant portion of Programmer's time and devotion as long as such
activities are not in conflict with any of LSG's interests. Personal Business
Activities include, but are not limited to, personal investment in the stock
market or real estate.
Other than the above Personal Business Activities, Programmer may not engage in
any other business activities or render any services of a business, commercial,
or professional nature, whether or not for compensation, for the benefit of
anyone other than LSG, unless LSG has given its consent in writing in advance.
It is the policy of LSG never to allow its personnel to work for any
competitive enterprise during their employment, including after hours, on
weekends, or during vacation time, even if only organizational assistance or
limited consultation is involved.
1.1a EXCEPTION OF EMPLOYMENT BY LSG AS SOLE OCCUPATION. Programmer
may devote an unlimited number of hours to supporting any obligations
Programmer may have prior to entering into this Agreement, for a period of
seven (7) days from December 6, 1993 (hereinafter referred to as "Initial
Exception Period"). Programmer may then devote up to five (5) hours per week
to supporting any obligations Programmer may have, prior to entering into this
Agreement for an additional sixty (60) days following the Initial Exception
Period. After the sixty (60) days have expired, Programmer may then devote up
to one (l) hour per week to supporting any obligations Programmer may have
prior to entering into this Agreement, for an additional twenty (21) months.
<PAGE> 2
1.2 NONINTERFERENCE WITH THIRD-PARTY RIGHTS. LSG is employing
Programmer with the understanding that (1) Programmer is free to enter into
employment with LSG and (2) only LSG is entitled to the benefit of Programmer's
work. LSG has no interest in using any other person's patents, copyrights,
trade secrets, or trademarks in an unlawful manner. Programmer should be
careful not to misapply proprietary rights that LSG has no right to use.
1.3 CONTINUANCE OF EMPLOYMENT. The faithful observance of this
Agreement by Programmer is, and shall remain, a condition to employment.
Programmer will give at least two weeks' notice in advance of any termination
by Programmer of employment.
Subject to the terms of section 4. COPYRIGHT ASSIGNMENT AND THE PROPOSED STOCK
OPTION CONDITIONS of the attached Supplement Letter to the Employment
Agreement, the following are the conditions for which LSG may terminate your
employment. Employment may be terminated immediately upon LSG's written notice
to you for Cause. Cause shall include the following:
a. any misconduct deemed unethical or detrimental to LSG;
b. conviction by final action of any court of any offense
punishable as a felony or involving moral turpitude;
c. your death;
d. for any unreasonable failure to perform assigned duties which
assignments shall be reasonable and clearly stated. You agree and
understand that your duties as defined in this Agreement and the
Supplement Letter to Employment Agreement (attached) are reasonable
and clearly stated.
SECTION 2
OWNERSHIP OF EMPLOYEE DEVELOPMENTS
2.1 OWNERSHIP OF WORK PRODUCT.
a. LSG shall own all Work Product (as defined in Section
2.2(e)). All Work Product shall be considered work made for hire by Programmer
and owned by LSG.
b. If any of the Work Product may not, by operation of law,
be considered work made for hire by Programmer for LSG, or if ownership of all
right, title, and interest of the intellectual property rights therein shall
not otherwise vest exclusively in LSG, Programmer agrees to assign, and upon
creation thereof automatically assign, without further consideration, the
ownership of all Trade Secrets (as defined in Section 3.2), U.S. and
international copyrights, patentable inventions and related patents and patent
applications if any, and other intellectual property rights therein to LSG, its
successors, and assigns.
c. LSG, it successors, and assigns, shall have the right to
obtain and hold in its or their own name copyrights, registrations, and any
other protection available in the foregoing.
<PAGE> 3
d. Programmer agrees to perform, upon the reasonable request
of LSG, during or after Programmer's employment, such further acts as may be
necessary or desirable to transfer, perfect, and defend LSG's ownership of the
Work Product. When requested, Programmer will:
Execute, acknowledge, and deliver any requested affidavits and
documents of assignment and conveyance;
Obtain and aid in the enforcement of copyrights and, if
applicable, patents with respect to the Work Product in any
countries;
Provide testimony in connection with any proceeding affecting
the right, title, or interest of LSG in any Work Product; and
Perform any other acts deemed necessary or desirable to carry
out the purposes of this Agreement.
LSG shall reimburse all reasonable out-of-pocket expenses incurred by
Programmer at Programmer's request in connection with the foregoing.
e. For purposes hereof, "Work Product" shall mean all
intellectual property rights, including all Trade Secrets, U.S. and
international copyrights, patentable inventions, discoveries and improvements,
and other intellectual property rights, in any programming, documentation,
technology, or other Work Product that relates to the business and interests of
LSG and that Programmer may conceive, develop, or deliver to LSG at any time
during the term of Programmer's employment. Work Product shall also include all
intellectual property rights in any programming, documentation, technology, or
other work product that is now contained in any of the products or systems,
including development and support systems, of LSG to the extent Programmer
conceived, developed, or delivered such Work Product to LSG prior to the date
of this Agreement while Programmer was engaged as an independent contractor or
an employee of LSG. Programmer hereby irrevocably relinquish for the benefit
of LSG and its assigns any moral rights in the Work Product recognized by
applicable law.
2.2 INVENTION ASSIGNMENT. LSG shall be the sole owner of any and all
"Discoveries" and "Work Product." Discoveries means all inventions,
discoveries, and improvements (including without limitation any information
relating to manufacturing techniques, processes, formulas, developments or
experimental work, work in progress, or business trade secrets), that are
related to LSG's business. Work Product means any and all other work product
relating to Discoveries and related to LSG's business.
A Discovery or Work Product is Related to LSG business if it is made
or conceived or reduced to practice by Programmer (in whole or in part, either
alone or jointly with others), whether or not potentially patentable or
copyrightable in the U.S. or elsewhere, and it: (a) involves equipment,
supplies, facilities, or trade secret information of LSG, or (b) involves the
time for which Programmer was compensated by LSG, or (c) relates to the
business of LSG or to its actual or demonstrably anticipated research and
development, or (d) results, in whole or in part, from work performed by
Programmer for LSG.
Programmer shall promptly disclose to LSG or its nominee all
Discoveries and Work Product. The terms "Discoveries" and "Work Product" are
intended to encompass Computer Software,
<PAGE> 4
which is defined to encompass all Computer Programs and associated
Documentation and all Copies thereof. All such disclosures shall include
furnishing complete and accurate copies of all Source Code, Object Code,
Documentation, work notes, test data, reports, samples, and other tangible
evidence or results (collectively referred to as "Tangible Embodiments") of
such Discoveries or Work Product. All Tangible Embodiments of any Discoveries
or Work Product shall be deemed to have been assigned to LSG as a result of the
act of expressing any Discovery or Work Product therein.
Programmer assigns and agrees to assign to LSG all his interest in any
country in any and all Discoveries and/or Work Product, whether such interest
arises under patent law, copyright law, trade-secret law, semiconductor chip
protection law, or otherwise. Without limiting the generality of the foregoing,
Programmer hereby authorizes LSG to make any desired changes to any part of any
Discovery or Work Product, to combine it with other materials in any manner
desired, and to withhold Programmer's identity in connection with any
distribution or use thereof alone or in combination with other materials.
This assignment and assignment obligation applies to all Discoveries
and/or Work Product arising during Programmer's employment, whether arising
before or after the execution of this Agreement.
At the request of LSG, Programmer shall promptly and without
additional compensation execute any and all patent applications, copyright
registration applications, waivers of moral rights, assignments, or other
instruments which LSG deems necessary or appropriate to apply for or obtain
Letters Patent of the United States or any foreign country or otherwise to
protect LSG's interest in such Discovery and/or Work Product.
In the event that LSG is unable for any reason to secure Programmer's
signature to any lawful and necessary document required or appropriate to apply
for or execute any patent application, copyright registration application,
waiver of moral rights, or other similar document with respect to any Discovery
and/or Work Product (including renewals, extensions, continuations, divisions,
or continuations in part), Programmer hereby irrevocably designates and
appoints LSG and its duly authorized officers and agents as his agents and
attorneys-in-fact to act for and in his behalf and to execute and file any such
document and to do all other lawfully permitted acts to further the prosecution
of the same with the same legal force and effect as if executed by him; this
designation and appointment shall constitute a power of attorney coupled with
an interest.
This assignment and assignment obligation shall continue beyond the
end of Programmer's employment with respect to Discoveries and/or Work Product
arising during employment.
To the extent that any Discovery or Work Product constitutes
copyrightable or similar subject matter that is eligible to be treated as a
"work made for hire" or as having similar status in the United States or
elsewhere, it shall be so deemed. This provision does not alter or limit
Programmer's other obligations to assign intellectual property rights
hereunder.
The obligations set forth in this Section shall continue beyond the
termination of Programmer's employment with respect to Discoveries and/or Work
Product conceived or made by Programmer alone or in concert with others during
Programmer's employment. Those obligations shall be binding upon Programmer,
his assigns permitted hereunder, executors, administrators and other
representatives.
<PAGE> 5
2.3 CLEARANCE PROCEDURE FOR PROPRIETARY RIGHTS NOT CLAIMED BY LSG. If
Programmer ever wishes to create or develop, on Programmer's own time and with
Programmer's own resources, anything that may be considered Work Product: but
to which Programmer believes Programmer should be entitled to the personal
benefit of, Programmer is required to follow the clearance procedure set forth
on this section in order to ensure that LSG has no claim to the proprietary
rights that may arise.
Before Programmer begins any development work on Programmer's own
time, Programmer must give LSG advance notice of Programmer's plans and supply
a description of the development under consideration. Unless otherwise agreed
in a writing signed by LSG prior to receipt, LSG shall have no obligation of
confidence with respect to such description. LSG will determine, in good faith,
within thirty (30) days after Programmer has fully disclosed Programmer's plans
to LSG, whether the development is claimed by LSG. If LSG determines that it
does not claim such development, Programmer will be notified in writing and may
retain ownership of the development to the extent of what has been disclosed to
LSG. Programmer should submit for further clearance any significant
improvement, modification, or adaptation so that it can be determined whether
the improvement, modification, or adaptation relates to the business or
interests of LSG.
Clearance under this procedure does not relieve Programmer of the need
to obtain the written consent of LSG before engaging in business activities or
rendering business, commercial, or professional services for the benefit of
anyone other than LSG, as required in Section 1.1 hereof. LSG thus reserves the
right to exercise greater control over development work that Programmer might
consider doing for profit after hours, as opposed to mere hobby work pursued in
Programmer's spare time.
SECTION 3
CONFIDENTIALITY
3.1 CONSEQUENCES OF ENTRUSTMENT WITH SENSITIVE INFORMATION.
Programmer should recognize that Programmer's position with LSG requires
considerable responsibility and trust. Relying on Programmer's ethical
responsibility and undivided loyalty, LSG expects to entrust Programmer with
highly sensitive confidential, restricted, and proprietary information
involving Trade Secrets (as defined in Section 3.2). Programmer should
recognize that it could prove very difficult to isolate these Trade Secrets
from business activities that Programmer might consider pursuing after
termination of Programmer's employment, and in some instances, Programmer may
not be able to compete with LSG in certain ways because of the risk that LSG's
Trade Secrets might be compromised. Programmer is legally and ethically
responsible for protecting and preserving LSG's proprietary rights for use only
for LSG's benefit, and these responsibilities may impose unavoidable
limitations on Programmer's ability to pursue some kinds of business
opportunities that might interest Programmer during or after Programmer's
employment.
3.2 TRADE SECRETS DEFINED. For purposes of this Agreement, a "Trade
Secret" is any information, including, but not limited to, technical or
nontechnical data, formulas, patterns, compilations, programs, devices,
methods, techniques, drawings, processes, financial data, financial plans,
product plans, or lists of actual or potential customers or suppliers that: (1)
derive economic value, actual or potential, from not being generally known to,
and not being readily ascertainable by proper means by, other persons who can
obtain economic value from their disclosure or use; and (2)
<PAGE> 6
are the subject of efforts that are reasonable under the circumstances to
maintain their secrecy.
3.3 RESTRICTIONS ON USE AND DISCLOSURE OF TRADE SECRETS. Programmer
agrees not to use or disclose any Trade Secrets of LSG during Programmer's
employment and for so long afterwards as the pertinent information or data
remain Trade Secrets, regardless of whether the Trade Secrets are in written or
tangible form, except as required to perform any duties for LSG.
3.4 SCREENING OF PUBLIC RELEASES OF INFORMATION. In addition, and
without any intention of limiting Programmers other obligations under this
Agreement in any way, Programmer should not, during Programmer's employment,
reveal any nonpublic information concerning the technology pertaining to the
proprietary products and manufacturing processes of LSG (particularly
technology under current development or improvement), unless Programmer has
obtained approval from LSG in advance. In that connection, Programmer should
submit to LSG for review any proposed scientific and technical articles and the
text of any public speeches relating to work done for LSG before they are
released or delivered. LSG has the right to disapprove and prohibit, or delete
any parts of, such articles or speeches that might disclose LSG's Trade Secrets
or other confidential information or otherwise be contrary to LSG's business
interests.
SECTION 4
RETURN OF MATERIALS
Upon the request of LSG and, in any event, upon the termination of
Programmer's employment, Programmer must return to LSG and leave at its
disposal all memoranda, notes, records, drawings, manuals, computer programs
documentation, diskettes, computer tapes, and other documents or media
pertaining to the business of LSG or Programmer's specific duties for LSG
including all copies of such materials. Programmer must also return to LSG and
leave at its disposal all materials involving any Trade Secrets of LSG. This
Section 4 is intended to apply to all materials made or compiled by Programmer
as well as to all materials furnished to Programmer by anyone else in
connection with Programmer's employment.
SECTION 5
PARTIAL RESTRAINT ON POST-TERMINATION COMPETITION
5.1 FACTUAL BACKGROUND. LSG expects to invest considerable time,
effort, and capital in enhancing the value and desirability of the skills of
its technical personnel. Both this investment and Programmer's individual
compensation reflect LSG's expectation of receiving a considerable return from
the exclusive use of Programmer's service and know-how in the future, free from
any danger that LSG's competitors may attempt to induce Programmer to leave LSG
and wrongfully gain the benefit of LSG's investment. The partial restraint set
forth in Section 5.2 hereof does not, and cannot, provide complete protection
for LSG's investment, development efforts, product strategy, and proprietary
information, but LSG believes that in combination with the other provisions of
this Agreement, it is the most fair and reasonable measure permitted under
applicable law to protect LSG's interests, giving due regard to both
Programmer's interests and the interests of LSG.
5.2 NON COMPETITION. Programmer acknowledges that competing with LSG
during or within
<PAGE> 7
one year after termination of Programmer's engagement would inherently involve
use of LSG's confidential information described above. Programmer therefore
agrees, in addition to the foregoing confidentiality obligations, not to engage
in the development of network management software, nor to supervise or direct
such activities, for or on behalf of any person or entity in the United States,
Canada, Europe, or any other country with whom LSO then does business or has
made substantial preparations to do business, for one year after such
termination, as an employee, partner, officer, director, contractor,
consultant, trustee, or other capacity.
To the extent that a court of competent jurisdiction holds that the foregoing
covenants in section 5 are not enforceable the parties agree that the court may
reform the covenants to the minimum extent necessary to render them enforceable
and enforce the reformed covenant.
SECTION 6
PROHIBITION AGAINST UNFAIR BUSINESS PRACTICES
6.1 UNFAIR BUSINESS PRACTICES. Professional research and development
activity may be susceptible to unfair or questionable business practices. For
example, Trade Secrets and other confidential information can be
misappropriated and valuable documents can be copied and taken for improper
purposes. Industrial espionage can be a serious concern for businesses that
depend on sensitive technology for commercial success.
Employees engaged in research and development can be targets of, or
participants in, unfair business practices, because of the special
attractiveness of the advanced technology, computer programs, product
development strategies, and business opportunities they come to know by virtue
of their employment. It would be unfair for a former employee or contractor of
LSG to recruit personnel directly from the ranks of LSG's own employees by
using connections and inside information previously acquired from LSG. LSG puts
great emphasis on selecting, training, and promoting talented individuals for
positions of significant responsibility. The time, effort, and capital invested
by LSG in its work force should not be diverted by someone operating on an
inside track. In addition, it would be unfair for individuals still employed by
LSG to form and pursue a competitive business while receiving wages and other
benefits from LSG.
6.2 REFRAINING FROM HARMFUL ACTIONS. During Programmer's employment
with LSG, Programmer is required to refrain from engaging in any action that
might be harmful to LSG or its business, unless LSG consents in advance.
Programmer's responsibility to promote and support LSG's business by its very
nature requires Programmer to prevent LSG from suffering injury or hardship, if
it can be avoided. This obligation is intentionally broad and general because
it is difficult to anticipate all possible circumstances, and Programmer should
resolve all doubts by consulting LSG on how best to proceed. By way of example,
during Programmer's employment with LSG, Programmer may not solicit or recruit
any other employee to form or join another business. LSG cannot prohibit
Programmer from terminating Programmer's employment and pursuing other kinds of
work, but if Programmer should decide to form or join another business
Programmer is required to advise LSG promptly, so that projects in progress and
under consideration are not needlessly disrupted and so that even the
possibility that Trade Secrets or other confidential information may be
compromised can be avoided.
6.3 REPORTING INSTANCES OF POTENTIAL UNFAIR BUSINESS PRACTICES.
During Programmer's
<PAGE> 8
employment with LSG, if Programmer learns or even suspect that any unfair or
questionable business practice may be occurring, Programmer is required to
advise LSG promptly. This obligation is intentionally broad and general
because, as with Section 6.2 hereof, it is difficult to anticipate all possible
circumstances, and Programmer should resolve all doubts by reporting to LSG the
information that has come to Programmer's attention. By way of example,
Programmer should report the incident immediately if anyone who is, or within
the most recent two years has been, an employee or contractor of LSG contacts
Programmer or any other employee of LSG with an offer to form or join another
business. This type of contact includes any meeting or communication not
initiated by Programmer or by the employee receiving the offer, where it
becomes known that a position of employment or an opportunity to participate in
a business enterprise might be available. The requirement also applies to
instances where a third party, such as a placement agent or a business
associate, contacts Programmer or any other employee of LSG at the instruction
or suggestion of an employee or contractor of LSG.
SECTION 7
IMPLEMENTATION
7.1 SEVERABILITY. The covenants in this Agreement shall be construed
as covenants independent of one another and as obligations distinct from any
other contract between Programmer and LSG. Any claim that Programmer may have
against LSG shall not constitute a defense to enforcement by LSG of this
Agreement.
7.2 SURVIVAL OF OBLIGATIONS. The covenants in Sections 2 through 7
of this Agreement shall survive termination of Programmer's employment,
regardless of who causes the termination and under what circumstances.
7.3 SPECIFIC PERFORMANCE AND CONSENT TO INJUNCTIVE RELIEF.
Irreparable harm should be presumed if Programmer breaches any covenant in this
Agreement. The faithful observance of all covenants in this Agreement is an
essential condition to Programmer's employment, and LSG is depending upon
absolute compliance. Damages would probably be very difficult to ascertain if
Programmer breached any covenant in this Agreement. This Agreement is intended
to protect the proprietary rights of LSG in many important ways. Even the
threat of any misuse of the technology of LSG would be extremely harmful, since
that technology is essential to the business of LSG. In light of these facts,
Programmer agrees that any court of competent jurisdiction should immediately
enjoin any breach of this Agreement upon the request of LSG, and Programmer
specifically release LSG from the requirement of posting any bond in connection
with temporary or interlocutory injunctive relief, to the extent permitted by
law.
7.4 NOTICES. All notices required under this Agreement shall be made
in writing and shall be deemed given when (1) delivered in person, (2)
deposited in the U.S. mail, first class, with proper postage prepaid and
properly addressed, or (3) sent through the interoffice delivery service of
LSG, if Programmer is still employed by LSG at the time.
7.5 RELATED PARTIES. This Agreement shall inure to the benefit of,
and be binding upon, LSG and its subsidiaries and its affiliates, together with
their successors and assigns, and Programmer, together with Programmer's
executor, administrator, personal representative, heirs, and legatees.
<PAGE> 9
7.6 MERGER. This Agreement merges and supersedes all prior and
contemporaneous agreements, undertakings, covenants, or conditions, whether
oral or written, express or implied, to the extent that they contradict or
conflict with the terms and conditions hereof. This Agreement is not intended
to modify or impair the effectiveness of the general rules and policies LSG may
announce from time to time.
7.7 CHOICE OF LAW. The waiver of the breach of any term or condition
of this Agreement will not be deemed to constitute waiver of any other
subsequent breach of the same or any other term or condition. This Agreement
shall be governed by and interpreted according to the laws of the United States
of America and to the laws of the State of Texas applicable to agreements made
between Texas residents in and for performance entirely in Texas.
IN WITNESS WHEREOF, Programmer, as an employee of LSG, has entered and
executed this Agreement under seal, and LSG has accepted Programmer's
undertaking.
PROGRAMMER:
/s/ Nadeem Ghias
- -------------------------------------
Signature
NADEEM GHIAS
Social Security No. ###-##-####
-----------
Address:
766 Woodview South Drive
Carmel, IN 46032
Date: 12-20-93
Accepted:
THE LAN SUPPORT GROUP, INC.:
/s/ Eric Pulaski
- -------------------------------------
ERIC PULASKI
President, The LAN Support Group, Inc.
<PAGE> 10
SUPPLEMENT LETTER TO THE EMPLOYMENT AGREEMENT
December 1, 1993
NADEEM GHIAS
766 Woodview South Drive
Carmel, IN 46032
Dear Nadeem:
On behalf of The LAN SUPPORT GROUP, INC. (hereinafter "LSG"), I am
pleased that you have indicated a willingness to join LSG. The following
Agreement is a supplement to your EMPLOYEE AGREEMENT (attached).
SECTION 1
JOB RESPONSIBILITIES
Initially your primary responsibilities to LSG will include:
Developing a WYSIWYG Report Generator in Windows and assisting with
the development of the Windows version of BindView NCS.
These responsibilities may be subject to adjustment as your employment with LSG
progresses.
SECTION 2
COMPENSATION
Your compensation will consist of the following components:
a. A base salary of $5,000 per month, payable in
accordance with our customary payroll procedures, and
subject to customary deductions and withholdings, as
required by law.
b. Provided the Milestones in Section 5 have been
completed, a 50% raise in salary to $7,500.00 per
month after a 3-month period has elapsed from the
date you begin work at LSG. Currently the anticipated
date you begin work at LSG is December 6, 1993.
In the event the Milestones in Section 5 have not
been completed, the raise to $7,500 per month will be
deferred until their completion or until the end of
nine months from the date you begin work at LSG,
whichever comes first.
<PAGE> 11
SALARY AMOUNTS AND OTHER COMPENSATION AMOUNTS IN (A) AND (B) OF THIS SECTION
ARE SUBJECT TO CHANGE UNDER THE SOLE DISCRETION OF LSG, IF SUCH CHANGE IS AS A
RESULT OF A REASONABLE FINANCIAL CONCERN OF LSG. A REASONABLE FINANCIAL CONCERN
COULD BE, BUT IS NOT LIMITED TO, INSUFFICIENT FUNDS TO PAY PAYROLL. SUCH CHANGE
WOULD BE CONSIDERED LEGITIMATE ONLY IF IT UNIFORMLY APPLIES TO ALL EMPLOYEES
EITHER THROUGHOUT THE COMPANY OR WITHIN A CERTAIN FUNCTIONAL GROUP OF THE
COMPANY. YOU SHALL NEVER BE SINGLED OUT FOR A PAY-CUT. ALSO YOU WILL BE EXEMPT
FROM ANY SUCH PAY CUTS BEFORE YOU RECEIVE YOUR RAISE AS OUTLINED IN (B) ABOVE.
c. At the sole discretion oil LSG, bonuses based upon
individual, divisional or LSG performance.
In addition, you are entitled to these additional compensations subject to the
conditions stated below:
d. Our customary health insurance for you and your wife
so long as you shall work for LSG and subject to
customary regulations, as required by law.
e. A payment of $12,500, payable within a week of
signing this Agreement to cover moving and relocation
expenses.
f. Eligibility to participate in LSG's proposed "Stock
Option Agreement". You understand that the terms of
this "Stock Option Agreement" have not been
determined, however, you have stated that you will
abide by the same terms that every other
participating employee (e.g. Irl Nathan, Mark Foster,
and Bill Kellogg) will be subject to when the
agreement in drafted.
g. Eligibility for 2% of LSG stock subject to the same
terms that every other employee (e.g. Irl Nathan,
Mark Foster, and Bill Kellogg) will be subject to
when the agreement in drafted.
h. Eligibility to receive an additional 1 % share in LSG
stock, subject to the terms in (f) above and also
subject to completing the Milestones defined below.
SECTION 3
CONTINUED EMPLOYMENT
Subject to the terms of section [4. COPYRIGHT ASSIGNMENT AND THE
PROPOSED STOCK OPTION CONDITIONS], outlined below, the following are
the conditions for which LSG may terminate your employment. Employment
may be
<PAGE> 12
terminated immediately upon LSG's written notice to you for Cause.
Cause shall include:
a. any misconduct deemed unethical or detrimental to LSG;
b. conviction by final action of any court of any offense
punishable as a felony or involving moral turpitude;
c. your death;
d. for any unreasonable failure to perform assigned duties which
assignments shall be reasonable and clearly stated. You agree and
understand that your duties as defined in this Agreement and the
Employment Agreement (attached) are reasonable and clearly stated.
SECTION 4
COPYRIGHT ASSIGNMENT AND THE PROPOSED STOCK OPTION
CONDITIONS
It is contemplated that a proposed "Stock Option Agreement" will be completed
within three months from the time this Agreement is executed. Simultaneous to
the execution of the proposed "Stock Option Agreement", you agree to execute
the two Copyright Assignments and the Supplement Letter To The Copyright
Assignment (attached).
The proposed "Stock Option Agreement" will be delivered to you by hand from
LSG. You will have ten (10) days from the date the proposed "Stock Option
Agreement" is delivered to accept or reject the plan and execute the Copyright
Assignments (attached). If after ten (10) days of your receiving the final
proposed "Stock Option Agreement" it is not executed by you and/or the
Copyright Assignments and/or the Supplement Letter To The Copyright Assignment
(Attached) are not executed simultaneously with the proposed "Stock Option
Agreement" the following will occur:
a. LSG has the right to terminate you immediately for any reason
regardless of Cause. This right to terminate you under this section
supersedes Section 3 of this Agreement and sections 1.3 and 1.4 of the
Employment Agreement (attached),
b. LSG has the right to discontinue any compensation to you as
outlined in sections 2 of this Agreement. For example, if compensation
ends on the 15th of the month, LSG will only be obligated to
compensate for the time worked, in this example it would be half of
your base salary for that month. In addition, this discontinuance of
compensation includes but is not limited to any rights to any stock in
LSG as outlined in a in sections 2.f, 2.g, and 2.h. of this Agreement,
c. You may not transfer the Source Code of FormCode/Gen and/or Beyond
Reports for Windows as outlined in the Supplement Letter to Copyright
Assignments (attached), the Employment Agreement (attached), and
Copyright Assignments (attached) and the Supplement Letter To The
Copyright Assignment
<PAGE> 13
(attached) to any person, company, or other entity which is involved
in the development and/or sale of Network Management Products, and
d. You have a continued obligation, after termination of employment to
abide by the terms of this Agreement and the Employment Agreement
(attached) regarding confidentiality and other obligations discussed
in sections 3, 4, 5, and 6 of the Employment Agreement (attached).
ASSIGNMENT DATE means the date the proposed "Stock Option Agreement", the
Copyright Assignments and the Supplement Letter To The Copyright Assignment
(attached) are executed. If the proposed "Stock Option Agreement" is executed
simultaneously with the Copyright Assignments (attached) and the Supplement
Letter To The Copyright Assignment (attached) the following will occur:
a. After the ASSIGNMENT DATE if your employment at LSG is terminated
involuntarily for reasons other than for Cause as outlined in section
3 of this Agreement, you will retain th stock ownership as outlined in
(g) and (h) of section 2 of this Agreement after such termination.
Ownership in such stock shall vest immediately upon termination with
title transferred to the employee immediately upon termination.
SECTION 5
MILESTONES
Milestones as used in sections 2b and 2h of this Agreement shall mean the
development and completion of the next generation of your report generator. The
next generation of your report generator must have the following
functionality:
a. All of the current features of your report generator,
b. Integration of your report generator with the report generator
of BindView NCS,
c. Perform summary calculations in headers as well as footers
making your report generator a multi-pass report generator
from the single-pass report generator it is currently,
d. Support charts and graphs, but only if LSG can obtain a
satisfactory licensing agreement for a charting engine such as
the one from Pinnacle Publishing, and if such an engine meets
your needs. If such an engine is not found, support for charts
and graphs will be omitted from the milestones,
e. Provide for bar code output,
f. Provide for form letters,
<PAGE> 14
g. Automatically parse and evaluate BASIC expressions with basic
operators such as +,-,*,/ and a few BASIC string functions,
h. Generate default BindView NCS reports in a simple fashion
without having to bring up a report editor. The report
generator must provide a set of API routines that will allow
the person who is developing the query to easily generate
report files which the report engine will process just like
reports that were designed using the report editor. These API
routines will also be useful for conversion software that will
convert the current BindView reports to the new report writers
file format. The actual query building wild not be considered
part of the report generator.
i. Support object color, rounded corner boxes, and different line
styles,
j. Provide a ribbon bar that the user can display or hide, for
changing object font, point size, text attributes and
justifications, object fills, line widths, and object shadows,
k. Provide support for font effects within static text (e.g.
bolding, italicizing, and underlining of parts of a text
string), and
l. No support for DDE and or OLE will be required.
SECTION 6
MISCELLANEOUS
Your starting date should be as soon as practicable, but no later than December
6, 1993.
Upon signing this agreement, you agree to execute LSG's EMPLOYMENT AGREEMENT, a
copy of which is enclosed. In that agreement, you will confirm the
representation which you have previously made to us to the effect that your
employment with us as contemplated will not cause you to breach any fiduciary
or other duty, covenant or understanding to which you are a party or by the
terms of which you are bound.
<PAGE> 15
The foregoing terms supersede any prior discussions, oral or written, which we
have had relating to your employment and the other matters discussed in this
letter. If the foregoing terms are acceptable to you, please sign, date and
return the original of this letter. An extra copy is enclosed for your records.
Very truly yours,
THE LAN SUPPORT GROUP, INC.
By: /s/ Eric Pulaski
------------------------------------
ERIC PULASKI, President
ACCEPTED:
By: /s/ Nadeem G.
------------------------------------
NADEEM GHIAS
Date: 12-20-93
----------------------------------
Enclosures: EMPLOYEE AGREEMENT
COPYRIGHT ASSIGNMENTS
SUPPLEMENT LEVER TO THE COPYRIGHT ASSIGNMENT
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated March 31, 1998, except as
to the stock split described in Note 11, which is as of May 15, 1998, relating
to the financial statements of BindView Development Corporation, which appears
in the Prospectus. We also consent to the references to us under the heading
"Experts" in such Prospectus. However, it should be noted that Price Waterhouse
LLP has not prepared or certified such "Selected Financial Data."
PRICE WATERHOUSE LLP
Houston, Texas
June 22, 1998
II-5
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated February 4, 1997, accompanying the
financial statements of BindView Development Corporation contained in the
Registration Statement and Prospectus. We consent to the use of the
aforementioned report in the Registration Statement and Prospectus, and to the
use of our name as it appears under the caption "Experts".
GRANT THORNTON LLP
Houston, Texas
June 22, 1998
II-6
