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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 3, 1998
REGISTRATION NUMBER 333-66941
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2
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
FULBRIGHT & JAWORSKI L.L.P. BRIAN K. BEARD
1301 MCKINNEY, SUITE 5100 GUNDERSON DETTMER STOUGH
HOUSTON, TEXAS 77010 VILLENEUVE FRANKLIN & HACHIGIAN, LLP
713/651-5151 8911 CAPITAL OF TEXAS HIGHWAY, SUITE 4240
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 the Form is a post-effective amendment filed pursuant to Rule 462(d)
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. [ ]
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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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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL SECURITIES, AND WE ARE NOT SOLICITING OFFERS TO BUY THESE SECURITIES, IN
ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED DECEMBER 3, 1998
[BINDVIEW LOGO]
3,000,000 SHARES
COMMON STOCK
BindView Development Corporation is offering 300,000 shares of its common
stock and the Selling Shareholders are selling an additional 2,700,000 shares.
BindView Development Corporation's common stock is traded on the Nasdaq National
Market under the symbol "BVEW." The last reported sale price of the common stock
on the Nasdaq National Market on November 5, 1998 was $17.88 per share.
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INVESTING IN THE COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 5.
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Per share Total
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Public Offering Price...................................... $ $
Underwriting Discounts and Commissions.....................
Proceeds to the Company....................................
Proceeds to the Selling Shareholders.......................
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THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Company and certain of the Selling Shareholders have granted the
underwriters a 30-day option to purchase up to an additional 450,000 shares of
common stock to cover over-allotments. BancBoston Robertson Stephens Inc.
expects to deliver the shares of common stock to purchasers on ,
1998.
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BANCBOSTON ROBERTSON STEPHENS
BT ALEXS BROWN
DONALDSON, LUFKIN & JENRETTE
CIBC OPPENHEIMER
The date of this Prospectus is , 1998.
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF THE COMMON STOCK. IN THIS PROSPECTUS, REFERENCES TO
THE "COMPANY," "BINDVIEW," "WE," "US" AND "OUR" REFER TO BINDVIEW DEVELOPMENT
CORPORATION AND ITS SUBSIDIARIES.
TABLE OF CONTENTS
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PAGE
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Summary..................................................... 3
Risk Factors................................................ 5
Use of Proceeds............................................. 13
Price Range of Common Stock................................. 13
Dividend Policy............................................. 13
Capitalization.............................................. 14
Dilution.................................................... 15
Certain Information......................................... 15
Selected Consolidated Financial Data........................ 16
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 17
Business.................................................... 28
Management.................................................. 40
Certain Transactions........................................ 50
Principal and Selling Shareholders.......................... 52
Description of Capital Stock................................ 53
Shares Eligible for Future Sale............................. 55
Underwriting................................................ 57
Legal Matters............................................... 58
Experts..................................................... 58
Additional Information...................................... 59
Index to Consolidated Financial Statements.................. F-1
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We own or have rights to trademarks or trade names that we use in
conjunction with the sale of our products. BindView EMS(TM), NOSadmin(TM),
ActiveAdmin(TM) and BindView(R) are trademarks that are owned by us. This
Prospectus also makes reference to trademarks of other companies.
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SUMMARY
Because this is only a summary, it does not contain all the information
that may be important to you. You should read the entire Prospectus, especially
"Risk Factors" and the Consolidated Financial Statements and Notes, before
deciding to invest in shares of our common stock.
THE COMPANY
Our Business............BindView develops, markets and supports a suite of
systems management software products which manage the
security and integrity of complex, distributed
client/server networks operating on Microsoft Windows NT
and Novell NetWare environments. Our primary product
line, BindView EMS, provides software solutions for
systems administration, security management, enterprise
inventory of local area network ("LAN") assets and Year
2000 assessment of PC hardware and software. Network
administrators, security auditors and other information
technology ("IT") personnel use BindView EMS to
proactively identify, diagnose and, in many cases, fix a
wide range of systems management problems. BindView EMS
allows organizations to reduce the total cost of
ownership of enterprise computing.
Our Market..............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 depend largely
on servers running network operating systems provided by
Microsoft and Novell. As these LANs have grown larger
and 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.
Our Products............Our comprehensive suite of systems management software
products enables IT organizations to manage the
increasingly complex issues associated with managing the
security and integrity of the LAN environment in a cost-
effective manner. We built BindView EMS to be native to
each of the Windows NT and Novell NetWare platforms that
it supports. We also designed it to manage workgroup
LANs as well as enterprise-wide networks of tens of
thousands of users. Our 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, our products are both
easy to install and use, with a typical enterprise-wide
deployment taking just days or weeks to install
depending on the product.
Our Customers...........We have sold our software products to over 4,000
corporations, governmental agencies and other
organizations worldwide, including more than 70% of the
Fortune 100 companies. We market and sell our products
primarily through a direct telesales organization of 95
people located in Houston, Texas, Frankfurt, Germany and
Paris, France, and, to a lesser extent, through value
added resellers, distributors and systems integrators.
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THE OFFERING
Common Stock Offered by the Company..... 300,000 shares
Common Stock Offered by the Selling
Shareholders............................ 2,700,000 shares
Common Stock to be Outstanding after the
Offering................................ 20,360,370 shares (1)
Use of Proceeds......................... For covering expenses related to
this offering and general corporate
purposes.
Nasdaq National Market Symbol........... BVEW
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
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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 $12,653 $23,953
Operating income (loss)(2)........ 396 509 783 1,982 (11,296) 2,664 3,249
Net income (loss)................. 389 488 754 1,990 (8,028) 2,715 2,729
Pro forma net income
(loss)(3)(4).................... 253 317 490 1,293 (7,263) 1,764 --(7)
Diluted pro forma net income
(loss) per share(3)(5)(6)....... $ 0.03 $ 0.04 $ 0.06 $ 0.12 $ (0.88) $ 0.12 $ 0.14
Shares used in computing diluted
pro forma net income (loss) per
share(5)(6)..................... 8,228 8,228 8,228 11,046 8,232 14,295 19,543
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SEPTEMBER 30, 1998
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ACTUAL AS ADJUSTED(8)
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(UNAUDITED)
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CONSOLIDATED BALANCE SHEET DATA:
Working capital............................................. $49,122 $53,716
Total assets................................................ 60,520 65,114
Total shareholders' equity.................................. 52,937 58,439
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(1) This information is based on the number of shares outstanding as of
September 30, 1998 and the intended exercise of 95,200 option shares by
Selling Shareholders. It excludes 4,653,834 shares subject to outstanding
options as of September 30, 1998 at a weighted average exercise price of
$3.12 per share. It also excludes 1,379,838 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) 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.
We believe these data may be useful to investors. However, we have not
prepared these data in accordance with generally accepted accounting
principles and you should not utilize these data as a substitute for
operating income.
(3) 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. We believe these data may be useful to investors. However, we
have not prepared these data in accordance with generally accepted
accounting principles and you should not utilize these data as a substitute
for pro forma net income.
(4) This represents our net income, adjusted for a pro forma charge in lieu of
income taxes as if we were a C Corporation for all periods.
(5) 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.
(6) The amounts for the nine months ended September 30, 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.
(7) This item is not applicable as we were a C Corporation for the entire
period.
(8) Adjusted to reflect our application of the net proceeds from our sale of
300,000 shares of Common Stock at the assumed offering price of $17.88 per
share. See "Use of Proceeds" and "Capitalization."
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RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. The risks and uncertainties described below are not the
only ones we face. Additional risks and uncertainties not presently known to us
may also impair our business operations.
If any of the following risks actually occur, our business, financial
condition or results of operations could be materially adversely affected. In
such case, the trading price of our common stock could decline and you may lose
all or part of your investment.
This Prospectus also contains forward-looking statements which involve
risks and uncertainties. Our actual results could differ from those anticipated
in these forward-looking statements as a result of certain factors, including
the risks described below and elsewhere in this Prospectus.
OUR QUARTERLY FINANCIAL RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS
Our quarterly revenues, expenses and operating results may fluctuate
significantly due to a number of factors, including:
- demand for our products;
- size and timing of significant orders and their fulfillment;
- our ability to develop and upgrade our technology;
- changes in our level of operating expenses;
- our ability to compete in a highly competitive market;
- undetected software errors and other product quality problems;
- changes in our sales incentive plans and staffing of sales territories;
and
- changes in the mix of domestic and international revenues and the level
of international expansion.
We operate with virtually no order backlog because we ship our products
shortly after orders are received. As a result, orders booked throughout a
quarter substantially impact product revenues in that quarter. We also book a
disproportionate amount of our sales in the last few weeks or days of each
quarter as a result of customer buying patterns. We base our expenses to a
significant extent on our expectations of future revenues. Most of our expenses
are fixed in the short term and we may not be able to quickly reduce spending if
our revenues are lower than we had projected. If our revenue levels do not meet
our projections, we expect our operating results to be adversely and
disproportionately affected.
Our quarterly operating results also are subject to certain seasonal
fluctuations. Year-end customer buying patterns and compensation policies based
on annual revenue quotas have caused our revenues to be strongest in the fourth
quarter of the year and to decrease in the first quarter of the following year.
In future periods, we expect that 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, we provided telephone support free of charge and
sold product upgrades separately or through subscription contracts. We now
require our customers to purchase a subscription policy in order to receive
product upgrades and technical support. Unlike software license revenues that we
generally recognize upon shipment of the product, we recognize subscription
contract revenues ratably over the life of the contract term. As a result, if we
derive a larger percentage of our revenues from subscription contracts, we will
experience an increase in deferred revenue that is likely to decrease our
operating margins. Decreased operating margins may materially adversely affect
our business, operating results and financial condition.
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As a result, we believe quarter-to-quarter comparisons of our revenues,
expenses and results of operations are not necessarily meaningful. You should
not rely on our quarterly revenues, expenses and results of operations to
predict our future performance. For more information, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
WE HAVE A LIMITED OPERATING HISTORY
Although BindView was founded in 1990, we have derived substantially all of
our revenues since 1995 from sales of BindView NCS, replaced in 1996 by BindView
EMS. We therefore have a limited operating history based on our primary
products. An investor in our Company must consider the risks and uncertainties
frequently encountered by software companies in the early stages of development,
particularly those faced by companies in the highly competitive and rapidly
evolving systems management software market. To compete in this market, we
believe that we must devote substantial resources to expanding our sales and
marketing organization and to continue product development. As a result, we will
need to recognize significant quarterly revenues to remain profitable. Our
revenues have increased in recent years, and revenues for recent quarters have
exceeded revenues for the same quarter for the prior year. However, we cannot be
certain that we can sustain these growth rates or that we will remain profitable
on a quarterly or annual basis in the future. For more information, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
OUR MARKETS ARE HIGHLY COMPETITIVE
We face competition from different sources. Currently, we compete
principally with providers of the following products:
- security analysis and audit products from Axent Technologies, Inc. and
Security Dynamics Technologies, Inc.;
- stand-alone inventory and asset management products from Tally Systems
Corp.;
- LAN desktop management suites from Intel Corporation, Hewlett-Packard
Company and Microsoft Corporation; and
- Year 2000 assessment products from Network Associates, Inc. and Greenwich
Mean Time-UTA, L.C.
In addition, certain management features included in our products compete
with the native tools from Novell, Inc. and third-party tools from certain
vendors, such as Computer Associates, Inc. and other companies.
We expect competition in the network management software market to increase
significantly as new companies enter the market and current competitors expand
their product lines and services. Many of these potential competitors are likely
to enjoy substantial competitive advantages, including:
- greater resources that can be devoted to the development, promotion and
sale of their products;
- more established sales channels;
- greater software development experience; and
- greater name recognition.
We also believe that operating system software vendors, particularly
Microsoft and Novell, could enhance their products to include functionality that
we currently provide in our products. If these vendors include our software
functionality as standard features of their operating system software, our
products could become obsolete. Even if the functionality of the standard
software features of these vendors is more limited than ours,
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there is a substantial risk that a significant number of customers would elect
to keep this limited functionality rather than purchase additional software.
To be competitive, we must respond promptly and effectively to the
challenges of technological change, evolving standards and our competitors'
innovations by continuing to enhance our products, services and sales channels.
Any pricing pressures, reduced margins or loss of market share resulting from
our failure to compete effectively could materially adversely affect our
business. For more information, see "Business -- Competition."
OUR PRODUCTS ARE SUBJECT TO RAPID TECHNOLOGICAL CHANGE
The market for our 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. Our
products could be rendered obsolete if new products based on new technologies
are introduced or new industry standards emerge. We rely heavily on our
relationships with Microsoft and Novell and attempt to coordinate our product
offerings with the future releases of their operating systems. These companies
may not notify us of feature enhancements prior to new releases of their
operating systems in the future. In that case, we may not be able to introduce
products on a timely basis that capitalize on new operating system releases and
feature enhancements.
Client/server computing environments are inherently complex. As a result,
we cannot accurately estimate our software product life cycles. New products and
product enhancements can require long development and testing periods, which
depend significantly on our ability to hire and retain increasingly scarce and
technically competent personnel. Significant delays in new product releases or
significant problems in installing or implementing new product releases could
seriously damage our business. We have, on occasion, experienced delays in the
scheduled introduction of new and enhanced products and cannot be certain that
such delays will not occur again.
Our future success will depend, in part, upon our ability to enhance
existing products, develop and introduce new products, satisfy customer
requirements and achieve market acceptance. We cannot be certain that we will
successfully identify new product opportunities and develop and bring new
products to market in a timely and cost-effective manner. Further, the products,
capabilities or technologies developed by others may render our products or
technologies obsolete or shorten their life cycles. For more information, see
"Business -- Product Development."
WE ARE DEPENDENT UPON CONTINUED GROWTH OF THE MARKET FOR WINDOWS NT AND NOVELL
NETWARE OPERATING SYSTEMS
We depend upon the success of Microsoft's Windows NT and Novell's NetWare
operating systems. In particular, market acceptance of our products depends on
the increasing complexity of these operating systems and the lack of effective
tools to simplify system administration and security management for these
environments. Although demand for Windows NT and NetWare operating systems has
grown in recent years, this market is still emerging and we cannot be certain
that it will continue to grow. If the market does continue to grow, we cannot be
certain that the market for our products will continue to develop or that our
products will be widely accepted. If the markets for our products fail to
develop or develop more slowly than we anticipate, our business could be
materially adversely affected.
The percentages of our revenues attributable to software licenses for
particular operating system platforms can change from time to time. A number of
factors outside our control can cause these changes, including changing market
acceptance and penetration of the various operating system platforms which we
support and the relative mix of development and installation by value-added
resellers ("VARs") of application software operating on such platforms. For more
information, see "Business -- Industry Background," "-- Products and Technology"
and "-- Sales and Marketing."
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PRODUCT CONCENTRATION
Substantially all of our revenues are from the sale of our NOSadmin and
NETinventory products. We anticipate that these products will account for
substantially all of our revenues for the foreseeable future. Our future
operating results will depend on continued market acceptance of NOSadmin and
NETinventory, enhancements to these products and the continued development of
additional snap-in modules for our Enterprise Console product. Competition,
technological change or other factors could reduce demand for, or market
acceptance of, the NOSadmin and NETinventory products and could substantially
damage our business. Although we currently plan to broaden our product line, we
cannot be certain that we will be able to reduce our product concentration. For
more information, 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
We have sold our products to customer workgroups and corporate divisions.
As a result, our sales cycle has ranged from three to six months. Recently, we
have focused more of our selling effort on products for the customer's entire
enterprise and have found that our sales cycle to enterprises has ranged from
six to twelve months. The sales cycle to enterprises is typically longer for a
number of reasons, including:
- the significant resources committed to an evaluation of network
management software by an enterprise require us to expend substantial
time, effort and money educating them on the value of our products and
services; and
- decisions to license and deploy enterprise-wide software generally
involve an evaluation of our software by a significant number of
personnel of the enterprise in various functional and geographic areas,
each often having specific and conflicting requirements.
As a result, we cannot predict the timing and amount of specific sales. Our
inability to complete one or more enterprise-wide sales in a particular quarter
or calendar year could materially adversely affect our business and could cause
our operating results to vary significantly from quarter to quarter. For more
information, see "-- Our Quarterly Financial Results are Subject to Significant
Fluctuations."
NEED TO MANAGE CHANGING OPERATIONS
We have expanded our operations rapidly in recent years. We intend to
continue to expand in the foreseeable future to pursue existing and potential
market opportunities. This rapid growth places a significant demand on
management and operational resources. In order to manage growth effectively, we
must implement and improve our operational systems, procedures and controls on a
timely basis. If we fail to implement and improve these systems, our business,
operating results and financial condition will be materially adversely affected.
In addition, we are moving a portion of our operations to new facilities in
Houston, Texas at the end of the fourth quarter of 1998 and in the first quarter
of 1999, which we expect will be a disruptive, time consuming and expensive
process.
DEPENDENCE ON KEY PERSONNEL
Our success depends largely on the efforts of our executive officers,
particularly Eric J. Pulaski, the President and Chief Executive Officer of
BindView. We do not have an employment contract requiring Mr. Pulaski to
continue his employment for any period of time. We do not maintain key man life
insurance policies on any of our executive officers.
We believe that our future success will depend in large part upon our
ability to attract and retain highly skilled research and development, technical
support and sales and marketing personnel. We face intense competition for
qualified personnel, and we cannot be certain that we will successfully attract
and retain additional qualified personnel in the future. The loss of the
services of one or more of our key individuals or the
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failure to attract and retain additional qualified personnel could substantially
damage our business. For more information, see "Business -- Employees" and
"Management."
RISKS ASSOCIATED WITH INTERNATIONAL SALES AND OPERATIONS
During 1995, 1996 and 1997, and during the nine months ended September 30,
1998, we derived approximately 16%, 10%, 13% and 10% of our revenues,
respectively, from sales outside North America. We only recently opened our
second direct telesales and service office outside the United States. We have
historically generated revenues outside North America through indirect channels,
including VARs and other distributors. We are in the early stages of developing
our indirect distribution channels in certain markets outside the United States.
We cannot be certain that we will be able to attract third parties that will be
able to market our products effectively or to provide timely and cost-effective
customer support and service. Our reseller arrangements generally provide that
resellers may carry competing product offerings. We cannot be certain that any
distributor or reseller will continue to represent our products. The inability
to recruit, or the loss of, important sales personnel, distributors or resellers
could materially and adversely affect our business.
As we expand our sales and support operations internationally, we
anticipate that international revenues will continue to grow as a percentage of
our total revenues. To successfully expand international sales, we must:
- establish additional international direct telesales offices;
- expand the management and support organizations for our international
sales channel;
- hire additional personnel;
- customize our products for local markets;
- recruit additional international resellers where appropriate; and
- expand the use of our direct telesales model.
If we are unable to generate increased sales through a direct telesales
model, we will incur higher personnel costs without corresponding increases in
revenue, resulting in lower operating margins for our international operations.
In addition, employment policies vary among countries outside the United States,
which may reduce our flexibility in managing headcount and, in turn, managing
personnel-related expenses. If we do not address the risks associated with
international sales in a cost-effective and timely manner, our international
sales growth will be limited, operating margins could be reduced and our
business could be materially adversely affected. However, even if we are able to
successfully expand our international operations, we cannot be certain that we
will be able to maintain or increase international market demand for our
products. For additional information, see "Business -- Sales and Marketing."
LIMITED PROTECTION OF PROPRIETARY TECHNOLOGY; RISKS OF INFRINGEMENT
Our success depends to a significant degree upon our software and other
proprietary technology. The software industry has experienced widespread
unauthorized reproduction of software products. We rely on a combination of
trademark, trade secret, and copyright law and contractual restrictions to
protect our technology. These legal protections provide only limited protection.
The steps we have taken may deter competitors from misappropriating our
proprietary information. However, we may not be able to detect unauthorized use
or take appropriate steps to enforce our intellectual property rights. If we
litigated to enforce our rights, litigation would be expensive, would divert
management resources and may not be adequate to protect our business. We also
could be subject to claims alleging infringement of third-party intellectual
property rights. In addition, we may be required to indemnify our distribution
partners and end-users for similar claims made against them. Any claims against
us could require us to spend significant time and money in litigation, pay
damages, develop non-infringing intellectual property or acquire licenses to
intellectual
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property that is the subject of the infringement claims. As a result, claims
against us could materially adversely affect our business. For more information,
see "Business -- Proprietary Rights."
RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS
We may make investments in complementary companies, technologies, services
or products if we find appropriate opportunities. If we buy a company, we could
have difficulty assimilating the personnel and operations of the acquired
company. If we make other types of acquisitions, assimilating the technology,
services or products into our operations could be difficult. Acquisitions can
disrupt our ongoing business, distract management and other resources and make
it difficult to maintain our standards, controls and procedures. We may not
succeed in overcoming these risks or in any other problems we might encounter in
connection with any future acquisitions. In addition, we may be required to
incur debt or issue equity securities to pay for any future acquisitions.
RISK OF UNDETECTED SOFTWARE ERRORS
Our software products are complex and may contain certain undetected
errors, particularly when first introduced or when new versions or enhancements
are released. We have previously discovered software errors in certain of our
new products after their introduction. We cannot be certain that, despite our
testing, such errors will not be found in current versions, new versions or
enhancements of our products after commencement of commercial shipments. Such
undetected errors could result in adverse publicity, loss of revenues, delay in
market acceptance or claims against us by customers, all of which could
materially adversely affect our business. For additional information, see
"Business -- Product Development."
YEAR 2000 RISKS
Background. Some computers, software and other equipment include
programming code in which calendar year data is abbreviated to only two digits.
As a result of this design decision, some of these systems could fail to operate
or fail to produce correct results if "00" is interpreted to mean 1900, rather
than 2000. These problems are widely expected to increase in frequency and
severity as the year 2000 approaches and are commonly referred to as the
"Millennium Bug" or "Year 2000 Problem."
Assessment. The Year 2000 Problem could affect computers, software and
other equipment that we use. Accordingly, we are reviewing our internal computer
programs and systems to ensure that they will be Year 2000 compliant. We
presently believe that our computer systems will be Year 2000 compliant in a
timely manner. However, while the estimated cost of these efforts is not
expected to be material to our financial position or any year's results of
operations, there can be no assurance to this effect.
Software Sold to Consumers. 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. In addition, we believe that it is not possible to determine with
complete accuracy that all Year 2000 Problems affecting our software products
have been identified or corrected due to the complexity of our products and the
fact that these products interact with other third party vendor products and
operate on computer systems that are not under our control.
Internal Infrastructure. We believe that we have identified substantially
all of the major computers, software applications and related equipment used in
connection with our internal operations that must be modified, upgraded or
replaced to minimize the possibility of a material disruption to our business.
We have commenced the process of modifying, upgrading and replacing our
accounting and contract management systems that have been identified as
potentially being adversely affected and expect to complete this process before
the end of the first quarter of 1999. The cost related to these efforts is not
expected to be material to our business, financial condition or results of
operations.
10
<PAGE> 12
Systems Other Than Information Technology Systems. In addition to computers
and related systems, the operation of our office and facilities equipment, such
as fax machines, photocopiers, telephone switches, security systems, elevators
and other common devices may be affected by the Year 2000 Problem. We are
currently assessing the potential effect of, and costs of remediating, the Year
2000 Problem on this equipment. We have recently replaced our primary telephone
switch with equipment that provides additional capacity and is believed to be
Year 2000 compliant. We estimate that our total cost of completing any required
modifications, upgrades or replacements of these internal systems will not have
a material effect on our business, financial condition or results of operations.
Suppliers. We have been gathering information from vendor web sites and
available compliance statements and have initiated communications with
third-party suppliers of our major computers, software and other equipment used,
operated or maintained by us to identify and, to the extent possible, resolve
issues involving the Year 2000 Problem. However, we have limited or no control
over the actions of such third-party suppliers. Thus, while we expect that we
will be able to resolve any significant Year 2000 Problems with such systems,
there can be no assurance that our suppliers will resolve any or all Year 2000
Problems with such systems before the occurrence of a material disruption to our
business or any of our suppliers. Any failure of these third-parties to resolve
Year 2000 problems with their systems in a timely manner could have a material
adverse effect on our business, financial condition or results of operation.
Most Likely Consequences of Year 2000 Problems. We expect to identify and
resolve all Year 2000 Problems that could materially adversely affect our
business, financial condition or results of operations. However, we believe that
it is not possible to determine with complete certainty that all Year 2000
Problems affecting us have been identified or corrected. The number of devices
that could be affected and the interactions among these devices are simply too
numerous. In addition, we cannot accurately predict how many failures related to
the Year 2000 Problem will occur or the severity, duration or financial
consequences of such failures. As a result, we expect that we could possibly
suffer the following consequences:
- a significant number of operational inconveniences and inefficiencies for
us and our customers that may divert our time and attention and financial
and human resources from our ordinary business activities; and
- a lesser number of serious system failures that may require significant
efforts by us or our customers to prevent or alleviate material business
disruptions.
Contingency Plans. We are currently developing contingency plans to be
implemented as part of our efforts to identify and correct Year 2000 Problems
affecting our internal systems. We expect to complete our contingency plans by
the end of the first quarter of 1999. Depending on the systems affected, these
plans could include (i) accelerated replacement of affected equipment or
software, (ii) short- to medium-term use of backup equipment and software, (iii)
increased work hours for our personnel or use of contract personnel to correct
on an accelerated schedule any Year 2000 Problems which arise or to provide
manual workarounds for information systems (iv) and other similar approaches. If
we are required to implement any of these contingency plans, such plans could
have a material adverse effect on our business, financial condition or results
of operations. For more information, see "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Year 2000 Issues."
RISK OF PRODUCT LIABILITY CLAIMS
Because our product design provides critical network management services,
we may receive significant liability claims. Our agreements with customers
typically contain provisions intended to limit our exposure to liability claims.
These limitations may not, however, preclude all potential claims. Liability
claims could require us to spend significant time and money in litigation or to
pay significant damages. As a result, any such
11
<PAGE> 13
claims, whether or not successful, could seriously damage our reputation and our
business. For additional information, see "Business -- Products and Technology"
and "-- Product Development."
CONTROL BY OFFICERS AND DIRECTORS
When this offering is completed, the officers, directors, five percent or
greater shareholders and their affiliates in the aggregate will beneficially own
approximately 58.7% of the outstanding common stock. These shareholders will
continue to control BindView and, if they act together, could elect all of the
directors, appoint management and control all matters submitted to our
stockholders for a vote. For additional information, see "Principal and Selling
Shareholders."
ANTI-TAKEOVER PROVISIONS
Incumbent management and our Board of Directors could use certain
provisions of our certificate of incorporation and Delaware law to make it more
difficult for a third party to acquire control of our company, even if the
change in control might be beneficial to our stockholders. This could discourage
potential takeover attempts and could adversely affect the market price of our
common stock. For additional information, see "Description of Capital Stock" and
"Management -- Stock Option Plans."
SHARES ELIGIBLE FOR FUTURE SALE
The market price of our common stock could drop due to possible sales of a
large number of shares in the market after this offering or in response to the
perception that such sales could occur. In addition to the 4,400,350 shares of
Common Stock that are freely tradeable following our initial public offering in
July 1998, all of the 3,000,000 shares sold in this offering will be freely
tradable. All of the other shares outstanding after this offering will be
"restricted securities" under applicable securities laws. Approximately
1,250,000 of these shares will be eligible for sale on January 24, 1999 when the
initial public offering lockup agreements expire. In addition, holders of
approximately 6,860,000 shares of Common Stock have signed 90-day lockup
agreements and holders of approximately 4,750,000 shares have signed 180-day
lockup agreements with the underwriters. After these lockup periods expire, all
of such shares will be eligible for immediate sale subject to the terms of, Rule
144. BancBoston Robertson Stephens can release shares from one or more of the
lock-up agreements without our approval. In addition, holders of approximately
11 million shares have the right to request that we register those shares for
sale in the public market.
IMMEDIATE AND SUBSTANTIAL DILUTION
The offering price of shares of the common stock is substantially higher
than the book value per share of the outstanding common stock. As a result,
purchasers of shares of the common stock in this offering will incur immediate
and substantial dilution of $15.04 per share (assuming an offering price of
$17.88 per share). In addition, we have issued options to acquire common stock
at prices significantly below the public offering price. To the extent such
outstanding options are exercised, there will be further dilution. For
additional information, see "Shares Eligible for Future Sale."
POTENTIAL VOLATILITY OF STOCK PRICE
The market price of our common stock has fluctuated in the past and is
likely to fluctuate in the future. In addition, the securities markets have
experienced significant price and volume fluctuations. Investors may be unable
to resell their shares of our common stock at or above the offering price. In
the past, companies that have experienced volatility in the market price of
their stock have been the object of securities class action litigation. If we
were the object of securities class action litigation, it could result in
substantial costs and a diversion of management's attention and resources. See
"Price Range of Common Stock."
12
<PAGE> 14
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 300,000 shares of
Common Stock offered by the Company hereby, assuming an offering price of $17.88
per share, will be approximately $4.6 million ($5.4 million 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. BindView expects to use the proceeds from the sale of Common
Stock offered by the Company for general corporate purposes and to cover
expenses related to this offering.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "BVEW." Public trading of the Common Stock commenced on July 24,
1998. Prior to that, there was no public market for the Common Stock. The
following table sets forth, for the periods indicated, the high and low sale
price per share of the Common Stock on the Nasdaq National Market.
<TABLE>
<CAPTION>
1998 HIGH LOW
---- ------ ------
<S> <C> <C>
Third Quarter (from July 24, 1998).................... $20.13 $ 9.75
Fourth Quarter (through November 5, 1998)............. $19.38 $14.50
</TABLE>
As of September 30, 1998, there were approximately 80 holders of record of
the Company's Common Stock. On November 5, 1998, the last sale price reported on
the Nasdaq National Market for the Company's Common Stock was $17.88 per share.
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.
13
<PAGE> 15
CAPITALIZATION
The following table sets forth the unaudited total capitalization of the
Company as of September 30, 1998, (i) on an actual basis and (ii) on an as
adjusted basis to reflect the sale of 300,000 shares of Common Stock by the
Company at the assumed public offering price of $17.88 per share. 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 AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Shareholders' equity:
Common Stock: no par value, 100,000,000 shares authorized,
19,965,170 shares issued and outstanding, actual and
20,360,370 shares issued and outstanding, as
adjusted(1)............................................ $ 1 $ 1
Additional paid-in capital................................ 56,244 61,747
Accumulated deficit....................................... (3,308) (3,308)
------- -------
Total shareholders' equity........................ 52,937 58,439
------- -------
Total capitalization.............................. $52,937 $58,439
======= =======
</TABLE>
- ---------------
(1) Based on the number of shares outstanding as of September 30, 1998 and the
intended exercise of 95,200 option shares by Selling Shareholders. Excludes
4,653,834 shares subject to options outstanding as of September 30, 1998 at
a weighted average exercise price of $3.12 per share and 1,379,838 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.
14
<PAGE> 16
DILUTION
The net tangible book value of the Company as of September 30, 1998 was
$52,937,000, or approximately $2.65 per share. "Adjusted 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 adjusted basis. The adjusted net tangible book value of the
Company as of September 30, 1998 would have been approximately $57,531,000, or
$2.84 per share after giving effect to the sale of 300,000 shares of Common
Stock offered by the Company in this offering at the assumed public offering
price of $17.88 per share and the application of the estimated net proceeds
therefrom. This represents an immediate increase in the adjusted net tangible
book value of $0.19 per share to existing shareholders and an immediate dilution
of $15.04 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 public offering price........................................ $ 17.88
Net tangible book value as of September 30, 1998(1)....... $ 2.65
-------
Increase attributable to new investors.................... $ 0.19
Adjusted net tangible book value as of September 30, 1998(1)......... $ 2.84
--------
Dilution to new investors(1)......................................... $ 15.04
========
</TABLE>
The following table summarizes, on an adjusted basis as of September 30,
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 public offering price of $17.88 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)............. 20,060,370 99% $42,873,000 89% $ 2.14
New shareholders(1)(2)............... 300,000 1 5,364,000 11 17.88
---------- --- ----------- ---
Totals..................... 20,360,370 100% $48,237,000 100%
========== === =========== ===
</TABLE>
- ------------
(1) Excludes 4,653,834 shares subject to outstanding options as of September 30,
1998 at a weighted average exercise price of $3.12 per share and 1,379,838
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 17,360,370, or 85% (16,955,370, or
83%, if the Underwriters' over-allotment option is exercised in full), and
will increase the number of shares held by new investors to 3,000,000, or
15% (3,450,000, or 17%, 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."
CERTAIN INFORMATION
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
its Web site is not a part of this Prospectus.
15
<PAGE> 17
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 nine months ended September 30, 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 nine months
ended September 30, 1998, are not necessarily indicative of results to be
expected for any future period.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------------- ------------------
1993 1994 1995 1996 1997 1997 1998
------ ------ ------ ------- -------- ------- -------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<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 $10,782 $18,587
Services............................................... -- -- 328 1,282 3,017 1,871 5,366
------ ------ ------ ------- -------- ------- -------
Total revenues................................... 3,031 5,171 7,333 11,002 20,838 12,653 23,953
------ ------ ------ ------- -------- ------- -------
Cost of revenues:
Cost of licenses....................................... 626 564 693 465 644 379 790
Cost of services....................................... -- -- 139 362 624 386 722
------ ------ ------ ------- -------- ------- -------
Total cost of revenues........................... 626 564 832 827 1,268 765 1,512
------ ------ ------ ------- -------- ------- -------
Gross profit............................................ 2,405 4,607 6,501 10,175 19,570 11,888 22,441
------ ------ ------ ------- -------- ------- -------
Costs and expenses:
Sales and marketing.................................... 983 2,256 3,234 4,197 9,088 5,521 10,935
Research and development............................... 615 820 1,249 2,088 3,573 2,159 5,944
General and administrative............................. 411 1,022 1,235 1,472 2,943 1,544 2,313
Stock compensation expense............................. -- -- -- 436 15,262 -- --
------ ------ ------ ------- -------- ------- -------
Operating income (loss)(1).............................. 396 509 783 1,982 (11,296) 2,664 3,249
Other income (expense), net............................. (7) (21) (29) 8 118 51 756
------ ------ ------ ------- -------- ------- -------
Income (loss) before income tax provision............... 389 488 754 1,990 (11,178) 2,715 4,005
Provision (benefit) for income tax...................... -- -- -- -- (3,150) -- 1,276
------ ------ ------ ------- -------- ------- -------
Net income (loss)....................................... 389 488 754 1,990 (8,028) 2,715 2,729
Pro forma charge (benefit) in lieu of income taxes...... 136 171 264 697 (765) 951 --
------ ------ ------ ------- -------- ------- -------
Pro forma net income (loss)(2)(3)....................... $ 253 $ 317 $ 490 $ 1,293 $ (7,263) $ 1,764 $ --(6)
====== ====== ====== ======= ======== ======= =======
Diluted pro forma net income (loss) per share(4)(5)..... $ 0.03 $ 0.04 $ 0.06 $ 0.12 $ (0.88) $ 0.12 $ 0.14
====== ====== ====== ======= ======== ======= =======
Shares used in computing diluted pro forma net income
(loss) per share(4)(5)................................. 8,228 8,228 8,228 11,046 8,232 14,295 19,543
------ ------ ------ ------- -------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------- SEPTEMBER 30,
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 $49,122
Total assets................................................ 925 1,552 2,747 4,016 16,509 60,520
Long-term liabilities, net of current portion............... -- -- 68 -- -- --
Total shareholders' equity.................................. 287 707 1,214 2,647 12,250 52,937
</TABLE>
- ---------------
(1) 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 these data may be useful to investors. However, such
data are not prepared in accordance with generally accepted accounting
principles and investors should not utilize these data as a substitute for
operating income.
(2) 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 these data may be useful to investors.
However, such data are not prepared in accordance with generally accepted
accounting principles and investors should not utilize these data as a
substitute for pro forma net income.
(3) Net income adjusted for a pro forma charge in lieu of income taxes as if the
Company were a C Corporation for all periods.
(4) 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.
(5) The amounts for the nine months ended September 30, 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.
(6) Not applicable as the Company was a C Corporation for the entire period.
16
<PAGE> 18
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 13 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 -- Our
Quarterly Financial Operating Results are Subject to Significant Fluctuations,"
"-- We Have a Limited Operating History."
To date, all of the Company's revenues have been dependent upon Windows NT
and NetWare operating systems. However, the Company does not believe that future
revenues are dependent upon the continued acceptance of either of these
operating systems alone and that disparate sales of either Windows NT or NetWare
will not have a material adverse effect upon the Company's business, operating
results and financial condition.
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.
17
<PAGE> 19
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 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 international direct telesales effort by forming wholly owned
subsidiaries in Germany and France. 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.
18
<PAGE> 20
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>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------ -------------
1995 1996 1997 1997 1998
------ ------ ------ ----- -----
<S> <C> <C> <C> <C> <C>
Revenues:
Licenses.................................... 95.5% 88.3% 85.5% 85.2% 77.6%
Services.................................... 4.5 11.7 14.5 14.8 22.4
----- ----- ----- ----- -----
Total revenues...................... 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- -----
Cost of revenues:
Cost of licenses............................ 9.5 4.2 3.1 3.0 3.3
Cost of services............................ 1.8 3.3 3.0 3.0 3.0
----- ----- ----- ----- -----
Total cost of revenues.............. 11.3 7.5 6.1 6.0 6.3
----- ----- ----- ----- -----
Gross margin.................................. 88.7 92.5 93.9 94.0 93.7
----- ----- ----- ----- -----
Costs and expenses:
Sales and marketing......................... 44.1 38.1 43.6 43.6 45.7
Research and development.................... 17.0 19.0 17.1 17.1 24.8
General and administrative.................. 16.8 13.4 14.1 12.2 9.6
Stock compensation expense.................. -- 4.0 73.2 -- --
----- ----- ----- ----- -----
Operating income (loss)....................... 10.8 18.0 (54.1) 21.1 13.6
Other income (expense), net................... (0.4) 0.1 0.6 0.4 3.1
----- ----- ----- ----- -----
Income (loss) before income tax provision..... 10.4 18.1 (53.5) 21.5 16.7
Provision (benefit) for income tax............ -- -- (15.1) -- 5.3
----- ----- ----- ----- -----
Net income (loss)............................. 10.4 18.1 (38.4) 21.5 11.4
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)% 13.9% --%
===== ===== ===== ===== =====
</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 $12.7
million and $24.0 million for the nine months ended September 30, 1997 and 1998,
respectively, representing an increase of $11.3 million or 89% over the
comparable nine months of the prior year. The Company had no customer that
accounted for more than 10% of its revenues in 1996, 1997 or for the nine months
ended September 30, 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 nine months
ended September 30, 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 $10.8 million and $18.6 million for the nine
months ended September 30, 1997 and 1998, respectively, representing an increase
of $7.8 million or 72% over the comparable nine months 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 continued market acceptance of BindView EMS, including the
release of NOSadmin for Windows NT and the release of NETinventory which
19
<PAGE> 21
approximated $4.8 million. The increase in the Company's license revenues from
the nine months ended September 30, 1997 to the nine months ended September 30,
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.
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
service revenues were $1.9 million and $5.4 million for the nine months ended
September 30, 1997 and 1998, respectively, representing an increase of $3.5
million or 187% over the comparable nine months of the prior year. The increase
in the Company's service revenues from 1995 through the first nine months 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 nine months ended September 30, 1997 to the nine months ended
September 30, 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 -- Our Quarterly Financial Operating
Results are Subject to Significant Fluctuations."
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 $379,000 and
$790,000 for the nine months ended September 30, 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 $411,000 or 108% from the nine
months ended September 30, 1997 as compared to the nine months ended September
30, 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 3.0% and 3.3% for the nine months ended
September 30, 1997 and 1998, respectively. The Company believes these costs will
remain relatively constant on a percentage basis in the future, although there
will continue to be quarterly fluctuations due to the timing of certain
expenses.
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 $386,000 and $722,000 for the
nine months ended September 30, 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 $336,000 or 87% from the nine months ended September 30, 1997 as
compared to the nine months ended September 30, 1998. The increase in the
Company's cost of services from 1995 through the first nine months of 1998
resulted primarily from increases in the cost of technical support staff
providing support to the Company's growing customer base and increases in the
cost of professional services staff providing customer training and
implementation services. Cost of services as a percentage of service revenues
were 42.4%, 28.2% and 20.7% for 1995, 1996 and 1997, respectively, and 20.6% and
13.6% for the nine months ended September 30, 1997 and 1998, respectively. These
decreases in the Company's cost of services as a percentage of service revenues
from 1995 to the first nine months 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 gross margins realized in the first
nine months of 1998. Professional service revenues
20
<PAGE> 22
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 $5.5 million and $10.9 million for the
nine months ended September 30, 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 $5.4 million or 98% from the nine months ended September
30, 1997 as compared to the nine months ended September 30, 1998. The increase
in the Company's sales and marketing expenses from 1995 through the first nine
months 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 nine months ended September 30,
1997 to the nine months ended September 30, 1998 also resulted from personnel
and start-up costs associated with the launch of a direct telesales organization
in Germany and France during 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 43.6% and 45.7% for the nine months ended September 30, 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 the annual 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 $2.2 million
and $5.9 million for the nine months ended September 30, 1997 and 1998,
respectively. Research and development expenses increased $900,000 or 67% from
1995 to 1996, $1.5 million or 71% from 1996 to 1997 and $3.8 million or 175%
from the nine months ended September 30, 1997 as compared to the nine months
ended September 30, 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 17.1% and 24.8% for the
nine months ended September 30, 1997 and 1998, respectively. The increase in the
Company's research and development expenses as a percentage of total revenues
from the nine months ended September 30, 1997 to the nine months ended September
30, 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 that research and development expenses will remain relatively
constant as a percentage of total revenue recorded for the first nine months of
1998, but will increase in absolute dollars. 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.
21
<PAGE> 23
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 $1.5 million and $2.3 million for the
nine months ended September 30, 1997 and 1998, respectively. The increase in the
Company's general and administrative expenses of $300,000 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 $800,000 or 50% from the nine months ended September 30, 1997 as
compared to the nine months ended September 30, 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 12.2% and 9.6% for the nine months ended September 30, 1997
and 1998, respectively. The Company expects that general and administrative
expenses will remain relatively constant as a percentage of total revenue, 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
3,400%. 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 September 30, 1998, the Company had a federal net operating
loss carryforward of approximately $3.5 million, that may be utilized to reduce
future taxable income through the year 2012, subject to certain annual
limitations.
22
<PAGE> 24
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth certain unaudited consolidated statements of
operations data for the nine quarters ended September 30, 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
---------------------------------------------------------------------------------------------------
SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1996 1996 1997 1997 1997 1997 1998 1998 1998
--------- -------- -------- -------- --------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenues:
Licenses.................. $.2,460 $3,641 $2,950 $3,308 $4,524 $ 7,039 $4,384 $6,219 $ 7,984
Services.................. 212 435 473 604 794 1,146 1,456 1,774 2,136
------ ------ ------ ------ ------ -------- ------ ------ -------
Total revenues...... 2,672 4,076 3,423 3,912 5,318 8,185 5,840 7,993 10,120
------ ------ ------ ------ ------ -------- ------ ------ -------
Cost of revenues:
Cost of licenses.......... 117 175 91 138 150 265 208 254 329
Cost of services.......... 71 105 105 142 139 238 215 226 281
------ ------ ------ ------ ------ -------- ------ ------ -------
Total cost of
revenues.......... 188 280 196 280 289 503 423 480 610
------ ------ ------ ------ ------ -------- ------ ------ -------
Gross profit................ 2,484 3,796 3,227 3,632 5,029 7,682 5,417 7,513 9,510
------ ------ ------ ------ ------ -------- ------ ------ -------
Costs and expenses:
Sales and marketing....... 1,180 1,335 1,369 1,827 2,325 3,567 2,708 3,733 4,493
Research and
development............. 586 618 622 700 837 1,414 1,643 2,050 2,250
General and
administrative.......... 338 482 511 483 550 1,399 676 735 903
Stock compensation
expense................. -- 436 -- -- -- 15,262 -- -- --
------ ------ ------ ------ ------ -------- ------ ------ -------
Operating income (loss)..... 380 925 725 622 1,317 (13,960) 390 995 1,864
Other income (expense),
net....................... 2 5 14 15 22 67 129 142 485
------ ------ ------ ------ ------ -------- ------ ------ -------
Income (loss) before income
tax provision............. 382 930 739 637 1,339 (13,893) 519 1,137 2,349
Provision (benefit) for
income tax................ -- -- -- -- -- (3,150) 122 332 822
------ ------ ------ ------ ------ -------- ------ ------ -------
Net income (loss)........... 382 930 739 637 1,339 (10,743) 397 805 1,527
Pro forma charge (benefit)
in lieu of income taxes... 134 326 259 223 469 (1,716) -- -- --
------ ------ ------ ------ ------ -------- ------ ------ -------
Pro forma net income
(loss).................... $ 248 $ 604 $ 480 $ 414 $ 870 $ (9,027) $ -- $ -- $ --
====== ====== ====== ====== ====== ======== ====== ====== =======
AS A PERCENTAGE OF TOTAL REVENUES:
Revenues:
Licenses.................. 92.1% 89.3% 86.2% 84.6% 85.1% 86.0% 75.1% 77.8% 78.9%
Services.................. 7.9 10.7 13.8 15.4 14.9 14.0 24.9 22.2 21.1
------ ------ ------ ------ ------ -------- ------ ------ -------
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.......... 4.3 4.3 2.6 3.6 2.8 3.2 3.6 3.2 3.2
Cost of services.......... 2.7 2.6 3.1 3.6 2.6 2.9 3.6 2.8 2.8
------ ------ ------ ------ ------ -------- ------ ------ -------
Total cost of
revenues.......... 7.0 6.9 5.7 7.2 5.4 6.1 7.2 6.0 6.0
------ ------ ------ ------ ------ -------- ------ ------ -------
Gross margin................ 93.0 93.1 94.3 92.8 94.6 93.9 92.8 94.0 94.0
------ ------ ------ ------ ------ -------- ------ ------ -------
Costs and expenses:
Sales and marketing....... 44.2 32.8 40.0 46.7 43.7 43.6 46.4 46.7 44.4
Research and
development............. 22.0 15.1 18.2 17.9 15.8 17.3 28.1 25.6 22.2
General and
administrative.......... 12.6 11.8 14.9 12.3 10.3 17.1 11.6 9.2 9.0
Stock compensation
expense................. -- 10.7 -- -- -- 186.5 -- -- --
------ ------ ------ ------ ------ -------- ------ ------ -------
Operating income (loss)..... 14.2 22.7 21.2 15.9 24.8 (170.6) 6.7 12.4 18.4
Other income (expense),
net....................... 0.1 0.1 0.4 0.4 0.4 0.8 2.2 1.8 4.8
------ ------ ------ ------ ------ -------- ------ ------ -------
Income (loss) before income
tax provision............. 14.3 22.8 21.6 16.3 25.2 (169.8) 8.9 14.2 23.2
Provision (benefit) for
income tax................ -- -- -- -- -- (38.5) 2.1 4.2 8.1
------ ------ ------ ------ ------ -------- ------ ------ -------
Net income (loss)........... 14.3 22.8 21.6 16.3 25.2 (131.3) 6.8 10.0 15.1
Pro forma charge (benefit)
in lieu of income taxes... 5.0 8.0 7.6 5.7 8.8 (21.0) -- -- --
------ ------ ------ ------ ------ -------- ------ ------ -------
Pro forma net income
(loss).................... 9.3% 14.8% 14.0% 10.6% 16.4% (110.3)% --% --% --%
====== ====== ====== ====== ====== ======== ====== ====== =======
</TABLE>
23
<PAGE> 25
The trends discussed in the annual comparisons of operating results from
1995 to 1997 and the first nine months of 1997 to the first nine months of 1998
are generally applicable to the comparison of quarters within the nine quarterly
periods ended September 30, 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 and 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 -- Our Quarterly Financial Operating Results are Subject to
Significant Fluctuations."
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital increased to $49.1 million at September 30,
1998 from $10.8 million at December 31, 1997. The Company's cash and cash
equivalent balance increased to $48.4 million at September 30, 1998 from $7.2
million at December 31, 1997 due primarily to the initial public offering
completed on July 23, 1998, positive cash flow operating activities and the
exercise of stock options and warrants. Of the $39.2 million net proceeds from
the initial public offering, $30.0 million was received by the Company and $9.2
million was received by Selling Shareholders.
24
<PAGE> 26
From its inception to the initial public offering effective July 23, 1998,
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, $5.1 million and $6.3 million for 1995, 1996, 1997 and the nine months
ended September 30, 1998, 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.
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
automatically converted into 6,320,225 shares of Common Stock upon the initial
public offering effective July 23, 1998. 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,
$1.3 million and $3.1 million in 1995, 1996, 1997 and the nine months ended
September 30, 1998, respectively, and relates primarily to the Company's capital
expenditures and growth of the Company's infrastructure.
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 nine months of 1998.
The Company currently intends to use the net proceeds of its initial public
offering and 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. There
can be no assurance the Company will be able to identify any acquisitions of
businesses, products or technology that are complimentary to those of the
Company or are on terms that are acceptable to the Company. Pending such uses,
these proceeds will be invested in government securities and other short-term,
investment-grade, interest-bearing instruments.
The Company believes that the net proceeds of its initial public offering
and this offering, together with existing cash and cash equivalents and cash
flow from operations will be sufficient to meet its normal 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 will not be dilutive.
YEAR 2000 ISSUES
Background. Some computers, software and other equipment include
programming code in which calendar year data is abbreviated to only two digits.
As a result of this design decision, some of these systems could fail to operate
or fail to produce correct results if "00" is interpreted to mean 1900, rather
than 2000. These problems are widely expected to increase in frequency and
severity as the year 2000 approaches and are commonly referred to as the
"Millennium Bug" or "Year 2000 Problem."
Assessment. The Year 2000 Problem could affect computers, software and
other equipment used by the Company. Accordingly, the Company is reviewing its
internal computer programs and systems to ensure that such programs and systems
will be Year 2000 compliant. The Company presently believes that its computer
systems will be Year 2000 compliant in a timely manner. However, while the
estimated cost of these efforts is not expected to be material to the Company's
financial position or any year's results of operations, there can be no
assurance to this effect.
25
<PAGE> 27
Software Sold to Consumers. 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. In addition, the Company believes that it is not possible to
determine with complete accuracy that all Year 2000 Problems affecting the
Company's software products have been identified or corrected due to the
complexity of such products and the fact that such products interact with other
third party vendor products and operate on computer systems that are not under
the Company's control.
Internal Infrastructure. The Company believes that it has identified
substantially all of the major computers, software applications and related
equipment used in connection with its internal operations that must be modified,
upgraded or replaced to minimize the possibility of a material disruption to its
business. The Company has commenced the process of modifying, upgrading and
replacing the Company's accounting and contact management systems that have been
identified as potentially being adversely affected and expects to complete this
process before the end of the first quarter of 1999. The cost related to these
efforts is not material to the Company's business, financial condition or
results of operations.
Systems Other Than Information Technology Systems. In addition to computers
and related systems, the operation of the Company's office and facilities
equipment, such as fax machines, photocopiers, telephone switches, security
systems, elevators and other common devices may be affected by the Year 2000
Problem. The Company is currently assessing the potential effect of, and costs
of remediating, the Year 2000 Problem on this equipment. The Company has
recently replaced its primary telephone switch with equipment that provides
additional capacity and is believed to be Year 2000 compliant. The Company
estimates that the total cost to the Company of completing any required
modifications, upgrades or replacements of these internal systems will not have
a material effect on the Company's business, financial condition or results of
operations. This estimate is being monitored and will be revised as additional
information becomes available.
Suppliers. The Company has been gathering information from vendor web sites
and available compliance statements and has initiated communications with
third-party suppliers of the major computers, software and other equipment used,
operated or maintained by the Company to identify and, to the extent possible,
resolve issues involving the Year 2000 Problem. However, the Company has limited
or no control over the actions of such third-party suppliers. Thus, while the
Company expects that it will be able to resolve any significant Year 2000
Problems with such systems, there can be no assurance that such suppliers will
resolve any or all Year 2000 Problems with such systems before the occurrence of
a material disruption to the business of the Company or any of its suppliers.
Any failure of these third-parties to resolve Year 2000 problems with their
systems in a timely manner could have a material adverse effect on the Company's
business, financial condition or results of operation.
Most Likely Consequences of Year 2000 Problems. The Company expects to
identify and resolve all Year 2000 Problems that could materially adversely
affect its business, financial condition or results of operations. However, the
Company believes that it is not possible to determine with complete certainty
that all Year 2000 Problems affecting the Company have been identified or
corrected. The number of devices that could be affected and the interactions
among these devices are simply too numerous. In addition, the Company cannot
accurately predict how many failures related to the Year 2000 Problem will occur
or the severity, duration or financial consequences of such failures. As a
result, the Company expects that it could possibly suffer the following
consequences:
- a significant number of operational inconveniences and inefficiencies for
the Company and its customers that may divert management's time and
attention and financial and human resources from its ordinary business
activities; and
- a lesser number of serious system failures that may require significant
efforts by the Company or its customers to prevent or alleviate material
business disruptions.
Contingency Plans. The Company is currently developing contingency plans to
be implemented as part of its efforts to identify and correct Year 2000 Problems
affecting its internal systems. The Company expects to complete its contingency
plans by the end of the first quarter of 1999. Depending on the systems
affected,
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these plans could include (i) accelerated replacement of affected equipment or
software, (ii) short- to medium-term use of backup equipment and software, (iii)
increased work hours for Company personnel or use of contract personnel to
correct on an accelerated schedule any Year 2000 Problems which arise or to
provide manual workarounds for information systems (iv) and other similar
approaches. If the Company is required to implement any of these contingency
plans, such plans could have a material adverse effect on the Company's
business, financial condition or results of operations.
However, based on the activities described above, the Company does not
believe that the Year 2000 Problem will have a material adverse effect on the
Company's business, financial condition or results of operations.
Disclaimer. The discussion of the Company's efforts and expectations
relating to Year 2000 compliance are forward-looking statements. The Company's
ability to achieve Year 2000 compliance and the level of incremental costs
associated therewith, could be adversely impacted by, among other things, the
availability and cost of programming and testing resources, vendors' ability to
modify proprietary software and unanticipated problems identified in the
Company's ongoing compliance review.
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<PAGE> 29
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. Novell has recently shipped a major new release of its network
operating system and Microsoft is planning to ship a major new release of its
network operating system in the next 12 months. Each new network operating
system ("NOS") upgrade adds levels of complexity and the Company believes this
will be particularly true of the next major upgrade 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
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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 has 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> 31
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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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 a 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 Management 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 and new
features for managing the performance and availability of network components.
The Company also intends to continue to make enhancements allowing customers to
proactively fix more problems through the "ActiveAdmin" features of BindView EMS
and AddPack features specific to NOSadmin for Windows NT. The Company currently
plans to introduce AddPack for Windows NT in the next 6 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 or SAP R/3).
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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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.
[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.
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.
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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 and AddPack
features are available), make necessary corrections while documenting any
required changes. The Company is working to add and expand ActiveAdmin and
AddPack 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. In the next six months, the Company plans to release an
update to NOSadmin for Windows NT, called "AddPack," that is being
designed to enable users to make changes to the Windows NT NOS
configuration and fix problems enterprise-wide from the Enterprise
Console. The Company is designing the initial version of AddPack to
support managing Windows NT services. In subsequent updates, the Company
plans to include support for managing additional aspects of the NOS,
including Windows NT domain user account information.
- 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). In the
next six months, the Company plans to release an update to NOSadmin for
NetWare to support new features in the recently released NetWare 5,
including support for Novell's Z.E.N. Works.
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
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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.
<TABLE>
<CAPTION>
BINDVIEW EMS
PRODUCT FEATURES/BENEFITS
- --------------------------------------------------------------------------------------------------
<S> <C> <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
- Documentation 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
- Documentation 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>
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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 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:
3Com
American Stores
Baltimore Gas & Electric
Banc One Capital
Blue Cross and Blue Shield
California Federal Bank
Chase Manhattan Bank
CIBC Asia Limited
Cigna
Citicorp
CoreStates Bank
CSX Corporation
Deloitte & Touche
El Paso Energy
Emory Clinic
Ernst & Young
Excel Telecommunications
Federal Reserve Bank
First Chicago NBD
GE Capital
GTE Mobile Communications
Hoechst
ITT Industries
Kellogg USA
Kimberley-Clark
KPMG Peat Marwick
LCI International
Michelin
Mellon Bank
Mobil
Oxford Health Plans
PageNet
Paramount Pictures
Phillips Petroleum
Providian Financial
Quantum
Raytheon
Sallie Mae
San Diego Gas & Electric
Scudder, Stevens & Clark
Sony
Sprint
SunTrust Banks
Tandy Corporation
Tenneco
Trans Union
UCSF Stanford Health Care
Union Pacific
U.S. Bank
U.S. Customs Service
U.S. Trust
Wells Fargo & Co.
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 nine months ended September 30, 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.
35
<PAGE> 37
As of September 30, 1998, the Company had 95 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. During 1998, the Company established direct telesales offices in
Frankfurt, Germany and Paris, France. The Company has increased the size of its
direct telesales organization from 42 to 95 individuals over the last year and
expects to continue hiring sales personnel, both domestically and
internationally, over the next 12 months.
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 Five 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 September 30, 1998, the Company's customer support and
professional services organization consisted of 26 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
36
<PAGE> 38
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.
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 26 employees as of September 30, 1997 and 43
employees as of September 30, 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, in the next six months, the Company plans to release new
products including: AddPack for NOSadmin for Windows NT; a Java-based console
that will work in conjunction with the BindView EMS/Enterprise Console to
provide access to BindView data through Web browsers; and updates to the
Enterprise Console, the NOSadmin products and NETinventory. The Company also 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 -- Our Products are Subject to Rapid Technological
Change."
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.
and Greenwich Mean Time -- UTA, L.C. 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.
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<PAGE> 39
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 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 -- Our Markets are Highly Competitive."
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."
38
<PAGE> 40
EMPLOYEES
As of September 30, 1998, the Company employed 243 full-time employees,
including 105 in sales and marketing, 81 in research and development, 26 in
technical support and professional services and 31 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."
FACILITIES
The Company's principal administrative, marketing, support and research and
development facility is located in approximately 27,000 square feet of space in
Houston, Texas. The Company's sales force occupies approximately 20,000 square
feet of space at another location in Houston, Texas. The Company has leased an
additional 80,000 square feet of office space at this new location and intends
to relocate its administrative, marketing, support and research and development
facility to this other location by the first quarter of 1999. The Company also
currently has office space in Frankfurt, Germany and Paris, France. 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.
39
<PAGE> 41
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
Scott R. Plantowsky............. 35 Vice President, Chief Financial Officer and Director
Christopher J. Sole............. 46 Vice President, Chief Operating 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)............ 41 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
</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.
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.
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.
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 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.
40
<PAGE> 42
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 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.
41
<PAGE> 43
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
Provisions."
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> 44
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
Scott R. Plantowsky.................... 110,000 113,179 1,335,000(4) 1,500,000(5) 9,500
Chief Financial Officer
Christopher J. Sole.................... 110,000 83,301 0 279,990 9,054
Chief Operating 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 9,500
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 exercised May 1998. 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 $3.85 per share.
(8) Issued in connection with the termination of the Phantom Stock Plan. At end
of fiscal year 1997, Mr. Ghias held no shares of restricted stock. Dividends
will be paid on restricted stock to the same extent that dividends are paid
on unrestricted stock.
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<PAGE> 45
The following table contains information concerning the stock option grants
made to each of the Named Officers in the year ended December 31, 1997. No stock
appreciation rights were granted to these individuals during such year.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE
------------------------------------------ AT ASSUMED ANNUAL
% OF TOTAL RATES OF STOCK PRICE
NUMBER OF OPTIONS APPRECIATION FOR
SECURITIES GRANTED TO EXERCISE OPTION TERM(3)
UNDERLYING EMPLOYEES IN PRICE EXPIRATION ---------------------------
NAME OPTIONS GRANTED FISCAL YEAR(1) ($/SHARE)(2) DATE 5%($) 10%($)
- ---- --------------- -------------- ------------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Eric J. Pulaski.............. 0 -- -- -- -- --
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
Christopher J. Sole.......... 279,990(4) 7.3 2.85 10/2007 501,488 1,270,869
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 warrants and these
options 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 a 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. 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.
44
<PAGE> 46
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
UNDERLYING
UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
DECEMBER 31, 1997 AT DECEMBER 31, 1997(1)
-------------------- -----------------------
NAME VESTED UNVESTED VESTED UNVESTED
- ---- -------- --------- --------- -----------
<S> <C> <C> <C> <C>
Eric J. Pulaski.................................... -- -- -- --
Scott R. Plantowsky................................ 656,250 843,750 $986,125 $1,833,375
Christopher J. Sole................................ -- 927,315 -- 1,170,709
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 September 30,
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 September 30, 1998, 77,158
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
45
<PAGE> 47
shares of Common Stock have been issued to him. Options to purchase 1,428,365
shares of Common Stock at a weighted average exercise price of $1.28 were
outstanding under the Incentive Plan. At September 30, 1998, 369,477 shares
remained available for future issuance under the Incentive Plan. All options
outstanding under the Incentive Plan are 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 September 30, 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
September 30, 1998, 592,732 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 1,154,593
shares of Common Stock at a weighted average exercise price of $1.89 were
outstanding under the Stock Plan. At September 30, 1998, no shares remained
available for future issuance under the Stock Plan. All options outstanding
under the Stock Plan are 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 September 30, 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
46
<PAGE> 48
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-outstanding voting securities of the Company. As of September
September 30, 1998, 222,500 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 1,081,240 shares of Common Stock at a weighted average exercise
price of $2.85 were outstanding under the 1997 Plan. At September 30, 1998, no
shares remained available for future issuance under the 1997 Plan. All options
outstanding under the 1997 Plan are 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 Omnibus Plan was approved by the
Company's stockholders in July 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 September 30, 1998, options to purchase an aggregate of 839,636
shares of Common Stock were outstanding under the Omnibus Plan at a weighted
average exercise price of $8.15. A total of 910,364 shares of Common Stock are
available for future issuance under the Omnibus Plan.
47
<PAGE> 49
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 Director Plan
was approved by the Company's stockholders in July, 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 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 September 30, 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
48
<PAGE> 50
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. 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.
49
<PAGE> 51
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 his employment with the Company, and 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 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 2,528,090 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
50
<PAGE> 52
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 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. The Company has entered into
Indemnification Agreements with its officers and directors. The Indemnification
Agreements provide the Company's officers and directors with further
indemnification to the maximum extent permitted by Texas law.
51
<PAGE> 53
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information known to the Company
regarding beneficial ownership of its Common Stock as of September 30, 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
------------------------- SHARES BEING -------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER(1) NUMBER PERCENT(2) OFFERED NUMBER PERCENT(2)
--------------------------------------- ----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
General Atlantic Partners, LLC(3)............ 4,793,481 24.0% 1,626,367 3,167,114 15.6%
3 Pickwick Plaza
Greenwich, CT 06830
JMI Equity Fund III, L.P.(4)................. 2,356,742 11.8 813,183 1,543,559 7.6
12860 High Bluff Road, Suite 200
San Diego, CA 92130
Eric J. Pulaski.............................. 5,274,900 26.4 -- 5,274,900 26.0
Peter L. Bloom(3)............................ 4,793,481 24.0 1,626,367 3,167,114 15.6
Scott R. Plantowsky(5)....................... 1,123,287 5.6 -- 1,123,287 5.5
Christopher J. Sole(6)....................... 624,590 3.0 94,000 530,590 2.6
David E. Pulaski(7).......................... 518,202 2.6 -- 518,202 2.6
Nadeem Ghias(8).............................. 255,000 1.3 38,250 216,750 1.1
John J. Moores............................... -- * -- -- *
Richard A. Hosley II......................... -- * -- -- *
Irl Nathan................................... 162,500 * 125,000 37,500 *
Mark Feferman................................ 49,875 * 2,000 47,875 *
Dan Hurley................................... 5,000 * 750 4,250 *
Jerry Sisson................................. 1,500 * 225 1,275 *
Jonathon Zodin............................... 1,500 * 225 1,275 *
All directors and officers as a group (8
persons)(9)................................ 12,589,460 60.4% 1,800,000 10,830,843 51.4%
</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) Percentage of beneficial ownership is based on 19,965,170 shares of Common
Stock outstanding as of September 30, 1998, and 20,265,170 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
September 30, 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 300,000
shares of Common Stock being offered for sale by the Company in this
offering.
(3) Consists of 3,910,657 shares of Common Stock held by General Atlantic
Partners 44, L.P. ("GAP 44") and 882,824 shares of Common Stock held by GAP
Coinvestment Partners, L.P. ("GAP Coinvestment") before this offering, and
2,284,290 shares of Common Stock held by GAP 44 and 882,824 shares held by
GAP Coinvestment after the offering (2,027,613 and 882,824, respectively,
assuming the Underwriters exercise their over-allotment option in full). 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.
(4) The general partner of JMI Equity Fund III, L.P. is JMI Associates III, LLC.
The Managing Members of JMI Associates III, LLC are Charles Noell, Harry
Gruner and Norris Van der Berg. Each of Messrs. Noell, Gruner and Van der
Berg disclaim beneficial ownership of such securities except to the extent
of their pecuniary interest therein. If the Underwriters exercise their
over-allotment option in full, JMI Equity Fund III, L.P. will beneficially
own 1,415,221 shares.
(5) Includes 261,875 shares of Common Stock issuable upon exercise of
outstanding options which are presently exercisable or will become
exercisable within 60 days of September 30, 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."
(6) Includes 490,590 shares of Common Stock issuable upon exercise of
outstanding options which will become exercisable within 60 days of
September 30, 1998.
(7) 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.
(8) Includes 48,750 shares of Common Stock issuable upon exercise of outstanding
options which will become exercisable within 60 days of September 30, 1998.
(9) Includes 895,215 and 801,215 shares of Common Stock issuable upon exercise
of outstanding options which are presently exercisable or will become
exercisable within 60 days of September 30, 1998 before this offering and
after the offering, respectively.
52
<PAGE> 54
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 September 30, 1998, there were 19,965,170 shares of Common Stock
outstanding that were held of record by approximately 80 shareholders. There
will be 20,360,370 shares of Common Stock outstanding after giving effect to 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 provide that the Board of Directors
is 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 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 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 Provisions."
53
<PAGE> 55
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 a 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.
REGISTRATION RIGHTS
The holders of approximately 11 million shares of Common Stock 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 ChaseMellon
Shareholder Services, L.L.C., and its telephone number is (214) 965-2235.
54
<PAGE> 56
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 20,360,370 shares
of Common Stock outstanding. Of this amount, the following shares will be
eligible for sale in the public market either on the effective date of this
offering or in the future:
<TABLE>
<CAPTION>
DATE THAT SHARES ARE APPROXIMATE SHARES
ELIGIBLE FOR FUTURE SALE ELIGIBLE FOR FUTURE SALE COMMENT
- ------------------------ ------------------------ -------
<S> <C> <C>
On the effective date of this
offering............................ 7,400,350 Includes 4,312,500 freely tradeable shares
sold in initial public offering,
3,000,000 shares sold in this offering
and 87,850 shares salable under Rule
144(k) that are not subject to the
180-day IPO Lockup Period.
On January 24, 1999................... 1,349,333 Includes shares salable on expiration of
the 180-day IPO Lockup Period under Rule
144, 144(k), 701 or pursuant to
Registration Statements on Form S-8.
90 days after this offering........... 6,862,514 Consists of shares held by the Company's
executive officers that are subject to
the 90-day Secondary Lockup Period.
180 days after this offering.......... 4,748,173 Consists of shares held by entities
affiliated with General Atlantic
Partners, LLC and JMI Equity Fund III,
L.P. and Irl Nathan not sold in this
offering and that are subject to the
180-day Secondary Lockup Period.
Thereafter............................ None 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 200,000
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.
Any employee or consultant to the Company who purchased shares pursuant to
a written compensatory plan or contract prior to the initial public offering is
entitled to rely on the resale provisions of Rule 701. Rule 701 permits
nonaffiliates to sell their Rule 701 shares without having to comply with the
Rule 144 public information, holding period, volume limitation or notice
provisions and permits affiliates to sell their Rule 701 shares without having
to comply with the Rule 144 holding period restrictions, in each case beginning
90 days after the effective date of the initial public offering. In connection
with the initial public offering, the Company also filed two Registration
Statements on Form S-8 to register shares of Common Stock subject to outstanding
options or reserved for issuance under the Company's stock plans. As of
September 30, 1998, outstanding options to purchase 4,451,334 shares and
1,379,838 shares reserved for future issuance under the Company's stock plans
were registered on the Company's Form S-8s. Assuming vesting of options, the
shares issued upon
55
<PAGE> 57
exercise of outstanding options will be freely tradeable on the expiration of
the 180-day IPO Lockup Period (described below).
The Company is unable to estimate the number of shares that will be sold
under Rule 144, Rule 701 or under the Company's Form S-8s, since this will
depend on the market price for the Common Stock of the Company, the personal
circumstances of the sellers and other factors. 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.
In connection with the Company's initial public offering in July 1998, the
Company, its directors, executive officers, shareholders with registration
rights and certain other shareholders agreed that they would not sell any Common
Stock without the prior consent of BancBoston Robertson Stephens for a period of
180 days from the date of the effective date of the initial public offering (the
"180-day IPO Lockup Period"), except that the Company may, without such consent,
grant options and sell shares pursuant to the Company's stock plans. In
connection with this offering, the Company's executive officers and each of the
Selling Shareholders (other than entities affiliated with General Atlantic
Partners, LLC and JMI Equity Fund III, L.P. and Irl Nathan) have agreed that
they will not sell any Common Stock without the prior consent of BancBoston
Robertson Stephens Inc. for a period of 90 days from the date of this Prospectus
(the "90-day Secondary Lockup Period"). Similarly, entities affiliated with
General Atlantic Partners, LLC and JMI Equity Fund III, L.P. and Mr. Nathan have
agreed that they will not sell any Common Stock without the prior consent of
BancBoston Robertson Stephens for a period of 180 days from the date of this
Prospectus (the "180-day Secondary Lockup Period").
In addition, after this offering, the holders of approximately 11 million
shares of Common Stock 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."
56
<PAGE> 58
UNDERWRITING
The underwriters named below (the "Underwriters"), acting through their
representatives, BancBoston Robertson Stephens Inc., BT Alex. Brown
Incorporated, Donaldson, Lufkin & Jenrette Securities Corporation and CIBC
Oppenheimer Corp. (the "Representatives"), have severally agreed with BindView
and certain selling shareholders of the Company (the "Selling Shareholders"),
subject to the terms and conditions of the Underwriting Agreement, to purchase
from the Selling Shareholders 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>
BancBoston Robertson Stephens Inc...........................
BT Alex. Brown Incorporated.................................
Donaldson, Lufkin & Jenrette Securities Corporation.........
CIBC Oppenheimer Corp.......................................
----------
Total............................................. 3,000,000
==========
</TABLE>
The Representatives have advised the Company that the Underwriters propose
to offer the shares of Common Stock to the public at the assumed 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 public offering, the
public offering price, concession and reallowance to dealers may be reduced by
the Representatives.
The Company and certain of the Selling Shareholders have granted to the
Underwriters an option, exercisable during the 30-day period after the date of
this Prospectus, to purchase up to an aggregate of 450,000 additional shares of
Common Stock at the same price per share as the Company and the Selling
Shareholders will receive for the 3,000,000 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 3,000,000 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 90-day Secondary Lockup Period, and each of the entities
affiliated with General Atlantic Partners LLC and JMI Equity Fund III, L.P. and
Irl Nathan have agreed, for the 180-day Secondary Lockup Period, subject in each
case 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
BancBoston Robertson Stephens Inc. However, BancBoston Robertson Stephens Inc.
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 90-day Secondary Lockup Period or 180-day Secondary Lockup Period. In
addition, the Company has agreed that during the 90-day Secondary Lockup Period
or 180-day Secondary Lockup Period, the Company will not, without the prior
57
<PAGE> 59
written consent of BancBoston Robertson Stephens Inc., 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 Representatives have advised the Company that, pursuant to Regulation M
under the Securities Act, certain persons participating in the offering may
engage in transactions, including stabilizing bids, syndicate covering
transactions and the imposition of penalty bids, which 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 the 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 the 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.
In connection with this offering, certain Underwriters and selling group
members (if any) who are qualified market makers on the Nasdaq Market may engage
in passive market making transactions in the Common Stock on the Nasdaq National
Market in accordance with Rule 103 of Regulation M under the Securities Exchange
Act of 1934, as amended, during the business day prior to the pricing of the
offering before the commencement of offers or sales of the Common Stock. Passive
market makers must comply with applicable volume and price limitations and must
be identified as such. In general, a passive market maker must display its bid
at a price not in excess of the highest independent bid of such security; if all
independent bids are lowered below the passive market maker's bid, however, such
bid must then be lowered when certain purchase limits are exceeded.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company and 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 nine-month periods ended September 30, 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.
On March 6, 1998, the Company notified Grant Thornton LLP ("Grant
Thornton") that they were dismissed as the Company's independent auditor. The
decision to change accountants was approved by the Company's Audit Committee of
the Board of Directors.
58
<PAGE> 60
The reports of Grant Thornton on the Company's financial statements for the
years ended December 31, 1996 and December 31, 1995 did not contain an adverse
opinion or a disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope or accounting principles. The Company and Grant
Thornton had not, in connection with the audit of the Company's financial
statements for each of the prior two years ended December 31, 1996 and
December 31, 1995, or in connection with the period from December 31, 1996,
through March 6, 1998, had any disagreement on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreement, if not resolved to Grant Thornton's satisfaction,
would have caused Grant Thornton to make reference to the subject matter of the
disagreement in connection with its reports.
On March 6, 1998, Price Waterhouse LLP was engaged by the Company to act as
its new independent auditors. During the two most recent fiscal years and any
subsequent interim periods prior to engaging Price Waterhouse LLP, neither the
Company nor anyone on its behalf consulted Price Waterhouse LLP regarding either
(i) the application of accounting principles to a specified transaction, whether
completed or proposed or (ii) the type of audit opinion that might be rendered
on the Company's financial statements. The Company was neither provided with a
written report nor oral advice that Price Waterhouse LLP concluded was an
important consideration by the Company in reaching a decision as to the
acceptance of its engagement as the independent auditors of the Company,
relating to accounting, auditing or financial reporting matters, or any matter
that was the subject of either a disagreement or an event described in the
paragraph immediately above.
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. BindView is subject to the informational
requirements of the Exchange Act and, in accordance therewith, files reports,
proxy statements and other information with the Commission. Such reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's
regional offices located at 7 World Trade Center, Suite 1300, New York, New York
10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies
of such material can also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission also makes electronic filings publicly available on the
Internet within 24 hours of acceptance. The Commission's Internet address is
http://www.sec.gov. The Common Stock of the Company is quoted on the Nasdaq
National Market. Reports, proxy and information statements and other information
concerning the Company may be inspected at the National Association of
Securities Dealers, Inc. at 1735 K Street, N.W., Washington, D.C. 20006.
59
<PAGE> 61
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
September 30, 1998 (unaudited)............................ F-4
Consolidated Statement of Operations for each of the three
years in the period ended December 31, 1997 and for the
nine months ended September 30, 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 nine months ended September 30, 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
nine months ended September 30, 1997 and 1998
(unaudited)............................................... F-7
Notes to Consolidated Financial Statements.................. F-8
</TABLE>
F-1
<PAGE> 62
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> 63
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> 64
BINDVIEW DEVELOPMENT CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- SEPTEMBER 30,
1996 1997 1998
------ ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 766 $ 7,203 $48,374
Accounts receivable, net.................................. 2,270 4,729 3,706
Other current assets...................................... 83 -- 686
Deferred tax asset........................................ -- 3,150 3,939
------ ------- -------
Total current assets.............................. 3,119 15,082 56,705
Property and equipment, net................................. 805 1,370 3,784
Other assets................................................ 92 57 31
------ ------- -------
Total assets...................................... $4,016 $16,509 $60,520
====== ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 273 $ 785 $ 1,496
Accrued liabilities....................................... 334 831 908
Accrued compensation...................................... 192 614 822
Deferred revenue.......................................... 570 2,029 4,357
------ ------- -------
Total current liabilities......................... 1,369 4,259 7,583
------ ------- -------
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 --
Common stock, no par value, 100,000,000 shares authorized,
7,740,000, 13,197,615 and 19,965,170 shares issued and
outstanding, respectively.............................. 1 1 1
Additional paid-in capital................................ 14 31,728 56,244
Common Stock Warrant to purchase 437,500 shares........... -- 550 --
Retained earnings (accumulated deficit)................... 2,632 (6,037) (3,308)
Treasury stock, 4,921,958 shares.......................... -- (14,017) --
------ ------- -------
Total shareholders' equity........................ 2,647 12,250 52,937
------ ------- -------
Total liabilities and shareholders' equity........ $4,016 $16,509 $60,520
====== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 65
BINDVIEW DEVELOPMENT CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------- -----------------
1995 1996 1997 1997 1998
------ ------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Licenses................................... $7,005 $ 9,720 $ 17,821 $10,782 $18,587
Services................................... 328 1,282 3,017 1,871 5,366
------ ------- -------- ------- -------
Total revenues..................... 7,333 11,002 20,838 12,653 23,953
------ ------- -------- ------- -------
Cost of revenues:
Cost of licenses........................... 693 465 644 379 790
Cost of services........................... 139 362 624 386 722
------ ------- -------- ------- -------
Total cost of revenues............. 832 827 1,268 765 1,512
------ ------- -------- ------- -------
Gross profit................................. 6,501 10,175 19,570 11,888 22,441
------ ------- -------- ------- -------
Costs and expenses:
Sales and marketing........................ 3,234 4,197 9,088 5,521 10,935
Research and development................... 1,249 2,088 3,573 2,159 5,944
General and administrative................. 1,235 1,472 2,943 1,544 2,313
Stock compensation expense................. -- 436 15,262 -- --
------ ------- -------- ------- -------
Operating income (loss)...................... 783 1,982 (11,296) 2,664 3,249
Other income (expense), net.................. (29) 8 118 51 756
------ ------- -------- ------- -------
Income (loss) before income tax provision.... 754 1,990 (11,178) 2,715 4,005
Provision (benefit) for income taxes......... -- -- (3,150) -- 1,276
------ ------- -------- ------- -------
Net income (loss)............................ $ 754 $ 1,990 $ (8,028) $ 2,715 $ 2,729
====== ======= ======== ======= =======
Basic earnings per share..................... $ 0.24
Diluted earnings per share................... $ 0.14
Pro forma information:
Net income (loss) as reported.............. $ 754 $ 1,990 $ (8,028) $ 2,715
Pro forma charge (benefit) in lieu of
income taxes............................ 264 697 (765) 951
------ ------- -------- -------
Pro forma net income (loss).................. $ 490 $ 1,293 $ (7,263) $ 1,764
====== ======= ======== =======
Pro forma basic net income (loss) per
share...................................... $ 0.06 $ 0.16 $ (0.88) $ 0.21
Pro forma diluted net income (loss) per
share...................................... $ 0.06 $ 0.12 $ (0.88) $ 0.12
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 66
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 employment and
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
Exercise of stock options
(unaudited)................ -- 860,403 -- 1,622 -- -- -- 1,622
Exercise of stock warrants
(unaudited)................ -- 1,187,499 -- 4,796 (550) -- -- 4,246
Tax benefit related to
exercise of employee stock
options (unaudited)........ -- -- -- 2,065 -- -- -- 2,065
Conversion of preferred stock
(unaudited)................ (25) 6,320,225 -- 25 -- -- -- --
Initial public offering
(unaudited)................ -- 3,321,386 -- 30,025 -- -- -- 30,025
Retirement of treasury stock
(unaudited)................ -- (4,921,958) -- (14,017) -- -- 14,017 --
Net income for nine months
ended September 30, 1998
(unaudited)................ -- -- -- -- -- 2,729 -- 2,729
---- ---------- -- -------- ---- ------- -------- --------
Balance at September 30, 1998
(unaudited).................. $ -- 19,965,170 $1 $ 56,244 -- $(3,308) $ (--) $ 52,937
==== ========== == ======== ==== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 67
BINDVIEW DEVELOPMENT CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------- -----------------
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) $ 2,715 $ 2,729
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation and amortization expense... 431 427 815 448 691
Stock compensation expense.............. -- -- 14,642 -- --
Increase in provision for bad debts..... -- -- 170 -- --
Deferred income taxes................... -- -- (3,150) -- (789)
Changes in assets and liabilities:
(Increase) decrease in accounts
receivable......................... (523) (902) (2,629) (790) 1,023
(Increase) decrease in other assets... 7 (49) 83 (50) (660)
Increase (decrease) in accounts
payable............................ 148 37 512 (72) 711
Increase (decrease) in accrued
liabilities........................ 26 51 1,191 159 285
Increase in deferred revenue.......... 305 86 1,459 982 2,328
------- ------ -------- ------- -------
Net cash provided by operating
activities....................... 1,148 1,640 5,065 3,392 6,318
------- ------ -------- ------- -------
Cash flows from investing activities:
Purchase of property and equipment......... (384) (583) (1,250) (931) (3,105)
Other...................................... (135) (130) (95) -- --
------- ------ -------- ------- -------
Net cash used by investing
activities....................... (519) (713) (1,345) (931) (3,105)
------- ------ -------- ------- -------
Cash flows from financing activities:
S Corporation distributions................ (248) (557) (1,274) (1,274) --
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) -- --
Proceeds from exercise of stock options.... -- -- 6 -- 3,687
Proceeds from exercise of stock warrants... -- 4,246
Proceeds from initial public offering...... -- 30,025
Net cash provided (used) by
financing activities............. (151) (783) 2,717 (1,274) 37,958
------- ------ -------- ------- -------
Net increase in cash and cash equivalents.... 478 144 6,437 1,187 41,171
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 $ 1,953 $48,374
======= ====== ======== ======= =======
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> 68
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 related revenues 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> 69
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
Prior to the completion of the initial public offering, the Company
provided 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> 70
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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> 71
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. ACCOUNTS RECEIVABLE
Accounts receivable balances are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- SEPTEMBER 30,
1996 1997 1998
------ ------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Trade accounts receivable............................ $2,293 $4,911 $3,936
Other accounts receivable............................ 2 13 10
------ ------ ------
2,295 4,924 3,946
Less -- allowance for doubtful accounts.............. (25) (195) (240)
------ ------ ------
$2,270 $4,729 $3,706
====== ====== ======
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment balances are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
ESTIMATED ----------------- SEPTEMBER 30,
USEFUL LIVES 1996 1997 1998
------------ ------ ------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Computer equipment and software......... 3 years $1,317 $ 2,296 $ 4,431
Office furniture and other equipment.... 3-7 years 250 378 852
Leasehold improvements.................. lease terms 108 206 688
------ ------- -------
1,675 2,880 5,971
Less -- accumulated depreciation........ (870) (1,510) (2,187)
------ ------- -------
$ 805 $ 1,370 $ 3,784
====== ======= =======
</TABLE>
Depreciation expense totaled $251, $326 and $685 in 1995, 1996 and 1997,
respectively, and $350 (unaudited) and $691 (unaudited) in the nine months ended
September 30, 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.
F-11
<PAGE> 72
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
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, SEPTEMBER 30,
1997 1998
------------ -------------
(UNAUDITED)
<S> <C> <C>
Assets:
Net operating loss carryforward........................... $2,849 $1,573
Allowance for bad debts................................... 68 84
Accrued liabilities....................................... 172 157
Exercise of employee stock options........................ -- 2,065
Other..................................................... 61 60
------ ------
$3,150 $3,939
====== ======
</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
F-12
<PAGE> 73
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 in accordance with Financial Accounting Standards Board
Interpretation No. 28 (FIN 28) 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 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.
F-13
<PAGE> 74
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 an employment agreement and 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.
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 a 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.
F-14
<PAGE> 75
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
OPTIONS SHARE PER 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)..................... 1,023,154 $3.85 - $20.13 $7.14
Options lapsed or canceled (unaudited).......... (51,140) $0.95 - $10.00 $3.03
Options exercised (unaudited)................... (882,390) $0.75 - $ 2.85 $1.89
---------
Options outstanding, September 30, 1998
(unaudited)..................................... 4,653,834 $0.75 - $20.13 $3.12
---------
</TABLE>
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.
F-15
<PAGE> 76
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
F-16
<PAGE> 77
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The computation of basic and diluted net income per share and pro forma
basic and diluted net income (loss) per share follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------- ------------------
1995 1996 1997 1997 1998
------ ------ ------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net income................................. $ -- $ -- $ -- $ -- $ 2,729
=======
Pro forma net income (loss)................ $ 490 $1,293 $(7,263) $1,764 $ --
====== ====== ======= ======
Shares used in basic calculation (in
thousands):
Total basic shares....................... 8,228 8,228 8,232 8,228 11,492
Additional shares for diluted computation:
Effect of stock options.................. -- 70 593 267 2,914
Effect of warrants....................... -- -- -- -- 572
Effect of convertible preferred stock.... -- -- 1,318 -- 4,565
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 14,295 19,543
====== ====== ======= ====== =======
Basic net income per share................. $ 0.24
Diluted net income per share............... $ 0.14
Pro forma basic net income (loss) per
share.................................... $ 0.06 $ 0.16 $ (0.88) $ 0.21
Pro forma diluted net income (loss) per
share.................................... $ 0.06 $ 0.12 $ (0.88) $ 0.12
</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-17
<PAGE> 78
[BINDVIEW LOGO]
<PAGE> 79
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> 80
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........................................ $ 17,144
NASD fee.................................................... 6,667
Nasdaq National Market listing fee.......................... 25,000
Printing and engraving expenses............................. 130,000
Legal fees and expenses..................................... 130,000
Accounting fees and expenses................................ 80,000
Blue sky fees and expenses.................................. 10,000
Transfer agent fees......................................... 25,000
Miscellaneous fees and expenses............................. 76,189
--------
Total............................................. $500,000
========
</TABLE>
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 Revised 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 10.16 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 2,528,090 shares of its Class A
Preferred Stock for an aggregate price of approximately $18 million. Of these
shares of Preferred Stock, 1,398,328 were issued to General Atlantic Partners
44, L.P., 287,065 were issued to GAP Coinvestment Partners, L.P., and 842,697
were issued to JMI Equity Fund III, L.P. In connection with this transaction,
the Registrant also issued warrants to
II-1
<PAGE> 81
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 (incorporated by reference to Exhibit 3.1 to
Amendment No. 4 to the Registration Statement on Form S-1
of the Registrant, (Reg. No. 333-52883) filed with the
Commission on July 23, 1998 (the "Form S-1")).
3.2 -- Bylaws of the Registrant (incorporated by reference to
Exhibit 3.2 to the Form S-1).
4.1 -- Reference is hereby made to Exhibits 3.1 and 3.2
(incorporated by reference to Exhibit 4.1 to the Form
S-1).
4.2 -- Specimen Common Stock certificate (incorporated by
reference to Exhibit 4.2 to the Form S-1).
*5.1 -- Opinion of Fulbright & Jaworski L.L.P.
10.1 -- Incentive Stock Option Plan (incorporated by reference to
Exhibit 10.1 to the Form S-1).
10.2 -- Stock Option Plan (incorporated by reference to Exhibit
10.2 to the Form S-1).
10.3 -- 1997 Incentive Plan (incorporated by reference to Exhibit
10.3 to the Form S-1).
10.4 -- Omnibus Incentive Plan (incorporated by reference to
Exhibit 10.4 to the Form S-1).
10.5 -- 1998 Non-Employee Director Stock Option Plan
(incorporated by reference to Exhibit 10.5 to the Form
S-1).
10.6 -- Letter Loan Agreement dated June 10, 1996 between the
Registrant and Southwest Bank of Texas, N.A.
(incorporated by reference to Exhibit 10.6 to the Form
S-1).
10.7 -- Lease Agreement dated June 20, 1995 between the
Registrant and School Employees Holding Corp., including
all amendments thereto (incorporated by reference to
Exhibit 10.7 to the Form S-1).
</TABLE>
II-2
<PAGE> 82
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
10.8 -- Agreement to Sublease dated June 25, 1998 between the
Registrant and Halliburton Energy Services, Inc.
(incorporated by reference to Exhibit 10.8 to the Form
S-1).
10.9 -- Stock Ownership Agreement dated April 8, 1997 between the
Registrant and Nadeem Ghias (incorporated by reference to
Exhibit 10.9 to the Form S-1).
10.10 -- 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 (incorporated
by reference to Exhibit 10.10 to the Form S-1).
10.11 -- Registration Rights Agreement dated November 7, 1997
among Bindview Development Corporation and Scott R.
Plantowsky (incorporated by reference to Exhibit 10.11 to
the Form S-1).
10.12 -- Employee Agreement dated May 13, 1996 between the
Registrant and Christopher J. Sole, including all
amendments thereto (incorporated by reference to Exhibit
10.12 to the Form S-1).
10.13 -- Amended and Restated Employment Agreement dated April 15,
1997 between the Registrant and Scott R. Plantowsky
(incorporated by reference to Exhibit 10.13 to the Form
S-1).
10.14 -- Employee Agreement dated September 26, 1996 between the
Registrant and David E. Pulaski (incorporated by
reference to Exhibit 10.14 to the Form S-1).
10.15 -- Employee Agreement dated December 20, 1993 between the
Registrant and Nadeem Ghias, including all amendments
thereto (incorporated by reference to Exhibit 10.15 to
the Form S-1).
10.16 -- Form of Indemnification Agreement (incorporated by
reference to Exhibit 10.16 to the Form S-1).
16.1 -- Letter regarding Change in Certifying Accountant
(incorporated by reference to Exhibit 16.1 to the Form
S-1).
*23.1 -- Consent of PricewaterhouseCoopers LLP, Independent
Accountants (see page II-6).
*23.2 -- Consent of Grant Thornton LLP, Independent Accountants
(see page II-7).
23.3 -- Consent of Counsel. Reference is hereby made to Exhibit
5.1.
24.1 -- Power of Attorney (see page II-5).
27.1 -- Financial Data Schedule.
</TABLE>
- ---------------
* Filed herewith
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
II-3
<PAGE> 83
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-4
<PAGE> 84
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this amended Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the city of
Houston, State of Texas, on this 25th day of November, 1998.
BINDVIEW DEVELOPMENT CORPORATION
/s/ SCOTT R. PLANTOWSKY
--------------------------------------
Scott R. Plantowsky,
Chief Financial Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS AMENDED REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ERIC J. PULASKI* Chairman of the Board, November 25, 1998
- ----------------------------------------------------- President and Chief
Eric J. Pulaski Executive Officer
/s/ SCOTT R. PLANTOWSKY Director, Vice President and November 25, 1998
- ----------------------------------------------------- Chief Financial Officer
Scott R. Plantowsky
/s/ CHRISTOPHER J. SOLE* Director, Vice President and November 25, 1998
- ----------------------------------------------------- Chief Operating Officer
Christopher J. Sole
/s/ PETER L. BLOOM* Director November 25, 1998
- -----------------------------------------------------
Peter L. Bloom
/s/ JOHN J. MOORES* Director November 25, 1998
- -----------------------------------------------------
John J. Moores
/s/ RICHARD A. HOSLEY II* Director November 25, 1998
- -----------------------------------------------------
Richard A. Hosley II
*By: /s/ SCOTT R. PLANTOWSKY
------------------------------------------------
Scott R. Plantowsky,
(Attorney in-fact)
</TABLE>
II-5
<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
PricewaterhouseCoopers LLP has not prepared or certified such "Selected
Financial Data."
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
December 3, 1998
II-6
<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
December 3, 1998
II-7
<PAGE> 87
EXHIBIT INDEX
<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 (incorporated by reference to Exhibit 3.1 to
Amendment No. 4 to the Registration Statement on Form S-1
of the Registrant, (Reg. No. 333-52883) filed with the
Commission on July 23, 1998 (the "Form S-1")).
3.2 -- Bylaws of the Registrant (incorporated by reference to
Exhibit 3.2 to the Form S-1).
4.1 -- Reference is hereby made to Exhibits 3.1 and 3.2
(incorporated by reference to Exhibit 4.1 to the Form
S-1).
4.2 -- Specimen Common Stock certificate (incorporated by
reference to Exhibit 4.2 to the Form S-1).
*5.1 -- Opinion of Fulbright & Jaworski L.L.P.
10.1 -- Incentive Stock Option Plan (incorporated by reference to
Exhibit 10.1 to the Form S-1).
10.2 -- Stock Option Plan (incorporated by reference to Exhibit
10.2 to the Form S-1).
10.3 -- 1997 Incentive Plan (incorporated by reference to Exhibit
10.3 to the Form S-1).
10.4 -- Omnibus Incentive Plan (incorporated by reference to
Exhibit 10.4 to the Form S-1).
10.5 -- 1998 Non-Employee Director Stock Option Plan
(incorporated by reference to Exhibit 10.5 to the Form
S-1).
10.6 -- Letter Loan Agreement dated June 10, 1996 between the
Registrant and Southwest Bank of Texas, N.A.
(incorporated by reference to Exhibit 10.6 to the Form
S-1).
10.7 -- Lease Agreement dated June 20, 1995 between the
Registrant and School Employees Holding Corp., including
all amendments thereto (incorporated by reference to
Exhibit 10.7 to the Form S-1).
10.8 -- Agreement to Sublease dated June 25, 1998 between the
Registrant and Halliburton Energy Services, Inc.
(incorporated by reference to Exhibit 10.8 to the Form
S-1).
10.9 -- Stock Ownership Agreement dated April 8, 1997 between the
Registrant and Nadeem Ghias (incorporated by reference to
Exhibit 10.9 to the Form S-1).
10.10 -- 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 (incorporated
by reference to Exhibit 10.10 to the Form S-1).
10.11 -- Registration Rights Agreement dated November 7, 1997
among Bindview Development Corporation and Scott R.
Plantowsky (incorporated by reference to Exhibit 10.11 to
the Form S-1).
10.12 -- Employee Agreement dated May 13, 1996 between the
Registrant and Christopher J. Sole, including all
amendments thereto (incorporated by reference to Exhibit
10.12 to the Form S-1).
10.13 -- Amended and Restated Employment Agreement dated April 15,
1997 between the Registrant and Scott R. Plantowsky
(incorporated by reference to Exhibit 10.13 to the Form
S-1).
</TABLE>
<PAGE> 88
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
10.14 -- Employee Agreement dated September 26, 1996 between the
Registrant and David E. Pulaski (incorporated by
reference to Exhibit 10.14 to the Form S-1).
10.15 -- Employee Agreement dated December 20, 1993 between the
Registrant and Nadeem Ghias, including all amendments
thereto (incorporated by reference to Exhibit 10.15 to
the Form S-1).
10.16 -- Form of Indemnification Agreement (incorporated by
reference to Exhibit 10.16 to the Form S-1).
16.1 -- Letter regarding Change in Certifying Accountant
(incorporated by reference to Exhibit 16.1 to the Form
S-1).
*23.1 -- Consent of PricewaterhouseCoopers 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>
- ---------------
* Filed herewith
<PAGE> 1
3,000,000 Shares1
BINDVIEW DEVELOPMENT CORPORATION
COMMON STOCK
UNDERWRITING AGREEMENT
November __, 1998
BANCBOSTON ROBERTSON STEPHENS INC.
BT ALEX. BROWN, INCORPORATED
DONALDSON LUFKIN & JENRETTE SECURITIES CORPORATION
CIBC OPPENHEIMER CORP.
As Representatives of the several Underwriters
c/o BancBoston Robertson Stephens Inc.
555 California Street
Suite 2600
San Francisco, California 94104
Ladies/Gentlemen:
BindView Development Corporation, a Texas corporation (the
"Company"), and certain shareholders of the Company named in Schedule B hereto
(hereafter called the "Selling Shareholders") address you as the Representatives
of each of the persons, firms and corporations listed in Schedule A hereto
(herein collectively called the "Underwriters") and hereby confirm their
respective agreements with the several Underwriters as follows:
1. Description of Shares. The Company proposes to issue and sell
300,000 shares of its authorized and unissued Common Stock, no par value, to the
several Underwriters. The Selling Shareholders, acting severally and not
jointly, propose to sell an aggregate of 2,700,000 shares of the Company's
authorized and outstanding Common Stock, no par value, to the several
Underwriters. The 300,000 shares of Common Stock, no par value, of the Company
to be sold by the Company are hereinafter called the "Company Shares" and the
2,700,000 shares of Common Stock, no par value, to be sold by the Selling
Shareholders are hereinafter called the "Selling Shareholder Shares." The
Company Shares and the Selling Shareholder Shares are hereinafter collectively
referred to as the "Firm Shares." The Company and the Selling Shareholders also
propose to grant to the Underwriters an option to purchase up to 450,000
additional shares of the Company's Common Stock, no par value (the "Option
Shares"), as provided in Section 7 hereof. As used in this Agreement, the term
"Shares" shall include the Firm Shares and the Option Shares. All shares of
Common Stock, no par value, of the Company to be outstanding after giving effect
to the sales contemplated hereby, including the Shares, are hereinafter referred
to as "Common Stock."
2. Representations, Warranties and Agreements of the Company and the
Selling Shareholders.
I. The Company represents and warrants to and agrees with each
Underwriter and each Selling Shareholder that:
- ----------------------
1 Plus an option to purchase up to 450,000 additional shares from the
Company and the Selling Shareholders to cover over-allotments.
<PAGE> 2
(a) A registration statement on Form S-1 (File No. 333-_______) with
respect to the Shares, including a prospectus subject to completion, has been
prepared by the Company in conformity with the requirements of the Securities
Act of 1933, as amended (the "Act"), and the applicable rules and regulations
(the "Rules and Regulations") of the Securities and Exchange Commission (the
"Commission") under the Act and has been filed with the Commission; such
amendments to such registration statement, such amended prospectuses subject to
completion and such abbreviated registration statements pursuant to Rule 462(b)
of the Rules and Regulations as may have been required prior to the date hereof
have been similarly prepared and filed with the Commission; and the Company will
file such additional amendments to such registration statement, such amended
prospectuses subject to completion and such abbreviated registration statements
as may hereafter be required. Copies of such registration statement and
amendments, of each related prospectus subject to completion (the "Preliminary
Prospectuses") and of any abbreviated registration statement pursuant to Rule
462(b) of the Rules and Regulations have been delivered to you.
If the registration statement relating to the Shares has been
declared effective under the Act by the Commission, the Company will prepare and
promptly file with the Commission the information omitted from the registration
statement pursuant to Rule 430A(a) or, if BancBoston Robertson Stephens Inc., on
behalf of the several Underwriters, shall agree to the utilization of Rule 434
of the Rules and Regulations, the information required to be included in any
term sheet filed pursuant to Rule 434(b) or (c), as applicable, of the Rules and
Regulations pursuant to subparagraph (1), (4) or (7) of Rule 424(b) of the Rules
and Regulations or as part of a post-effective amendment to the registration
statement (including a final form of prospectus). If the registration statement
relating to the Shares has not been declared effective under the Act by the
Commission, the Company will prepare and promptly file an amendment to the
registration statement, including a final form of prospectus, or, if BancBoston
Robertson Stephens Inc., on behalf of the several Underwriters, shall agree to
the utilization of Rule 434 of the Rules and Regulations, the information
required to be included in any term sheet filed pursuant to Rule 434(b) or (c),
as applicable, of the Rules and Regulations. The term "Registration Statement"
as used in this Agreement shall mean such registration statement, including
financial statements, schedules and exhibits, in the form in which it became or
becomes, as the case may be, effective (including, if the Company omitted
information from the registration statement pursuant to Rule 430A(a) or files a
term sheet pursuant to Rule 434 of the Rules and Regulations, the information
deemed to be a part of the registration statement at the time it became
effective pursuant to Rule 430A(b) or Rule 434(d) of the Rules and Regulations)
and, in the event of any amendment thereto or the filing of any abbreviated
registration statement pursuant to Rule 462(b) of the Rules and Regulations
relating thereto after the effective date of such registration statement, shall
also mean (from and after the effectiveness of such amendment or the filing of
such abbreviated registration statement) such registration statement as so
amended, together with any such abbreviated registration statement. The term
"Prospectus" as used in this Agreement shall mean the prospectus relating to the
Shares as included in such Registration Statement at the time it becomes
effective (including, if the Company omitted information from the Registration
Statement pursuant to Rule 430A(a) of the Rules and Regulations, the information
deemed to be a part of the Registration Statement at the time it became
effective pursuant to Rule 430A(b) of the Rules and Regulations); provided,
however, that if in reliance on Rule 434 of the Rules and Regulations and with
the consent of BancBoston Robertson Stephens Inc., on behalf of the several
Underwriters, the Company shall have provided to the Underwriters a term sheet
pursuant to Rule 434(b) or (c), as applicable, prior to the time that a
confirmation is sent or given for purposes of Section 2(10)(a) of the Act, the
term "Prospectus" shall mean the "prospectus subject to completion" (as defined
in Rule 434(g) of the Rules and Regulations) last provided to the Underwriters
by the Company and circulated by the Underwriters to all prospective purchasers
of the Shares (including the information deemed to be a part of the Registration
Statement at the time it became effective pursuant to Rule 434(d) of the Rules
and Regulations). Notwithstanding the foregoing, if any revised prospectus shall
be provided to the Underwriters by the Company for use in connection with the
offering of the Shares that differs from the prospectus referred to in the
immediately preceding sentence (whether or not such revised prospectus is
required to be filed with the Commission pursuant to Rule 424(b) of the Rules
and Regulations), the term "Prospectus" shall refer to such revised prospectus
from and after the time it is first provided to the Underwriters for such use.
If in reliance on Rule 434 of the Rules and Regulations and with the consent of
BancBoston Robertson Stephens Inc., on behalf of the several Underwriters, the
Company shall have provided to the Underwriters a term sheet pursuant to Rule
434(b) or (c), as applicable, prior to the time that a confirmation is sent or
given for purposes of Section 2(10)(a) of the Act, the Prospectus and the term
sheet, together, will not be materially different from the prospectus in the
Registration Statement.
2
<PAGE> 3
(b) The Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus or instituted proceedings for that
purpose, and each such Preliminary Prospectus has conformed in all material
respects to the requirements of the Act and the Rules and Regulations and, as of
its date, has not included any untrue statement of a material fact or omitted to
state a material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading; and at the time
the Registration Statement became or becomes, as the case may be, effective and
at all times subsequent thereto up to and on the Closing Date (hereinafter
defined) and on any later date on which Option Shares are to be purchased, (i)
the Registration Statement and the Prospectus, and any amendments or supplements
thereto, contained and will contain all material information required to be
included therein by the Act and the Rules and Regulations and will in all
material respects conform to the requirements of the Act and the Rules and
Regulations, (ii) the Registration Statement, and any amendments or supplements
thereto, did not and will not include any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein not misleading, and (iii) the Prospectus, and any
amendments or supplements thereto, did not and will not include any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that none of the representations and
warranties contained in this subparagraph (b) shall apply to information
contained in or omitted from the Registration Statement or Prospectus, or any
amendment or supplement thereto, in reliance upon, and in conformity with,
written information relating to any Underwriter furnished to the Company by such
Underwriter specifically for use in the preparation thereof.
(c) Each of the Company and its subsidiaries has been duly incorporated
and is validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation with full power and authority (corporate and
other) to own, lease and operate its properties and conduct its business as
described in the Prospectus; the Company owns all of the outstanding capital
stock of its subsidiaries free and clear of any pledge, lien, security interest,
encumbrance, claim or equitable interest; each of the Company and its
subsidiaries is duly qualified to do business as a foreign corporation and is in
good standing in each jurisdiction in which the ownership or leasing of its
properties or the conduct of its business requires such qualification, except
where the failure to be so qualified or be in good standing would not have a
material adverse effect on the condition (financial or otherwise), earnings,
operations or business of the Company and its subsidiaries considered as one
enterprise; no proceeding has been instituted in any such jurisdiction,
revoking, limiting or curtailing, or seeking to revoke, limit or curtail, such
power and authority or qualification; each of the Company and its subsidiaries
is in possession of and operating in compliance with all authorizations,
licenses, certificates, consents, orders and permits from state, federal and
other regulatory authorities which are material to the conduct of its business,
all of which are valid and in full force and effect; neither the Company nor any
of its subsidiaries is in violation of its respective charter or bylaws or in
default in the performance or observance of any material obligation, agreement,
covenant or condition contained in any material bond, debenture, note or other
evidence of indebtedness, or in any material lease, contract, indenture,
mortgage, deed of trust, loan agreement, joint venture or other agreement or
instrument to which the Company or any of its subsidiaries is a
party or by which it or any of its subsidiaries or their respective properties
may be bound; and neither the Company nor any of its subsidiaries is in material
violation of any law, order, rule, regulation, writ, injunction, judgment or
decree of any court, government or governmental agency or body, domestic or
foreign, having jurisdiction over the Company or any of its subsidiaries or over
their respective properties of which it has knowledge. The Company does not own
or control, directly or indirectly, any corporation, association or other entity
other than BindView Development GmbH.
(d) The Company has full legal right, power and authority to enter into
this Agreement and perform the transactions contemplated hereby. This Agreement
has been duly authorized, executed and delivered by the Company and is a valid
and binding agreement on the part of the Company, enforceable in accordance with
its terms, except as rights to indemnification hereunder may be limited by
applicable law and except as the enforcement hereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by general equitable
principles; the performance of this Agreement and the consummation of the
transactions herein contemplated will not result in a material breach or
violation of any of the terms and provisions of, or constitute a default under,
(i) any bond, debenture, note or other evidence of indebtedness, or under any
lease, contract, indenture, mortgage, deed of trust, loan agreement, joint
venture or other agreement or instrument to which the Company or any of its
subsidiaries is a
3
<PAGE> 4
party or by which it or any of its subsidiaries or their respective properties
may be bound, (ii) the charter or bylaws of the Company or any of its
subsidiaries, or (iii) any law, order, rule, regulation, writ, injunction,
judgment or decree of any court, government or governmental agency or body,
domestic or foreign, having jurisdiction over the Company or any of its
subsidiaries or over their respective properties. No consent, approval,
authorization or order of or qualification with any court, government or
governmental agency or body, domestic or foreign, having jurisdiction over the
Company or any of its subsidiaries or over their respective properties is
required for the execution and delivery of this Agreement and the consummation
by the Company or any of its subsidiaries of the transactions herein
contemplated, except such as may be required under the Act, or under state or
other securities or Blue Sky laws, all of which requirements have been satisfied
in all material respects.
(e) There is not any pending or, to the best of the Company's
knowledge, threatened action, suit, claim or proceeding against the Company, any
of its subsidiaries or any of their respective officers or any of their
respective properties, assets or rights before any court, government or
governmental agency or body, domestic or foreign, having jurisdiction over the
Company or any of its subsidiaries or over their respective officers or
properties or otherwise which (i) might result in any material adverse change in
the condition (financial or otherwise), earnings, operations or business of the
Company and its subsidiaries considered as one enterprise or might materially
and adversely affect their properties, assets or rights, (ii) might prevent
consummation of the transactions contemplated hereby or (iii) is required to be
disclosed in the Registration Statement or Prospectus and is not so disclosed;
and there are no agreements, contracts, leases or documents of the Company or
any of its subsidiaries of a character required to be described or referred to
in the Registration Statement or Prospectus or to be filed as an exhibit to the
Registration Statement by the Act or the Rules and Regulations which have not
been accurately described in all material respects in the Registration Statement
or Prospectus or filed as exhibits to the Registration Statement.
(f) All outstanding shares of capital stock of the Company (including
the Selling Shareholder Shares) have been duly authorized and validly issued and
are fully paid and nonassessable, have been issued in compliance with all
federal and state securities laws, were not issued in violation of or subject to
any preemptive rights or other rights to subscribe for or purchase securities,
and the authorized and outstanding capital stock of the Company is as set forth
in the Prospectus under the caption "Capitalization" and conforms in all
material respects to the statements relating thereto contained in the
Registration Statement and the Prospectus (and such statements correctly state
the substance of the instruments defining the capitalization of the Company);
the Firm Shares and the Option Shares to be purchased from the Company hereunder
have been duly authorized for issuance and sale to the Underwriters pursuant to
this Agreement and, when issued and delivered by the Company against payment
therefor in accordance with the terms of this Agreement, will be duly and
validly issued and fully paid and nonassessable, and will be sold free and clear
of any pledge, lien, security interest, encumbrance, claim or equitable
interest; and no preemptive right, co-sale right, registration right, right of
first refusal or other similar right of shareholders exists with respect to any
of the Firm Shares or Option Shares to be purchased from the Company hereunder
or the issuance and sale thereof other than those that have been expressly
waived prior to the date hereof and those that will automatically expire upon
and will not apply to the consummation of the transactions contemplated on the
Closing Date. No further approval or authorization of any shareholder, the Board
of Directors of the Company or others is required for the issuance and sale or
transfer of the Shares except as may be required under the Act or under state or
other securities or Blue Sky laws. All issued and outstanding shares of capital
stock of each subsidiary of the Company have been duly authorized and validly
issued and are fully paid and nonassessable, and were not issued in violation of
or subject to any preemptive right, or other rights to subscribe for or purchase
shares and are owned by the Company free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest. Except as disclosed in the
Prospectus and the financial statements of the Company, and the related notes
thereto, included in the Prospectus, neither the Company nor any subsidiary has
outstanding any options to purchase, or any preemptive rights or other rights to
subscribe for or to purchase, any securities or obligations convertible into, or
any contracts or commitments to issue or sell, shares of its capital stock or
any such options, rights, convertible securities or obligations. The description
of the Company's stock option, stock bonus and other stock plans or
arrangements, and the options or other rights granted and exercised thereunder,
set forth in the Prospectus accurately and fairly presents the information
required to be shown with respect to such plans, arrangements, options and
rights.
4
<PAGE> 5
(g)
(i) PricewaterhouseCoopers LLP, which has examined the consolidated
financial statements of the Company, together with the related schedules and
notes, as of December 31, 1997 and for the year ended December 31, 1997 filed
with the Commission as a part of the Registration Statement, which are included
in the Prospectus, are independent accountants within the meaning of the Act and
the Rules and Regulations; the audited consolidated financial statements of the
Company, together with the related schedules and notes, and the unaudited
consolidated financial information, forming part of the Registration Statement
and Prospectus, fairly present the financial position and the results of
operations of the Company and its subsidiaries at the respective dates and for
the respective periods to which they apply; and all audited consolidated
financial statements of the Company, together with the related schedules and
notes, and the unaudited consolidated financial information, filed with the
Commission as part of the Registration Statement, have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods involved except as may be otherwise stated therein. The
selected and summary financial and statistical data included in the Registration
Statement present fairly the information shown therein and have been compiled on
a basis consistent with the audited financial statements presented therein. No
other financial statements or schedules are required to be included in the
Registration Statement.
(ii) Grant Thornton LLP, which has examined the consolidated
financial statements of the Company, together with the related schedules and
notes, as of December 31, 1996 and for each of the years in the two (2) years
ended December 31, 1996 filed with the Commission as a part of the Registration
Statement, which are included in the Prospectus, are independent accountants
within the meaning of the Act and the Rules and Regulations; the audited
consolidated financial statements of the Company, together with the related
schedules and notes, and the unaudited consolidated financial information,
forming part of the Registration Statement and Prospectus, fairly present the
financial position and the results of operations of the Company and its
subsidiaries at the respective dates and for the respective periods to which
they apply; and all audited consolidated financial statements of the Company,
together with the related schedules and notes, and the unaudited consolidated
financial information, filed with the Commission as part of the Registration
Statement, have been prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods involved except as may be
otherwise stated therein. The selected and summary financial and statistical
data included in the Registration Statement present fairly the information shown
therein and have been compiled on a basis consistent with the audited financial
statements presented therein. No other financial statements or schedules are
required to be included in the Registration Statement.
(h) Subsequent to the respective dates as of which information is given
in the Registration Statement and Prospectus, there has not been (i) any
material adverse change in the condition (financial or otherwise), earnings,
operations or business of the Company and its subsidiaries considered as one
enterprise, (ii) any transaction that is material to the Company and its
subsidiaries considered as one enterprise, except transactions entered into in
the ordinary course of business, (iii) any obligation, direct or contingent,
that is material to the Company and its subsidiaries considered as one
enterprise, incurred by the Company or its subsidiaries, except obligations
incurred in the ordinary course of business, (iv) any change in the capital
stock or outstanding indebtedness of the Company or any of its subsidiaries that
is material to the Company and its subsidiaries considered as one enterprise,
(v) any dividend or distribution of any kind declared, paid or made on the
capital stock of the Company or any of its subsidiaries, or (vi) any loss or
damage (whether or not insured) to the property of the Company or any of its
subsidiaries which has been sustained or will have been sustained which has a
material adverse effect on the condition (financial or otherwise), earnings,
operations or business of the Company and its subsidiaries considered as one
enterprise.
(i) Except as set forth in the Registration Statement and Prospectus,
(i) each of the Company and its subsidiaries has good and marketable title to
all properties and assets described in the Registration Statement and Prospectus
as owned by it, free and clear of any pledge, lien, security interest,
encumbrance, claim or equitable interest, other than such as would not have a
material adverse effect on the condition (financial or otherwise), earnings,
operations or business of the Company and its subsidiaries considered as one
enterprise, (ii) the agreements to which the Company or any of its subsidiaries
is a party described in the Registration
5
<PAGE> 6
Statement and Prospectus are valid agreements, enforceable by the Company and
its subsidiaries (as applicable), except as the enforcement thereof may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting creditors' rights generally or by
general equitable principles and, to the best of the Company's knowledge, the
other contracting party or parties thereto are not in material breach or
material default under any of such agreements, and (iii) each of the Company and
its subsidiaries has valid and enforceable leases for all properties described
in the Registration Statement and Prospectus as leased by it, except as the
enforcement thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles. Except as set
forth in the Registration Statement and Prospectus, the Company owns or leases
all such properties as are necessary to its operations as now conducted.
(j) The Company and its subsidiaries have timely filed all necessary
federal, state and foreign income and franchise tax returns and have paid all
taxes shown thereon as due, and there is no tax deficiency that has been or, to
the best of the Company's knowledge, might be asserted against the Company or
any of its subsidiaries that might have a material adverse effect on the
condition (financial or otherwise), earnings, operations or business of the
Company and its subsidiaries considered as one enterprise; and all tax
liabilities are adequately provided for on the books of the Company and its
subsidiaries.
(k) The Company and its subsidiaries maintain insurance with insurers
of recognized financial responsibility of the types and in the amounts generally
deemed adequate for their respective businesses and consistent with insurance
coverage maintained by similar companies in similar businesses, including, but
not limited to, insurance covering real and personal property owned or leased by
the Company or its subsidiaries against theft, damage, destruction, acts of
vandalism and all other risks customarily insured against, all of which
insurance is in full force and effect; neither the Company nor any such
subsidiary has been refused any insurance coverage sought or applied for; and
neither the Company nor any such subsidiary has any reason to believe that it
will not be able to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not materially and
adversely affect the condition (financial or otherwise), earnings, operations or
business of the Company and its subsidiaries considered as one enterprise.
(l) To the best of Company's knowledge, no labor disturbance by the
employees of the Company or any of its subsidiaries exists or is imminent; and
the Company is not aware of any existing or imminent labor disturbance by the
employees of any of its principal suppliers, subassemblers, value added
resellers, subcontractors, authorized dealers or international distributors that
might be expected to result in a material adverse change in the condition
(financial or otherwise), earnings, operations or business of the Company and
its subsidiaries considered as one enterprise. No collective bargaining
agreement exists with any of the Company's employees and, to the best of the
Company's knowledge, no such agreement is imminent.
(m) Each of the Company and its subsidiaries owns or possesses adequate
rights to use all patents, patent rights, inventions, trade secrets, know-how,
trademarks, service marks, trade names and copyrights which are necessary to
conduct its businesses as described in the Registration Statement and
Prospectus; the expiration of any patents, patent rights, trade secrets,
trademarks, service marks, trade names or copyrights would not have a material
adverse effect on the condition (financial or otherwise), earnings, operations
or business of the Company and its subsidiaries considered as one enterprise;
the Company has not received any notice of, and has no knowledge of, any
infringement of or conflict with asserted rights of the Company by others with
respect to any patent, patent rights, inventions, trade secrets, know-how,
trademarks, service marks, trade names or copyrights; and the Company has not
received any notice of, and has no knowledge of, any infringement of or conflict
with asserted rights of others with respect to any patent, patent rights,
inventions, trade secrets, know-how, trademarks, service marks, trade names or
copyrights which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, might have a material adverse effect on the
condition (financial or otherwise), earnings, operations or business of the
Company and its subsidiaries considered as one enterprise.
(n) The Common Stock is registered pursuant to Section 12(g) of the
Exchange Act and is listed on The Nasdaq National Market, and the Company has
taken no action designed to, or likely to have
6
<PAGE> 7
the effect of, terminating the registration of the Common Stock under the
Exchange Act or delisting the Common Stock from the Nasdaq National Market, nor
has the Company received any notification that the Commission or the National
Association of Securities Dealers, Inc. ("NASD") is contemplating terminating
such registration or listing.
(o) The Company has been advised concerning the Investment Company Act
of 1940, as amended (the "1940 Act"), and the rules and regulations thereunder,
and has in the past conducted, and intends in the future to conduct, its affairs
in such a manner as to ensure that it will not become an "investment company" or
a company "controlled" by an "investment company" within the meaning of the 1940
Act and such rules and regulations.
(p) The Company has not distributed and will not distribute prior to
the later of (i) the Closing Date, or any date on which Option Shares are to be
purchased, as the case may be, and (ii) completion of the distribution of the
Shares, any offering material in connection with the offering and sale of the
Shares other than any Preliminary Prospectuses, the Prospectus, the Registration
Statement and other materials, if any, permitted by the Act.
(q) Neither the Company nor any of its subsidiaries has at any time
during the last five (5) years (i) made any unlawful contribution to any
candidate for foreign office or failed to disclose fully any contribution in
violation of law, or (ii) made any payment to any federal or state governmental
officer or official, or other person charged with similar public or quasi-public
duties, other than payments required or permitted by the laws of the United
States or any jurisdiction thereof.
(r) The Company has not taken and will not take, directly or
indirectly, any action designed to or that might reasonably be expected to cause
or result in stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Shares.
(s) Each officer and director of the Company and each Selling
Shareholder has agreed in writing that such person will not, for a period of 180
days (in the case of each Selling Shareholder) or 90 days (in the case of each
officer and director) from the date that the Registration Statement is declared
effective by the Commission (collectively, the "Lock-up Period"), offer to sell,
contract to sell, or otherwise sell, dispose of, loan or grant any rights with
respect to (collectively, a "Disposition") 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 (collectively,
"Securities") now owned or hereafter acquired directly by such person or with
respect to which such person has the power of disposition, otherwise than (i) as
a bona fide gift or pledge, provided the donee or pledgee thereof agrees in
writing to be bound by this restriction, (ii) as a distribution to partners or
shareholders of such person, provided that the distributees thereof agree in
writing to be bound by the terms of this restriction, (iii) with the prior
written consent of BancBoston Robertson Stephens Inc. or (iv) as may be acquired
after the effective date of the Registration Statement in open market
transactions. The foregoing restriction has been expressly agreed to preclude
the holder of the Securities from engaging in any hedging or other transaction
which is designed to or reasonably expected to lead to or result in a
Disposition of Securities during the Lock-up Period, even if such Securities
would be disposed of by someone other than such holder. Such prohibited hedging
or other transactions would include, without limitation, any short sale (whether
or not against the box) or any purchase, sale or grant of any right (including,
without limitation, any put or call option) with respect to any Securities or
with respect to any security (other than a broad-based market basket or index)
that includes, relates to or derives any significant part of its value from
Securities. Furthermore, such person has also agreed and consented to the entry
of stop transfer instructions with the Company's transfer agent against the
transfer of the Securities held by such person except in compliance with this
restriction. The Company has provided to counsel for the Underwriters a complete
and accurate list of all securityholders of the Company and the number and type
of securities held by each securityholder. The Company has provided to counsel
for the Underwriters true, accurate and complete copies of all of the agreements
pursuant to which its officers, directors and shareholders have agreed to such
or similar restrictions (the "Lock-up Agreements") presently in effect or
effected hereby. The Company hereby represents and warrants that it will not
release any of its officers, directors or other shareholders from any Lock-up
Agreements currently existing or hereafter effected without the prior written
consent of BancBoston Robertson Stephens Inc.
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(t) Except as set forth in the Registration Statement and Prospectus,
(i) the Company is in compliance with all rules, laws and regulations relating
to the use, treatment, storage and disposal of toxic substances and protection
of health or the environment ("Environmental Laws") which are applicable to its
business, (ii) the Company has received no notice from any governmental
authority or third party of an asserted claim under Environmental Laws, which
claim is required to be disclosed in the Registration Statement and the
Prospectus, (iii) the Company will not be required to make future material
capital expenditures to comply with Environmental Laws and (iv) no property
which is owned, leased or occupied by the Company has been designated as a
Superfund site pursuant to the Comprehensive Response, Compensation, and
Liability Act of 1980, as amended (42 U.S.C. ss. 9601, et seq.), or otherwise
designated as a contaminated site under applicable state or local law.
(u) The Company and each of its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurances that
(i) transactions are executed in accordance with management's general or
specific authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization, and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(v) There are no material outstanding loans, advances (except normal
advances for business expenses in the ordinary course of business) or guarantees
of indebtedness by the Company to or for the benefit of any of the officers or
directors of the Company or any of the members of the families of any of them,
except as disclosed in the Registration Statement and the Prospectus.
II. Each Selling Shareholder, severally and not jointly, represents and
warrants to and agrees with each Underwriter and the Company that:
(a) Such Selling Shareholder now has and on the Closing Date, and on
any later date on which Option Shares are purchased, will have valid marketable
title to the Shares to be sold by such Selling Shareholder, free and clear of
any pledge, lien, security interest, encumbrance, claim or equitable interest
other than pursuant to this Agreement; and upon delivery of such Shares
hereunder and payment of the purchase price as herein contemplated, each of the
Underwriters will obtain valid marketable title to the Shares purchased by it
from such Selling Shareholder, free and clear of any pledge, lien, security
interest pertaining to such Selling Shareholder or such Selling Shareholder's
property, encumbrance, claim or equitable interest, including any liability for
estate or inheritance taxes, or any liability to or claims of any creditor,
devisee, legatee or beneficiary of such Selling Shareholder.
(b) Such Selling Shareholder has duly authorized (if applicable),
executed and delivered, in the form heretofore furnished to the Representatives,
an irrevocable Power of Attorney (the "Power of Attorney") appointing Eric J.
Pulaski and Scott R. Plantowsky as attorneys-in-fact (collectively, the
"Attorneys" and individually, an "Attorney") and a Custody Agreement (the
"Custody Agreement") with BindView Development Corporation, as custodian (the
"Custodian"); each of the Power of Attorney and the Custody Agreement
constitutes a valid and binding agreement on the part of such Selling
Shareholder, enforceable in accordance with its terms, except as the enforcement
thereof may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally or by general equitable principles; and each of such Selling
Shareholder's Attorneys, acting alone, is authorized to execute and deliver this
Agreement and the certificate referred to in Section 6(h) hereof on behalf of
such Selling Shareholder, to determine the purchase price to be paid by the
several Underwriters to such Selling Shareholder as provided in Section 3
hereof, to authorize the delivery of the Selling Shareholder Shares under this
Agreement and to duly endorse (in blank or otherwise) the certificate or
certificates representing such Shares or a stock power or powers with respect
thereto, to accept payment therefor, and otherwise to act on behalf of such
Selling Shareholder in connection with this Agreement.
(c) All consents, approvals, authorizations and orders required for the
execution and delivery by such Selling Shareholder of the Power of Attorney and
the Custody Agreement, the execution and delivery by or on behalf of such
Selling Shareholder of this Agreement and the sale and delivery of the Selling
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<PAGE> 9
Shareholder Shares under this Agreement (other than, at the time of the
execution hereof (if the Registration Statement has not yet been declared
effective by the Commission), the issuance of the order of the Commission
declaring the Registration Statement effective and such consents, approvals,
authorizations or orders as may be necessary under state or other securities or
Blue Sky laws) have been obtained and are in full force and effect; such Selling
Shareholder, if other than a natural person, has been duly organized and is
validly existing in good standing under the laws of the jurisdiction of its
organization as the type of entity that it purports to be; and such Selling
Shareholder has full legal right, power and authority to enter into and perform
its obligations under this Agreement and such Power of Attorney and Custody
Agreement, and to sell, assign, transfer and deliver the Shares to be sold by
such Selling Shareholder under this Agreement.
(d) Such Selling Shareholder will not, during the Lock-up Period,
effect the Disposition of any Securities now owned or hereafter acquired
directly by such Selling Shareholder or with respect to which such Selling
Shareholder has or hereafter acquires the power of disposition, otherwise than
(i) as a bona fide gift or pledge, provided the donee or pledgee thereof agrees
in writing to be bound by this restriction, (ii) as a distribution to partners
or shareholders of such Selling Shareholder, provided that the distributees
thereof agree in writing to be bound by the terms of this restriction, (iii)
with the prior written consent of BancBoston Robertson Stephens Inc. or (iv) as
may be acquired after the effective date of the Registration Statement in open
market transactions. The foregoing restriction is expressly agreed to preclude
the holder of the Securities from engaging in any hedging or other transaction
which is designed to or reasonably expected to lead to or result in a
Disposition of Securities during the Lock-up Period, even if such Securities
would be disposed of by someone other than the Selling Shareholder. Such
prohibited hedging or other transactions would including, without limitation,
any short sale (whether or not against the box) or any purchase, sale or grant
of any right (including, without limitation, any put or call option) with
respect to any Securities or with respect to any security (other than a
broad-based market basket or index) that includes, relates to or derives any
significant part of its value from Securities. Such Selling Shareholder also
agrees and consents to the entry of stop transfer instructions with the
Company's transfer agent against the transfer of the securities held by such
Selling Shareholder except in compliance with this restriction.
(e) Certificates in negotiable form for all Shares to be sold by such
Selling Shareholder under this Agreement, together with a stock power or powers
duly endorsed in blank by such Selling Shareholder, have been placed in custody
with the Custodian for the purpose of effecting delivery hereunder.
(f) This Agreement has been duly authorized by each Selling Shareholder
that is not a natural person and has been duly executed and delivered by or on
behalf of such Selling Shareholder and is a valid and binding agreement of such
Selling Shareholder, enforceable in accordance with its terms, except as rights
to indemnification hereunder may be limited by applicable law and except as the
enforcement hereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally or by general equitable principles; and the performance of this
Agreement and the consummation of the transactions herein contemplated will not
result in a breach or violation of any of the terms and provisions of or
constitute a default under any bond, debenture, note or other evidence of
indebtedness, or under any lease, contract, indenture, mortgage, deed of trust,
loan agreement, joint venture or other agreement or instrument to which such
Selling Shareholder is a party or by which such Selling Shareholder, or any
Selling Shareholder Shares or any Option Shares to be sold by such Selling
Shareholder hereunder, may be bound or, to the best of such Selling
Shareholders' knowledge, result in any violation of any law, order, rule,
regulation, writ, injunction, judgment or decree of any court, government or
governmental agency or body, domestic or foreign, having jurisdiction over such
Selling Shareholder or over the properties of such Selling Shareholder, or, if
such Selling Shareholder is other than a natural person, result in any violation
of any provisions of the charter, bylaws or other organizational documents of
such Selling Shareholder.
(g) Such Selling Shareholder has not taken and will not take, directly
or indirectly, any action designed to or that might reasonably be expected to
cause or result in stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of the Shares.
(h) Such Selling Shareholder has not distributed and will not
distribute any prospectus or other offering material in connection with the
offering and sale of the Shares.
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<PAGE> 10
(i) All information furnished by or on behalf of such Selling
Shareholder relating to such Selling Shareholder, the Selling Shareholder Shares
and the Option Shares that is contained in the representations and warranties of
such Selling Shareholder in such Selling Shareholder's Power of Attorney or set
forth in the Registration Statement or the Prospectus is, and at the time the
Registration Statement became or becomes, as the case may be, effective and at
all times subsequent thereto up to and on the Closing Date, and on any later
date on which Option Shares are to be purchased, was or will be, true, correct
and complete, and does not, and at the time the Registration Statement became or
becomes, as the case may be, effective and at all times subsequent thereto up to
and on the Closing Date (hereinafter defined), will not, contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make such information not misleading.
(j) Such Selling Shareholder will review the Prospectus and will comply
with all agreements and satisfy all conditions on its part to be complied with
or satisfied pursuant to this Agreement on or prior to the Closing Date, or any
later date on which Option Shares are to be purchased, as the case may be, and
will advise one of its Attorneys and BancBoston Robertson Stephens Inc. prior to
the Closing Date, or any later date on which Option Shares are to be purchased,
as the case may be, if any statement to be made on behalf of such Selling
Shareholder in the certificate contemplated by Section 6(h) would be inaccurate
if made as of the Closing Date, or any later date on which Option Shares are to
be purchased, as the case may be.
(k) Such Selling Shareholder does not have, or has waived prior to the
date hereof, any preemptive right, co-sale right or right of first refusal or
other similar right to purchase any of the Shares that are to be sold by the
Company or any of the other Selling Shareholders to the Underwriters pursuant to
this Agreement; such Selling Shareholder does not have, or has waived prior to
the date hereof, any registration right or other similar right to participate in
the offering made by the Prospectus, other than such rights of participation as
have been satisfied by the participation of such Selling Shareholder in the
transactions to which this Agreement relates in accordance with the terms of
this Agreement; and such Selling Shareholder does not own any warrants, options
or similar rights to acquire, and does not have any right or arrangement to
acquire, any capital stock, rights, warrants, options or other securities from
the Company, other than those described in the Registration Statement and the
Prospectus.
(l) Such Selling Shareholder is not aware (without having conducted any
investigation or inquiry) that any of the representations and warranties of the
Company set forth in Section 2.I. above is untrue or inaccurate in any material
respect.
3. Purchase, Sale and Delivery of Shares. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company and the Selling Shareholders
agree, severally and not jointly, to sell to the Underwriters, and each
Underwriter agrees, severally and not jointly, to purchase from the Company and
the Selling Shareholders, respectively, at a purchase price of $________ per
share, the respective number of Company Shares as hereinafter set forth and
Selling Shareholder Shares set forth opposite the names of the Company and the
Selling Shareholders in Schedule B hereto. The obligation of each Underwriter to
the Company and to each Selling Shareholder shall be to purchase from the
Company or such Selling Shareholder that number of Company Shares or Selling
Shareholder Shares, as the case may be, which (as nearly as practicable, as
determined by you) is in the same proportion to the number of Company Shares or
Selling Shareholder Shares, as the case may be, set forth opposite the name of
the Company or such Selling Shareholder in Schedule B hereto as the number of
Firm Shares which is set forth opposite the name of such Underwriter in Schedule
A hereto (subject to adjustment as provided in Section 10) is to the total
number of Firm Shares to be purchased by all the Underwriters under this
Agreement.
The certificates in negotiable form for the Selling Shareholder Shares
have been placed in custody (for delivery under this Agreement) under the
Custody Agreement. Each Selling Shareholder agrees that the certificates for the
Selling Shareholder Shares of such Selling Shareholder so held in custody are
subject to the interests of the Underwriters hereunder, that the arrangements
made by such Selling Shareholder for such custody, including the Power of
Attorney is to that extent irrevocable and that the obligations of such Selling
Shareholder hereunder shall not be terminated by the act of such Selling
Shareholder or by operation of law, whether by the death or incapacity of such
Selling Shareholder or the occurrence of any other event, except as specifically
provided
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herein or in the Custody Agreement. If any Selling Shareholder should die or be
incapacitated, or if any other such event should occur, before the delivery of
the certificates for the Selling Shareholder Shares hereunder, the Selling
Shareholder Shares to be sold by such Selling Shareholder shall, except as
specifically provided herein or in the Custody Agreement, be delivered by the
Custodian in accordance with the terms and conditions of this Agreement as if
such death, incapacity or other event had not occurred, regardless of whether
the Custodian shall have received notice of such death or other event.
Delivery of definitive certificates for the Firm Shares to be purchased
by the Underwriters pursuant to this Section 3 shall be made against payment of
the purchase price therefor by the several Underwriters by certified or official
bank check or checks drawn in same-day funds, payable to the order of the
Company with regard to the Shares being purchased from the Company, and to the
order of the Custodian for the respective accounts of the Selling Shareholders
with regard to the Shares being purchased from such Selling Shareholders at the
offices of Fulbright & Jaworski LLP, 1301 McKinney, Suite 5100, Houston, Texas
77010-3095 (or at such other place as may be agreed upon among the
Representatives and the Company and the Attorneys), at 9:00 A.M., Houston time
(a) on the third (3rd) full business day following the first day that Shares are
traded, (b) if this Agreement is executed and delivered after 3:30 P.M., Houston
time, the fourth (4th) full business day following the day that this Agreement
is executed and delivered or (c) at such other time and date not later than
seven (7) full business days following the first day that Shares are traded as
the Representatives and the Company and the Attorneys may determine (or at such
time and date to which payment and delivery shall have been postponed pursuant
to Section 10 hereof), such time and date of payment and delivery being herein
called the "Closing Date;" provided, however, that if the Company has not made
available to the Representatives copies of the Prospectus within the time
provided in Section 4(d) hereof, the Representatives may, in their sole
discretion, postpone the Closing Date until no later than two (2) full business
days following delivery of copies of the Prospectus to the Representatives. The
certificates for the Firm Shares to be so delivered will be made available to
you at such office or such other location including, without limitation, in New
York City, as you may reasonably request for checking at least one (1) full
business day prior to the Closing Date and will be in such names and
denominations as you may request, such request to be made at least two (2) full
business days prior to the Closing Date. If the Representatives so elect,
delivery of the Firm Shares may be made by credit through full fast transfer to
the accounts at The Depository Trust Company designated by the Representatives.
It is understood that you, individually, and not as the Representatives
of the several Underwriters, may (but shall not be obligated to) make payment of
the purchase price on behalf of any Underwriter or Underwriters whose check or
checks shall not have been received by you prior to the Closing Date for the
Firm Shares to be purchased by such Underwriter or Underwriters. Any such
payment by you shall not relieve any such Underwriter or Underwriters of any of
its or their obligations hereunder.
After the Registration Statement becomes effective, the several
Underwriters intend to make an public offering offering (as such term is
described in Section 11 hereof) of the Firm Shares at an public offering
offering price of $__________ per share. After the public offering offering, the
several Underwriters may, in their discretion, vary the public offering price.
The information set forth in the last paragraph on the front cover page
(insofar as such information relates to the Underwriters), on the inside front
cover concerning stabilization and over-allotment by the Underwriters, and under
the second and sixth paragraphs under the caption "Underwriting" in any
Preliminary Prospectus and in the Prospectus constitutes the only information
furnished by the Underwriters to the Company for inclusion in any Preliminary
Prospectus, the Prospectus or the Registration Statement, and you, on behalf of
the respective Underwriters, represent and warrant to the Company and the
Selling Shareholders that the statements made therein do not include any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
4. Further Agreements of the Company. The Company agrees with the
several Underwriters that:
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(a) The Company will use its best efforts to cause the Registration
Statement and any amendment thereof, if not effective at the time and date that
this Agreement is executed and delivered by the parties hereto, to become
effective as promptly as possible; the Company will use its best efforts to
cause any abbreviated registration statement pursuant to Rule 462(b) of the
Rules and Regulations as may be required subsequent to the date the Registration
Statement is declared effective to become effective as promptly as possible; the
Company will notify you, promptly after it shall receive notice thereof, of the
time when the Registration Statement, any subsequent amendment to the
Registration Statement or any abbreviated registration statement has become
effective or any supplement to the Prospectus has been filed; if the Company
omitted information from the Registration Statement at the time it was
originally declared effective in reliance upon Rule 430A(a) of the Rules and
Regulations, the Company will provide evidence satisfactory to you that the
Prospectus contains such information and has been filed, within the time period
prescribed, with the Commission pursuant to subparagraph (1) or (4) of Rule
424(b) of the Rules and Regulations or as part of a post-effective amendment to
such Registration Statement as originally declared effective which is declared
effective by the Commission; if the Company files a term sheet pursuant to Rule
434 of the Rules and Regulations, the Company will provide evidence satisfactory
to you that the Prospectus and term sheet meeting the requirements of Rule
434(b) or (c), as applicable, of the Rules and Regulations, have been filed,
within the time period prescribed, with the Commission pursuant to subparagraph
(7) of Rule 424(b) of the Rules and Regulations; if for any reason the filing of
the final form of Prospectus is required under Rule 424(b)(3) of the Rules and
Regulations, it will provide evidence satisfactory to you that the Prospectus
contains such information and has been filed with the Commission within the time
period prescribed; it will notify you promptly of any request by the Commission
for the amending or supplementing of the Registration Statement or the
Prospectus or for additional information; promptly upon your request, it will
prepare and file with the Commission any amendments or supplements to the
Registration Statement or Prospectus which, in the opinion of counsel for the
Company and counsel for the several Underwriters ("Underwriters' Counsel"), may
be necessary or advisable in connection with the distribution of the Shares by
the Underwriters; it will promptly prepare and file with the Commission, and
promptly notify you of the filing of, any amendments or supplements to the
Registration Statement or Prospectus which may be necessary to correct any
statements or omissions, if, at any time when a prospectus relating to the
Shares is required to be delivered under the Act, any event shall have occurred
as a result of which the Prospectus or any other prospectus relating to the
Shares as then in effect would include any untrue statement of a material fact
or omit to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading; in
case any Underwriter is required to deliver a prospectus nine (9) months or more
after the effective date of the Registration Statement in connection with the
sale of the Shares, it will prepare promptly upon request, but at the expense of
such Underwriter, such amendment or amendments to the Registration Statement and
such prospectus or prospectuses as may be necessary to permit compliance with
the requirements of Section 10(a)(3) of the Act; and it will file no amendment
or supplement to the Registration Statement or Prospectus which shall not
previously have been submitted to you a reasonable time prior to the proposed
filing thereof or to which you shall reasonably object in writing, subject,
however, to compliance with the Act and the Rules and Regulations and the
provisions of this Agreement.
(b) The Company will advise you, promptly after it shall receive notice
or obtain knowledge, of the issuance of any stop order by the Commission
suspending the effectiveness of the Registration Statement or of the initiation
or threat of any proceeding for that purpose; and it will promptly use its best
efforts to prevent the issuance of any stop order or to obtain its withdrawal at
the earliest possible moment if such stop order should be issued.
(c) The Company will use its best efforts to qualify the Shares for
offering and sale under the securities laws of such jurisdictions as you may
designate and to continue such qualifications in effect for so long as may be
required for purposes of the distribution of the Shares, except that the Company
shall not be required in connection therewith or as a condition thereof to
qualify as a foreign corporation or to execute a general consent to service of
process in any jurisdiction in which it is not otherwise required to be so
qualified or to so execute a general consent to service of process. In each
jurisdiction in which the Shares shall have been qualified as above provided,
the Company will make and file such statements and reports in each year as are
or may be required by the laws of such jurisdiction.
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<PAGE> 13
(d) The Company will furnish to you, as soon as available, and, in the
case of the Prospectus and any term sheet or abbreviated term sheet under Rule
434, in no event later than the first (1st) full business day following the
first day that Shares are traded, copies of the Registration Statement (three of
which will be signed and which will include all exhibits), each Preliminary
Prospectus, the Prospectus and any amendments or supplements to such documents,
including any prospectus prepared to permit compliance with Section 10(a)(3) of
the Act, all in such quantities as you may from time to time reasonably request.
Notwithstanding the foregoing, if BancBoston Robertson Stephens Inc., on behalf
of the several Underwriters, shall agree to the utilization of Rule 434 of the
Rules and Regulations, the Company shall provide to you copies of a Preliminary
Prospectus updated in all respects through the date specified by you in such
quantities as you may from time to time reasonably request.
(e) The Company will make generally available to its securityholders as
soon as practicable, but in any event not later than the forty-fifth (45th) day
following the end of the fiscal quarter first occurring after the first
anniversary of the effective date of the Registration Statement, an earnings
statement (which will be in reasonable detail but need not be audited) complying
with the provisions of Section 11(a) of the Act and covering a twelve (12) month
period beginning after the effective date of the Registration Statement.
(f) During a period of five (5) years after the date hereof, the
Company will furnish to its shareholders as soon as practicable after the end of
each respective period, annual reports (including financial statements audited
by independent certified public accountants) and unaudited quarterly reports of
operations for each of the first three quarters of the fiscal year, and will
furnish to you and the other several Underwriters hereunder, upon request (i)
concurrently with furnishing such reports to its shareholders, statements of
operations of the Company for each of the first three (3) quarters in the form
furnished to the Company's shareholders, (ii) concurrently with furnishing to
its shareholders, a balance sheet of the Company as of the end of such fiscal
year, together with statements of operations, of shareholders' equity, and of
cash flows of the Company for such fiscal year, accompanied by a copy of the
certificate or report thereon of independent certified public accountants, (iii)
as soon as they are available, copies of all reports (financial or other) mailed
to shareholders, (iv) as soon as they are available, copies of all publicly
available reports and financial statements furnished to or filed with the
Commission, any securities exchange or the NASD, (v) every material press
release and every material news item or article in respect of the Company or its
affairs which was generally released to shareholders or prepared by the Company
or any of its subsidiaries, and (vi) any additional information of a public
nature concerning the Company or its subsidiaries, or its business which you may
reasonably request. During such five (5) year period, if the Company shall have
active subsidiaries, the foregoing financial statements shall be on a
consolidated basis to the extent that the accounts of the Company and its
subsidiaries are consolidated.
(g) The Company will apply the net proceeds from the sale of the Shares
being sold by it in the manner set forth under the caption "Use of Proceeds" in
the Prospectus.
(h) The Company will maintain a transfer agent and, if necessary under
the jurisdiction of incorporation of the Company, a registrar (which may be the
same entity as the transfer agent) for its Common Stock.
(i)
(i) If the Company shall terminate this Agreement pursuant to
Section 11(a) hereof, the Company will reimburse the several Underwriters for
all out-of-pocket expenses (including fees and disbursements of Underwriters'
Counsel) incurred by the Underwriters in investigating or preparing to market or
marketing the Shares.
(ii) If the transactions contemplated hereby are not consummated by
reason of any failure, refusal or inability on the part of the Company or any
Selling Shareholder to perform any agreement on their respective parts to be
performed hereunder or to fulfill any condition of the Underwriters' obligations
hereunder, or if the Underwriters shall terminate this Agreement pursuant to
Section 11(b)(i), the Company will reimburse the several Underwriters for all
out-of-pocket expenses (including fees and disbursements of
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<PAGE> 14
Underwriters' Counsel) incurred by the Underwriters in investigating or
preparing to market or marketing the Shares.
(j) If at any time during the ninety (90) day period after the
Registration Statement becomes effective, any rumor, publication or event
relating to or affecting the Company shall occur as a result of which in your
opinion the market price of the Common Stock has been or is likely to be
materially affected (regardless of whether such rumor, publication or event
necessitates a supplement to or amendment of the Prospectus), the Company will,
after written notice from you advising the Company to the effect set forth
above, forthwith prepare, consult with you concerning the substance of and
disseminate a press release or other public statement, reasonably satisfactory
to you, responding to or commenting on such rumor, publication or event.
(k) During a period of ninety (90) days from the effective date of the
Registration Statement, the Company will not, without the prior written consent
of BancBoston Robertson Stephens Inc., effect the Disposition of, directly or
indirectly, any Securities other than (i) the sale of the Company Shares and the
Option Shares hereunder and (ii) the Company's issuance of options or Common
Stock under the Company's presently authorized Incentive Stock Option Plan,
Omnibus Stock Option Plan and 1998 Non-Employee Director Stock Option Plan (the
"Option Plans") and (iii) the sale of those shares which may be acquired by the
Company after the effective date of the Registration Statement in open market
transactions.
(l) During a period of ninety (90) days from the effective date of the
Registration Statement, the Company will not file a registration statement
registering shares under the Option Plan or other employee benefit plan.
5. Expenses.
(a) The Company and the Selling Shareholders agree with each
Underwriter that:
(i) The Company will pay and bear all costs and expenses in
connection with the preparation, printing and filing of the Registration
Statement (including financial statements, schedules and exhibits), Preliminary
Prospectuses and the Prospectus and any amendments or supplements thereto; the
printing of this Agreement, the Agreement Among Underwriters, the Selected
Dealer Agreement, the Preliminary Blue Sky Survey, the Underwriters'
Questionnaire and Power of Attorney, and any instruments related to any of the
foregoing; the issuance and delivery of the Shares hereunder to the several
Underwriters, including transfer taxes, if any, the cost of all certificates
representing the Shares and transfer agents' and registrars' fees; the fees and
disbursements of counsel for the Company; all fees and other charges of the
Company's independent certified public accountants; the cost of furnishing to
the several Underwriters copies of the Registration Statement (including
appropriate exhibits), Preliminary Prospectus and the Prospectus, and any
amendments or supplements to any of the foregoing; NASD filing fees and the cost
of qualifying the Shares under the laws of such jurisdictions as you may
designate (including filing fees and disbursements of Underwriters' Counsel in
connection with such NASD filings and filing fees and fees and disbursements of
Underwriters' Counsel in connection with such Blue Sky qualifications); and all
other expenses directly incurred by the Company and the Selling Shareholders in
connection with the performance of their obligations hereunder. Any additional
expenses incurred as a result of the sale of the Shares by the Selling
Shareholders will be borne collectively by the Company and the Selling
Shareholders. The provisions of this Section 5(a)(i) are intended to relieve the
Underwriters from the payment of the expenses and costs which the Selling
Shareholders and the Company hereby agree to pay, but shall not affect any
agreement which the Selling Shareholders and the Company may make, or may have
made, for the sharing of any of such expenses and costs. Such agreements shall
not impair the obligations of the Company and the Selling Shareholders hereunder
to the several Underwriters.
(ii) In addition to its other obligations under Section 8(a)
hereof, the Company agrees that, as an interim measure during the pendency of
any claim, action, investigation, inquiry or other proceeding described in
Section 8(a) hereof, it will reimburse the Underwriters on a monthly basis for
all reasonable legal or other expenses incurred in connection with investigating
or defending any such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the
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propriety and enforceability of the Company's obligation to reimburse the
Underwriters for such expenses and the possibility that such payments might
later be held to have been improper by a court of competent jurisdiction. To the
extent that any such interim reimbursement payment is so held to have been
improper, the Underwriters shall promptly return such payment to the Company
together with interest, compounded daily, determined on the basis of the prime
rate (or other commercial lending rate for borrowers of the highest credit
standing) listed from time to time in The Wall Street Journal which represents
the base rate on corporate loans posted by a substantial majority of the
nation's thirty (30) largest banks (the "Prime Rate"). Any such interim
reimbursement payments which are not made to the Underwriters within thirty (30)
days of a request for reimbursement shall bear interest at the Prime Rate from
the date of such request.
(iii) In addition to their other obligations under Section 8(b)
hereof, each Selling Shareholder, acting severally and not jointly, agrees that,
as an interim measure during the pendency of any claim, action, investigation,
inquiry or other proceeding described in Section 8(b) hereof relating to such
Selling Shareholder, it will reimburse the Underwriters on a monthly basis for
all reasonable legal or other expenses incurred in connection with investigating
or defending any such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of such Selling Shareholder's obligation to reimburse the
Underwriters for such expenses and the possibility that such payments might
later be held to have been improper by a court of competent jurisdiction. To the
extent that any such interim reimbursement payment is so held to have been
improper, the Underwriters shall promptly return such payment to the Selling
Shareholders, together with interest, compounded daily, determined on the basis
of the Prime Rate. Any such interim reimbursement payments which are not made to
the Underwriters within thirty (30) days of a request for reimbursement shall
bear interest at the Prime Rate from the date of such request.
(b) In addition to their other obligations under Section 8(c) hereof,
the Underwriters severally and not jointly agree that, as an interim measure
during the pendency of any claim, action, investigation, inquiry or other
proceeding described in Section 8(c) hereof, they will reimburse the Company and
each Selling Shareholder on a monthly basis for all reasonable legal or other
expenses incurred in connection with investigating or defending any such claim,
action, investigation, inquiry or other proceeding, notwithstanding the absence
of a judicial determination as to the propriety and enforceability of the
Underwriters' obligation to reimburse the Company and each such Selling
Shareholder for such expenses and the possibility that such payments might later
be held to have been improper by a court of competent jurisdiction. To the
extent that any such interim reimbursement payment is so held to have been
improper, the Company and each such Selling Shareholder shall promptly return
such payment to the Underwriters together with interest, compounded daily,
determined on the basis of the Prime Rate. Any such interim reimbursement
payments which are not made to the Company and each such Selling Shareholder
within thirty (30) days of a request for reimbursement shall bear interest at
the Prime Rate from the date of such request.
(c) It is agreed that any controversy arising out of the operation of
the interim reimbursement arrangements set forth in Sections 5(a)(ii), 5(a)(iii)
and 5(b) hereof, including the amounts of any requested reimbursement payments,
the method of determining such amounts and the basis on which such amounts shall
be apportioned among the reimbursing parties, shall be settled by arbitration
conducted under the provisions of the Constitution and Rules of the Board of
Governors of the New York Stock Exchange, Inc. or pursuant to the Code of
Arbitration Procedure of the NASD. Any such arbitration must be commenced by
service of a written demand for arbitration or a written notice of intention to
arbitrate, therein electing the arbitration tribunal. In the event the party
demanding arbitration does not make such designation of an arbitration tribunal
in such demand or notice, then the party responding to said demand or notice is
authorized to do so. Any such arbitration will be limited to the operation of
the interim reimbursement provisions contained in Sections 5(a)(ii), 5(a)(iii)
and 5(b) hereof and will not resolve the ultimate propriety or enforceability of
the obligation to indemnify for expenses which is created by the provisions of
Sections 8(a), 8(b) and 8(c) hereof or the obligation to contribute to expenses
which is created by the provisions of Section 8(e) hereof.
6. Conditions of Underwriters' Obligations. The obligations of the several
Underwriters to purchase and pay for the Shares as provided herein shall be
subject to the accuracy, as of the date hereof and the Closing Date and any
later date on which Option Shares are to be purchased, as the case may be, of
the representations and
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<PAGE> 16
warranties of the Company and the Selling Shareholders herein, to the
performance by the Company and the Selling Shareholders of their respective
obligations hereunder and to the following additional conditions:
(a) The Registration Statement shall have become effective not later
than 4:00 P.M., Houston time, on the date following the date of this Agreement,
or such later date as shall be consented to in writing by you; and no stop order
suspending the effectiveness thereof shall have been issued and no proceedings
for that purpose shall have been initiated or, to the knowledge of the Company,
any Selling Shareholder or any Underwriter, threatened by the Commission, and
any request of the Commission for additional information (to be included in the
Registration Statement or the Prospectus or otherwise) shall have been complied
with to the reasonable satisfaction of Underwriters' Counsel.
(b) All corporate proceedings and other legal matters in connection
with this Agreement, the form of Registration Statement and the Prospectus, and
the registration, authorization, issue, sale and delivery of the Shares, shall
have been reasonably satisfactory to Underwriters' Counsel, and such counsel
shall have been furnished with such papers and information as they may
reasonably have requested to enable them to pass upon the matters referred to in
this Section.
(c) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date, or any later date on which Option Shares are to be
purchased, as the case may be, there shall not have been any change in the
condition (financial or otherwise), earnings, operations or business of the
Company and its subsidiaries considered as one enterprise from that set forth in
the Registration Statement or Prospectus, which, in your sole judgment, is
material and adverse and that makes it, in your sole judgment, impracticable or
inadvisable to proceed with the public offering of the Shares as contemplated by
the Prospectus.
(d) You shall have received on the Closing Date and on any later date
on which Option Shares are to be purchased, as the case may be, the following
opinion of counsel for the Company and the Selling Shareholders, dated the
Closing Date or such later date on which Option Shares are to be purchased
addressed to the Underwriters and with reproduced copies or signed counterparts
thereof for each of the Underwriters, to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the jurisdiction of
its incorporation;
(ii) The Company has the corporate power and authority to own,
lease and operate its properties and to conduct its business as described in the
Prospectus;
(iii) The Company is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction, if any, in which the
ownership or leasing of its properties or the conduct of its business requires
such qualification, except where the failure to be so qualified or be in good
standing would not have a material adverse effect on the condition (financial or
otherwise), earnings, operations or business of the Company and its subsidiaries
considered as one enterprise. To such counsel's knowledge, the Company does not
own or control, directly or indirectly, any corporation, association or other
entity other than BindView Development GmbH and BindView Development
International, Inc.;
(iv) The authorized, issued and outstanding capital stock of the
Company is as set forth in the Prospectus under the caption "Capitalization" as
of the dates stated therein, the issued and outstanding shares of capital stock
of the Company (including the Selling Shareholder Shares) have been duly and
validly issued and are fully paid and nonassessable, and, to such counsel's
knowledge, will not have been issued in violation of or subject to any
preemptive right, co-sale right, registration right, right of first refusal or
other similar right;
(v) All issued and outstanding shares of capital stock of
BindView Development GmbH are owned by the Company and have been duly authorized
and validly issued and are fully paid and nonassessable, and, to such counsel's
knowledge, have not been issued in violation of or subject to any
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<PAGE> 17
preemptive right, co-sale right, registration right, right of first refusal or
other similar right and are owned by the Company free and clear of any pledge,
lien, security interest, encumbrance, claim or equitable interest;
(vi) The Firm Shares or the Option Shares, as the case may be, to
be issued by the Company pursuant to the terms of this Agreement have been duly
authorized and, upon issuance and delivery against payment therefor in
accordance with the terms hereof, will be duly and validly issued and fully paid
and nonassessable, and, to such counsel's knowledge, will not have been issued
in violation of or subject to any preemptive right, co-sale right, registration
right, right of first refusal or other similar right.
(vii) The Company has the corporate power and authority to enter
into this Agreement and to issue, sell and deliver to the Underwriters the
Shares to be issued and sold by it hereunder;
(viii) This Agreement has been duly authorized by all necessary
corporate action on the part of the Company and has been duly executed and
delivered by the Company and, assuming due authorization, execution and delivery
by you, is a valid and binding agreement of the Company, enforceable in
accordance with its terms, except insofar as indemnification provisions may be
limited by applicable law and except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws relating to
or affecting creditors' rights generally or by general equitable principles;
(ix) The Registration Statement has become effective under the
Act and, to such counsel's knowledge, no stop order suspending the effectiveness
of the Registration Statement has been issued and no proceedings for that
purpose have been instituted or are pending or threatened under the Act;
(x) The Registration Statement and the Prospectus, and each
amendment or supplement thereto (other than the financial statements (including
supporting schedules) and financial data derived therefrom as to which such
counsel need express no opinion), as of the effective date of the Registration
Statement, complied as to form in all material respects with the requirements of
the Act and the applicable rules and Regulations;
(xi) The statements in the Prospectus under the captions "Risk
Factors - Shares Eligible for Future Sale," "Management - Stock Option Plans,"
"Management - 401(k) Plan," "Management - Employment Agreements," "Certain
Transactions," "Description of Capital Stock," "Shares Eligible for Future
Sale," and "Underwriting," to the extent that they constitute matters of law or
legal conclusions, have been reviewed by such counsel and are fair summaries of
such matters and conclusions; and the forms of certificates evidencing the
Common Stock and filed as exhibits to the Registration Statement comply with
Texas law;
(xii) The description in the Registration Statement and the
Prospectus of the charter and bylaws of the Company and of statutes are accurate
and fairly present the information required to be presented by the Act and the
applicable Rules and Regulations;
(xiii) To such counsel's knowledge, there are no agreements,
contracts, leases or documents to which the Company is a party of a character
required to be described or referred to in the Registration Statement or
Prospectus or to be filed as an exhibit to the Registration Statement which are
not described or referred to therein or filed as required;
(xiv) The performance of this Agreement and the consummation of
the transactions herein contemplated (other than performance of the Company's
indemnification obligations hereunder, concerning which no opinion need be
expressed) will not (a) result in any violation of the Company's charter or
bylaws or (b) to such counsel's knowledge, result in a material breach or
violation of any of the terms and provisions of, or constitute a default under,
any bond, debenture, note or other evidence of indebtedness, or any lease,
contract, indenture, mortgage, deed of trust, loan agreement, joint venture or
other agreement or instrument known to such counsel to which the Company is a
party or by which its properties are bound, or any applicable statute, Rule or
regulation known to such counsel or, to such counsel's knowledge, any order,
writ or decree of any
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<PAGE> 18
court, government or governmental agency or body having jurisdiction over the
Company or any of its subsidiaries, or over any of their properties or
operations;
(xv) No consent, approval, authorization or order of or
qualification with any court, government or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries, or over any of their
properties or operations is necessary in connection with the consummation by the
Company of the transactions herein contemplated, except such as have been
obtained under the Act or such as may be required under state or other
securities or Blue Sky laws in connection with the purchase and the distribution
of the Shares by the Underwriters;
(xvi) To such counsel's knowledge, there are no legal or
governmental proceedings pending or threatened against the Company or any of its
subsidiaries of a character required to be disclosed in the Registration
Statement or the Prospectus by the Act or the Rules and Regulations, other than
those described therein;
(xvii) To such counsel's knowledge, neither the Company nor any of
its subsidiaries is presently (a) in material violation of its respective
charter or bylaws, or (b) in material breach of any applicable statute, Rule or
regulation known to such counsel or, to such counsel's knowledge, any order,
writ or decree of any court or governmental agency or body having jurisdiction
over the Company or any of its subsidiaries, or over any of their properties or
operations;
(xviii) To such counsel's knowledge, except as set forth in the
Registration Statement and Prospectus, no holders of Common Stock or other
securities of the Company have registration rights with respect to securities of
the Company and, except as set forth in the Registration Statement and
Prospectus, all holders of securities of the Company having rights known to such
counsel to registration of such shares of Common Stock or other securities,
because of the filing of the Registration Statement by the Company have, with
respect to the offering contemplated thereby, waived such rights or such rights
have expired by reason of lapse of time following notification of the Company's
intent to file the Registration Statement or have included securities in the
Registration Statement pursuant to the exercise of and in full satisfaction of
such rights;
(xix) Each Selling Shareholder which is not a natural person has
full right, power and authority to enter into and to perform its obligations
under the Power of Attorney and Custody Agreement to be executed and delivered
by it in connection with the transactions contemplated herein; the Power of
Attorney and Custody Agreement of each Selling Shareholder that is not a natural
person has been duly authorized by such Selling Shareholder; the Power of
Attorney and Custody Agreement of each Selling Shareholder has been duly
executed and delivered by or on behalf of such Selling Shareholder; and the
Power of Attorney and Custody Agreement of each Selling Shareholder constitutes
the valid and binding agreement of such Selling Shareholder, enforceable in
accordance with its terms, except as the enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by general equitable
principles;
(xx) Each of the Selling Shareholders has full right, power and
authority to enter into and to perform its obligations under this Agreement and
to sell, transfer, assign and deliver the Shares to be sold by such Selling
Shareholder hereunder;
(xxi) This Agreement has been duly authorized by each Selling
Shareholder that is not a natural person and has been duly executed and
delivered by or on behalf of each Selling Shareholder; and
(xxii) Upon the delivery of and payment for the Shares as
contemplated in this Agreement, each of the Underwriters will receive valid
marketable title to the Shares purchased by it from such Selling Shareholder,
free and clear of any security interests, claims, liens and other encumbrances.
In rendering such opinion, such counsel may assume that the Underwriters are
purchasers for value in good faith and without notice of any defect in the title
of the Shares being purchased from the Selling Shareholders.
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In addition, such counsel shall state that such counsel has
participated in conferences with officials and other representatives of the
Company, the Representatives, Underwriters' Counsel and the independent
certified public accountants of the Company, at which such conferences the
contents of the Registration Statement and Prospectus and related matters were
discussed, and although they have not verified the accuracy or completeness of
the statements contained in the Registration Statement or the Prospectus,
nothing has come to the attention of such counsel which leads them to believe
that, at the time the Registration Statement became effective and at all times
subsequent thereto up to and on the Closing Date and on any later date on which
Option Shares are to be purchased, the Registration Statement and any amendment
or supplement thereto (other than the financial statements including supporting
schedules and other financial and statistical information derived therefrom, as
to which such counsel need express no comment) contained any untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, or at the
Closing Date or any later date on which the Option Shares are to be purchased,
as the case may be, the Registration Statement, the Prospectus and any amendment
or supplement thereto (except as aforesaid) contained any untrue statement of a
material fact or omitted to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
Counsel rendering the foregoing opinion may rely as to questions of law
not involving the laws of the United States or the State of Texas upon opinions
of local counsel, and as to questions of fact upon representations or
certificates of officers of the Company, the Selling Shareholders or officers of
the Selling Shareholders (when the Selling Shareholder is not a natural person),
and of government officials, in which case their opinion is to state that they
are so relying and that they have no knowledge of any material misstatement or
inaccuracy in any such opinion, representation or certificate. Copies of any
opinion, representation or certificate so relied upon shall be delivered to you,
as Representatives of the Underwriters, and to Underwriters' Counsel.
(e) You shall have received on the Closing Date and on any later date
on which Option Shares are to be purchased, as the case may be, an opinion of
Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP in form and
substance satisfactory to you, with respect to the sufficiency of all such
corporate proceedings and other legal matters relating to this Agreement and the
transactions contemplated hereby as you may reasonably require, and the Company
shall have furnished to such counsel such documents as they may have requested
for the purpose of enabling them to pass upon such matters.
(f) You shall have received on the Closing Date and on any later date
on which Option Shares are to be purchased, as the case may be, a letter from
PricewaterhouseCoopers LLP, addressed to the Underwriters, dated the Closing
Date or such later date on which Option Shares are to be purchased, as the case
may be, confirming that they are independent certified public accountants with
respect to the Company within the meaning of the Act and the applicable
published Rules and Regulations and based upon the procedures described in such
letter delivered to you concurrently with the execution of this Agreement
(herein called the "Original Letter"), but carried out to a date not more than
five (5) business days prior to the Closing Date or such later date on which
Option Shares are to be purchased, as the case may be, (i) confirming, to the
extent true, that the statements and conclusions set forth in the Original
Letter are accurate as of the Closing Date or such later date on which Option
Shares are to be purchased, as the case may be, and (ii) setting forth any
revisions and additions to the statements and conclusions set forth in the
Original Letter which are necessary to reflect any changes in the facts
described in the Original Letter since the date of such letter, or to reflect
the availability of more recent financial statements, data or information. The
letter shall not disclose any change in the condition (financial or otherwise),
earnings, operations or business of the Company and its subsidiaries considered
as one enterprise from that set forth in the Registration Statement or
Prospectus, which, in your sole judgment, is material and adverse and that makes
it, in your sole judgment, impracticable or inadvisable to proceed with the
public offering of the Shares as contemplated by the Prospectus. The Original
Letter from PricewaterhouseCoopers LLP shall be addressed to or for the use of
the Underwriters in form and substance satisfactory to the Underwriters and
shall (i) represent, to the extent true, that they are independent certified
public accountants with respect to the Company within the meaning of the Act and
the applicable published Rules and Regulations, (ii) set forth their opinion
with respect to their examination of the consolidated balance sheet of the
Company as of December 31, 1997 and related consolidated statements of
operations, shareholders' equity, and cash flows for the twelve (12) months
ended December 31, 1997, (iii) state that PricewaterhouseCoopers LLP has
performed the procedures set out in Statement on Auditing Standards No. 71
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("SAS 71") for a review of interim financial information and providing the
report of PricewaterhouseCoopers LLP as described in SAS 71 on the financial
statements for each of the quarters in the nine-quarter period ended September
30, 1998 (the "Quarterly Financial Statements"), (iv) state that in the course
of such review, nothing came to their attention that leads them to believe that
any material modifications need to be made to any of the Quarterly Financial
Statements in order for them to be in compliance with generally accepted
accounting principles consistently applied across the periods presented, and (v)
address other matters agreed upon by PricewaterhouseCoopers LLP and you. In
addition, you shall have received from PricewaterhouseCoopers LLP a letter
addressed to the Company and made available to you for the use of the
Underwriters stating that their review of the Company's system of internal
accounting controls, to the extent they deemed necessary in establishing the
scope of their examination of the Company's consolidated financial statements as
of December 31, 1997, did not disclose any weaknesses in internal controls that
they considered to be material weaknesses.
(g) You shall have received on the Closing Date and on any later date
on which Option Shares are to be purchased, as the case may be, a certificate of
the Company, dated the Closing Date or such later date on which Option Shares
are to be purchased, as the case may be, signed by the Chief Executive Officer
and Chief Financial Officer of the Company, to the effect that, and you shall be
satisfied that:
(i) The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the Closing Date or any
later date on which Option Shares are to be purchased, as the case may be, and
the Company has complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or prior to the Closing
Date or any later date on which Option Shares are to be purchased, as the case
may be;
(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose have
been instituted or are pending or threatened under the Act;
(iii) When the Registration Statement became effective and at all
times subsequent thereto up to the delivery of such certificate, the
Registration Statement and the Prospectus, and any amendments or supplements
thereto, contained all material information required to be included therein by
the Act and the Rules and Regulations, and in all material respects conformed to
the requirements of the Act and the Rules and Regulations, the Registration
Statement, and any amendment or supplement thereto, did not and does not include
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, the Prospectus, and any amendment or supplement thereto, did not and
does not include any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, and, since the
effective date of the Registration Statement, there has occurred no event
required to be set forth in an amended or supplemented Prospectus which has not
been so set forth; and
(iv) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, there has not been (a) any
material adverse change in the condition (financial or otherwise), earnings,
operations or business of the Company and its subsidiaries considered as one
enterprise, (b) any transaction that is material to the Company and its
subsidiaries considered as one enterprise, except transactions entered into in
the ordinary course of business, (c) any obligation, direct or contingent, that
is material to the Company and its subsidiaries considered as one enterprise,
incurred by the Company or its subsidiaries, except obligations incurred in the
ordinary course of business, (d) any change in the capital stock or outstanding
indebtedness of the Company or any of its subsidiaries that is material to the
Company and its subsidiaries considered as one enterprise, (e) any dividend or
distribution of any kind declared, paid or made on the capital stock of the
Company or any of its subsidiaries, or (f) any loss or damage (whether or not
insured) to the property of the Company or any of its subsidiaries which has
been sustained or will have been sustained which has a material adverse effect
on the condition (financial or otherwise), earnings, operations or business of
the Company and its subsidiaries considered as one enterprise.
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(h) You shall be satisfied that, and you shall have received a
certificate, dated the Closing Date, or any later date on which Option Shares
are to be purchased, as the case may be, from the Attorneys for each Selling
Shareholder to the effect that, as of the Closing Date, or any later date on
which Option Shares are to be purchased, as the case may be, they have not been
informed that:
(i) The representations and warranties made by such Selling
Shareholder herein are not true or correct in any material respect on the
Closing Date or on any later date on which Option Shares are to be purchased, as
the case may be; or
(ii) Such Selling Shareholder has not complied with any obligation
or satisfied any condition which is required to be performed or satisfied on the
part of such Selling Shareholder at or prior to the Closing Date or any later
date on which Option Shares are to be purchased, as the case may be.
(i) The Company shall have obtained and delivered to you an agreement
from each officer and director of the Company and each Selling Shareholder in
writing prior to the date hereof that such person will not, during the Lock-up
Period, effect the Disposition of any Securities now owned or hereafter acquired
directly by such person or with respect to which such person has the power of
disposition, otherwise than (i) as a bona fide gift or pledge, provided the
donee or pledgee thereof agrees in writing to be bound by this restriction, (ii)
as a distribution to partners or shareholders of such person, provided that the
distributees thereof agree in writing to be bound by the terms of this
restriction, (iii) with the prior written consent of BancBoston Robertson
Stephens Inc. or (iv) as may be acquired after the effective date of the
Registration Statement in open market transactions. The foregoing restriction
shall have been expressly agreed to preclude the holder of the Securities from
engaging in any hedging or other transaction which is designed to or reasonably
expected to lead to or result in a Disposition of Securities during the Lock-up
Period, even if such Securities would be disposed of by someone other than the
such holder. Such prohibited hedging or other transactions would including,
without limitation, any short sale (whether or not against the box) or any
purchase, sale or grant of any right (including, without limitation, any put or
call option) with respect to any Securities or with respect to any security
(other than a broad-based market basket or index) that includes, relates to or
derives any significant part of its value from Securities. Furthermore, such
person will have also agreed and consented to the entry of stop transfer
instructions with the Company's transfer agent against the transfer of the
Securities held by such person except in compliance with this restriction.
(j) The Company and the Selling Shareholders shall have furnished to
you such further certificates and documents as you shall reasonably request
(including certificates of officers of the Company, the Selling Shareholders or
officers of the Selling Shareholders (when the Selling Shareholder is not a
natural person) as to the accuracy of the representations and warranties of the
Company and the Selling Shareholders herein, as to the performance by the
Company and the Selling Shareholders of their respective obligations hereunder
and as to the other conditions concurrent and precedent to the obligations of
the Underwriters hereunder.
All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
to Underwriters' Counsel. The Company and the Selling Shareholders will furnish
you with such number of conformed copies of such opinions, certificates, letters
and documents as you shall reasonably request.
7. Option Shares.
(a) On the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set forth, the
Company and the Selling Shareholders hereby grant to the several Underwriters,
for the purpose of covering over-allotments in connection with the distribution
and sale of the Firm Shares only, a nontransferable option to purchase up to an
aggregate of 450,000 Option Shares at the purchase price per share for the Firm
Shares set forth in Section 3 hereof. Such option may be exercised by the
Representatives on behalf of the several Underwriters on one (1) or more
occasions in whole or in part during the period of thirty (30) days after the
date on which the Firm Shares are initially offered to the public, by giving
written notice to the Company. The number of Option Shares to be purchased by
each Underwriter upon the exercise of such option shall be the same proportion
of the total number of Option Shares to be purchased by the
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several Underwriters pursuant to the exercise of such option as the number of
Firm Shares purchased by such Underwriter (set forth in Schedule A hereto) bears
to the total number of Firm Shares purchased by the several Underwriters (set
forth in Schedule A hereto), adjusted by the Representatives in such manner as
to avoid fractional shares. The number of Option Shares to be sold by the
Company and each Selling Shareholder is in the same proportion to the total
number of Option Shares to be purchased by all the Underwriters under this
Agreement as the number of Company Shares or Selling Shareholder Shares, as the
case may be, set forth opposite the name of the Company or such Selling
Shareholder in Schedule B hereto, is to the total number of Firm Shares to be
purchased by all the Underwriters under this Agreement, adjusted by the
Representatives in such manner as to avoid fractional shares.
Delivery of definitive certificates for the Option Shares to be
purchased by the several Underwriters pursuant to the exercise of the option
granted by this Section 7 shall be made against payment of the purchase price
therefor by the several Underwriters by certified or official bank check or
checks drawn in same-day funds, payable to the order of the Company. Such
delivery and payment shall take place at the offices of Fulbright & Jaworski,
LLP, 1301 McKinney, Suite 5100, Houston, Texas 77010-3095 or at such other place
as may be agreed upon among the Representatives and the Company (i) on the
Closing Date, if written notice of the exercise of such option is received by
the Company at least two (2) full business days prior to the Closing Date, or
(ii) on a date which shall not be later than the third (3rd) full business day
following the date the Company receives written notice of the exercise of such
option, if such notice is received by the Company less than two (2) full
business days prior to the Closing Date.
The certificates for the Option Shares to be so delivered will be made
available to you at such office or such other location including, without
limitation, in New York City, as you may reasonably request for checking at
least one (1) full business day prior to the date of payment and delivery and
will be in such names and denominations as you may request, such request to be
made at least two (2) full business days prior to such date of payment and
delivery. If the Representatives so elect, delivery of the Option Shares may be
made by credit through full fast transfer to the accounts at The Depository
Trust Company designated by the Representatives.
It is understood that you, individually, and not as the Representatives
of the several Underwriters, may (but shall not be obligated to) make payment of
the purchase price on behalf of any Underwriter or Underwriters whose check or
checks shall not have been received by you prior to the date of payment and
delivery for the Option Shares to be purchased by such Underwriter or
Underwriters. Any such payment by you shall not relieve any such Underwriter or
Underwriters of any of its or their obligations hereunder.
(b) Upon exercise of any option provided for in Section 7(a) hereof,
the obligations of the several Underwriters to purchase such Option Shares will
be subject (as of the date hereof and as of the date of payment and delivery for
such Option Shares) to the accuracy of and compliance with the representations,
warranties and agreements of the Company and the Selling Shareholders herein, to
the accuracy of the statements of the Company, the Selling Shareholders and
officers of the Company made pursuant to the provisions hereof, to the
performance by the Company and the Selling Shareholders of their respective
obligations hereunder, to the conditions set forth in Section 6 hereof, and to
the condition that all proceedings taken at or prior to the payment date in
connection with the sale and transfer of such Option Shares shall be reasonably
satisfactory in form and substance to you and to Underwriters' Counsel, and you
shall have been furnished with all such documents, certificates and opinions as
you may reasonably request in order to evidence the accuracy and completeness of
any of the representations, warranties or statements, the performance of any of
the covenants or agreements of the Company and the Selling Shareholders or the
satisfaction of any of the conditions herein contained.
8. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriter may become subject under the Act, the Exchange Act or
otherwise, specifically including, but not limited to, losses, claims, damages
or liabilities (or actions in respect thereof) arising out of or based upon (i)
any breach of any representation, warranty, agreement or covenant of the Company
herein contained, (ii) any untrue statement or alleged untrue statement of any
material
22
<PAGE> 23
fact contained in the Registration Statement or any amendment or supplement
thereto, or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or (iii) any untrue statement or alleged untrue statement of any
material fact contained in any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, and agrees to reimburse each Underwriter for any legal or
other expenses reasonably incurred by it in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the Company shall not be liable in any such case to the extent that any
such loss, claim, damage, liability or action arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in the Registration Statement, such Preliminary Prospectus or the
Prospectus, or any such amendment or supplement thereto, in reliance upon, and
in conformity with, written information relating to any Underwriter furnished to
the Company by such Underwriter, directly or through you, specifically for use
in the preparation thereof and, provided further, that the indemnity agreement
provided in this Section 8(a) with respect to any Preliminary Prospectus shall
not inure to the benefit of any Underwriter from whom the person asserting any
losses, claims, damages, liabilities or actions based upon any untrue statement
or alleged untrue statement of material fact or omission or alleged omission to
state therein a material fact purchased Shares, if a copy of the Prospectus in
which such untrue statement or alleged untrue statement or omission or alleged
omission was corrected had not been sent or given to such person within the time
required by the Act and the Rules and Regulations, unless such failure is the
result of noncompliance by the Company with Section 4(d) hereof.
The indemnity agreement in this Section 8(a) shall extend upon the same
terms and conditions to, and shall inure to the benefit of, each person, if any,
who controls any Underwriter within the meaning of the Act or the Exchange Act.
This indemnity agreement shall be in addition to any liabilities which the
Company may otherwise have.
(b) Each Selling Shareholder, severally and not jointly, agrees to
indemnify and hold harmless each Underwriter against any losses, claims, damages
or liabilities, joint or several, to which such Underwriter may become subject
(including, without limitation, in its capacity as an Underwriter or as a
"qualified independent underwriter" within the meaning of Schedule E or the
Bylaws of the NASD) under the Act, the Exchange Act or otherwise, specifically
including, but not limited to, losses, claims, damages or liabilities (or
actions in respect thereof) arising out of or based upon (i) any breach of any
representation, warranty, agreement or covenant of such Selling Shareholder
herein contained, (ii) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement or any amendment or
supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or (iii) any untrue statement or alleged untrue
statement of any material fact contained in any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto, or the omission or alleged
omission to state therein a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, in the case of subparagraphs (ii) and (iii) of this Section 8(b) to
the extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company or such Underwriter
by such Selling Shareholder, directly or through such Selling Shareholder's
representatives, specifically for use in the preparation thereof, and agrees to
reimburse each Underwriter for any legal or other expenses reasonably incurred
by it in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the indemnity agreement
provided in this Section 8(b) with respect to any Preliminary Prospectus shall
not inure to the benefit of any Underwriter from whom the person asserting any
losses, claims, damages, liabilities or actions based upon any untrue statement
or alleged untrue statement of a material fact or omission or alleged omission
to state therein a material fact purchased Shares, if a copy of the Prospectus
in which such untrue statement or alleged untrue statement or omission or
alleged omission was corrected had not been sent or given to such person within
the time required by the Act and the Rules and Regulations, unless such failure
is the result of noncompliance by the Company with Section 4(d) hereof.
The indemnity agreement in this Section 8(b) shall extend upon the same
terms and conditions to, and shall inure to the benefit of, each person, if any,
who controls any Underwriter within the
23
<PAGE> 24
meaning of the Act or the Exchange Act. This indemnity agreement shall be in
addition to any liabilities which such Selling Shareholder may otherwise have.
(c) Each Underwriter, severally and not jointly, agrees to indemnify
and hold harmless the Company and each Selling Shareholder against any losses,
claims, damages or liabilities, joint or several, to which the Company or such
Selling Shareholder may become subject under the Act or otherwise, specifically
including, but not limited to, losses, claims, damages or liabilities (or
actions in respect thereof) arising out of or based upon (i) any breach of any
representation, warranty, agreement or covenant of such Underwriter herein
contained, (ii) any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement or any amendment or supplement
thereto, or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or (iii) any untrue statement or alleged untrue statement of any
material fact contained in any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto, or the omission or alleged omission to state
therein a material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading, in the case of
subparagraphs (ii) and (iii) of this Section 8(c) to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to the Company by such Underwriter, directly or through
you, specifically for use in the preparation thereof, and agrees to reimburse
the Company and each such Selling Shareholder for any legal or other expenses
reasonably incurred by the Company and each such Selling Shareholder in
connection with investigating or defending any such loss, claim, damage,
liability or action.
The indemnity agreement in this Section 8(c) shall extend upon the same
terms and conditions to, and shall inure to the benefit of, each officer of the
Company who signed the Registration Statement and each director of the Company,
each Selling Shareholder and each person, if any, who controls the Company or
any Selling Shareholder within the meaning of the Act or the Exchange Act. This
indemnity agreement shall be in addition to any liabilities which each
Underwriter may otherwise have.
(d) Promptly after receipt by an indemnified party under this Section 8
of notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against any indemnifying party under this
Section 8, notify the indemnifying party in writing of the commencement thereof
but the omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party otherwise than under
this Section 8. In case any such action is brought against any indemnified
party, and it notified the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein and, to the extent
that it shall elect by written notice delivered to the indemnified party
promptly after receiving the aforesaid notice from such indemnified party, to
assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party; provided, however, that if the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party, the indemnified
party or parties shall have the right to select separate counsel to assume such
legal defenses and to otherwise participate in the defense of such action on
behalf of such indemnified party or parties. Upon receipt of notice from the
indemnifying party to such indemnified party of the indemnifying party's
election so to assume the defense of such action and approval by the indemnified
party of counsel, the indemnifying party will not be liable to such indemnified
party under this Section 8 for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel (together with appropriate local counsel) approved by the
indemnifying party representing all the indemnified parties under Section 8(a),
8(b) or 8(c) hereof who are parties to such action), (ii) the indemnifying party
shall not have employed counsel reasonably satisfactory to the indemnified party
to represent the indemnified party within a reasonable time after notice of
commencement of the action or (iii) the indemnifying party has authorized the
employment of counsel for the indemnified party at the expense of the
indemnifying party. In no event shall any indemnifying party be liable in
respect of any amounts paid in settlement of any action unless the indemnifying
party shall have approved the terms of such settlement; provided that such
consent shall not be unreasonably withheld. No indemnifying party shall, without
the prior written
24
<PAGE> 25
consent of the indemnified party, effect any settlement of any pending or
threatened proceeding in respect of which any indemnified party is or could have
been a party and indemnification could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability on all claims that are the subject
matter of such proceeding.
(e) In order to provide for just and equitable contribution in any
action in which a claim for indemnification is made pursuant to this Section 8
but it is judicially determined (by the entry of a final judgment or decree by a
court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 8 provides for
indemnification in such case, all the parties hereto shall contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(after contribution from others) in such proportion so that, except as set forth
in Section 8(f) hereof, the Underwriters severally and not jointly are
responsible pro rata for the portion represented by the percentage that the
underwriting discount bears to the public offering offering price, and the
Company and the Selling Shareholders are responsible for the remaining portion,
provided, however, that (i) no Underwriter shall be required to contribute any
amount in excess of the amount by which the underwriting discount applicable to
the Shares purchased by such Underwriter exceeds the amount of damages which
such Underwriter has otherwise required to pay and (ii) no person guilty of a
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation. The contribution agreement in this Section 8(e)
shall extend upon the same terms and conditions to, and shall inure to the
benefit of, each person, if any, who controls any Underwriter, the Company or
any Selling Shareholder within the meaning of the Act or the Exchange Act and
each officer of the Company who signed the Registration Statement and each
director of the Company.
(f) The liability of each Selling Shareholder under the
representations, warranties and agreements contained herein, under the indemnity
agreements contained in the provisions of this Section 8 and under the
reimbursement agreement contained in Section 5(a)(iii) shall be limited to an
amount equal to the public offering offering price of the Selling Shareholder
Shares sold by such Selling Shareholder to the Underwriters minus the amount of
the underwriting discount paid thereon to the Underwriters by such Selling
Shareholder. The Company and such Selling Shareholders may agree, as among
themselves and without limiting the rights of the Underwriters under this
Agreement, as to the respective amounts of such liability for which they each
shall be responsible.
(g) The parties to this Agreement hereby acknowledge that they are
sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof including, without limitation, the
provisions of this Section 8, and are fully informed regarding said provisions.
They further acknowledge that the provisions of this Section 8 fairly allocate
the risks in light of the ability of the parties to investigate the Company and
its business in order to assure that adequate disclosure is made in the
Registration Statement and Prospectus as required by the Act and the Exchange
Act.
9. Representations, Warranties, Covenants and Agreements to Survive
Delivery. All representations, warranties, covenants and agreements of the
Company, the Selling Shareholders and the Underwriters herein or in certificates
delivered pursuant hereto, and the indemnity and contribution agreements
contained in Section 8 hereof shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any Underwriter
or any person controlling any Underwriter within the meaning of the Act or the
Exchange Act, or by or on behalf of the Company or any Selling Shareholder, or
any of their officers, directors or controlling persons within the meaning of
the Act or the Exchange Act, and shall survive the delivery of the Shares to the
several Underwriters hereunder or termination of this Agreement.
10. Substitution of Underwriters. If any Underwriter or Underwriters shall
fail to take up and pay for the number of Firm Shares agreed by such Underwriter
or Underwriters to be purchased hereunder upon tender of such Firm Shares in
accordance with the terms hereof, and if the aggregate number of Firm Shares
which such defaulting Underwriter or Underwriters so agreed but failed to
purchase does not exceed 10% of the Firm Shares, the remaining Underwriters
shall be obligated, severally in proportion to their respective commitments
hereunder, to take up and pay for the Firm Shares of such defaulting Underwriter
or Underwriters.
25
<PAGE> 26
If any Underwriter or Underwriters so defaults and the aggregate number
of Firm Shares which such defaulting Underwriter or Underwriters agreed but
failed to take up and pay for exceeds 10% of the Firm Shares, the remaining
Underwriters shall have the right, but shall not be obligated, to take up and
pay for (in such proportions as may be agreed upon among them) the Firm Shares
which the defaulting Underwriter or Underwriters so agreed but failed to
purchase. If such remaining Underwriters do not, at the Closing Date, take up
and pay for the Firm Shares which the defaulting Underwriter or Underwriters so
agreed but failed to purchase, the Closing Date shall be postponed for
twenty-four (24) hours to allow the several Underwriters the privilege of
substituting within twenty-four (24) hours (including non-business hours)
another underwriter or underwriters (which may include any nondefaulting
Underwriter) satisfactory to the Company. If no such underwriter or underwriters
shall have been substituted as aforesaid by such postponed Closing Date, the
Closing Date may, at the option of the Company, be postponed for a further
twenty-four (24) hours, if necessary, to allow the Company the privilege of
finding another underwriter or underwriters, satisfactory to you, to purchase
the Firm Shares which the defaulting Underwriter or Underwriters so agreed but
failed to purchase. If it shall be arranged for the remaining Underwriters or
substituted underwriter or underwriters to take up the Firm Shares of the
defaulting Underwriter or Underwriters as provided in this Section 10, (i) the
Company shall have the right to postpone the time of delivery for a period of
not more than seven (7) full business days, in order to effect whatever changes
may thereby be made necessary in the Registration Statement or the Prospectus,
or in any other documents or arrangements, and the Company agrees promptly to
file any amendments to the Registration Statement, supplements to the Prospectus
or other such documents which may thereby be made necessary, and (ii) the
respective number of Firm Shares to be purchased by the remaining Underwriters
and substituted underwriter or underwriters shall be taken as the basis of their
underwriting obligation. If the remaining Underwriters shall not take up and pay
for all such Firm Shares so agreed to be purchased by the defaulting Underwriter
or Underwriters or substitute another underwriter or underwriters as aforesaid
and the Company shall not find or shall not elect to seek another underwriter or
underwriters for such Firm Shares as aforesaid, then this Agreement shall
terminate.
In the event of any termination of this Agreement pursuant to the
preceding paragraph of this Section 10, neither the Company nor any Selling
Shareholder shall be liable to any Underwriter (except as provided in Sections 5
and 8 hereof) nor shall any Underwriter (other than an Underwriter who shall
have failed, otherwise than for some reason permitted under this Agreement, to
purchase the number of Firm Shares agreed by such Underwriter to be purchased
hereunder, which Underwriter shall remain liable to the Company, the Selling
Shareholders and the other Underwriters for damages, if any, resulting from such
default) be liable to the Company or any Selling Shareholder (except to the
extent provided in Sections 5 and 8 hereof).
The term "Underwriter" in this Agreement shall include any person
substituted for an Underwriter under this Section 10.
11. Effective Date of this Agreement and Termination.
(a) This Agreement shall become effective at the earlier of (i) 8:30
A.M., Houston time, on the first full business day following the effective date
of the Registration Statement, or (ii) the time of the public offering of any of
the Shares by the Underwriters after the Registration Statement becomes
effective. The time of the public offering shall mean the time of the release by
you, for publication, of the first newspaper advertisement relating to the
Shares, or the time at which the Shares are first generally offered by the
Underwriters to the public by letter, telephone, telegram or telecopy, whichever
shall first occur. By giving notice as set forth in Section 12 before the time
this Agreement becomes effective, you, as Representatives of the several
Underwriters, or the Company, may prevent this Agreement from becoming effective
without liability of any party to any other party, except as provided in
Sections 4(i), 5 and 8 hereof.
(b) You, as Representatives of the several Underwriters, shall have the
right to terminate this Agreement by giving notice as hereinafter specified at
any time on or prior to the Closing Date or on or prior to any later date on
which Option Shares are to be purchased, as the case may be, (i) if the Company
or any Selling Shareholder shall have failed, refused or been unable to perform
any agreement on its part to be performed, or because any other condition of the
Underwriters' obligations hereunder required to be fulfilled is not fulfilled,
including, without limitation, any change in the condition (financial or
otherwise), earnings, operations or business
26
<PAGE> 27
of the Company and its subsidiaries considered as one enterprise from that set
forth in the Registration Statement or Prospectus, which, in your sole judgment,
is material and adverse, or (ii) if additional material governmental
restrictions, not in force and effect on the date hereof, shall have been
imposed upon trading in securities generally or minimum or maximum prices shall
have been generally established on the New York Stock Exchange or on the
American Stock Exchange or in the over the counter market by the NASD, or
trading in securities generally shall have been suspended on either such
exchange or in the over the counter market by the NASD, or if a banking
moratorium shall have been declared by federal, New York or California
authorities, or (iii) if the Company shall have sustained a loss by strike,
fire, flood, earthquake, accident or other calamity of such character as to
interfere materially with the conduct of the business and operations of the
Company regardless of whether or not such loss shall have been insured, or (iv)
if there shall have been a material adverse change in the general political or
economic conditions or financial markets as in your reasonable judgment makes it
inadvisable or impracticable to proceed with the offering, sale and delivery of
the Shares, or (v) if there shall have been an outbreak or escalation of
hostilities or of any other insurrection or armed conflict or the declaration by
the United States of a national emergency which, in the reasonable opinion of
the Representatives, makes it impracticable or inadvisable to proceed with the
public offering of the Shares as contemplated by the Prospectus. In the event of
termination pursuant to subparagraph (i) above, the Company shall remain
obligated to pay costs and expenses pursuant to Sections 4(j), 5 and 8 hereof.
Any termination pursuant to any of subparagraphs (ii) through (v) above shall be
without liability of any party to any other party except as provided in Sections
5 and 8 hereof.
If you elect to prevent this Agreement from becoming effective or to
terminate this Agreement as provided in this Section 11, you shall promptly
notify the Company by telephone, telecopy or telegram, in each case confirmed by
letter. If the Company shall elect to prevent this Agreement from becoming
effective, the Company shall promptly notify you by telephone, telecopy or
telegram, in each case, confirmed by letter.
12. Notices. All notices or communications hereunder, except as herein
otherwise specifically provided, shall be in writing and if sent to you shall be
mailed, delivered, telegraphed (and confirmed by letter) or telecopied (and
confirmed by letter) to you c/o BancBoston Robertson Stephens Inc., 555
California Street, Suite 2600, San Francisco, California 94104, telecopier
number (415) 781-0278, Attention: General Counsel; if sent to the Company, such
notice shall be mailed, delivered, telegraphed (and confirmed by letter) or
telecopied (and confirmed by letter) to 3355 West Alabama, 12th Floor, Houston,
Texas 77098, telecopier number (713) 881-9200, Attention: Eric J. Pulaski, Chief
Executive Officer; if sent to one or more of the Selling Shareholders, such
notice shall be sent mailed, delivered, telegraphed (and confirmed by letter) or
telecopied (and confirmed by letter) to Eric J. Pulaski or Scott R. Plantowsky,
each as Attorney-in-Fact for the Selling Shareholders, at 3355 West Alabama,
12th Floor, Houston, Texas 77098, telecopier number (713) 881-9200.
13. Parties. This Agreement shall inure to the benefit of and be binding
upon the several Underwriters and the Company and the Selling Shareholders and
their respective executors, administrators, successors and assigns. Nothing
expressed or mentioned in this Agreement is intended or shall be construed to
give any person or entity, other than the parties hereto and their respective
executors, administrators, successors and assigns, and the controlling persons
within the meaning of the Act or the Exchange Act, officers and directors
referred to in Section 8 hereof, any legal or equitable right, remedy or claim
in respect of this Agreement or any provisions herein contained, this Agreement
and all conditions and provisions hereof being intended to be and being for the
sole and exclusive benefit of the parties hereto and their respective executors,
administrators, successors and assigns and said controlling persons and said
officers and directors, and for the benefit of no other person or entity. No
purchaser of any of the Shares from any Underwriter shall be construed a
successor or assign by reason merely of such purchase.
In all dealings with the Company and the Selling Shareholders under
this Agreement, you shall act on behalf of each of the several Underwriters, and
the Company and the Selling Shareholders shall be entitled to act and rely upon
any statement, request, notice or agreement made or given by you jointly or by
BancBoston Robertson Stephens Inc. on behalf of you.
14. Applicable Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of California.
27
<PAGE> 28
15. Counterparts. This Agreement may be signed in several counterparts,
each of which will constitute an original.
28
<PAGE> 29
If the foregoing correctly sets forth the understanding among the
Company, the Selling Shareholders and the several Underwriters, please so
indicate in the space provided below for that purpose, whereupon this letter
shall constitute a binding agreement among the Company, the Selling Shareholders
and the several Underwriters.
Very truly yours,
BINDVIEW DEVELOPMENT CORPORATION
By
--------------------------------------------
SELLING SHAREHOLDERS
By
--------------------------------------------
Attorney-in-Fact for the Selling Shareholders
named in Schedule B hereto
Accepted as of the date first above written:
BANCBOSTON ROBERTSON STEPHENS INC.
BT ALEX. BROWN, INCORPORATED
DONALDSON LUFKIN & JENRETTE SECURITIES CORPORATION
CIBC OPPENHEIMER CORP. On
their behalf and on behalf of each of the
several Underwriters named in Schedule A hereto.
By BANCBOSTON ROBERTSON STEPHENS INC.
By
------------------------------------
Authorized Signatory
<PAGE> 30
SCHEDULE A
<TABLE>
<CAPTION>
Number of Firm
Underwriters Shares To Be Purchased
- ------------ ----------------------
<S> <C>
BancBoston Robertson Stephens Inc...............................
BT Alex. Brown Incorporated.....................................
Donaldson Lufkin & Jenrette Securities Corporation..............
CIBC Oppenheimer Corp...........................................
-----------
Total.................................................. 3,000,000
===========
</TABLE>
S-1
<PAGE> 31
SCHEDULE B
<TABLE>
<CAPTION>
Number of Firm
Company Shares To Be Sold
- ------- -----------------
<S> <C>
BindView Development Corporation 300,000
----------
Total.............................................. 300,000
==========
Number of Selling
Shareholder Shares
Name of Selling Shareholder To Be Sold
- --------------------------- ------------------
General Atlantic Partners, LLC 1,800,000
JMI Equity Fund III, L.P. 900,000
----------
Total.............................................. 2,700,000
==========
</TABLE>
<PAGE> 1
EXHIBIT 5.1
[FULBRIGHT & JAWORSKI L.L.P. LETTERHEAD]
December 3, 1998
BindView Development Corporation
3355 West Alabama, Suite 1200
Houston, Texas 77098
Ladies and Gentlemen:
We refer to the Registration Statement on Form S-1 (Registration No.
333-66941), as amended (the "Registration Statement"), filed by BindView
Development Corporation, a Texas corporation (the "Company"), with the
Securities and Exchange Commission under the Securities Act of 1933, relating to
(i) the offer by the Company of 300,000 shares of the Company's Common Stock, no
par value per share (the "Common Stock"), and up to 45,000 additional shares of
Common Stock that may be sold by the Company in the event the underwriters for
the offering elect to exercise their over-allotment option and (ii) the offer by
the selling shareholders of the Company listed in the Registration Statement
(the "Selling Shareholders") of 2,700,000 shares of Common Stock, and up to
405,000 additional shares of Common Stock that may be sold by the Selling
Shareholders in the event the underwriters for the offering elect to exercise
their over-allotment option.
As counsel to the Company, we have examined such corporate records,
documents and questions of law as we have deemed necessary or appropriate for
the purposes of this opinion. In such examinations, we have assumed the
genuineness of signatures and the conformity to the originals of the documents
supplied to us as copies. As to various questions of fact material to this
opinion, we have relied upon statements and certificates of officers and
representatives of the Company.
Upon the basis of such examination, we are of the opinion that:
(i) The 345,000 shares of Common Stock offered by the Company,
when sold in accordance with the terms agreed upon in the
Underwriting Agreement filed as Exhibit 1.1 to the
Registration Statement, will be legally issued, fully paid and
nonassessable.
(ii) The 3,105,000 shares of Common Stock offered by the Selling
Shareholders have been legally issued and are fully paid and
nonassessable.
<PAGE> 2
BindView Development Corporation
December 3, 1998
Page 2
We consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the prospectus contained therein. This consent is not to be
construed as an admission that we are a person whose consent is required to be
filed with the Registration Statement under the provisions of the Securities Act
of 1933.
Very truly yours,
/s/ FULBRIGHT & JAWORSKI L.L.P.
Fulbright & Jaworski L.L.P.
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