<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 23, 1998
REGISTRATION NUMBER 333-52883
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
BINDVIEW DEVELOPMENT CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
TEXAS 7372 76-0306721
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
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:
<TABLE>
<S> <C>
ROBERT F. GRAY, JR. JAY K. HACHIGIAN
RICHARD H. GILDEN BRIAN K. BEARD
FULBRIGHT & JAWORSKI L.L.P. GUNDERSON DETTMER STOUGH
1301 MCKINNEY, SUITE 5100 VILLENEUVE FRANKLIN & HACHIGIAN, LLP
HOUSTON, TEXAS 77010 8911 CAPITAL OF TEXAS HIGHWAY, SUITE 4240
713/651-5151 AUSTIN, TEXAS 78759
512/342-2300
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering.
[ ]
-------------------------------------------------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
[ ]
---------------------------------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE PRICE(2) REGISTRATION FEE(3)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, no par value per
share............................ 4,312,500 Shares $11.00 $47,437,500 $13,995
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 562,500 shares of Common Stock which may be purchased by the
Underwriters to cover over-allotments; if any.
(2) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o).
(3) Previously paid on March 15 and June 23, 1998.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
SUBJECT TO COMPLETION, DATED JULY 23, 1998
[BINDVIEW LOGO]
3,750,000 SHARES
COMMON STOCK
Of the 3,750,000 shares of Common Stock offered hereby, 2,758,886 shares
are being sold by BindView Development Corporation ("BindView" or the "Company")
and 991,114 shares are being sold by the Selling Shareholders. See "Principal
and Selling Shareholders." The Company will not receive any of the proceeds from
the sale of shares by the Selling Shareholders. Prior to this offering, there
has been no public market for the Common Stock of the Company. It is currently
estimated that the initial offering price will be between $9.00 and $11.00 per
share. See "Underwriting" for information relating to the method of determining
the initial public offering price. The Company has applied for quotation of the
Common Stock on the Nasdaq National Market System under the symbol "BVEW."
------------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 6.
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
UNDERWRITING PROCEEDS
PRICE TO DISCOUNTS PROCEEDS TO TO SELLING
PUBLIC AND COMMISSIONS COMPANY(1) SHAREHOLDERS
- ----------------------------------------------------------------------------------------------------------------------------
Per Share....................... $ $ $ $
- ----------------------------------------------------------------------------------------------------------------------------
Total(2)........................ $ $ $ $
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Before deducting expenses payable by the Company estimated at $975,000.
(2) The Company has granted to the Underwriters a 30-day option to purchase up
to an additional 562,500 shares of Common Stock solely to cover
over-allotments, if any. See "Underwriting." If such option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions,
Proceeds to the Company and Proceeds to Selling Shareholders will be
$ , $ , $ and $ , respectively.
------------------------------
The Common Stock is offered by the Underwriters as stated herein, subject
to receipt and acceptance by them and subject to their right to reject any order
in whole or in part. It is expected that delivery of such shares will be made
through the offices of BancAmerica Robertson Stephens, San Francisco,
California, on or about , 1998.
BANCAMERICA ROBERTSON STEPHENS
BT ALEX. BROWN
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE> 3
------------------------------
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, ENTERING STABILIZING BIDS, EFFECTING SYNDICATE
COVERING TRANSACTIONS AND IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
<PAGE> 4
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, ANY SELLING SHAREHOLDER OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES
OR AN OFFER TO, OR A SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH
AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary..................................................... 4
Risk Factors................................................ 6
Use of Proceeds............................................. 17
Dividend Policy............................................. 17
Capitalization.............................................. 18
Dilution.................................................... 19
Selected Consolidated Financial Data........................ 20
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 21
Business.................................................... 30
Management.................................................. 42
Certain Transactions........................................ 51
Principal and Selling Shareholders.......................... 54
Description of Capital Stock................................ 56
Shares Eligible for Future Sale............................. 58
Underwriting................................................ 60
Legal Matters............................................... 61
Experts..................................................... 61
Additional Information...................................... 62
Index to Consolidated Financial Statements.................. F-1
</TABLE>
------------------------------
The Company intends to furnish to its shareholders annual reports
containing audited consolidated financial statements examined by its independent
public accountants and quarterly reports containing unaudited financial
statements for the first three quarters of each fiscal year.
BindView EMS, NOSadmin and ActiveAdmin are trademarks of the Company and
BindView is a registered trademark of the Company. Trade names, service marks or
trademarks of other companies appearing in this Prospectus are the property of
their respective holders.
The Company was incorporated in Texas in May 1990. The Company's principal
executive offices are located at 3355 West Alabama, Suite 1200, Houston, Texas
77098, and its telephone number is (713) 843-1799. The Company's Web site is
located at www.bindview.com. Information contained in the Company's Web site
shall not be deemed to be a part of this Prospectus. Unless otherwise indicated,
all references in this Prospectus to "BindView" or the "Company" refer to
BindView Development Corporation and its subsidiaries.
Unless otherwise indicated, the information in this Prospectus (i) assumes
no exercise of the Underwriters' over-allotment option, (ii) reflects a
2 1/2-to-1 split of the Company's common stock (the "Common Stock") that was
approved by the Company's Board of Directors on May 14, 1998, subject to
shareholder approval, and (iii) reflects, except in the Consolidated Financial
Statements, the conversion of all outstanding shares of Preferred Stock into
Common Stock and the exercise of outstanding warrants to purchase 749,999 shares
of Common Stock upon or prior to completion of this offering.
3
<PAGE> 5
SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors" and the Consolidated Financial Statements
and Notes thereto, appearing elsewhere in this Prospectus. This Prospectus
contains forward-looking statements that involve risks and uncertainties. The
Company's actual results may differ materially from the results discussed in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those discussed in "Risk Factors" and elsewhere in this
Prospectus.
THE COMPANY
BindView develops, markets and supports a suite of systems management
software products that manage the security and integrity of complex, distributed
client/server networks operating on Microsoft Windows NT and Novell NetWare
environments. The Company's primary product line, BindView EMS, provides
software solutions for systems administration, security management, enterprise
inventory of LAN assets and Year 2000 assessment of PC hardware and software.
BindView EMS can be used by network administrators, security auditors and other
IT personnel to proactively identify, diagnose and, in many cases, fix a wide
range of systems management problems allowing organizations to reduce the Total
Cost of Ownership of enterprise computing.
The use of distributed, client/server networks has grown tremendously in
the last ten years with the increase in PC-based LANs being one of the fastest
growing aspects of the client/server market. These LANs are largely dependent on
servers running network operating systems provided by Microsoft and Novell. As
these LANs have grown larger and technically more complex, the problems
associated with maintaining their security and integrity have increased and
become more difficult for IT departments to manage. As a result, network
security and integrity are increasingly at risk, and the Total Cost of Ownership
for client/server computing has often climbed far beyond management's
expectations. The market for systems management software to address these issues
is growing rapidly. IDC projects this market for the Windows and NetWare
platforms to grow to over $4.6 billion by the year 2000, with security
management software for Windows NT Server and NetWare accounting for $640
million of the total.
Historically, IT organizations have addressed LAN systems management
problems through a combination of manual processes, custom-built tools and
third-party software, but none of these alternatives have offered a completely
satisfactory solution. Third-party software solutions, in general, have been
more cost-effective, less time consuming and less prone to human error than
manual processes and custom-built tools. However, most of the traditional
third-party LAN suites in this market focus on management of the desktop and not
on the management of the network operating system. In addition, many of these
solutions were not built specifically to manage Windows NT and NetWare
environments, do not scale efficiently to manage networks as they grow to
enterprise-wide deployments and do not provide the diagnostic software to find
and fix the root cause of a problem. As an organization's dependence on its LAN
infrastructure increases, its IT department must be able to address these
shortcomings.
The Company's comprehensive suite of systems management software products
enable IT organizations to manage the increasingly complex issues associated
with managing the security and integrity of the LAN environment in a
cost-effective manner. BindView EMS has been built to be native to each of the
Windows NT and Novell NetWare platforms that it supports. BindView EMS has also
been designed to manage workgroup LANs as well as enterprise-wide networks of
tens of thousands of users. BindView's product offerings utilize a unique
query-based approach to systems management that allows users to perform
diagnostic and reporting tasks in a matter of minutes that previously took hours
or even days to complete. Finally, the Company's products are designed to be
both easy to install and use, with a typical enterprise-wide deployment taking
just days or weeks to install depending on the product.
The Company's products have been sold to more than 70% of the Fortune 100
companies. BindView markets and sells its products primarily through a direct
telesales organization of 75 people located in Houston, Texas and Frankfurt,
Germany, and, to a lesser extent, through VARs, distributors and systems
integrators. The Company has sold its software products through direct channels
to over 4,000 corporations, governmental agencies and other organizations
worldwide, and also to over 150 resellers and distributors. The Company's
customers currently include: 3Com, Blue Cross and Blue Shield, Chase, Ernst &
Young, Federal Reserve Bank, GE Capital, Hoechst, Kellogg, Michelin, PageNet,
Paramount Pictures, Proctor & Gamble, Sony, Sprint and Suntrust.
The Company's objective is to be the leading provider of systems management
software for enterprise networks. In order to meet this goal, the Company's
strategy is to enhance its leadership position in security assessment software,
enhance its systems administration capabilities, apply query-based management to
new applications, expand its direct telesales model, leverage its existing
customer base and strengthen its strategic relationships.
4
<PAGE> 6
THE OFFERING
Common Stock Offered by the Company....... 2,758,886 shares
Common Stock Offered by the Selling
Shareholders.............................. 991,114 shares
Common Stock to be Outstanding after the
Offering.................................. 18,832,498 shares(1)(2)
Use of Proceeds........................... For working capital and general
corporate
purposes. See "Use of Proceeds."
Proposed Nasdaq National Market Symbol.... BVEW
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------------- -----------------
1993 1994 1995 1996 1997 1997 1998
------ ------ ------ ------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues.......................................... $3,031 $5,171 $7,333 $11,002 $ 20,838 $ 3,423 $ 5,840
Operating income (loss)(3)........................ 396 509 783 1,982 (11,296) 725 390
Net income (loss)................................. 389 488 754 1,990 (8,028) 739 397
Pro forma net income (loss)(4)(5)................. 253 317 490 1,293 (7,263) 480 --(9)
Diluted pro forma net income (loss) per
share(4)(6)(7).................................. $ 0.03 $ 0.04 $ 0.06 $ 0.12 $ (0.88) $ 0.03 $ 0.02
Shares used in computing diluted pro forma net
income (loss) per share(6)(7)................... 8,228 8,228 8,228 11,046 8,232 14,314 16,322
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998
-----------------------------------------
PRO
ACTUAL FORMA(2) AS ADJUSTED(2)(8)
------- -------- --------------------
(UNAUDITED)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital............................................. $10,857 $15,599 $40,282
Total assets................................................ 17,105 21,847 46,530
Total shareholders' equity.................................. 12,647 17,389 42,072
</TABLE>
- ------------
(1) Based on the number of shares outstanding as of March 31, 1998. Excludes
4,724,647 shares subject to outstanding options as of March 31, 1998 at a
weighted average exercise price of $2.16 per share and 1,901,187 shares
reserved for issuance under the Company's stock option plans. See
"Management -- Stock Option Plans" and Note 7 of the Notes to Consolidated
Financial Statements.
(2) Reflects the automatic conversion of outstanding Preferred Stock into Common
Stock, the exercise of outstanding warrants to purchase 749,999 shares of
Common Stock, as the warrant holders have notified the Company of their
intention to exercise the warrants prior to the completion of the offering,
437,500 shares of Common Stock issued to an officer pursuant to the exercise
of a Common Stock purchase warrant in May 1998 and the intended exercise of
290,231 option shares by Selling Shareholders.
(3) Operating income excluding stock compensation expense of $436 and $15,262 in
1996 and 1997, respectively, recognized in connection with the Company's
terminated Phantom Stock Plan and a terminated provision of an employment
agreement would have been $2,418 and $3,966 in 1996 and 1997, respectively.
The Company believes this data may be useful to investors. However, such
data are not prepared in accordance with generally accepted accounting
principles and investors should not utilize this data as a substitute for
operating income.
(4) Pro forma net income excluding stock compensation expense of $436 and
$15,262 in 1996 and 1997, respectively, recognized in connection with the
Company's terminated Phantom Stock Plan and a terminated provision of an
employment agreement would have been $1,577 and $2,655 in 1996 and 1997,
respectively. The Company believes this data may be useful to investors.
However, such data are not prepared in accordance with generally accepted
accounting principles and investors should not utilize this data as a
substitute for operating income.
(5) Net income of the Company, adjusted for a pro forma charge in lieu of income
taxes as if the Company were a C Corporation for all periods.
(6) See Note 10 of the Notes to Consolidated Financial Statements for an
explanation of the method used to determine the number of shares used in
computing pro forma net income per share.
(7) The amounts for the three months ended March 31, 1998 represent actual
diluted net income per share rather than pro forma diluted net income per
share and the number of shares used to determine such amount.
(8) Adjusted to reflect the sale of 2,758,886 shares of Common Stock by the
Company at the initial offering price of $10.00 per share and the
application of the estimated net proceeds. See "Use of Proceeds" and
"Capitalization."
(9) Not applicable as the Company was a C Corporation for the entire period.
RECENT DEVELOPMENTS
Based upon preliminary analysis of its operating results, the Company
expects to announce total revenues of approximately $7.993 million and operating
income of approximately $995,000 for the three months ended June 30, 1998.
5
<PAGE> 7
RISK FACTORS
In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating the Company and its
business before purchasing shares of the Common Stock offered hereby. This
Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors" and elsewhere in this Prospectus.
OPERATING RESULTS SUBJECT TO SIGNIFICANT FLUCTUATIONS; SEASONALITY
The Company's quarterly revenues, expenses and operating results have in
the past varied and in the future will continue to vary significantly due to a
variety of factors, such as demand for the Company's products, the size and
timing of significant orders and their fulfillment, the length of the sales
cycle for larger orders, the number, timing and significance of product
enhancements and new product announcements by the Company and its competitors,
changes in pricing policies by the Company or its competitors, customer order
deferrals in anticipation of enhancements or new products offered by the Company
or its competitors or in anticipation of changes or delays in network operating
system ("NOS") platforms and technologies, the ability of the Company to
develop, introduce and market new and enhanced versions of its products on a
timely basis, changes in the Company's level of operating expenses, budgeting
cycles of its customers, product life cycles, undetected software errors and
other product quality problems, the Company's ability to attract and retain
qualified personnel, changes in the Company's sales incentive plans and staffing
of sales territories, changes in the mix of products and services sold, changes
in the mix of domestic and international revenues, the level of international
expansion, changes in the mix of channels through which the Company's products
are offered, the impact of industry consolidation, the Company's ability to
control costs and general domestic and international economic and political
conditions. The Company operates with virtually no order backlog because its
software products are shipped shortly after orders are received, which makes
product revenues in any quarter substantially dependent on orders booked
throughout that quarter. A disproportionate amount of the Company's sales are
booked in the last few weeks or days of each quarter as a result of customer
buying patterns. The Company believes this pattern will continue. Moreover, the
Company's expense levels are based to a significant extent on the Company's
expectations of future revenues and therefore are relatively fixed in the short
term. If revenue levels are below expectations, operating results are likely to
be adversely and disproportionately affected because only a small portion of the
Company's expenses vary with its revenues.
The Company's quarterly operating results are subject to certain seasonal
fluctuations, largely due to customer buying patterns. Historically, the
Company's revenues have tended to be strongest in the fourth quarter of the year
and to decrease in the first quarter of the following year. The Company believes
this seasonality is due to the calendar year budgeting cycles of many of its
customers and to compensation polices tending to compensate sales personnel for
achieving annual revenue quotas. In future periods, the Company expects these
seasonal trends may cause first quarter revenues to be significantly lower than
the level achieved in the preceding fourth quarter.
Prior to January 1, 1998, the Company provided telephone support free of
charge and sold product upgrades separately or through subscription contracts.
The Company now requires its customers to purchase a subscription policy in
order to receive product upgrades and technical support. Unlike software license
revenues that are generally recognized upon shipment of the product, the Company
recognizes revenues from the sale of subscription contracts ratably over the
life of the contract term. As a result, to the extent that the Company derives a
larger percentage of its revenues from the sale of subscription contracts, the
Company will experience an increase in deferred revenue that is likely to result
in decreases in operating margins that could have an adverse effect on the
Company's business operating results and financial condition.
Based upon all of the factors described above, the Company believes that
its quarterly revenues, expenses and operating results are likely to vary
significantly in the future, that period-to-period comparisons of its operating
results are not necessarily meaningful and that, in any event, such comparisons
should not be relied upon as indications of future performance. The Company has
limited ability to forecast future revenues, and it
6
<PAGE> 8
is likely that in some future quarter the Company's operating results will be
below the expectations of public market analysts and investors. In the event
operating results are below expectations, or in the event adverse conditions
prevail or are perceived to prevail generally or with respect to the Company's
business, the price of the Company's Common Stock would likely be adversely
affected. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
LIMITED OPERATING HISTORY; FUTURE OPERATING RESULTS UNCERTAIN
Although the Company was founded in 1990 and began shipping its first
products in 1991, the Company has derived substantially all of its revenues
since 1995 from sales of its BindView NCS product line released in 1993 and its
BindView EMS product line, which replaced the BindView NCS product line in 1996.
The Company therefore has a limited history of operating results based on its
primary products and, accordingly, the Company's prospects should be viewed in
light of the risks and uncertainties inherent to a software company in the early
stages of development, particularly in the highly competitive and rapidly
evolving systems management software market. To compete in this market, the
Company believes that it will be necessary to devote substantial resources to
expanding its sales and marketing organization and to continued product
development. As a result, the Company will need to recognize significant
quarterly revenues to maintain profitability. Although the Company's revenues
have increased in recent years, and revenues for recent quarters have exceeded
revenues for the same quarter for the prior year, there can be no assurance that
the Company's revenues will grow in future periods, that they will grow at past
rates or that the Company will remain profitable on a quarterly or annual basis
in the future. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
SIGNIFICANT COMPETITION
The market in which the Company competes is intensely competitive and
characterized by rapidly changing technology and evolving standards. Companies
offering competitive products vary in the scope and breadth of the products and
services offered and include: (i) providers of security analysis and audit
products, such as Axent Technologies, Inc. and Security Dynamics Technologies,
Inc.; (ii) providers of standalone inventory and asset management products such
as Tally Systems Corp.; (iii) providers of LAN desktop management suites, such
as Intel Corporation, Hewlett-Packard Company and Microsoft Corporation; and
(iv) providers of Year 2000 assessment products such as Network Associates, Inc.
In addition, the native tools provided by Novell, Inc. and third-party tools
provided by certain vendors, such as Computer Associates, Inc. and other
companies, may compete with certain management features of the Company's
products. The Company has experienced, and expects to continue to experience,
increased competition from current and potential competitors, many of whom have
significantly greater financial, technical, marketing and other resources than
the Company. Such competitors may be able to respond more quickly to new or
emerging technologies and changes in customer requirements or devote greater
resources to the development, promotion and sale of their products than the
Company. Also, certain current and potential competitors, including such
enterprise management companies as IBM/Tivoli and Computer Associates, Inc., may
have greater name recognition or more extensive customer bases that could be
leveraged. The Company expects additional competition as other established and
emerging companies enter into the network management software market and new
products and technologies are introduced. Increased competition could result in
price reductions, fewer customer orders, reduced gross margins, longer sales
cycles and loss of market share, any of which would materially adversely affect
the Company's business, operating results and financial condition.
In addition, vendors of operating system software, particularly Microsoft
and Novell, may in the future enhance their products to include functionality
that is currently provided by the Company's products. The widespread inclusion
of the functionality of the Company's software as standard features of operating
system software could render the Company's products obsolete and unmarketable,
particularly if the quality of such functionality were comparable to that of the
Company's products. Even if the functionality provided as standard features by
operating system software is more limited than that of the Company's software,
there can be no assurance that a significant number of customers would not elect
to accept more limited functionality in lieu of purchasing additional software.
7
<PAGE> 9
Current and potential competitors may make strategic acquisitions or
establish cooperative relationships among themselves or with third parties,
thereby increasing their ability to address the needs of the Company's current
or prospective customers. Accordingly, it is possible that new competitors or
alliances among current and new competitors may emerge and rapidly gain
significant market share. Such competition could materially adversely affect the
Company's ability to obtain new licenses or to obtain maintenance and support
renewals for existing licenses on terms favorable to the Company. There can be
no assurance that the Company will be able to compete successfully against
current and future competitors, and the failure to do so would materially
adversely affect the Company's business, operating results and financial
condition. See "Business -- Competition."
RAPID TECHNOLOGICAL CHANGE AND NEW PRODUCTS
The market for the Company's products is characterized by rapid
technological change, frequent new product introductions and enhancements,
uncertain product life cycles, changes in customer demands and evolving industry
standards. The introduction of products embodying new technologies and the
emergence of new industry standards could render existing products obsolete and
unmarketable. The Company relies heavily on its relationships with Microsoft and
Novell and attempts to coordinate its product offerings with the future releases
of operating systems by such vendors. The Company may or may not be made aware
of such feature enhancements prior to their release and, therefore, may not be
able to introduce products on a timely basis that capitalize on such operating
system releases and feature enhancements. As a result of the complexities
inherent in client/server computing environments, the life cycles of the
Company's software products are difficult to estimate and new products and
product enhancements can require long development and testing periods and are
dependent on the Company's ability to hire and retain increasingly scarce and
technically competent personnel. As a result, significant delays in the general
availability of such new releases or significant problems in the installation or
implementation of such new releases could have a material adverse effect on the
Company's business, operating results and financial condition. The Company has,
on occasion, experienced delays in the scheduled introduction of new and
enhanced products and there can be no assurance that such delays will not be
experienced in the future. As a result, the Company's future success will
depend, in part, upon its ability to continue to enhance existing products and
develop and introduce in a timely manner new products to keep pace with
technological change and evolving industry standards, satisfy customer
requirements and achieve market acceptance. There can be no assurance that the
Company will successfully identify new product opportunities and develop and
bring new products to market in a timely and cost-effective manner, or that
products, capabilities or technologies developed by others will not render the
Company's products or technologies obsolete or noncompetitive or shorten the
life cycles of the Company's products. See "Business -- Product Development."
DEPENDENCE ON CONTINUED GROWTH OF THE MARKET FOR WINDOWS NT AND NOVELL NETWARE
OPERATING SYSTEMS
To date, all of the Company's revenues have been dependent upon Microsoft's
Windows NT and Novell's NetWare operating systems. Although demand for Windows
NT and Novell NetWare operating systems has grown in recent years with the
proliferation of distributed computing, this market is still emerging and there
can be no assurance that it will continue to grow or that, even if the market
does grow, organizations will continue to adopt the Company's products. The rate
of acceptance of the Company's products is dependent upon the increasing
complexity of Windows NT and NetWare operating systems and the lack of effective
tools to simplify system administration and security management for these
environments. There can be no assurance that the market for the Company's
products will continue to develop or that the Company's products will be widely
accepted. Additionally, there can be no assurance that the market for system
administration and security management software generally will continue to grow.
If the markets for the Company's products fail to develop or develop more slowly
than the Company currently anticipates, the Company's business, operating
results and financial condition would be materially adversely affected. The
percentages of the Company's revenues attributable to licenses of its software
operating on particular platforms are subject to change from time to time due to
a number of factors outside the Company's control, such as changing market
acceptance and penetration of the various operating system platforms supported
by the Company and the relative mix of development and installation by
value-added resellers ("VARs") of
8
<PAGE> 10
application software operating on such platforms. See "Business -- Industry
Background," "-- Products and Technology" and "-- Sales and Marketing."
PRODUCT CONCENTRATION
Substantially all of the Company's revenues to date have been attributable
to the sale of its NOSadmin and NETinventory products, and these products are
currently expected to account for substantially all of the Company's revenues
for the foreseeable future. The Company's future operating results are dependent
upon continued market acceptance of its NOSadmin and NETinventory products and
enhancements to these products, as well as the continued development of
additional snap-in modules to its Enterprise Console product. Consequently, a
decline in the demand for, or market acceptance of, the Company's NOSadmin and
NETinventory products as a result of competition, technological change or other
factors, would have a material adverse effect on the Company's business,
operating results and financial condition. Although the Company currently has
plans to broaden its product line, there can be no assurance that such product
concentration will be reduced. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business -- Products and
Technology."
RISKS ASSOCIATED WITH LENGTH OF SALES CYCLE
The Company has traditionally focused sales of its products to the
workgroups and divisions of a customer, resulting in a sales cycle ranging
between three and six months. Recently, the Company has focused more of its
selling effort on products for the customer's entire enterprise, since such
sales represent a larger revenue opportunity. However, the sales cycle for these
enterprise-wide sales typically ranges between six and twelve months, which can
be more than twice as long as the sales cycle for smaller scale implementations.
Because of the costs involved, customers of enterprise-wide sales generally
commit significant resources to an evaluation of available network management
software and require the Company to expend substantial time, effort and money
educating them about the value of the Company's products and services.
Enterprise-wide sales of the Company's software products require an extensive
sales effort throughout a customer's organization because decisions to license
and deploy such software generally involve the evaluation of the software by a
significant number of customer personnel in various functional and geographic
areas, each often having specific and conflicting requirements. A variety of
factors, including factors over which the Company has little or no control, may
cause potential customers to favor competing products or to delay or forego a
purchase. As a result of the length of the sales cycle for larger,
enterprise-wide sales of its products and services, the Company has a limited
ability to forecast the timing and amount of specific sales. The delay or
failure to complete one or more large, enterprise-wide sales in a particular
quarter or calendar year could have a materially adverse effect on the Company's
business, operating results and financial condition and could cause the
Company's operating results to vary significantly from quarter to quarter. See
"-- Operating Results Subject to Significant Fluctuations; Seasonality."
MANAGEMENT OF A RAPIDLY CHANGING BUSINESS
The Company has recently experienced a period of significant expansion that
has placed significant demands upon its management, systems and resources. In
particular, the Company had a total of 178 employees at March 31, 1998, as
compared to 85 at March 31, 1997. This expansion of the Company's business has
placed, and any future expansion is expected to continue to place, a significant
strain on the Company's management and operations, including its sales, customer
support, research and development, finance and administrative operations. The
Company is in the process of upgrading its internal financial, reporting and
sales contact management systems to enhance the Company's ability to obtain,
analyze and manage information and sales contacts derived from its domestic and
international operations. There can be no assurance, however, that the Company's
existing or future controls, systems or procedures will be adequate to support
the Company's operations. The Company is also considering moving to new
headquarters facilities in 1998, which can be a disruptive, time consuming and
expensive process. The Company's ability to manage its future growth, if any,
will require the Company to continually improve its financial and management
controls, reporting systems and procedures on a timely basis, implement new
systems as necessary, expand,
9
<PAGE> 11
train and manage its employee workforce and recruit qualified management
personnel. There can be no assurance that the Company's controls, systems,
procedures or management will be adequate to support the Company's operations.
Further, the implementation of such controls, systems or procedures could entail
substantial expense and require the time and attention of key management
personnel, either of which could have a materially adverse effect on the
Company's business, operating results or financial condition. The rapid
expansion of the Company's business may result in the Company being subject to a
variety of local, state, federal and international taxes. Although the Company
believes it is currently in compliance with the rules and regulations of such
tax jurisdictions, due to the complexity inherent in such tax laws, any
discovered current or future tax liabilities could have a materially adverse
effect on the Company's business, operating results and financial condition. The
founders of the Company, including the Company's Chief Executive Officer, have
had no prior experience managing a large or public company, and have only
limited experience managing a rapidly growing business organization. The failure
of the Company's management to respond effectively to changing business
conditions would have a material adverse effect upon the Company's business,
operating results and financial condition.
DEPENDENCE ON KEY PERSONNEL; NEED FOR ADDITIONAL QUALIFIED PERSONNEL
The Company's success depends to a significant extent upon the efforts of
Eric J. Pulaski, the Company's President and Chief Executive Officer, who is not
bound by an employment contract, and other key management, sales and marketing,
technical support and research and development personnel. The loss of key
management or technical personnel could adversely affect the Company. The
Company does not maintain key man life insurance policies on any of its
executive officers. The Company believes that its future success will depend in
large part upon its continuing ability to attract and retain highly skilled
research and development, technical support and sales and marketing personnel.
Like other software companies, the Company faces intense competition for such
personnel and the Company has at times experienced and continues to experience
difficulty in recruiting qualified personnel. The Company anticipates that it
will need to continue to increase the size of its research and development,
direct telesales, services and support personnel in future periods. In
particular, the Company has experienced difficulties in hiring and retaining
qualified research and development personnel. In order to support sales growth,
if any, the Company will need to increase the size of its sales and marketing
staff, increase the staff's productivity and, in selected markets, develop
indirect distribution channels. There can be no assurance that the Company will
be able to successfully leverage its sales force or that the Company's sales and
marketing organization will successfully compete against the more extensive and
better funded sales and marketing organizations of many of the Company's current
and future competitors. There can be no assurance that the Company will be
successful in attracting, assimilating and retaining additional qualified
personnel in the future. The loss of the services of one or more of the
Company's key individuals or the failure to attract and retain additional
qualified personnel, could have a material adverse effect on the Company's
business, operating results and financial condition. See "Business -- Employees"
and "Management."
RISKS ASSOCIATED WITH INTERNATIONAL SALES AND OPERATIONS
During 1995, 1996 and 1997, and during the three months ended March 31,
1998, the Company derived approximately 16%, 10%, 13% and 10% of its revenues,
respectively, from sales outside North America. The Company only recently opened
its first direct telesales and service office outside the United States.
Historically, the Company has generated revenues outside North America through
indirect channels, including VARs and other distributors. The Company is in the
early stages of developing its indirect distribution channels in certain markets
outside the United States. There can be no assurance that the Company will be
able to attract third parties that will be able to market the Company's products
effectively and will be qualified to provide timely and cost-effective customer
support and service. The Company's arrangements with its resellers generally
provide that such resellers may carry competing product offerings. There can be
no assurance that any distributor or reseller will continue to represent the
Company's products. The inability to recruit, or the loss of, important sales
personnel, distributors or resellers could materially adversely affect the
Company's business, operating results and financial condition.
10
<PAGE> 12
The Company anticipates that for the foreseeable future an increasing
percentage of its revenues may be derived from sources outside North America as
the Company seeks to expand its sales and support operations internationally. In
January 1998, the Company established its first international direct telesales
office and is still adapting the telesales model utilized by the Company in
North America to local conditions. In order to successfully expand international
sales, the Company must establish additional international direct telesales
offices, expand the management and support organizations for its international
sales channel, hire additional personnel, customize its products for local
markets, recruit additional international resellers where appropriate and expand
the use of its direct telesales model. There are currently only a limited number
of companies that have established a direct telesales model in countries outside
the United States. In the event the Company is unable to establish and generate
increased sales through a direct telesales model, it will incur higher personnel
costs without corresponding increases in revenue, resulting in lower operating
margins for its international operations. In addition, the differing employment
policies of countries outside the United States potentially reduce the Company's
flexibility in managing headcount and, in turn, managing personnel-related
expenses. To the extent that the Company is unable to address the risks
associated with these international sales in a timely and cost-effective manner,
the Company's sales growth internationally, if any, will be limited, operating
margins could be reduced by increases in personnel-related expenses without
corresponding increases in revenues, and the Company's business, operating
results and financial condition could be materially adversely affected. Even if
the Company is able to successfully expand its international operations, there
can be no assurance that the Company will be able to maintain or increase
international market demand for its products. See "Business -- Sales and
Marketing."
The Company's international operations are generally subject to a number of
risks, including costs of customizing products for foreign countries,
protectionist laws and business practices favoring local competition, dependence
on local vendors, compliance with multiple, conflicting and changing
governmental laws and regulations, longer sales cycles, greater difficulty or
delay in accounts receivable collection, import and export restrictions and
tariffs, difficulties in staffing and managing foreign operations, foreign
currency exchange rate fluctuations, multiple and conflicting tax laws and
regulations and political and economic instability. To date, substantially all
of the Company's revenues and costs have been denominated in U.S. dollars.
However, the Company believes that in the future, an increasing portion of the
Company's revenues and costs will be denominated in foreign currencies. There
can be no assurance that future fluctuations in the value of foreign currencies
will not have a material adverse effect on the Company's business, operating
results and financial condition. Management currently does not have an active
foreign exchange hedging program. As a result the Company's foreign operations
are subject to the risks of future foreign currency fluctuations, to the extent
that they are not hedged by obligations denominated in local currencies. See
"-- Operating Results Subject to Significant Fluctuations; Seasonality" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
LIMITED PROTECTION OF PROPRIETARY TECHNOLOGY; RISKS OF INFRINGEMENT
The Company relies primarily on a combination of copyright, trademark and
trade secret laws, confidentiality procedures and contractual provisions to
protect its proprietary rights. However, the Company believes that such measures
afford only limited protection. There can be no assurance that others will not
develop technologies that are similar or superior to the Company's technology or
design around the copyrights and trade secrets owned by the Company. The Company
licenses its software products primarily under "shrink wrap" licenses (i.e.,
licenses included as part of the product packaging). Shrink wrap licenses are
not negotiated with or signed by individual licensees and purport to take effect
upon the opening of the product package. In cases where the Company negotiates a
specific license with a customer, the license agreement contains provisions
purporting to protect the Company's proprietary rights. The Company believes,
however, that these measures afford only limited protection. Despite the
Company's efforts to protect its proprietary rights, unauthorized parties may
attempt to copy aspects of the Company's products or to obtain and use
information that the Company regards as proprietary. Policing unauthorized use
of the Company's products is difficult and the Company is unable to determine
the extent to which its products may be copied by unauthorized parties. In
addition, the laws of some foreign countries do not protect the Company's
proprietary rights as fully as do the laws of the United States. There can be no
assurance that the Company's means of
11
<PAGE> 13
protecting its proprietary rights will be adequate or that competition will not
independently develop similar or superior technology.
The Company is not aware that it is infringing upon any proprietary rights
of third parties. There can be no assurance, however, that third parties will
not claim infringement by the Company of their intellectual property rights. The
Company expects that software product developers increasingly will be subject to
infringement claims as the number of products and competitors in the Company's
industry segment grows and the functionality of products in different industry
segments overlaps. Any such claims, with or without merit, could be time
consuming to defend, result in costly litigation, divert management's attention
and resources, cause product shipment delays or require the Company to enter
into royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to the Company, if at all. In
the event of a successful claim of product infringement against the Company and
failure or inability of the Company to either license the infringed or similar
technology or develop alternative technology on a timely basis, the Company's
business, operating results and financial condition could be materially
adversely affected. See "Business -- Proprietary Rights."
RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS
Historically, the Company has not engaged in a substantial number of
acquisitions. However, in order to remain competitive in the future, the Company
may find it necessary to acquire businesses, products and technologies that
could complement or expand the Company's business. In the event that the Company
identifies an appropriate acquisition candidate, there can be no assurance that
the Company would be able to successfully negotiate the terms of any such
acquisition, finance such acquisition or integrate such acquired business,
products or technologies into the Company's existing business and operations.
Furthermore, the negotiation of potential acquisitions as well as the
integration of an acquired business could cause diversions of management time
and resources. There can be no assurance that a given acquisition, whether or
not consummated, would not materially adversely affect the Company's business,
operating results and financial condition. If the Company proceeds with one or
more significant acquisitions in which the consideration consists of cash, the
Company may be required to use a substantial portion of the Company's available
cash (including proceeds of this offering) to consummate the acquisitions. If
the Company consummates one or more significant acquisitions in which the
consideration consists of stock, shareholders of the Company could suffer a
significant dilution of their interests in the Company. See "Use of Proceeds"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
RISK OF UNDETECTED SOFTWARE ERRORS
Software products as complex as those offered by the Company may contain
certain undetected errors, particularly when first introduced or when new
versions or enhancements are released. The Company has in the past discovered
software errors in certain of its new products after their introduction. There
can be no assurance that, despite testing by the Company, such errors will not
be found in current versions, new versions or enhancements of its products after
commencement of commercial shipments, resulting in adverse publicity, loss of
revenues, delay in market acceptance or claims by customers brought against the
Company, all of which could have a material adverse effect on the Company's
business, operating results and financial condition. See "Business -- Product
Development."
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products were not
built to cope with issues that will result from accepting and processing dates
beyond December 31, 1999. This problem stems from the fact that many software
products, computer systems, and other equipment with embedded hardware chips
that use dates, have stored the year component of such dates as a two-digit
number relative to the year 1900 rather than as a four-digit number (e.g.,
storing the year as "98" rather than "1998"). On January 1, 2000, systems using
only a two-digit year may interpret the year "00" as "1900" rather than "2000"
and continue to misinterpret subsequent years as well. In addition, the clocks
of many systems that automatically compute leap years may incorrectly compute
leap years beyond 1999. Many other associated problems could also occur,
12
<PAGE> 14
including system failures or miscalculations causing disruption of operations.
As a result, in the next two years, computer systems and/or software used by
many companies may need to be upgraded to comply with such "Year 2000"
requirements. Significant uncertainty exists in the software industry concerning
the potential effects associated with such compliance. Although the latest
versions of BindView EMS are designed to be Year 2000 compliant, releases of
BindView EMS before version 5.2a are not Year 2000 compliant or have not been
tested for Year 2000 compliance. There can be no assurance the Company's
software products designed to be Year 2000 compliant contain all necessary date
code changes.
The Company believes that the purchasing patterns of customers and
potential customers may be affected by Year 2000 issues in a variety of ways.
Many companies are expending significant resources to correct or patch their
current software systems for Year 2000 compliance. These expenditures may result
in reduced funds available to purchase products and services such as those
offered by the Company. Potential customers may also choose to defer purchasing
Year 2000 compliant products until they believe it is absolutely necessary, thus
resulting in depressed market sales within the industry. Conversely, Year 2000
issues may cause other companies to accelerate purchases, thereby causing an
increase in short-term demand and a consequent decrease in long-term demand for
software products. Additionally, Year 2000 issues could cause a significant
number of companies, including current customers of the Company, to reevaluate
their current software needs and, as a result, switch to other systems or
suppliers. Any of the foregoing could result in a material adverse effect on the
Company's business, operating results and financial condition.
BindView currently uses third-party software applications some of which are
not Year 2000 compliant. The Company is in the process of upgrading these
systems to be able to handle the transition to the Year 2000 and beyond and
plans to have these upgrades completed within the next 12 months. In addition,
the Company is not yet certain as to the extent to which the computer software
and business systems of its suppliers are Year 2000 compliant. If systems of
third parties on which the Company relies are not converted on a timely basis,
the Year 2000 issue could have a material adverse effect on the Company's
business, financial conditions or results of operations.
PRODUCT LIABILITY
Although the Company's license agreements with its customers typically
contain provisions designed to limit the Company's exposure to potential product
liability claims, it is possible that such limitation of liability provisions
may not be effective as a result of existing or future laws or unfavorable
judicial decisions. The Company has not experienced any material product
liability claims to date. However, the sale and support of the Company's
products may entail the risks of such claims, which may be substantial in light
of the use of the Company's products in business-critical applications. In
particular, because certain products of the Company are sold to customer's with
the intent of aiding them in their attempt to resolve security management,
inventory management and Year 2000 issues, it is possible that the Company could
be exposed to product liability claims in the event such products result in
additional problems for the customer or do not perform as the customer might
expect. A successful product liability claim brought against the Company could
have a material adverse effect on the Company's business, operating results and
financial condition. Moreover, defending such a suit, regardless of its merits,
could entail substantial expense and require the time and attention of key
management personnel, either of which could have a materially adverse effect on
the Company's business, operating results and financial condition. See
"Business -- Products and Technology" and "-- Product Development."
NO PRIOR TRADING MARKET FOR THE COMMON STOCK; POTENTIAL VOLATILITY OF STOCK
PRICE
Prior to this offering, there has been no public market for the Common
Stock and there can be no assurance that an active trading market will develop
or be sustained after this offering. The initial public offering price will be
determined by negotiation among the Company, the Selling Shareholders and the
representatives of the Underwriters and may not be indicative of the price that
will prevail in the open market. See "Underwriting" for a discussion of the
factors to be considered in determining the initial public offering price.
13
<PAGE> 15
The market price of the Common Stock is likely to be highly volatile and
may be significantly affected by factors such as actual or anticipated
fluctuations in the Company's revenue and operating results, announcements of
technological innovations, new or enhanced products by the Company or its
competitors, developments with respect to copyrights or proprietary rights,
conditions and trends in the software and other technology industries, adoption
of new accounting standards affecting the software industry, changes in
financial estimates by securities analysts, general market conditions and other
factors. In addition, the stock market has from time to time experienced
significant price and volume fluctuations that have particularly affected the
market prices for the securities of technology companies. In the past, following
periods of volatility in the market price of a particular company's securities,
securities class action litigation has often been brought against the company.
There can be no assurance that such litigation will not occur in the future with
respect to the Company. Such litigation could result in substantial costs and a
diversion of management's attention and resources, which could have a material
adverse effect upon the Company's business, operating results and financial
condition. See "Underwriting."
CONTROL OF COMPANY BY OFFICERS, DIRECTORS AND FIVE PERCENT SHAREHOLDERS
Upon the consummation of this offering, the officers, directors, five
percent or greater shareholders and their affiliates in the aggregate will
beneficially own approximately 71.4% of the outstanding Common Stock (69.5% if
the Underwriters' over-allotment option is exercised in full). As a result,
these shareholders will be able to exercise control over all matters requiring
shareholder approval, including the election of directors and approval of
significant corporate transactions. Such concentration of ownership may have the
effect of delaying or preventing a change in control of the Company. See
"Principal and Selling Shareholders."
BENEFITS OF THE OFFERING TO EXISTING STOCKHOLDERS
The existing stockholders of the Company will recognize significant
benefits from this offering. These benefits include the creation of a public
market for the Company's Common Stock, which will afford existing stockholders
the ability to liquidate their investments, subject, in certain cases, to volume
limitations and other limitations and restrictions upon the sale of the Common
Stock. See "Shares Eligible For Future Sale." Certain of the Company's
stockholders will sell shares in this offering. See "Principal and Selling
Stockholders." As of March 31, 1998, existing stockholders held 16,073,612
shares of Common Stock (on a pro forma basis), which shares were originally
purchased from the Company at prices up to $2.85 per share, with an aggregated
consideration paid to the Company of $22,765,000. Based on the initial public
offering price of $10.00 per share, after this offering (assuming no exercise of
the Underwriters' over-allotment option) the aggregate value of the shares owned
by the Company's existing stockholders will be $160,736,000, reflecting
unrealized gains of $137,971,000 over the aggregate consideration paid to the
Company for such shares (assuming that such shares continue to be held by the
original purchasers thereof). Further, as of March 31, 1998, there were
4,724,647 shares of Common Stock (on a pro forma basis) issuable upon exercise
of outstanding options at a weighted average exercise price of $2.16 per share.
Such options and warrants have an aggregate potential realizable gain of
$37,059,000 based on the initial public offering price of $10.00 a share.
Accordingly, after this offering, existing stockholders and optionholders will
have substantial unrealized gains on their retained shares and options. See
"Dilution" and "Principal and Selling Stockholders."
ANTI-TAKEOVER EFFECTS OF ARTICLES OF INCORPORATION, BYLAWS AND TEXAS LAW
The Company's Amended and Restated Articles of Incorporation (the "Revised
Articles of Incorporation") and Bylaws contain certain provisions that may have
the effect of discouraging, delaying or preventing a change in control of the
Company or unsolicited acquisition proposals that a shareholder might consider
favorable, including provisions (i) authorizing the issuance of "blank check"
preferred stock, (ii) establishing advance notice requirements for shareholder
nominations for elections to the Board of Directors or for proposing matters
that can be acted upon at shareholders' meetings, (iii) eliminating the ability
of shareholders to act by written consent and (iv) providing for a Board of
Directors with staggered, three-year terms. In addition, certain provisions of
Texas law and the Company's Omnibus Incentive Plan (the "Omnibus Plan") may also
have the effect of discouraging, delaying or preventing a change in control of
the
14
<PAGE> 16
Company or unsolicited acquisition proposals. The anti-takeover affect of the
documents mentioned above may also have an adverse effect on the public trading
price of the Company's Common Stock. See "Description of Capital Stock" and
"Management -- Stock Option Plans."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock after the offering
could adversely affect the market price of the Common Stock and could impair the
Company's ability to raise capital through the sale of equity securities. Upon
completion of the offering, the Company will have outstanding 18,832,498 shares
of Common Stock (19,394,998 shares if the Underwriters' over-allotment option is
exercised in full), assuming no exercise of options after April 30, 1998. Of
these shares, the 3,750,000 shares offered hereby (4,312,500 shares if the
Underwriters' over-allotment option is exercised in full) will be freely
tradable without restriction or further registration under the Securities Act of
1933, as amended (the "Securities Act"), unless purchased by "affiliates" of the
Company as that term is defined in Rule 144 under the Securities Act ("Rule
144") described below. The remaining 15,082,498 shares of Common Stock
outstanding upon completion of the offering will be "restricted securities" as
that term is defined in Rule 144.
Restricted shares may be sold in the public market only if registered or if
they qualify for an exemption from registration under Rule 144, 144(k) or 701
promulgated under the Securities Act. As a result of the contractual
restrictions described below and the provisions of Rules 144, 144(k) and 701,
additional shares will be available for sale in the public market as follows:
(i) 82,500 shares will be eligible for immediate sale on the date of this
Prospectus; (ii) no shares will be eligible for sale 90 days after the date of
this Prospectus; (iii) 13,936,723 shares will be eligible for sale upon
expiration of lock-up agreements between certain shareholders of the Company and
the representatives of the Underwriters 180 days after the date of this
Prospectus; and (iv) 1,063,275 shares will be eligible for sale thereafter. In
addition to the foregoing, as of March 31, 1998, there were outstanding under
the Stock Option Plans options to purchase an aggregate of 4,724,647 shares of
Common Stock. All of the shares underlying such options will be eligible for
sale upon expiration of the lock-up agreements between certain option holders of
the Company and the representatives of the Underwriters beginning 180 days after
the date of this Prospectus, subject in certain cases to such shares underlying
outstanding options becoming eligible for sale more than 180 days after the date
of this Prospectus as such options vest. In addition, the Company intends to
register, following this offering, approximately 5,136,454 shares of Common
Stock subject to outstanding options or reserved for issuance under the
Company's Stock Option Plans. Further, certain shareholders holding
approximately 13,700,000 shares of Common Stock (assuming the exercise of
warrants to purchase 749,999 shares of Common Stock held by holders of
registration rights) are entitled to demand registration of their shares of
Common Stock. By exercising their demand registration rights, such shareholders
could cause a large number of securities to be registered and sold in the public
market, which could have an adverse effect on the market price of the Common
Stock. See "Description of Capital Stock" and "Shares Eligible for Future Sale."
BROAD DISCRETION OVER USE OF PROCEEDS
The net proceeds to the Company from this offering will be used, as
determined by management in its sole discretion, for working capital and general
corporate purposes, as well as for the possible acquisition of additional
businesses and technologies or the establishment of joint ventures that are
complementary to the current or future business of the Company. The Company has
not determined the specific allocation of net proceeds among the various uses
described above. Accordingly, investors in this offering will rely upon the
judgment of the Company's management with respect to the use of proceeds, with
only limited information concerning management's specific intentions. See "Use
of Proceeds."
15
<PAGE> 17
IMMEDIATE AND SUBSTANTIAL DILUTION
The initial public offering price is substantially higher than the book
value per share of the outstanding Common Stock. As a result, investors
purchasing Common Stock in this offering will incur immediate and substantial
dilution of $7.77 per share. In addition, the Company has issued options to
acquire Common Stock at prices significantly below the assumed initial public
offering price. To the extent such outstanding options are exercised, there will
be further dilution. See "Dilution" and "Shares Eligible for Future Sale."
16
<PAGE> 18
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,758,886 shares of
Common Stock offered by the Company hereby will be approximately $24,682,640
million ($29,913,890 if the Underwriters' over-allotment option is exercised in
full), after deducting estimated underwriting discounts and commissions and
estimated offering expenses payable by the Company. The Company will not receive
any of the proceeds from the sale of shares of Common Stock by the Selling
Shareholders. The principal purposes of this offering are to increase the
Company's equity capital, to create a public market for the Common Stock, to
facilitate future access by the Company to public equity markets and to provide
increased visibility of the Company in a marketplace where many of its
competitors are publicly held companies.
The Company intends to use the net proceeds of this offering for working
capital and general corporate purposes. The Company may also use a portion of
the net proceeds for possible acquisition of businesses, products and
technologies that are complementary to those of the Company. Although the
Company has not identified any specific businesses, products or technologies
that it may acquire, nor are there any current agreements or negotiations with
respect to any such transactions, the Company from time to time evaluates such
opportunities. Pending such uses, the Company plans to invest the net proceeds
in short-term, interest-bearing, investment-grade securities.
DIVIDEND POLICY
Prior to becoming a C Corporation in October 1997, the Company paid
distributions to its S Corporation shareholders in amounts generally consistent
with their tax liabilities arising from their allocable share of S Corporation
earnings. Since becoming a C Corporation, the Company has not declared or paid
any cash dividends on its capital stock and does not expect to do so in the
foreseeable future. The Company anticipates that all future earnings, if any,
generated from operations will be retained by the Company to develop and expand
its business. Any future determination with respect to the payment of dividends
will be at the discretion of the Board of Directors and will depend upon, among
other things, the Company's operating results, financial condition and capital
requirements, the terms of then-existing indebtedness, general business
conditions and such other factors as the Board of Directors deems relevant.
17
<PAGE> 19
CAPITALIZATION
The following table sets forth the unaudited total capitalization of the
Company as of March 31, 1998, (i) on an actual basis, (ii) on a pro forma basis
to reflect the filing of the Revised Articles of Incorporation and the automatic
conversion of all outstanding shares of the Company's Preferred Stock into
Common Stock upon completion of the offering, the exercise of all outstanding
Investor Warrants in accordance with the notification to the Company by the
holders thereof of their intention to exercise the warrants prior to the
completion of the offering, the issuance by the Company of 437,500 shares of
Common Stock in May 1998 to an officer pursuant to the exercise of a Common
Stock purchase warrant and the intended exercise of 290,231 option shares by
Selling Shareholders and (iii) on such pro forma basis as adjusted to reflect
the sale of the shares of Common Stock offered by the Company hereby at an
assumed initial public offering price of $10.00 per share and the application of
the estimated net proceeds therefrom. See "Use of Proceeds." This table should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
and Notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Shareholders' equity:
Convertible Preferred Stock: $.01 par value, 20,000,000
shares authorized, 2,528,090 issued and outstanding,
actual; 20,000,000 authorized, no shares issued and
outstanding, pro forma and as adjusted............... $ 25 $ -- $ --
Common Stock: no par value, 100,000,000 shares
authorized, 13,197,615 shares issued and 8,275,657
shares outstanding, actual; 100,000,000 shares
authorized, 20,995,570 shares issued and 16,073,612
shares outstanding, pro forma; 100,000,000 shares
authorized, 23,754,456 shares issued and 18,832,498
shares outstanding, as adjusted(1)................... 1 1 1
Additional paid-in capital................................ 31,728 37,045 61,728
Common Stock warrant to purchase 437,500 shares........... 550 -- --
Accumulated deficit....................................... (5,640) (5,640) (5,640)
Treasury stock, 4,921,958 shares actual, pro forma and as
adjusted................................................ (14,017) (14,017) (14,017)
-------- -------- --------
Total shareholders' equity...................... 12,647 17,389 42,072
-------- -------- --------
Total capitalization............................ $ 12,647 $ 17,389 $ 42,072
======== ======== ========
</TABLE>
- ------------
(1) Based on the number of shares outstanding as of March 31, 1998. Excludes
4,724,647 shares subject to options outstanding as of March 31, 1998 at a
weighted average exercise price of $2.16 per share and 1,901,187 shares
reserved for issuance under the Company's Stock Option Plan. See
"Management -- Stock Option Plans" and Note 7 of Notes to Consolidated
Financial Statements.
18
<PAGE> 20
DILUTION
The pro forma net tangible book value of the Company as of March 31, 1998,
giving effect to the conversion of all outstanding shares of Preferred Stock
into Common Stock and the exercise of all outstanding Warrants upon or prior to
the closing of this offering, was $17,389,000, or approximately $1.08 per share.
"Pro forma net tangible book value" per share represents the amount of total
tangible assets of the Company less total liabilities, divided by the number of
shares of Common Stock outstanding on an as-converted basis. The pro forma net
tangible book value of the Company as of March 31, 1998 would have been
approximately $42,072,000, or $2.23 per share after giving effect to the sale of
2,758,886 shares of Common Stock offered by the Company in this offering at an
assumed initial public offering price of $10.00 per share and the application of
the estimated net proceeds therefrom. This represents an immediate increase in
pro forma net tangible book value of $1.15 per share to existing shareholders
and an immediate dilution of $7.77 per share to investors purchasing shares of
Common Stock in this offering. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price................................ $ 10.00
Pro forma net tangible book value as of March 31,
1998(1)................................................ $ 1.08
-------
Increase attributable to new investors.................... $ 1.15
Adjusted pro forma net tangible book value as of March 31, 1998(1)... $ 2.23
--------
Dilution to new investors(1)......................................... $ 7.77
========
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 1998,
the difference between the number of shares of Common Stock purchased from the
Company, the total consideration paid and the average price per share paid by
existing shareholders and by the new shareholders before deducting the estimated
underwriting discounts and commissions and estimated offering expenses payable
by the Company at the assumed initial public offering price of $10.00 per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders(2)............. 16,073,612 85% $22,765,000 45% $ 1.42
New shareholders(1)(2)............... 2,758,886 15 27,588,860 55 10.00
---------- --- ----------- ---
Totals..................... 18,832,498 100% $50,353,860 100%
========== === =========== ===
</TABLE>
- ------------
(1) Excludes 4,724,647 shares subject to outstanding options as of March 31,
1998 at a weighted average exercise price of $2.16 per share and 1,901,187
shares reserved for issuance under the Company's Stock Option Plan. To the
extent outstanding options are exercised, there will be further dilution to
new investors. See "Management -- Stock Option Plans" and Note 7 of the
Notes to Consolidated Financial Statements.
(2) Sales by the Selling Shareholders in this offering will reduce the number of
shares held by existing shareholders to 15,082,498, or 80% (15,082,498, or
78%, if the Underwriters' over-allotment option is exercised in full), and
will increase the number of shares held by new investors to 3,750,000, or
20% (4,312,500, or 22%, if the Underwriters' over-allotment option is
exercised in full), of the total number of shares of Common Stock
outstanding after this offering. See "Principal and Selling Shareholders."
19
<PAGE> 21
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the Consolidated Financial Statements and Notes thereto and
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations," which are included elsewhere in this Prospectus. The consolidated
statements of operations data for the years ended December 31, 1995, 1996 and
1997, and the consolidated balance sheet data at December 31, 1996 and 1997, are
derived from audited consolidated financial statements included elsewhere in
this Prospectus. Statements presented for all previous periods are derived from
audited financial statements not included in this Prospectus. The consolidated
statements of operations data for the three months ended March 31, 1997 and 1998
are derived from the unaudited consolidated financial statements of the Company,
which are included elsewhere herein. The unaudited financial information
reflects all adjustments (consisting only of normal recurring adjustments) that
the Company considers necessary for a fair statement of the financial data for
such period. The results of operations for the three months ended March 31,
1998, are not necessarily indicative of results to be expected for any future
period.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
FISCAL YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------------- -----------------
1993 1994 1995 1996 1997 1997 1998
------ ------ ------ ------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues:
Licenses.................................................. $3,031 $5,171 $7,005 $ 9,720 $ 17,821 $ 2,950 $ 4,384
Services.................................................. -- -- 328 1,282 3,017 473 1,456
------ ------ ------ ------- -------- ------- -------
Total revenues...................................... 3,031 5,171 7,333 11,002 20,838 3,423 5,840
------ ------ ------ ------- -------- ------- -------
Cost of revenues:
Cost of licenses.......................................... 626 564 693 465 644 91 208
Cost of services.......................................... -- -- 139 362 624 105 215
------ ------ ------ ------- -------- ------- -------
Total cost of revenues.............................. 626 564 832 827 1,268 196 423
------ ------ ------ ------- -------- ------- -------
Gross profit................................................ 2,405 4,607 6,501 10,175 19,570 3,227 5,417
------ ------ ------ ------- -------- ------- -------
Costs and expenses:
Sales and marketing....................................... 983 2,256 3,234 4,197 9,088 1,369 2,708
Research and development.................................. 615 820 1,249 2,088 3,573 622 1,643
General and administrative................................ 411 1,022 1,235 1,472 2,943 511 676
Stock compensation expense................................ -- -- -- 436 15,262 -- --
------ ------ ------ ------- -------- ------- -------
Operating income (loss)(4).................................. 396 509 783 1,982 (11,296) 725 390
Other income (expense), net................................. (7) (21) (29) 8 118 14 129
------ ------ ------ ------- -------- ------- -------
Income (loss) before income tax provision................... 389 488 754 1,990 (11,178) 739 519
Provision (benefit) for income tax.......................... -- -- -- -- (3,150) -- 122
------ ------ ------ ------- -------- ------- -------
Net income (loss)........................................... 389 488 754 1,990 (8,028) 739 397
Pro forma charge (benefit) in lieu of income taxes.......... 136 171 264 697 (765) 259 --
------ ------ ------ ------- -------- ------- -------
Pro forma net income (loss)(1)(5)........................... $ 253 $ 317 $ 490 $ 1,293 $ (7,263) $ 480 $ --
====== ====== ====== ======= ======== ======= =======
Diluted pro forma net income (loss) per share(2)(3)......... $ 0.03 $ 0.04 $ 0.06 $ 0.12 $ (0.88) $ 0.03 $ 0.02
====== ====== ====== ======= ======== ======= =======
Shares used in computing diluted pro forma net income (loss)
per share(2)(3)........................................... 8,228 8,228 8,228 11,046 8,232 14,314 16,322
------ ------ ------ ------- -------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------- MARCH 31,
1993 1994 1995 1996 1997 1998
---- ------ ------ ------ ------- -----------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital............................................. $(41) $ 197 $ 671 $1,750 $10,823 $10,857
Total assets................................................ 925 1,552 2,747 4,016 16,509 17,105
Long-term liabilities, net of current portion............... -- -- 68 -- -- --
Total shareholders' equity.................................. 287 707 1,214 2,647 12,250 12,647
</TABLE>
- ------------
(1) Net income of the Company, adjusted for a pro forma charge in lieu of income
taxes as if the Company were a C Corporation for all periods.
(2) See Note 10 of the Notes to Consolidated Financial Statements for an
explanation of the method used to determine the number of shares used in
computing diluted pro forma net income (loss) per share.
(3) The amounts for the three months ended March 31, 1998 represent actual
diluted net income per share rather than pro forma diluted net income per
share and the number of shares used to determine such amount.
(4) Operating income excluding stock compensation expense of $436 and $15,262 in
1996 and 1997, respectively, recognized in connection with the Company's
terminated Phantom Stock Plan and a terminated provision of an employment
agreement would have been $2,418 and $3,966 in 1996 and 1997, respectively.
The Company believes this data may be useful to investors. However, such
data are not prepared in accordance with generally accepted accounting
principles and investors should not utilize this data as a substitute for
operating income.
(5) Pro forma net income excluding stock compensation expense of $436 and
$15,262 option in 1996 and 1997, respectively, recognized in connection with
the Company's terminated Phantom Stock Plan and a terminated provision of an
employment agreement would have been $1,577 and $2,655 in 1996 and 1997,
respectively. The Company believes this data may be useful to investors.
However, such data are not prepared in accordance with generally accepted
accounting principles and investors should not utilize this data as a
substitute for operating income.
20
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Consolidated
Financial Statements and the Notes thereto included elsewhere in this
Prospectus. This discussion contains forward-looking statements that involve
risks and uncertainties. The Company's actual results could differ significantly
from the results discussed in the forward-looking statements as a result of
certain factors, including, but not limited to, those discussed in "Risk
Factors" and elsewhere in this Prospectus.
OVERVIEW
BindView develops, markets and supports a suite of systems management
software products that manage the security and integrity of complex, distributed
client/server networks operating on Microsoft Windows NT and Novell NetWare
environments. The Company's primary product line, BindView EMS, provides
software solutions for systems administration, security management, enterprise
inventory of LAN assets and Year 2000 assessment of PC hardware and software.
BindView EMS can be used by network administrators, security auditors and other
IT personnel to proactively identify, diagnose and, in many cases, fix a wide
range of systems management problems allowing organizations to reduce the Total
Cost of Ownership of enterprise computing.
BindView was founded in 1990 and in 1991 introduced the first generation of
its customizable report generator for NetWare file servers. In 1993, the Company
added inventory and asset management capabilities and released the BindView
Network Control System ("BindView NCS"). In 1996, BindView NCS was supplanted by
the BindView Enterprise Management System ("BindView EMS"), a completely
redesigned product utilizing a Windows-based, object-oriented architecture. The
release of BindView EMS was also accompanied by the release of NOSadmin for
NetWare 3 and NOSadmin for NetWare 4. NOSadmin for Windows NT began shipping in
early 1997 and NETinventory was added to the product family in mid-1997.
The Company's revenues totaled $7.3 million, $11.0 million and $20.8
million in 1995, 1996 and 1997, respectively, substantially all of which have
been derived from the sale of BindView NCS and BindView EMS related products and
services. The Company has been profitable each year since 1991 and, since the
third quarter of 1995, has experienced 11 consecutive quarters of profitability
(before stock compensation expense charges related to the termination of the
Phantom Stock Plan in October 1997 effecting profitability in 1997 and the
fourth quarter of 1997). However, there can be no assurance the Company will
remain profitable on a quarterly or annual basis. See "Risk Factors -- Operating
Results Subject to Significant Fluctuations; Seasonality," " -- Limited
Operating History; Future Operating Results Uncertain."
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.
21
<PAGE> 23
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 first international direct telesales effort by forming a wholly
owned German subsidiary, BindView Development GmbH. Historically, substantially
all sales have been invoiced and paid in U.S. dollars. However, the Company
anticipates international expansion will result in the Company transacting
business in foreign currencies. The Company may implement a foreign currency
forward-hedging program to mitigate the foreign currency transaction risk in the
future. See "Risk Factors -- Risks Associated with International Sales and
Operations."
At the time of its incorporation, the Company (then operating as The LAN
Support Group, Inc.) elected to be treated as an S Corporation under Subchapter
S of the Internal Revenue Code. As an S Corporation, the Company's shareholders
were liable for federal income tax liabilities resulting from the Company's
operations. On October 16, 1997, the Company's status as an S Corporation was
terminated and for periods thereafter the Company has been liable for federal
income taxes. The Company has recognized a pro forma charge in lieu of income
taxes in its Consolidated Statements of Operations for the periods prior to its
C Corporation status to reflect income tax charges as if the Company had been a
C Corporation for all periods presented. Prior to the termination of its S
Corporation status, the Company declared distributions as dividends to
shareholders payable in cash in an amount generally equal the tax consequence
created by the S Corporation's earnings up to the date of such termination. The
Company has no plans to pay any dividends or distributions in the foreseeable
future.
RECENT DEVELOPMENTS
Based upon preliminary analysis of its operating results, the Company
expects to announce total revenues of approximately $7.993 million and operating
income of approximately $995,000 for the three months ended June 30, 1998.
22
<PAGE> 24
RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data as a
percentage of total revenues for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------- ---------------
1995 1996 1997 1997 1998
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues:
Licenses..................................... 95.5% 88.3% 85.5% 86.2% 75.1%
Services..................................... 4.5 11.7 14.5 13.8 24.9
----- ----- ----- ----- -----
Total revenues....................... 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- -----
Cost of revenues:
Cost of licenses............................. 9.5 4.2 3.1 2.6 3.6
Cost of services............................. 1.8 3.3 3.0 3.1 3.6
----- ----- ----- ----- -----
Total cost of revenues............... 11.3 7.5 6.1 5.7 7.2
----- ----- ----- ----- -----
Gross margin................................... 88.7 92.5 93.9 94.3 92.8
----- ----- ----- ----- -----
Costs and expenses:
Sales and marketing.......................... 44.1 38.1 43.6 40.0 46.4
Research and development..................... 17.0 19.0 17.1 18.2 28.1
General and administrative................... 16.8 13.4 14.1 14.9 11.6
Stock compensation expense................... -- 4.0 73.2 -- --
----- ----- ----- ----- -----
Operating income (loss)........................ 10.8 18.0 (54.1) 21.2 6.7
Other income (expense), net.................... (0.4) 0.1 0.6 0.4 2.2
----- ----- ----- ----- -----
Income (loss) before income tax provision...... 10.4 18.1 (53.5) 21.6 8.9
Provision (benefit) for income tax............. -- -- (15.1) -- 2.1
----- ----- ----- ----- -----
Net income (loss).............................. 10.4 18.1 (38.4) 21.6 6.8
Pro forma charge (benefit) in lieu of income
taxes........................................ 3.6 6.3 (3.6) 7.6 --
----- ----- ----- ----- -----
Pro forma net income (loss).................... 6.8 11.8 (34.8) 14.0 --
===== ===== ===== ===== =====
</TABLE>
Revenues
The Company's revenues are derived from the sale of software products and
related services including subscription contracts. The Company's revenues were
$7.3 million, $11.0 million and $20.8 million in 1995, 1996 and 1997,
respectively, representing increases of $3.7 million or 50% from 1995 to 1996
and $9.8 million or 89% from 1996 to 1997. The Company's revenues were $3.4
million and $5.8 million for the three months ended March 31, 1997 and 1998,
respectively, representing an increase in the first quarter of 1998 of $2.4
million or 71% over the comparable quarter of the prior year. The Company had no
customer that accounted for more than 10% of its revenues in 1996, 1997 or for
the three months ended March 31, 1998. Revenues recognized from sales to
customers outside North America, primarily in the United Kingdom and Europe,
represented approximately 16%, 10%, 13% and 10% in 1995, 1996, 1997 and for the
three months ended March 31, 1998, respectively.
The Company's license revenues were $7.0 million, $9.7 million and $17.8
million in 1995, 1996 and 1997, respectively, representing increases of $2.7
million or 39% from 1995 to 1996 and $8.1 million or 83% from 1996 to 1997. The
Company's license revenues were $3.0 million and $4.4 million for the three
months ended March 31, 1997 and 1998, respectively, representing an increase in
the first quarter of 1998 of $1.4 million or 49% over the comparable quarter of
the prior year. The increase in the Company's license revenues over this time
period has resulted from new product introductions and enhancements, increases
in the average transaction size and increases in the size and productivity of
the Company's sales force. The increase in the Company's license revenues from
1995 to 1996 resulting from the release of the Windows-based BindView EMS
product family, including NOSadmin for NetWare 3 and NOSadmin for NetWare 4,
approximated $3.9 million. The increase in the Company's license revenues from
1996 to 1997 resulting from
23
<PAGE> 25
continued market acceptance of BindView EMS, including the release of NOSadmin
for Windows NT and the release of NETinventory which approximated $4.8 million.
The increase in the Company's license revenues from the three months ended March
31, 1997 to the three months ended March 31, 1998, resulted from those reasons
cited for the growth between 1996 and 1997, as well as product enhancements to
NETinventory to include Year 2000 auditing capabilities for PC hardware and
software which contributed $1.4 million.
The Company's service revenues were $328,000, $1.3 million and $3.0 million
in 1995, 1996 and 1997, respectively, representing increases of $1.0 million or
291% from 1995 to 1996 and $1.7 million or 135% from 1996 to 1997. The Company's
subscription contract revenues were $473,000 and $1.5 million for the three
months ended March 31, 1997 and 1998, respectively, representing an increase in
the first quarter of 1998 of $1.0 million or 208% over the comparable quarter of
the prior year. The increase in the Company's service revenues from 1995 through
the first quarter of 1998 resulted primarily from increases in purchases of
subscription contracts by the Company's growing installed customer base and
larger dollar value of subscription agreements resulting from increases in the
average size of customer licensing agreements. In particular, the increase in
the Company's service revenues from the three months ended March 31, 1997 to the
three months ended March 31, 1998 resulted primarily from increases in sales of
subscription contracts to new and existing customers as a result of a change in
the Company's policies with respect to technical support and product upgrades.
Prior to January 1, 1998, the Company provided telephone support free of charge
and sold product upgrades separately or through subscription contracts.
Subsequent to that date, the Company began requiring customers to purchase a
subscription contract in order to have access to such support services and
updates. As subscription contracts are recognized ratably over the one year
contract term, an increase in such revenues as a percentage of total revenues
would result in greater deferred revenue recognition. This would, in turn,
impact the Company's operating margins. See "Risk Factors -- Operating Results
Subject to Significant Fluctuations; Seasonality."
Cost of Revenues
Cost of licenses includes product manuals, packaging, distribution and
media costs for the Company's software products. Cost of licenses were $693,000,
$465,000 and $644,000 in 1995, 1996 and 1997, respectively, and $91,000 and
$208,000 for the three months ended March 31, 1997 and 1998, respectively. The
cost of licenses decreased $228,000 or 33% from 1995 to 1996, increased $179,000
or 38% from 1996 to 1997 and increased $117,000 or 129% for the three months
ended March 31, 1997 as compared to the three months ended March 31, 1998. In
1996, the Company instituted a policy of qualifying potential customers before
delivering evaluation copies of the Company's software, resulting in a decrease
in the absolute cost of licenses. Since 1996, the cost of licenses has increased
primarily due to increases in product shipments. Cost of licenses as a
percentage of license revenues were 9.9%, 4.8% and 3.6% for 1995, 1996 and 1997,
respectively, and 3.1% and 4.7% for the three months ended March 31, 1997 and
1998, respectively. The Company believes these costs will remain relatively
consistent on a percentage basis in the future, although there will continue to
be quarterly fluctuations due to the timing of certain expenses, as was
exemplified in the first quarter of 1998 as compared to the comparable period in
1997.
Cost of services includes personnel and other costs related to technical
support and professional services. Cost of services were $139,000, $362,000 and
$624,000 in 1995, 1996 and 1997, respectively, and $105,000 and $215,000 for the
three months ended March 31, 1997 and 1998, respectively. The cost of services
increased $223,000 or 160% from 1995 to 1996, $262,000 or 72% from 1996 to 1997
and $110,000 or 105% for the three months ended March 31, 1997 as compared to
the three months ended March 31, 1998. The increase in the Company's cost of
services from 1995 through the first quarter of 1998 resulted primarily from
increases in the cost of technical support staff providing support to the
Company's growing customer base. Cost of services as a percentage of service
revenues were 42.4%, 28.2% and 20.7% for 1995, 1996 and 1997, respectively, and
22.2% and 14.8% for the three months ended March 31, 1997 and 1998,
respectively. These decreases in the Company's cost of services as a percentage
of service revenues from 1995 to the first quarter of 1998 resulted primarily
from service revenues outpacing technical support staffing levels. The Company
believes services gross margin as a percentage of service revenues in the future
will remain relatively consistent with services
24
<PAGE> 26
gross margins realized in the first quarter of 1998. Professional service
revenues generally results in a lower gross margin than other types of revenues
and in the event that professional service revenues increase as a percentage of
total revenues, the Company's gross margin may be adversely affected.
Costs and Expenses
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries, commissions and bonuses earned by sales and marketing personnel,
general office expenses, travel and entertainment and promotional expenses.
Sales and marketing expenses were $3.2 million, $4.2 million and $9.1 million in
1995, 1996 and 1997, respectively, and $1.4 million and $2.7 million for the
three months ended March 31, 1997 and 1998, respectively. Sales and marketing
expenses increased $1.0 million or 30% from 1995 to 1996, $4.9 million or 117%
from 1996 to 1997 and $1.3 million or 98% for the three months ended March 31,
1997 as compared to the three months ended March 31, 1998. The increase in the
Company's sales and marketing expenses from 1995 through the first quarter of
1998 resulted primarily from the hiring of sales management and additional sales
personnel, as well as higher commissions paid as a result of the Company's
revenue growth. The increase in the Company's sales and marketing expenses from
1996 to 1997 also resulted from increases in investment in marketing programs,
particularly a series of NT Security Seminars utilized to raise awareness of the
Company's security products. The increase in the Company's sales and marketing
expenses from the three months ended March 31, 1997 to the three months ended
March 31, 1998 also resulted from personnel and start-up costs associated with
the launch of a direct telesales organization in Germany during the first
quarter of 1998. Sales and marketing expenses as a percentage of total revenues
were 44.1%, 38.1% and 43.6% for 1995, 1996 and 1997, respectively, and 40.0% and
46.4% for the three months ended March 31, 1997 and 1998, respectively. As the
Company continues to devote resources to the expansion of the Company's sales
and marketing organization, the Company expects that sales and marketing
expenses as a percentage of total revenues will continue to be similar to the
percentage recorded in 1997 for the foreseeable future.
Research and Development. Research and development expenses consist
primarily of salaries and benefits of product development, product management
and quality assurance personnel, payments to contract programmers and expendable
equipment purchases. Research and development expenses were $1.2 million, $2.1
million and $3.6 million for 1995, 1996 and 1997, respectively, and $622,000 and
$1.6 million for the three months ended March 31, 1997 and 1998, respectively.
Research and development expenses increased $0.9 million or 67% from 1995 to
1996, $1.5 million or 71% from 1996 to 1997 and $1.0 million or 164% for the
three months ended March 31, 1997 as compared to the three months ended March
31, 1998. The increase in the Company's research and development expenses for
each period resulted primarily from an increase in the number of development and
quality assurance personnel to support the development of new products and
enhancements to existing products and an increase in compensation levels for
such personnel. In addition, in 1997 the Company formed a new product management
group to identify technical specifications and market opportunities for new and
existing products. Most of the new members of this group were hired in the
fourth quarter of 1997 and the first quarter of 1998. Research and development
expenses as a percentage of total revenues represented 17.0%, 19.0% and 17.1%
for 1995, 1996 and 1997, respectively, and 18.2% and 28.1% for the three months
ended March 31, 1997 and 1998, respectively. The increase in the Company's
research and development expenses as a percentage of total revenues from the
three months ended March 31, 1997 to the three months ended March 31, 1998
resulted primarily from hiring of new product management personnel dedicated to
identifying new market opportunities for its products. The Company believes that
a significant increase in its research and development investment is essential
for it to maintain market leadership and continue to expand its product line.
Accordingly, the Company anticipates it will continue to devote substantial
resources to product research and development for the foreseeable future, and
research and development expenses as a percentage of total revenues are likely
to increase in future periods. The Company has adopted Statement of Financial
Accounting Standards ("SFAS") No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed." Research and development
expenditures generally have been charged to operations as incurred and any
capitalizable amounts have been immaterial.
25
<PAGE> 27
General and Administrative. General and administrative expenses consist
primarily of salaries, personnel and related costs for the Company's executive,
administrative, finance and information services staff. General and
administrative expenses were $1.2 million, $1.5 million and $2.9 million for
1995, 1996 and 1997, respectively, and $511,000 and $676,000 for the three
months ended March 31, 1997 and 1998, respectively. The increase in the
Company's general and administrative expenses of $0.3 million or 19% from 1995
to 1996 resulted primarily from additions to the Company's executive management
team and finance department. The increase in the Company's general and
administrative expenses of $1.4 million or 100% from 1996 to 1997 resulted
primarily from increases in compensation levels, including bonuses, resulting
from the Company's operating results exceeding budgeted levels, a nonrecurring
provision made for the early termination of the Company's operating facility
lease, increases in provisions for bad debt reserves related to the Company's
1997 fourth quarter revenue growth and increases in legal and accounting fees
due to the termination of the Phantom Stock Plan and the related private
placement and stock repurchase with each of these factors contributing equally
to the increase. The increase in the Company's general and administrative
expenses of $165,000 or 32% for the three months ended March 31, 1997 as
compared to the three months ended March 31, 1998 resulted from increases in the
numbers of employees. General and administrative expenses as a percentage of
total revenues were 16.8%, 13.4% and 14.1% for 1995, 1996 and 1997,
respectively, and 14.9% and 11.6% for the three months ended March 31, 1997 and
1998, respectively. The Company expects that general and administrative expenses
will decrease as a percentage of total revenue in 1998, but will increase in
absolute dollars as the Company increases the number of administrative personnel
and upgrades its internal and financial reporting systems. Also, the Company
anticipates additional expenses due to a relocation of its office facilities and
costs related to being a public company, including, but not limited to, annual
and other public reporting costs, directors' and officers' liability insurance,
investor relations programs and professional services fees.
Stock Compensation Expense. Stock compensation expenses were $436,000 and
$15.3 million for 1996 and 1997, respectively an increase of $14.8 million or
3400%. In 1996, such expenses resulted from a lump sum cash payment to an
employee in consideration of forfeiture of certain phantom stock units under the
Company's Phantom Stock Plan. In 1997, $14.7 million of such expense resulted
from the non-recurring issuance of 4,944,800 million shares of Common Stock in
connection with the termination of the Company's Phantom Stock Plan and $550,000
of such expense resulted from the issuance of a warrant to purchase 437,500
shares of Common Stock to an officer in exchange for the extinguishment of a
bonus provision in his option agreement. See "Certain Transactions -- Phantom
Stock Plan."
Provision for Income Taxes. Prior to October 16, 1997, the Company was
treated as a Subchapter S Corporation for federal income tax purposes.
Accordingly, the Company recorded no federal income tax expense for 1995, 1996
and the period from January 1, 1997 to October 16, 1997. The taxable income
generated by the Company's operations during the period were reported in the
income tax returns of the individual shareholders. A pro forma charge in lieu of
income taxes has been recognized in the Company's Consolidated Statement of
Operations to reflect income taxes as if the Company had been a C Corporation
for all periods. At December 31, 1997, the Company had a federal net operating
loss carryforward of approximately $7.5 million, that may be utilized to reduce
future taxable income through the year 2012, subject to certain annual
limitations.
26
<PAGE> 28
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth certain unaudited consolidated statements of
operations data for the nine quarters ended March 31, 1998, as well as the
percentage of the Company's revenues represented by each item. This data has
been derived from unaudited interim consolidated financial statements prepared
on the same basis as the audited Consolidated Financial Statements contained
herein and, in the opinion of management, include all adjustments, consisting
only of normal recurring adjustments, that the Company considers necessary for a
fair presentation of such information when read in conjunction with the
Consolidated Financial Statements and Notes thereto appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1996 1996 1996 1996 1997 1997 1997 1997 1998
-------- -------- --------- -------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenues:
Licenses................... $1,599 $2,020 $2,460 $3,641 $2,950 $3,308 $4,524 $ 7,039 $4,384
Services................... 299 336 212 435 473 604 794 1,146 1,456
------ ------ ------ ------ ------ ------ ------ -------- ------
Total revenues....... 1,898 2,356 2,672 4,076 3,423 3,912 5,318 8,185 5,840
------ ------ ------ ------ ------ ------ ------ -------- ------
Cost of revenues:
Cost of licenses........... 76 97 117 175 91 138 150 265 208
Cost of services........... 90 96 71 105 105 142 139 238 215
------ ------ ------ ------ ------ ------ ------ -------- ------
Total cost of
revenues........... 166 193 188 280 196 280 289 503 423
------ ------ ------ ------ ------ ------ ------ -------- ------
Gross profit................. 1,732 2,163 2,484 3,796 3,227 3,632 5,029 7,682 5,417
------ ------ ------ ------ ------ ------ ------ -------- ------
Costs and expenses:
Sales and marketing........ 738 944 1,180 1,335 1,369 1,827 2,325 3,567 2,708
Research and development... 430 454 586 618 622 700 837 1,414 1,643
General and
administrative........... 266 386 338 482 511 483 550 1,399 676
Stock compensation
expense.................. -- -- -- 436 -- -- -- 15,262 --
------ ------ ------ ------ ------ ------ ------ -------- ------
Operating income (loss)...... 298 379 380 925 725 622 1,317 (13,960) 390
Other income (expense),
net........................ 1 2 5 14 15 22 67 129
------ ------ ------ ------ ------ ------ ------ -------- ------
Income (loss) before income
tax provision.............. 298 380 382 930 739 637 1,339 (13,893) 519
Provision (benefit) for
income tax................. -- -- -- -- -- -- -- (3,150) 122
------ ------ ------ ------ ------ ------ ------ -------- ------
Net income (loss)............ 298 380 382 930 739 637 1,339 (10,743) 397
Pro forma charge (benefit) in
lieu of income taxes....... 104 133 134 326 259 223 469 (1,716) --
------ ------ ------ ------ ------ ------ ------ -------- ------
Pro forma net income
(loss)..................... $ 194 $ 247 $ 248 $ 604 $ 480 $ 414 $ 870 $ (9,027) --
====== ====== ====== ====== ====== ====== ====== ======== ======
AS A PERCENTAGE OF TOTAL
REVENUES:
Revenues:
Licenses................... 84.2% 85.7% 92.1% 89.3% 86.2% 84.6% 85.1% 86.0% 75.1%
Services................... 15.8 14.3 7.9 10.7 13.8 15.4 14.9 14.0 24.9
------ ------ ------ ------ ------ ------ ------ -------- ------
Total revenues....... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
------ ------ ------ ------ ------ ------ ------ -------- ------
Cost of revenues:
Cost of licenses........... 4.0 4.1 4.3 4.3 2.6 3.6 2.8 3.2 3.6
Cost of services........... 4.7 4.1 2.7 2.6 3.1 3.6 2.6 2.9 3.6
------ ------ ------ ------ ------ ------ ------ -------- ------
Total cost of
revenues........... 8.7 8.2 7.0 6.9 5.7 7.2 5.4 6.1 7.2
------ ------ ------ ------ ------ ------ ------ -------- ------
Gross margin................. 91.3 91.8 93.0 93.1 94.3 92.8 94.6 93.9 92.8
------ ------ ------ ------ ------ ------ ------ -------- ------
Costs and expenses:
Sales and marketing........ 38.9 40.1 44.2 32.8 40.0 46.7 43.7 43.6 46.4
Research and development... 22.7 19.2 22.0 15.1 18.2 17.9 15.8 17.3 28.1
General and
administrative........... 14.0 16.4 12.6 11.8 14.9 12.3 10.3 17.1 11.6
Stock compensation
expense.................. -- -- -- 10.7 -- -- -- 186.5 --
------ ------ ------ ------ ------ ------ ------ -------- ------
Operating income (loss)...... 15.7 16.1 14.2 22.7 21.2 15.9 24.8 (170.6) 6.7
Other income (expense),
net........................ -- -- 0.1 0.1 0.4 0.4 0.4 0.8 2.2
------ ------ ------ ------ ------ ------ ------ -------- ------
Income (loss) before income
tax provision.............. 15.7 16.1 14.3 22.8 21.6 16.3 25.2 (169.8) 8.9
Provision (benefit) for
income tax................. -- -- -- -- -- -- -- (38.5) 2.1
------ ------ ------ ------ ------ ------ ------ -------- ------
Net income (loss)............ 15.7 16.1 14.3 22.8 21.6 16.3 25.2 (131.3) 6.8
Pro forma charge (benefit) in
lieu of income taxes....... 5.5 5.6 5.0 8.0 7.6 5.7 8.8 (21.0) --
------ ------ ------ ------ ------ ------ ------ -------- ------
Pro forma net income
(loss)..................... 10.2 10.5 9.3 14.8 14.0 10.6 16.4 (110.3) --
====== ====== ====== ====== ====== ====== ====== ======== ======
</TABLE>
27
<PAGE> 29
The trends discussed in the annual comparisons of operating results from
1995 to 1997 and the first quarter of 1997 to first quarter of 1998 are
generally applicable to the comparison of quarters within the nine quarterly
periods ended March 31, 1998, adjusted for the seasonality the Company has
experienced as referred to below with the following exceptions of note. Given
the seasonal fluctuations of the Company's revenues, operating profitability
tends to be significantly higher in the fourth quarter over the preceding
quarters. However, the Company's general and administrative expenses in the
quarter ended December 31, 1997 exceeded levels the Company had historically
experienced due to incentive bonus payments, a nonrecurring provision for the
early termination of the Company's operating facility lease, an increase in the
Company's provision for bad debt reserves related to the Company's large fourth
quarter revenue growth and increases in legal accounting fees.
The Company's quarterly revenues, expenses and operating results are likely
to vary significantly due to a variety of factors, such as demand for the
Company's products, the size and timing of significant orders and their
fulfillment, the length of sales cycle to larger customers, the number, timing
and significance of product enhancements and new product announcements by the
Company and its competitors, changes in pricing policies by the Company or its
competitors, customer order deferrals in anticipation of enhancements or new
products offered by the Company or its competitors or in anticipation of changes
or delays in NOS technologies, the ability of the Company to develop, introduce
and market new and enhanced versions of its products on a timely basis, changes
in the Company's level of operating expenses, budgeting cycles of its customers,
product life cycles, undetected software errors and other product quality
problems, the Company's ability to attract and retain qualified personnel,
changes in the Company's sales incentive plans and staffing of sales
territories, changes in the mix of products and services sold, changes in the
mix of domestic and international revenues, the level of international
expansion, changes in the mix of channels through which the Company's products
are offered, the impact of acquisitions of competitors, the Company's ability to
control costs and general domestic and international economic and political
conditions. The Company operates with virtually no order backlog because its
software products are shipped shortly after orders are received, which makes
product revenues in any quarter substantially dependent on orders booked
throughout that quarter. A disproportionate amount of the Company's sales are
booked in the last few weeks or days of each quarter as a result of customer
buying patterns. The Company believes this pattern will continue. Moreover, the
Company's expense levels are based to a significant extent on the Company's
expectations of future revenues and therefore are relatively fixed in the short
term. If revenue levels are below expectations, operating results are likely to
be adversely and disproportionately affected because only a small portion of the
Company's expenses vary with its revenues.
The Company's quarterly operating results are subject to certain seasonal
fluctuations. Historically, the Company's revenues have tended to be strongest
in the fourth quarter of the year and to decrease in the first quarter of the
following year. The Company believes this seasonality is due to the calendar
year budgeting cycles of many of its customers and to compensation policies
tending to compensate sales personnel for achieving annual revenue quotas. In
future periods, the Company expects these seasonal trends may cause first
quarter revenues to decrease from, or remain consistent with, the level achieved
in the preceding quarter. Based upon all of the factors described above, the
Company believes that its quarterly revenues, expenses and operating results are
likely to vary significantly in the future, that period-to-period comparisons of
its operating results are not necessarily meaningful and that, in any event,
such comparisons should not be relied upon as indications of future performance.
See "Risk Factors -- Operating Results Subject to Significant Fluctuations;
Seasonality."
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has primarily been funded by cash flow
generated from its operations. Net cash provided by operating activities were
$1.1 million, $1.6 million and $5.1 million for 1995, 1996 and 1997,
respectively. Net cash provided by operating activities in 1997 was primarily
the result of operating profitability before the non-cash stock compensation
expense of $14.6 million related to the issuance of shares of the Company's
Common Stock to terminate the Phantom Stock Plan.
28
<PAGE> 30
The Company's net cash used by financing activities was $151,000 and
$783,000 in 1995 and 1996 and related primarily to the payment of S Corporation
distributions. In the fourth quarter of 1997, the Company issued shares of
Common Stock to employees in connection with the termination of its Phantom
Stock Plan, resulting in a charge to earnings of $14.7 million. The Company
financed an approximately $14.1 million Common Stock repurchase program of
shares issued in connection with the termination of its Phantom Stock Plan
through a private sale of $18.0 million of Preferred Stock. The Preferred Stock
will automatically convert into 6,320,225 shares of Common Stock upon
consummation of this offering. See "Distribution of Capital Stock" and "Certain
Transactions - Phantom Stock Plan." The Company paid $1.3 million in S
Corporation distributions in 1997.
Net cash used by the Company's investing activities was $519,000, $713,000
and $1.3 million in 1995, 1996 and 1997, respectively, and relates primarily to
the Company's capital expenditures. The Company does not expect to incur
significant costs to make its products or internal information systems Year 2000
complaint because it believes such products and information systems to be
installed are designed to properly function through and beyond the year 2000.
See "Risk Factors -- Year 2000 Compliance."
The Company has a $2 million revolving line of credit and a $500,000 line
of credit whereby any principal draws mature 30 months after the date of such
advances. These lines are collateralized by accounts receivable, property and
equipment. There were no new borrowings under these facilities in 1996, 1997 or
the first three months of 1998.
As of March 31, 1998, the Company had $9.1 million of cash and cash
equivalents. The Company believes that the net proceeds of this offering,
together with existing cash, cash equivalents, short-term investments and cash
flow from operations will be sufficient to meet its working capital requirements
for at least the next 12 months. Thereafter, the Company may require additional
funds to support its working capital requirements or for other purposes and may
seek to raise such additional funds through public or private equity financing
or from other sources. There can be no assurance that additional financing will
be available at all or that if available, such financing will be obtainable on
terms favorable to the Company or that any additional financing would not be
dilutive.
The Company currently intends to use the net proceeds of this offering for
working capital and general corporate purposes, including financing accounts
receivable and capital expenditures made in the ordinary course of business, as
well as for possible acquisitions of businesses, products and technologies that
are complementary to those of the Company. Although the Company has not
identified any specific businesses, products or technologies that it may
acquire, nor are there any current agreements or negotiations with respect to
any such transactions, the Company from time to time evaluates such
opportunities. Pending such uses, the net proceeds will be invested in
government securities and other short-term, investment-grade, interest-bearing
instruments.
29
<PAGE> 31
BUSINESS
The following description of the Company's business should be read in
conjunction with the information included elsewhere in this Prospectus. This
description contains certain forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ significantly from the
results discussed in the forward-looking statements as a result of certain of
the risk factors set forth below and elsewhere in this Prospectus.
OVERVIEW
BindView develops, markets and supports a suite of systems management
software products that manage the security and integrity of complex, distributed
client/server networks operating on Microsoft Windows NT and Novell NetWare
environments. The Company's primary product line, BindView EMS, provides
software solutions for systems administration, security management, enterprise
inventory of LAN assets and Year 2000 assessment of PC hardware and software.
BindView EMS can be used by network administrators, security auditors and other
IT personnel to proactively identify, diagnose and, in many cases, fix a wide
range of systems management problems allowing organizations to reduce the Total
Cost of Ownership of enterprise computing.
INDUSTRY BACKGROUND
The use of distributed, client/server networks has grown tremendously in
the last ten years with the increase in PC-based Local Area Networks ("LANs")
being one of the fastest-growing aspects of the client/server market. These
LANs, largely dependent on servers running network operating systems provided by
Microsoft and Novell, are enabling a new generation of client/server
applications, including e-mail and group collaboration software such as
Microsoft Exchange and Lotus Notes. As a result, LANs, which were originally
intended to be used as relatively simple workgroup systems, have lost their
"local" characteristic and have developed into mission-critical platforms for
enterprise-scale applications. As LANs, and the network operating systems that
support them, have been used to operate mission-critical applications and
services, organizations have become increasingly dependent upon them. According
to a recent International Data Corporation ("IDC") study, shipments of Windows
NT server software are projected to grow from approximately 1.0 million in 1997
to 2.7 million in 2001 and shipments of NetWare server software are projected to
grow from approximately 1.1 million in 1997 to 1.2 million in 2001.
Additionally, the Company believes that the average number of users supported by
these LANs has been increasing.
As LANs have grown larger and technically more complex, the problems
associated with maintaining their security and integrity have increased and
become more difficult for Information Technology ("IT") departments to manage.
As a result, network security and integrity are increasingly at risk and the
Total Cost of Ownership (initial purchase price and the ongoing cost of
upgrades, maintenance and support) for client/server computing has often climbed
far beyond management's expectations when networks were initially installed.
Therefore, reducing the Total Cost of Ownership has become a strategic
initiative for many IT organizations, which have sought systems management
software to manage the complexity and costs of client/server computing. The
management challenges associated with maintaining the security and integrity of
LANs include:
Systems Administration. Systems administrators within IT departments need
to resolve a wide range of issues and problems on a daily basis, which include
managing the configuration of network servers, administering users and groups
and managing disk space on critical servers and workstations. Problems such as
these may not be solved quickly, placing the availability of the network at risk
and the use of mission-critical, client/server applications throughout an
enterprise in jeopardy. Additionally, the implementation of new or upgraded
network operating systems will result in increased strain on an organization's
IT resources. Both Microsoft and Novell are planning to ship major new releases
of their network operating systems in the next 12 months. Although both upgrades
promise new enhancements, the Company believes these upgrades will continue to
add levels of complexity to the network operating system ("NOS") environments,
particularly in the case of Windows NT.
Security. Computer security breaches are a pervasive and growing problem. A
survey published in March 1998, by the Computer Security Institute ("CSI")
reported that 64% of respondents had encountered
30
<PAGE> 32
computer security breaches within the last 12 months. Although many IT
organizations have installed firewalls and implemented security management
strategies focusing on preventing "hacking in" from outside the organization,
these efforts do not address the most serious security-related losses which are
the result of unauthorized access by insiders. In fact, the CSI survey found
that only 24% of respondents reported penetration from outside the organization
while 44% reported unauthorized access by employees. The top 18 respondents
reporting unauthorized access by insiders averaged losses of over $2.8 million
each.
Asset Management. Both IT and finance departments need to identify and
manage their organization's technology assets. These departments need to plan
for expansion, budget for software and hardware expenditures and trouble-shoot
problems with PC configurations, as well as track potential theft of expensive
components. Given the proliferation of diverse products, platforms and
technologies within the typical enterprise-wide IT infrastructure, taking an
accurate inventory of LAN assets has been a costly and time-consuming process.
Year 2000 Assessment. Although many organizations have focused upon the
mainframe issues of the Year 2000 exposure, the costs of bringing distributed
computing into compliance are now estimated by some sources at nearly half of
the total cost to fix mainframe systems. The Gartner Group recently estimated
the total cost to find and fix desktop-related Year 2000 compliance issues to be
between $10 billion and $42 billion. Year 2000 compliance issues on the LAN
include problems with PC hardware, firmware and applications.
IT departments are faced with conflicting pressures to both: (i) manage
increasing complexity and guarantee better service for users who are demanding
assurance of high productivity and availability and (ii) reduce the Total Cost
of Ownership for client/server computing. Adding to this challenge is a lack of
qualified IT personnel. In March 1998, the Information Technology Association of
America estimated that there were 346,000 IT-related job vacancies in the United
States. Pressure to reduce the Total Cost of Ownership and the increasing
difficulty and expense in locating qualified IT personnel has driven IT
management to establish processes and develop or purchase tools to manage their
organization's IT assets.
Historically, IT organizations have addressed LAN systems management
problems through a combination of manual processes, custom-built tools and
third-party software, but none of these alternatives have offered a completely
satisfactory solution.
Manual processes, such as performing a security audit, an inventory of
network assets or a Year 2000 project assessment, are costly, time consuming and
prone to human error. Many IT organizations custom-build their own systems
management tools. However, these custom-built solutions (i) are generally
developed by costly and hard-to-find programmers, (ii) take time to develop and
thoroughly test, (iii) are frequently designed for a single purpose and cannot
be used for other tasks and (iv) often need to be rewritten with new versions of
the NOS.
Most organizations have purchased at least some third-party software
solutions to manage their networks and are budgeting to purchase more. IDC
projects the systems management software market for the Windows and NetWare
platforms to grow to over $4.6 billion by the year 2000, with security
management software for Windows NT Server and NetWare accounting for $640
million of the total. Many third-party tools, including traditional "LAN
Suites," focus on management of the desktop, but not on management of the NOS.
Most tools that have been designed for the LAN -- including point products for
security management, disk space management and other systems management
tasks -- were built for managing single servers or small workgroups, and do not
scale to efficiently manage networks as they grow enterprise-wide to thousands
or tens of thousands of users. In addition, vendors that have traditionally
developed UNIX-based systems management software have begun to port or redevelop
their products to PC-based LAN environments. These products often do not meet
the specific needs of the Windows NT and NetWare platforms. For example,
security products from vendors of UNIX-based products are not designed to
effectively deal with the configuration flexibility and complexity of Windows NT
and NetWare platforms. Finally, many third-party products can often alert the IT
staff that a problem has occurred but do not provide the diagnostic software to
find the root cause of the problem or fix it. As an organization's dependence
upon its LAN infrastructure increases, its IT department must be able to both
proactively and reactively diagnose and repair its LAN-based computing
resources.
31
<PAGE> 33
As Windows NT and NetWare networks have grown so have the challenges of
deploying, upgrading, managing and changing the configuration of these networks.
Organizations seek software solutions that (i) can quickly and proactively
diagnose and fix a wide range of problems, (ii) are comprehensive in scope and
can be used effectively by a wide range of the organization's existing IT
personnel, (iii) scale to manage large, complex networks, (iv) address the
unique aspects of each NOS they support and (v) can be easily deployed and
maintained.
THE BINDVIEW SOLUTION
BindView develops, markets and supports a suite of systems management
software products that manage the security and integrity of complex, distributed
client server networks while reducing the Total Cost of Ownership for enterprise
computing. The Company's primary product line, BindView EMS provides software
solutions for systems administration, security management, enterprise inventory
of LAN assets and Year 2000 assessment of PC hardware and software. BindView EMS
can be used proactively to diagnose, and in many cases fix, a wide range of
specific problems occurring in Windows NT and NetWare environments. In addition,
BindView EMS is built to scale with networks as they grow enterprise-wide.
BindView EMS provides customers with products which are both easy to use and
easy to deploy enterprise-wide.
Proactive, Query-based Systems Management
BindView offers a query-based approach to systems management for Windows NT
and NetWare environments. The query-based approach provides systems
administrators, security auditors and other IT professionals with a simple,
graphical user interface ("GUI") for asking questions, or "queries," about the
configuration and security of the NOS environment. This approach provides a
framework for proactive management of the NOS environment. Rather than waiting
for an event or alarm to occur, the systems administrator can locate, and in
many cases fix, issues with the configuration and security of the network before
they turn into problems. For those IT organizations with existing event
management systems, BindView provides a diagnostic tool to help find the root
cause of a NOS-related problem when an alarm is triggered. The query-based
approach can perform diagnostic and reporting tasks in a matter of minutes that
previously took hours or even days to complete. In addition, the modular
architecture of this query-based technology facilitates the development of new
add-on products. The Company believes this provides BindView with a competitive
advantage in the development of future applications.
Comprehensive in Scope
BindView EMS covers a complete range of system administration and security
issues, including file server management, user and group administration, disk
space management and management of directory services. All of the critical
configuration parameters and security settings of Windows NT and NetWare network
operating systems are made available through the simple user interface of
BindView EMS. As a result, BindView EMS empowers a broader group of IT
personnel, rather than just a limited number of IT experts, to solve problems
quickly by providing a way to automate the labor-intensive tasks necessary to
ensure the integrity and security of enterprise servers, applications and users.
Architected to Scale
BindView EMS has been designed to manage both workgroup LANs as well as
enterprise-wide networks that are frequently geographically dispersed. Customers
often purchase BindView EMS to manage one or two workgroups and then over time
purchase more products to manage their LAN as it grows to an enterprise-wide,
distributed network. BindView EMS is used routinely to manage networks ranging
from tens to tens of thousands of users. A Fortune 25 consumer goods company,
for example, uses BindView EMS to manage over 70,000 users on its global
NetWare-based network.
Native to Each Environment
BindView's products for managing Windows NT and NetWare operating systems
each have a different agent architecture that works best for that particular
environment and can exploit the unique features of each platform. BindView's
object-oriented architecture separates the user interface from the back-end data
gathering modules. This approach allows BindView to build each of these modules
to be native to the specific platform it supports. BindView products are not
programmed with a "least common denominator" approach
32
<PAGE> 34
across heterogeneous platforms. The Company believes this enables BindView to
build "best-of-breed" products for managing and exploiting each operating
environment.
Easy to Deploy, Maintain and Use
BindView's products are built to be both easy to install and easy to use.
In addition to being easy to install on a single server or workstation, the
Company's products can be rapidly deployed enterprise-wide. BindView's systems
administration and security products can typically be deployed enterprise-wide
in a matter of days, and BindView's enterprise inventory and Year 2000
assessment products can typically be deployed enterprise-wide in a matter of
weeks. BindView's products are also designed to be easy to upgrade and maintain
on an ongoing basis following initial deployment. As a result, customers can
rapidly implement and utilize BindView's products with minimal training, thereby
reducing their Total Cost of Ownership without placing additional burdens on
customer's IT personnel.
STRATEGY
The Company's objective is to be the leading provider of systems management
software for enterprise networks. Key elements of the Company's strategy to
achieve these objectives include:
Enhance Leadership Position in Security Assessment Software. The Company
believes it is currently 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 Administration Capabilities. The Company intends to add new
capabilities to its modules for managing Windows NT and NetWare-based networks.
These capabilities include new user interface components and analysis tools for
presenting information in more meaningful ways to BindView EMS users. The
Company also intends to continue to make enhancements allowing customers to
proactively fix more problems through the "ActiveAdmin" features of BindView
EMS. The Company currently plans to introduce ActiveAdmin for Windows NT in the
next 12 months.
Apply Query-based Management to New Applications. The Company intends to
apply its query-based management approach to high-growth opportunities and to
introduce high value-added modules for managing a wide variety of critical
applications and services. The Company is evaluating opportunities to develop
new BindView EMS modules, including those for managing e-mail systems (such as
Microsoft Exchange), other operating environments (such as UNIX application
servers) and other mission-critical, client/server applications (such as
electronic commerce servers).
Expand Direct Telesales Model. The Company believes its direct telesales
strategy enables it to maintain a low cost sales model and most effectively
track and meet the needs of its customers. The Company intends to continue to
expand its direct telesales force, both in the United States and
internationally. The Company also believes it can continue to increase its
success rate in achieving strategic, enterprise-level sales by selling to higher
levels of management at key accounts of major enterprises.
Leverage Existing Customer Base. BindView products have been sold to over
4,000 customers, including more than 70% of the Fortune 100 companies. Although
the Company has already sold BindView EMS into some of these companies for
deployment enterprise-wide, the majority of these organizations have used
BindView EMS only on some of their departmental LANs and have many additional
networks continuing to represent large sales opportunities. The Company believes
it can sell more deeply within these existing customer sites and sell more
products as BindView expands its product line.
Strengthen Strategic Relationships. The Company will continue to strengthen
existing relationships and pursue new relationships with key partners.
Technology partners (including Microsoft, Novell, Computer Associates and
IBM/Tivoli) provide the Company with product integration and marketing
opportunities. Service providers (including the Big Six accounting firms,
systems integrators and Year 2000 audit firms) provide the Company with
distribution opportunities, as well as implementation and project management
leverage.
33
<PAGE> 35
PRODUCTS AND TECHNOLOGY
The Company's primary product line is BindView EMS. BindView EMS is
designed to provide a wide range of systems management capabilities to the
Company's customers for use with their heterogeneous, distributed networks.
BindView EMS employs a Windows-based console to provide scalable and
comprehensive systems management solutions. BindView EMS utilizes an
object-oriented architecture enabling the management of a wide variety of
network operating systems and managed objects to be supported through snap-in
modules. These snap-in modules are sold either separately or as a "suite." Each
snap-in module to the Enterprise Console increases the scope of BindView EMS to
cover a new set of management issues for a particular platform. Current snap-in
modules for BindView EMS include the NOSadmin series (for both Windows NT and
NetWare) and NETinventory. The Enterprise Console provides an effective set of
tools that work across all snap-in modules.
PRODUCT CHART
Central to the BindView EMS architecture is the Universal Data Processing
Engine ("UDPE") which enables the query-processing capabilities of BindView EMS
by utilizing an object-oriented design separating the common components of the
Enterprise Console from the specific features and platforms of the snap-in
modules. The UDPE provides a querying engine that gathers the necessary data
from across the network and presents the query results to the user through the
Enterprise Console. Query results may be displayed in a variety of meaningful
ways, including tabular spreadsheets, printed reports, graphs and charts, or may
be exported to over a dozen popular formats, including those viewable through
e-mail or a web browser. The user can create queries from scratch, or can select
a predefined query from an initial set of over one hundred sample reports
supplied "out-of-the-box" with BindView EMS. Once queries have been created,
they can be saved to build a suite of management reports monitoring the
deployment of "best practices" and IT-mandated policies across the network.
With this architecture, BindView EMS enables the management of
heterogeneous, distributed networks through a common GUI. Customers typically
purchase one Enterprise Console per administrator and one or more snap-in
modules to manage their particular network, often including both NOSadmin for
NetWare and NOSadmin for Windows NT.
34
<PAGE> 36
All components of BindView EMS have been developed using industry-standard
compilers, development tools and languages, including C, C++, Java and Assembly
for Intel hardware platforms.
Enterprise Console
The Enterprise Console is the central component and user interface of
BindView EMS. It provides a common tool-set used by security auditors and
network administrators for the analysis, reporting, policy management and
automated administration of enterprise resources and assets. The Enterprise
Console's query-based approach provides the ability to ask questions,
automatically collect the data necessary to answer those questions, present the
answers in meaningful ways and, in some instances (where ActiveAdmin features
are available), make necessary corrections while documenting any required
changes. The Company is working to add and expand ActiveAdmin capabilities to
future versions of all BindView EMS modules, increasing the user's ability to
both diagnose and fix problems from the Enterprise Console.
NOSadmin Series
The NOSadmin series of products provides comprehensive security assessment
and systems management across heterogeneous environments. The NOSadmin series
addresses a complete range of systems administration and security issues,
including file server management, user and group administration, disk space
management and management of directory services. All of the critical
configuration parameters and security settings of Windows NT and NetWare network
operating systems are made available through a simple user interface, without
requiring an agent to be placed on every managed server and workstation. As a
result, the NOSadmin series empowers a broader group of IT personnel, rather
than just a limited number of IT experts, to solve problems quickly by providing
them with a way to automate the labor-intensive tasks necessary to ensure the
integrity and security of enterprise servers, applications and users.
- NOSadmin for Windows NT enables IT professionals to view and analyze
multi-domain Windows NT networks enterprise-wide from a single
administrative console. The product includes the capability to pinpoint a
variety of potential security risks for Windows NT servers and
workstations. Within the next 12 months, the Company plans to release an
updated NOSadmin for Windows NT with "ActiveAdmin" capabilities, enabling
the user to make changes to the NOS configuration and fix problems
enterprise-wide directly from the Enterprise Console.
- NOSadmin for NetWare 3 and NOSadmin for NetWare 4 provide comprehensive
security and configuration management of NetWare servers enterprise-wide
from a single administrative console. These include the capability to
make changes to the NOS configuration and fix problems enterprise-wide
through a feature called "ActiveAdmin." In addition, NOSadmin for NetWare
4 enables management of Novell Directory Services ("NDS") for a variety
of platforms (including NetWare 4, Windows NT and UNIX servers).
All NOSadmin modules "snap in" to the Enterprise Console through a
Windows-based Dynamic Link Library ("DLL") that interfaces the snap-in module to
the UDPE. In addition to this snap-in DLL, each NOSadmin module utilizes a
distributed agent architecture that is particular to the native environment that
it supports. The distributed agents for the NOSadmin for Windows NT run as
Windows NT services in each Windows NT domain. The distributed agents for the
NOSadmin for NetWare products run as NetWare Loadable Modules on one or more
NetWare file servers.
NETinventory
NETinventory is a scalable, fast and accurate asset management and
inventory analysis tool for large multi-site networks. It extends the
capabilities of BindView EMS to include comprehensive network inventory and
asset tracking for an entire enterprise. As a result, the user can discover,
document and evaluate PC assets throughout the entire enterprise and make
better-informed strategic technology decisions . NETinventory also reduces help
desk costs and response times by providing immediate access to any end-user's
hardware and software configuration changes. NETinventory also provides powerful
Year 2000 auditing capabilities allowing the execution and automation of Year
2000 compliance testing and reporting for PC hardware and software in a fraction
of the time it would take to do manually.
The following table describes the BindView EMS product family.
35
<PAGE> 37
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
BINDVIEW EMS
PRODUCT FEATURES/BENEFITS
- -------------------------------------------------------------------------------------------------
<S> <C>
Enterprise Console - The Desktop Manager allows for the delegation of tasks to
individuals filling special roles (for example, security
auditors or help desk personnel) by giving them customized
desktops focused on the tasks they perform
- A Query Builder to ask questions about the state of the
network through an easy-to-use GUI
- Spreadsheet and graphics/charting interfaces to view query
results
- A Report Writer to generate presentation-quality reports
- An export function to export data to over a dozen popular
file formats
- ---------------------------------------------------------------------------------------------
NOSadmin for Windows NT - Comprehensive security assessments
- Configuration analysis of both servers and workstations,
including services, sessions, shares and device drivers
- Network integrity analysis of domain infrastructure,
users, groups, policies and trust relationships between
domains
- A single report can span multiple Windows NT domains for
enterprise-wide analysis of all Windows NT servers and
workstations
- Documention and analysis of the values of any registry
keys across all servers and workstations enterprise-wide
- File system and disk space management
- ----------------------------------------------------------------------------------------------
NOSadmin for NetWare 4 - Comprehensive security assessments
- Management of file server configuration, NetWare Loadable
Modules and "Set" variables
- User and group administration
- File system and disk space management
- Documention of organizational policies throughout the
enterprise
- ActiveAdmin for making global changes to system
configuration
- Management of NDS and ActiveAdmin for making global
changes to NDS
- ----------------------------------------------------------------------------------------------
NOSadmin for NetWare 3 - See features/benefits for NOSadmin for NetWare 4 above,
except supports NetWare binding services instead of NDS
- ----------------------------------------------------------------------------------------------
NETinventory - Integrated Year 2000 compliance testing and reporting for
PC hardware and software
- Automated discovery and tracking of hardware assets
- Automated detection of over 4,000 software packages
- A three-tiered architecture providing central
administration and synchronization services, with
fault-tolerant collection and distribution of asset
management information
- Management of database integrity across all segments of
the distributed inventory database enterprise-wide
- Generation of complete reports for all PC hardware and
software assets across the enterprise
</TABLE>
CUSTOMERS
The Company's products have been sold to more than 70% of the Fortune 100
companies. The Company has sold software products through direct channels to
over 4,000 corporations, governmental agencies and other organizations
worldwide, and also to over 150 resellers and distributors. The following table
is a selected
36
<PAGE> 38
list of the Company's end-user customers that accounted for more than $50,000 in
total revenue (license and service) to BindView since January 1, 1996:
<TABLE>
<S> <C> <C>
3Com GTE Mobile Communications Scudder, Stevens & Clark
American Stores Hoechst Sony
Baltimore Gas & Electric ITT Industries Sprint
Banc One Capital Kellogg USA Suntrust Banks
Blue Cross and Blue Shield Kimberley-Clark Tandy Corporation
California Federal Bank KPMG Peat Marwick Trans Union
Chase Manhattan Bank LCI International Union Pacific
CIBC Asia Limited Michelin U.S. Bank
Cigna Mellon Bank U.S. Customs Service
Citicorp Mobil U.S. Trust
CoreStates Bank Oxford Health Plans Wells Fargo
CSX Corporation PageNet
Deloitte & Touche Paramount Pictures
El Paso Energy Phillips Petroleum
Emory Clinic Providian Financial
Ernst & Young Quantum
Excel Telecommunications Raytheon
Federal Reserve Bank Sallie Mae
First Chicago San Diego Gas & Electric
GE Capital
</TABLE>
Although the Company has sold its software on an enterprise-wide basis, the
majority of the Company's existing customers continue to represent larger sales
opportunities. Customers typically buy for a single department or division and
then, based upon the initial success of the products in such department or
division, later expand their use of the Company's products into other parts of
the organization. The Company believes it can sell more deeply within these
existing customer sites and sell more products as the Company expands its
product line. In 1996, 1997, and for the three months ended March 31, 1998, no
customer comprised more than 10% of the Company's sales.
SALES AND MARKETING
The Company sells its products primarily through its direct telesales
force, and, to a lesser extent, through VARs, distributors and systems
integrators. In addition, the Company has strategic marketing relationships with
professional service organizations and software vendors that provide the Company
with increased visibility as well as sales leads.
Direct Telesales
The Company sells its products primarily through a direct telesales force.
The Company utilizes a direct telesales model that minimizes the number of
remote sales offices and customer site visits and focuses on effective use of
the telephone and Internet communications for product demonstrations and product
sales. When necessary, the Company's sales force will also travel to customer
locations. The Company believes its direct telesales approach allows it to
achieve control of the sales process and respond rapidly to customer needs,
while maintaining an efficient, low-cost sales model. Sales cycles typically
range between as little as three months for departmental sales and up to 12
months for enterprise-wide contracts.
As of March 31, 1998, the Company had 75 persons in its direct telesales
organization worldwide. The direct telesales force for North America is based in
Houston and accounts for a substantial majority of the Company's revenues. In
January 1998, the Company established its first international direct telesales
office in Frankfurt, Germany. The Company has increased the size of its direct
telesales organization from 32 to 75 individuals over the last year and expects
to continue hiring sales personnel, both domestically and internationally, over
the next 12 months.
37
<PAGE> 39
VARs and Distributors
In addition to its direct telesales strategy, the Company has established
indirect distribution channels through VARs and distributors. Outside North
America, where the Company is in the process of developing its direct telesales
presence, the Company relies heavily on its reseller channel. The Company has
established a network of VARs and distributors in Europe, Latin America and the
Pacific Rim, with the concentration of such distributors being located in
European markets.
The Company's international VARs and distributors typically perform
marketing, sales and technical support functions in their country or region.
Each one may distribute direct to the customer, via other resellers or through a
mixture of both channels. The Company actively trains its international VARs and
distributors in both product and sales methodology.
Systems Integrators and Service Providers
In addition to more traditional resellers, the Company markets its products
through service organizations that help customers install, manage and secure
large Windows NT and NetWare networks. Such organizations include large systems
integrators, outsourcing companies, security auditing groups in the Big Six
accounting firms and service companies performing Year 2000 compliance work.
Some of these companies sell BindView's products directly to their end-users,
while others license the BindView products from the Company and include these
products in their standard toolkits used at their clients' sites.
Marketing Partnerships and Programs
To support its growing sales organization and channel, the Company in the
last year has devoted significant resources to building a series of marketing
partnerships and programs. The Company has developed a partnership with
IBM/Tivoli for marketing BindView EMS as a companion product to Tivoli TME 10,
as well as partnerships with other key vendors, including Microsoft, Novell and
Computer Associates. The Company is a Microsoft Solution Provider, and holds
"Microsoft Back Office" certification for its products. The Company also
partners with many of the Big Six accounting firms to increase awareness of
network security issues. Results of these partnerships in the past year include
a seminar series with Ernst & Young entitled "Issues in Windows NT Security"
given in over 25 cities in the United States and Europe, and a white paper
published by Coopers & Lybrand entitled "Evaluating Novell NetWare 4.X Security
Using BindView EMS."
In addition to the above partnerships, the Company's marketing efforts have
resulted in a number of programs, such as seminars, industry trade shows, vendor
executive briefings, analyst and press tours, advertising and public relations.
CUSTOMER SUPPORT AND PROFESSIONAL SERVICES
BindView believes that high quality customer support and professional
services are requirements for continued growth and increased sales of its
products. The Company has made a significant investment in increasing the size
of its support and services organization in the past and plans to continue to do
so in the future. As of March 31, 1998, the Company's customer support and
professional services organization consisted of 15 employees. Customer support
personnel provide technical support by telephone, e-mail and fax, and maintain
the Company's Web site and bulletin boards to complement these services.
Technical support for customers is provided at no charge for 30 days after the
product's sale and on a subscription basis thereafter. Future versions of the
Company's products are provided at no extra charge as part of the subscription
service. International offices and resellers extend this service for overseas
customers.
The Company's professional services group provides product training,
consulting and implementation services for a fee in order to assist customers in
maximizing the benefits of the Company's products. In addition, the Company
periodically offers training to its channel partners and employees.
38
<PAGE> 40
PRODUCT DEVELOPMENT
BindView has been an innovator and leader in the development of systems
management tools for the LAN marketplace. The Company believes that a
technically skilled, quality oriented and highly productive software development
organization is the key to the continued success of new product offerings. The
software development staff is also responsible for enhancing the Company's
existing products and expanding its product line. The Company's product
development staff consisted of 18 employees as of March 31, 1997 and 32
employees as of March 31, 1998. The Company expects that it will continue to
invest substantial resources in product development expenditures.
BindView is currently developing enhancements to existing products as well
as working to develop new products for managing additional applications and
platforms not currently within the scope of BindView EMS. Potential future
applications include a product to manage e-mail applications such as Microsoft
Exchange. In addition, the Company plans to release ActiveAdmin for Windows NT
in the next 12 months, and is currently developing the next generation of the
BindView EMS product family. There can be no assurance that these development
efforts will be completed within the Company's anticipated schedules or that, if
completed, they will have the features necessary to make them successful in the
marketplace. Moreover, products as complex as the Company's may contain
undetected errors when first introduced or as new versions are released. Such
undetected errors in new products may be found after commencement of commercial
shipments, resulting in loss of or delay in market acceptance. Future delays in
the development or marketing of product enhancements or new products could
result in a material adverse effect on the Company's business, financial
condition and results of operations. See "Risk Factors -- Rapid Technological
Change and New Products."
COMPETITION
The market in which the Company competes is intensely competitive and
characterized by rapidly changing technology and evolving standards. Companies
offering competitive products vary in the scope and breadth of the products and
services offered and include: (i) providers of security analysis and audit
products, such as Axent Technologies, Inc. and Security Dynamics Technologies,
Inc.; (ii) providers of standalone inventory and asset management products such
as Tally Systems Corp.; (iii) providers of LAN desktop management suites, such
as Intel Corporation, Hewlett-Packard Company and Microsoft Corporation; and
(iv) providers of Year 2000 assessment products such as Network Associates, Inc.
In addition, the native tools provided by Novell, Inc. and third-party tools
provided by certain vendors, such as Computer Associates, Inc. and other
companies, may compete with certain management features of the Company's
products. The Company has experienced, and expects to continue to experience,
increased competition from current and potential competitors, many of whom have
greater name recognition, a larger installed customer base and significantly
greater financial, technical, marketing, and other resources than the Company.
Such competitors may be able to respond more quickly to new or emerging
technologies and changes in customer requirements or devote greater resources to
the development, promotion and sale of their products than the Company. The
Company expects additional competition as other established and emerging
companies enter into the systems management software market and new products and
technologies are introduced. Increased competition could result in price
reductions, fewer customer orders, reduced gross margins, longer sales cycles
and loss of market share, any of which would materially adversely affect the
Company's business, operating results and financial condition.
In addition, vendors of operating system software, particularly Microsoft
and Novell, may in the future enhance their products to include functionality
that is currently provided by the Company's products. The widespread inclusion
of the functionality of the Company's software as standard features of operating
system software could render the Company's products obsolete and unmarketable,
particularly if the quality of such functionality were comparable to that of the
Company's products. Even if the functionality provided as standard features by
operating system software is more limited than that of the Company's software,
there can be no assurance that a significant number of customers would not elect
to accept more limited functionality in lieu of purchasing additional software.
Current and potential competitors may make strategic acquisitions or
establish cooperative relationships among themselves or with third parties,
thereby increasing their ability to address the needs of the Company's
39
<PAGE> 41
current or prospective customers. Accordingly, it is possible that new
competitors or alliances among current and new competitors may emerge and
rapidly gain significant market share. Such competition could materially
adversely affect the Company's ability to obtain new licenses or to obtain
maintenance and support renewals for existing licenses on terms favorable to the
Company. There can be no assurance that the Company will be able to compete
successfully against current and future competitors, and the failure to do so
would materially adversely affect the Company's business, operating results and
financial condition.
The Company believes that significant competitive factors affecting the
markets described above are depth of product functionality, breadth of platform
support, product quality and performance, conformance to industry standards,
product price and customer support. In addition the ability to rapidly develop
and implement new products and features for these markets is critical. See "Risk
Factors -- Significant Competition."
PROPRIETARY RIGHTS
The Company relies primarily on a combination of copyright, trademark and
trade secret laws, confidentiality procedures and contractual provisions to
protect its proprietary rights. However, the Company believes that such measures
afford only limited protection. There can be no assurance that others will not
develop technologies that are similar or superior to the Company's technology or
design around the copyrights and trade secrets owned by the Company. The Company
licenses its software products primarily under "shrink wrap" licenses (i.e.,
licenses included as part of the product packaging). Shrink wrap licenses are
not negotiated with or signed by individual licensees, and purport to take
effect upon the opening of the product package. The Company believes, however,
that these measures afford only limited protection. Despite the Company's
efforts to protect its proprietary rights, unauthorized parties may attempt to
copy aspects of the Company's products or to obtain and use information that the
Company regards as proprietary. Policing unauthorized use of the Company's
products is difficult and the Company is unable to determine the extent to which
piracy of its software products exists. In addition, the laws of some foreign
countries do not protect the Company's proprietary rights as fully as do the
laws of the United States. There can be no assurance that the Company's means of
protecting its proprietary rights will be adequate or that competition will not
independently develop similar or superior technology.
The Company is not aware that it is infringing any proprietary rights of
third parties. There can be no assurance, however, that third parties will not
claim infringement by the Company of their intellectual property rights. The
Company expects that software product developers will increasingly be subject to
infringement claims as the number of products and competitors in the Company's
industry segment grows and the functionality of products in different industry
segments overlaps. Any such claims, with or without merit, could be time
consuming to defend, result in costly litigation, divert management's attention
and resources, cause product shipment delays or require the Company to enter
into royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to the Company, if at all. In
the event of a successful claim of product infringement against the Company and
failure or inability of the Company to either license the infringed or similar
technology or develop alternative technology on a timely basis, the Company's
business, operating results and financial condition could be materially
adversely affected. See "Risk Factors - Limited Protection of Proprietary
Technology; Risks of Infringement."
EMPLOYEES
As of March 31, 1998, the Company employed 178 full-time employees,
including 83 in sales and marketing, 57 in research and development, 15 in
technical support and professional services and 23 in general and
administrative. The Company believes that its future success will depend in
large part upon its continuing ability to attract and retain highly skilled
managerial, sales, marketing, customer support and research and development
personnel. Like other software companies, the Company faces intense competition
for such personnel, and the Company has at times experienced and continues to
experience difficulty in recruiting qualified personnel. There can be no
assurance that the Company will be successful in attracting, assimilating and
retaining other qualified personnel in the future. The Company is not subject to
any collective bargaining agreement and it believes that its relationships with
its employees are good. See "Risk Factors - Dependence on Key Personnel; Need
for Additional Qualified Personnel."
40
<PAGE> 42
FACILITIES
The Company's principal administrative, sales, marketing, support and
research and development facility is located in approximately 35,000 square feet
of space in Houston, Texas. Although the lease on this office space expires
October 2000, the Company notified its landlord in 1997 of its intention to
terminate its lease in order to secure more space in Houston, Texas. In
connection with the relocation of its principal office, BindView entered into a
new lease in June 1998 for approximately 100,000 square feet of space at another
location in Houston, Texas. The Company also currently has office space in
Frankfurt, Germany. However, anticipated expansions in international sales may
result in the Company moving to new facilities within the next 12 months. The
Company believes suitable additional or alternative space will be available in
the future on commercially reasonable terms as needed.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceeding.
41
<PAGE> 43
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The executive officers, directors and key employees of the Company are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------- --- ---------------------------------------------------------
<S> <C> <C>
Executive Officers and Directors
Eric J. Pulaski................... 35 Chairman, President, Chief Executive Officer and Director
Christopher J. Sole............... 46 Vice President, Chief Operating Officer and Director
Scott R. Plantowsky............... 34 Vice President, Chief Financial Officer and Director
David E. Pulaski.................. 30 Vice President -- North and South American Sales
Nadeem Ghias...................... 37 Vice President -- Research & Development
Peter L. Bloom(1)(2).............. 40 Director
John J. Moores(1)(2).............. 53 Director
Richard A. Hosley II.............. 53 Director
Key Employees
Rudi Vanderbeeken................. 43 Managing Director -- Europe, Middle East and Africa
Mark Miller....................... 28 Director of Technical Services
Irl Nathan........................ 33 Vice President -- Product Marketing
</TABLE>
- ------------
(1) Member Compensation Committee
(2) Member Audit Committee
Executive Officers and Directors
Eric J. Pulaski founded the Company in May 1990 and has served as the
Company's Chairman, President and Chief Executive Officer and as a Director
since its inception. Prior to founding the Company, Mr. Pulaski was employed as
Director of the Advanced Services Division of Network Resources, Inc., a
Houston-based systems integration firm. Mr. Pulaski holds a B.A. in Humanities
from the University of Texas at Austin.
Christopher J. Sole has served as the Company's Vice President and Chief
Operating Officer since May 1996. Mr. Sole has been a Director of the Company
since October 1997. From January 1995 to May 1996, Mr. Sole was a Business
Consultant, planning technology and business strategies for leading
inter-networking and Internet companies. From December 1993 to December 1994,
Mr. Sole was employed as Vice President of Product Marketing by Uniface B.V., a
Netherlands based developer of client/server application development systems.
From April 1989 to December 1993, Mr. Sole was employed by Bachman Information
Systems, Inc., a Massachusetts based developer and marketer of model-driven
application tools, where he served in various roles including Business Unit
Manager and Vice President of Product Management and Development. Mr. Sole holds
a B.Sc. in Mechanical Engineering from Birmingham University, U.K., and an
M.B.A. from the Stanford University Graduate School of Business.
Scott R. Plantowsky has served as the Company's Vice President and Chief
Financial Officer since September 1993. Mr. Plantowsky has been a Director of
the Company since October 1997. From January 1986 to August 1993, Mr. Plantowsky
was Vice President and General Manager for Plantowsky's Furniture, a Houston
retail furniture chain. Mr. Plantowsky is currently a General Partner in Century
Development's Student Furniture Partnerships and is a Director of SSP
Properties, a real estate holding company based in Corpus Christi, Texas. Mr.
Plantowsky holds a B.B.A. in Finance from the University of Texas at Austin.
David E. Pulaski has served as the Company's Vice President for North and
South American Sales since January 1998. From July 1995 to January 1998, Mr.
Pulaski was Director of Domestic Sales for the Company. From February 1993 to
July 1995, Mr. Pulaski served the Company as a sales representative and then as
sales
42
<PAGE> 44
manager. Prior to joining the Company in February 1993, Mr. Pulaski was a
licensed securities broker for Paine Webber and Lehman Brothers. Mr. Pulaski is
the brother of Eric J. Pulaski.
Nadeem Ghias has served as the Company's Vice President -- Research &
Development since May 1996. Prior to becoming Vice President of Product
Development, Mr. Ghias was a Product Architect and Senior Windows Developer for
the Company. From April 1989 to December 1993, Mr. Ghias was the founder and
Chief Executive Officer of Micronix, Inc. ("Micronix"), a. developer and
marketer of products for the xBASE after-market, which was purchased by the
Company in 1993. From August 1988 to April 1989, Mr. Ghias held senior
development positions at Vitesse Semiconductor, a manufacturer of high-speed
microchips, and General Motors Corporation. Mr. Ghias holds a B.S. degree in
Electrical Engineering from Marquette University.
Peter L. Bloom has served as a Director of the Company since October 1997.
Mr. Bloom is a Managing Member of General Atlantic Partners, LLC, a private
investment firm focused exclusively on strategic investments in software and
related services worldwide. Prior to joining General Atlantic Partners, LLC in
1996, Mr. Bloom spent 13 years at Salomon Brothers, an investment banking firm,
where he last was the Managing Director of Salomon's U.S. Technology Division.
Mr. Bloom is a 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.
43
<PAGE> 45
Irl Nathan has served as the Company's Vice President of Product Marketing
since March 1997 and oversees the execution of the Company's product strategy.
From November 1990 to March 1997, Mr. Nathan managed the Company's marketing
department as well as managing the sales department from January 1991 to
February 1993. Prior to joining the Company, Mr. Nathan founded a consulting and
publishing firm specializing in network integration for the legal community. Mr.
Nathan holds a B.A. in Government from the University of Texas at Austin and a
J.D. with honors from St. Mary's University.
BOARD COMPOSITION
The Company's Revised Articles of Incorporation provide for a Board of
Directors consisting of not less than four members and shall consist of six
members initially unless and until increased by resolution of the Board of
Directors. The Company currently has six Directors. Each of the Company's
officers and directors, other than non-employee directors, devotes substantially
full time to the affairs of the Company. The Company's non-employee directors
devote such time to the affairs of the Company as is necessary to discharge
their duties. Each officer is elected and serves at the discretion of the Board
of Directors.
The terms of office of the Board of Directors are divided into three
classes of staggered terms. Class I, whose term will expire at the annual
meeting of shareholders to be held in 1999; Class II, whose term will expire at
the annual meeting of shareholders to be held in 2000; and Class III, whose term
will expire at the annual meeting of shareholders to be held in 2001. The Class
I directors are Christopher J. Sole and Richard A. Hosley II, the Class II
directors are John J. Moores and Scott R. Plantowsky and the Class III directors
are Eric J. Pulaski and Peter L. Bloom. At each annual meeting of shareholders
after the initial classification, the successors to directors whose term will
then expire will be elected to serve from the time of election and qualification
until the third annual meeting following election. This classification of the
Board of Directors may have the effect of delaying or preventing changes in
control or management of the Company. See "Risk Factors -- Anti-Takeover Effects
of Articles of Incorporation, Bylaws and Texas Law."
COMMITTEES OF THE BOARD
The Bylaws authorize the Board of Directors to designate one or more
committees. As of January 27, 1998, the Board of Directors had authorized an
Audit Committee and a Compensation Committee.
The Audit Committee reviews, acts on and reports to the Board of Directors
with respect to various auditing and accounting matters, including the selection
of the Company's independent accountants, the scope of the annual audits, fees
to be paid to the independent accountants, the performance of the Company's
independent accountants and the accounting practices of the Company. The Audit
Committee is comprised of John J. Moores as Chairman and Peter L. Bloom.
The Compensation Committee establishes salaries, incentives and other forms
of compensation for officers and other employees of the Company as well as
administering the incentive compensation and benefit plans of the Company. The
Compensation Committee is comprised of Peter L. Bloom as Chairman and John J.
Moores.
DIRECTOR COMPENSATION
The Company reimburses each member of the Company's Board of Directors for
out-of-pocket expenses incurred in connection with attending Board meetings.
Except for Richard A. Hosley II, no member of the Company's Board of Directors
currently receives any additional cash compensation. Mr. Hosley receives $1,000
per board meeting attended. The Company has granted each of John J. Moores,
Richard A. Hosley II and Peter L. Bloom options to acquire 50,000 shares of
Common Stock at an exercise price of $3.85 per share under the Company's 1998
Non-Employee Directors Stock Option Plan. See "-- 1998 Non-Employee Directors
Stock Option Plan." All such options vest in annual installments over five
years, except that they vest in full if the Company is subject to a change in
control (as defined in such Plan) and in the event of the optionee's death or
disability. Such options expire ten years from the date of grant or, if earlier,
90 days after the optionee ceases to be a director or 12 months after the
optionee's death. See "Principal and Selling Shareholders."
44
<PAGE> 46
EXECUTIVE COMPENSATION
The following table sets forth the compensation earned by the Company's
Chief Executive Officer and the four other most highly compensated officers
whose salary and bonus for 1997 were in excess of $100,000 (collectively, the
"Named Officers"), for services rendered in all capacities to the Company and
its subsidiaries for that fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-----------------------
AWARDS
-----------------------
ANNUAL COMPENSATION RESTRICTED SECURITIES
--------------------- STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) AWARDS($) OPTIONS(#) COMPENSATION($)(3)
--------------------------- --------- -------- ---------- ---------- ------------------
<S> <C> <C> <C> <C> <C>
Eric J. Pulaski(1)............ $141,000 $36,044 0 0 $ 9,500
President and Chief
Executive Officer
Christopher J. Sole........... 110,000 83,301 0 279,990 9,054
Chief Operating Officer
Scott R. Plantowsky........... 110,000 113,179 1,335,000(4) 1,500,000(5) 9,500
Chief Financial Officer
David E. Pulaski.............. 65,000 121,225 1,335,000(6) 187,500(7) 9,500
Vice President -- Sales,
North America
Nadeem Ghias(2)............... 114,950 83,455 231,400(8) 97,500(9) 9,500
Vice President -- Research &
Development
</TABLE>
- ------------
(1) Does not include S Corporation dividends of $1,207,545 paid in 1997.
(2) Does not include S Corporation dividends of $28,910 paid in 1997.
(3) Includes contributions made by the Company to a 401(k) Plan.
(4) Issued in connection with the termination of the Phantom Stock Plan. At the
end of 1997, Mr. Plantowsky held 107,125 shares of restricted stock valued
at $412,217. Dividends will be paid on restricted stock to the same extent
that dividends are paid on unrestricted stock.
(5) Includes a warrant for 437,500 shares of Common Stock at $2.85 per share,
vested as of December 31, 1997 and expiring October 2007. Also includes
options for 218,750 shares of Common Stock, vested as of December 31, 1997,
with the remaining options vesting in the amount of 218,750 shares on
January 1, 1998, 109,375 shares on July 1998, 187,500 shares on September 1,
1998 and 109,375 shares on each of the following dates: January 1, 1999,
July 1, 1999 and January 1, 2000.
(6) Issued in connection with the termination of the Phantom Stock Plan. At end
of fiscal year 1997, Mr. Pulaski held 243,202 shares of restricted stock
valued at $935,841. Dividends will be paid on restricted stock to the same
extent that dividends are paid on unrestricted stock.
(7) Granted in connection with the termination of the Phantom Stock Plan all of
which became fully vested and exercisable in February 1998. In addition in
January 1998, Mr. Pulaski was granted options for 37,500 shares of Common
Stock at an exercise price of $3.85 per share.
(8) Issued in connection with the termination of the Phantom Stock Plan. At end
of fiscal year 1997, Mr. Ghias held no shares of restricted stock. Dividends
will be paid on restricted stock to the same extent that dividends are paid
on unrestricted stock.
(9) Granted in connection with the termination of the Phantom Stock Plan. In
addition, in March 1998, Mr. Ghias was granted options for 37,500 shares of
Common Stock at an exercise price of $4.48 per share.
45
<PAGE> 47
The following table contains information concerning the stock option grants
made to each of the Named Officers in the year ended December 31, 1997. No stock
appreciation rights were granted to these individuals during such year.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------------- POTENTIAL REALIZABLE VALUE
% OF TOTAL AT ASSUMED ANNUAL RATES OF
NUMBER OF OPTIONS STOCK PRICE APPRECIATION
SECURITIES GRANTED TO EXERCISE FOR OPTION TERM(3)
UNDERLYING EMPLOYEES IN PRICE EXPIRATION --------------------------
NAME OPTIONS GRANTED FISCAL YEAR(1) ($/SHARE)(2) DATE 5%($) 10%($)
---- --------------- -------------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Eric J. Pulaski........ 0 -- -- -- -- --
Christopher J. Sole.... 279,990(4) 7.3% $2.85 10/2007 $501,488 $1,270,869
Scott R. Plantowsky.... 875,000(5) 22.9 1.34 4/2007 737,379 1,868,663
437,500(6) 11.4 2.85 10/2007 783,603 1,985,803
187,500(7) 4.9 2.85 10/2007 335,830 851,058
David E. Pulaski....... 187,500(8) 4.9 2.85 10/2007 335,830 851,058
Nadeem Ghias........... 97,500(9) 2.5 2.85 10/2007 174,631 442,550
</TABLE>
- ------------
(1) Based on an aggregate of 3,828,885 shares subject to options and warrants
granted to employees of the Company under the Incentive Stock Option Plan,
Stock Option Plan and 1997 Incentive Plan during 1997.
(2) The Company's Board of Directors has authorized stock option grants during
1997 based upon its estimate of the fair market value of the Company's
Common Stock at the date of grant. The estimates of fair market value of the
Company's Common Stock for the first three quarters of the year were based
upon multiplying Company revenues for the preceding twelve months by a
factor implicit in 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. While the Company believes these
grants were made at the then fair market value at the date of each grant,
the exercise prices are substantially below the price per share at which
Common Stock is proposed to be sold in this offering. If the midpoint of the
proposed offering range of $10.00 per share had been used as the base price
to compute potential realizable value at assumed 5% and 10% annual rates of
return, the aggregate value for the stock option grants presented in this
table would have increased from $2,868,761 to $29,072,540 for 5% annual
appreciation, and from $7,269,951 to $48,996,551 for 10% annual
appreciation. Investors should be cautioned not to expect similar rates of
appreciation related to their potential investment in the Company's Common
Stock.
(4) Issued in connection with termination of the Company's Phantom Stock Plan.
Twenty-five percent (25%) of the option shares shall vest annually
commencing in May 1998.
(5) Includes options for 218,750 shares of Common Stock, vested as of December
31, 1997, with the remaining options vesting in the amount of 218,750 on
January 1, 1998 and 109,375 shares on each of the following dates: July 1,
1998, January 1, 1999, July 1, 1999 and January 1, 2000.
(6) This warrant was exercised in full in May 1998.
(7) Issued in connection with termination of the Company's Phantom Stock Plan.
All of the option shares shall vest in September 1998.
(8) Issued in connection with termination of the Company's Phantom Stock Plan.
All of the option shares vested in February 1998.
(9) Issued in connection with termination of the Company's Phantom Stock Plan.
Fifty percent (50%) of the option shares vested in December 1997 and fifty
percent (50%) of the option shares shall vest in December 1998.
46
<PAGE> 48
The following table sets forth information concerning the shares acquired
and the value realized upon the exercise of stock options during 1997 and the
year-end number and value of unexercised options with respect to each of the
Named Officers. No stock appreciation rights were exercised by the Named
Officers in 1997 or were outstanding at the end of that year.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT DECEMBER 31, AT DECEMBER 31,
1997 1997(1)
----------------------- ------------------------
NAME VESTED UNVESTED VESTED UNVESTED
---- -------- --------- -------- ----------
<S> <C> <C> <C> <C>
Eric J. Pulaski........................... -- -- -- --
Christopher J. Sole....................... -- 927,315 -- $1,170,709
Scott R. Plantowsky....................... 656,250 843,750 $986,125 1,833,375
David E. Pulaski.......................... -- 187,500 -- 187,500
Nadeem Ghias.............................. 48,750 48,750 48,750 48,750
</TABLE>
- ------------
(1) Based on the fair market value of Common Stock of $3.85 per share at the
year ending December 31, 1997, as determined by the Company's Board of
Directors, less the exercise price payable for such shares.
BONUS PLAN
The Company has adopted a bonus program pursuant to which all employees may
be awarded cash bonuses based on individual performance and the performance and
profitability of the Company.
STOCK OPTION PLANS
Incentive Stock Option Plan.
The Company's Incentive Stock Option Plan, as amended (the "Incentive
Plan"), provides for the grant to certain key employees of options intended to
qualify as incentive stock options ("ISOs") under Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"). The Incentive Plan was adopted by
the Board of Directors in January 1996 and approved by the Company's
stockholders in December 1996. Unless terminated sooner, the Incentive Plan will
terminate automatically in December 2004. A total of 1,875,000 shares of Common
Stock had been reserved for issuance under the Incentive Plan at March 31, 1998.
The Incentive Plan shall be administered by the Board of Directors. The Board
has the power to designate the employees or classes of employees eligible to
participate in the Incentive Plan, grant options provided for in the Incentive
Plan in the form and amounts as the Board shall determine and impose such
limitations, restrictions and conditions upon such options as the Board deems
appropriate. Options granted under the Incentive Plan are not generally
transferable by the optionee, and each option is generally exercisable during
the lifetime of the optionee only by such optionee. Options granted under the
Incentive Plan shall expire immediately on the date of termination of the
optionee's employment with the Company and will expire six months after such
optionee's death, but in no event will any option be exercisable later than ten
years from the date of grant of such option. The exercise price of all ISOs
granted under the Incentive Plan must be equal to the fair market value of the
Common Stock on the date of grant. No options may be granted to any participant
who owns stock possessing more than ten percent of the voting power of all
classes of the Company's outstanding capital stock. The aggregate fair market
value of options granted to an optionee may not exceed $100,000 in any calendar
year. The term of options granted under the Incentive Plan may not exceed ten
years. The Incentive Plan provides that in the event of a stock dividend,
merger, consolidation, exchange of shares or other similar event, the Board of
Directors may appropriately adjust the number of shares of Common Stock issuable
under and the option price of such options. As of March 31, 1998, 10,000 shares
of Common Stock had been issued upon exercise of options outstanding under the
Incentive Plan. The recipient of any option under the Incentive Plan has no
rights as a shareholder unless and until certificates for shares of Common Stock
have been issued to him. Options to purchase 1,487,520 shares of Common Stock at
a weighted average exercise price of $1.28 were outstanding under the Incentive
Plan. At March 31, 1998, 377,480 shares remained available for future issuance
under the Incentive Plan. After May 1998, all options
47
<PAGE> 49
outstanding under the Incentive Plan are to be governed, for administration
purposes only, by the Omnibus Plan.
Stock Option Plan.
The Company's Stock Option Plan, as amended (the "Stock Plan"), provides
for the grant to certain employees of nonstatutory options and ISOs within the
meaning of Section 422 of the Code. The Stock Plan was adopted by the Board of
Directors in January 1996 and approved by the Company's stockholders in December
1996. Unless terminated sooner, the Stock Plan will terminate automatically in
December 2005. A total of 1,747,325 shares of Common Stock had been reserved for
issuance under the Stock Plan at March 31, 1998. The Stock Plan shall be
administered by the Board of Directors. The Board has the power to designate the
employees or classes of employees eligible to participate in the Stock Plan,
grant options provided for in the Stock Plan in the form and amounts as the
Board shall determine and impose such limitations, restrictions and conditions
upon such options as the Board deems appropriate. Options granted under the
Stock Plan are not generally transferable by the optionee, and each option is
generally exercisable during the lifetime of the optionee only by such optionee.
Options granted under the Stock Plan shall expire 24 months after the optionee's
death or termination of employment with the Company, but in no event will any
option be exercisable later than ten years from the date of grant of such
option. The exercise price of options granted under the Stock Plan shall be as
determined by the Board of Directors. The term of options granted under the
Stock Plan may not exceed ten years. The Stock Plan provides that in the event
of a stock dividend, merger, consolidation, exchange of shares or other similar
event, the Board of Directors may appropriately adjust the number of shares of
Common Stock issuable under and the option price of such options. As of March
31, 1998, no shares of Common Stock had been issued upon exercise of options
outstanding under the Stock Plan. The recipient of any option under the Stock
Plan has no rights as a shareholder unless and until certificates for shares of
Common Stock have been issued to him. Options to purchase 1,747,325 shares of
Common Stock at a weighted average exercise price of $1.79 were outstanding
under the Stock Plan. At March 31, 1998, no shares remained available for future
issuance under the Stock Plan. After May 1998, all options outstanding under the
Stock Plan are to be governed, for administration purposes only, by the Omnibus
Plan.
1997 Incentive Plan.
The Company's 1997 Incentive Plan, as amended (the "1997 Plan"), provides
for the grant to certain key employees, executive officers, directors and
consultants of nonstatutory options and ISOs within the meaning of Section 422
of the Code. The 1997 Plan was adopted by the Board of Directors in September
1997 and approved by the Company's stockholders in October 1997. The 1997 Plan
shall continue in effect until terminated by the Board of Directors, but in no
event will incentive stock options be granted by the Board after September 2007.
A total of 1,303,740 shares of Common Stock had been reserved for issuance under
the 1997 Plan at March 31, 1998. The 1997 Plan shall be administered by the
Board of Directors or such other committee of the Board designated to administer
the 1997 Plan. The Board has the power to select persons to whom options may be
granted, to determine the number and type of options to be granted, to determine
in what manner the exercise price of an option may be paid and to adopt, amend,
suspend and rescind such rules and regulations as the Board may deem necessary
to administer the 1997 Plan. Options granted under the 1997 Plan are not
generally transferable by the optionee, and each option is generally exercisable
during the lifetime of the optionee only by such optionee. The term and
expiration of options granted under the 1997 Plan shall be determined by the
Board of Directors, but in no event shall the term of any incentive stock option
exceed a period of ten years from the date of its grant. The exercise price of
all options granted under the 1997 Plan shall be determined by the Board of
Directors, but in no event will the exercise price be less than the fair market
value of the Common Stock on the date of grant. The 1997 Plan provides that in
the event of a stock dividend, merger, consolidation, exchange of shares or
other similar event, the Board of Directors may appropriately adjust the number
of shares of Common Stock issuable under and the option price of such options.
Further, unless otherwise provided by the Board of Directors, all conditions and
restrictions with respect to the exercisability or settlement of options granted
under the 1997 Plan shall immediately lapse if any person acquires directly or
indirectly "beneficial ownership," as such term is defined in Section 13(d) of
the Exchange Act, of voting securities representing 50 percent or more of the
voting power of all of the then-
48
<PAGE> 50
outstanding voting securities of the Company. As of March 31, 1998, 10,000
shares of Common Stock had been issued upon exercise of options outstanding
under the 1997 Plan. No option granted under the 1997 Plan shall confer on any
optionee the rights of a shareholder unless and until stock is duly issued or
transferred, or if the option is duly exercised. Options to purchase 1,303,740
shares of Common Stock at a weighted average exercise price of $2.85 were
outstanding under the 1997 Plan. At March 31, 1998, no shares remained available
for future issuance under the 1997 Plan. After May 1998, all options outstanding
under the 1997 Plan are to be governed, for administration purposes only, by the
Omnibus Plan.
Omnibus Incentive Plan.
The Company's Board of Directors has adopted the Company's Omnibus
Incentive Plan (the "Omnibus Plan"). The 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 March 31, 1998, options to purchase an aggregate of 326,293 shares of
Common Stock were outstanding under the Omnibus Plan at a weighted average
exercise price of $4.12. A total of 1,423,707 shares of Common Stock are
available for future issuance under the Omnibus Plan.
1998 Non-Employee Director Stock Option Plan.
The Company's Board of Directors has adopted the Company's 1998
Non-Employee Director Stock Option Plan (the "Director Plan"). The 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
49
<PAGE> 51
having been exercised in full, then the unpurchased shares subject to those
options will become available for additional grants under the Director Plan.
Under the Director Plan, each new director who is not an employee of the
Company or any affiliate is automatically granted, as of the date when he or she
is elected to the Company's Board of Directors, an option to purchase 50,000
shares of Common Stock at an exercise price equal to the fair market value of
the Common Stock on the date of grant. These options vest in equal annual
installments over the five-year period commencing on the date of grant, except
that they vest in full in the event of the optionee's death or disability or in
the event that the Company is subject to a change in control.
The term of the options is ten years. Options generally terminate 90 days
after the optionee's service as a director terminates for any reason other than
death. In the event of the optionee's death, the optionee's successors may
exercise the option within 12 months after the optionee's death. Options granted
under the Director Plan generally are not transferable, except that an optionee
may transfer the options to an immediate family member or an entity controlled
by the optionee or an immediate family member.
As of March 31, 1998, options to purchase an aggregate of 150,000 shares of
Common Stock were outstanding under the Director Plan at a weighted average
exercise price of $3.85. A total of 100,000 shares of Common Stock are available
for future issuance under the Director Plan.
401(K) PLAN
The Company has adopted a 401(k) retirement savings plan referred to as the
BindView Development Corporation 401(k) Profit Sharing Plan. This plan is
available to all employees who have attained age 21 and have completed three
months of service. An employee may contribute, on a pre-tax basis, up to 15% of
the employee's wages from the Company, subject to limitations specified under
the Internal Revenue Code. Under the terms of the BindView Development
Corporation 401(k) Profit Sharing Plan, the Company shall match employee
contributions up to 50% of the first 6% contributed by the employee and may make
discretionary profit sharing contributions. Contributions are allocated to each
employee's individual account and are, at the employee's election, invested in
one, all or some combination of the investment funds available under such 401(k)
plan. Employee contributions are fully vested and non-forfeitable. Employees
will vest in any Company contributions at the rate of 20% for each year of
service commencing after the first year of service.
EMPLOYMENT AGREEMENTS
The Company has employment agreements with Christopher J. Sole, Scott R.
Plantowsky, David E. Pulaski and Nadeem Ghias. Mr. Sole's employment agreement
remains in effect until such agreement is terminated by Mr. Sole upon two weeks
notice, subject to the Company's right to terminate the agreement immediately
for cause or Mr. Sole's death. The Company may also terminate Mr. Sole at any
time for any reason (or no reason), subject to the obligation of the Company to
pay Mr. Sole an amount equal to six months of base salary. Mr. Sole's annual
salary is currently $110,000, subject to review by the Compensation Committee.
Mr. Sole is also eligible to receive annual cash bonuses, stock option grants
and other awards under the Company's existing stock plans, by and at the
discretion of the Compensation Committee. Mr. Sole is prohibited from soliciting
customers of the Company for a period of up to 12 months after Mr. Sole's
termination.
Mr. Plantowsky's employment agreement remains in effect until January 1,
2000, or until such agreement is terminated by Mr. Plantowsky upon 60 days
notice, subject to the Company's right to terminate the agreement immediately
for cause or Mr. Plantowsky's death. In connection with Mr. Plantowsky's
employment, Mr. Plantowsky received, among other things, a nonstatutory stock
option to purchase 875,000 shares of the Company's Common Stock that vest over a
three year period from April 1997. Under this option, if Mr. Plantowsky's
employment is terminated for any reason other than for cause, including a
constructive termination, the Company is obligated to either (i) pay Mr.
Plantowsky $1 million and one-half of his then unvested shares shall immediately
vest or (ii) cause all of Mr. Plantowsky's shares to immediately vest. Mr.
Plantowsky's annual salary is currently $110,000, subject to review by the
Compensation Committee.
50
<PAGE> 52
Mr. Plantowsky is also eligible to receive annual cash bonuses, stock option
grants and other awards under the Company's existing stock plans, by and at the
discretion of the Compensation Committee. In addition, in the event that Mr.
Plantowsky's employment with the Company is terminated for cause or Mr.
Plantowsky resigns, in either case prior to January 1, 1999, July 1, 1999 or
January 1, 2000, then the Company shall have the option to purchase up to
164,062 shares, 109,375 shares and 54,687 shares, respectively, of Common Stock
from Mr. Plantowsky at a price per share of $2.85. Mr. Plantowsky is prohibited
from (i) directly or indirectly engaging in the same or similar business
activities to those carried on by the Company and (ii) soliciting customers of
the Company for a period of two years after Mr. Plantowsky's termination.
Mr. Ghias' employment agreement remains in effect until such agreement is
terminated by Mr. Ghias upon two weeks notice, subject to the Company's right to
terminate the agreement immediately for cause or Mr. Ghias' death. Mr. Ghias'
annual salary is currently $114,950, subject to review by the Compensation
Committee. Mr. Ghias is also eligible to receive annual cash bonuses, stock
option grants and other awards under the Company's existing stock plans, by and
at the discretion of the Compensation Committee. Mr. Ghias is prohibited from
(i) directly or indirectly engaging in the same or similar business activities
to those carried on by the Company and (ii) soliciting customers of the Company
for a period of 12 months after Mr. Ghias' termination.
David E. Pulaski's employment agreement remains in effect until such
agreement is terminated by Mr. Pulaski upon two weeks notice, subject to the
Company's right to terminate the agreement immediately for cause or Mr.
Pulaski's death. Mr. Pulaski's annual salary is currently $96,000, subject to
review by the Compensation Committee. Mr. Pulaski is also eligible to receive
annual cash bonuses, stock option grants and other awards under the Company's
existing stock plans, by and at the discretion of the Compensation Committee.
Mr. Pulaski is prohibited from (i) directly or indirectly engaging in the same
or similar business activities to those carried on by the Company and (ii)
soliciting customers of the Company for a period of 12 months at Mr. Pulaski's
termination.
The Company also maintains employment/confidentiality agreements with
substantially all of its employees. Such agreements are not for a specific term
and are generally terminable at will by the Company, subject to the obligation
of the Company to pay the employee an amount equal to accrued vacation time and
severance pay in the amount of at least one-half month's salary. These
agreements provide for annual base salaries, other benefits, such as vacation
and sick leave, and non-compete and confidentiality agreements. The employees
who are parties to these agreements are also entitled to bonuses based on
achieving targets to be set by the Company's Board of Directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Peter L. Bloom, a director of the Company, is a member of the Compensation
Committee of the Board of Directors. Mr. Bloom is also a general partner of both
General Atlantic Partners 44, L.P. and GAP Coinvestment Partners, L.P., owners
of approximately 24.3% and 5.0%, respectively, of the capital stock of the
Company prior to the offering.
CERTAIN TRANSACTIONS
TRANSACTIONS WITH DIRECTORS AND OFFICERS
On April 8, 1997, the Company delivered 487,500 shares of Common Stock to
Nadeem Ghias, the Company's Vice President -- Research & Development, to settle
its obligation pursuant to 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
51
<PAGE> 53
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 outside directors on the Board of
Directors, and will continue to be on terms no less favorable to the Company
than could be obtained from unaffiliated third parties.
PHANTOM STOCK PLAN
In 1996, the Company implemented a Phantom Stock Plan which granted phantom
stock units to certain employees. Each phantom stock unit provided the
participant with the right to receive shares of the Company's Common Stock upon
the occurrence of a change in control of the Company, an initial public offering
of the Company's Common Stock, liquidation of the Company or a sale of
substantially all of the Company's assets. The Company granted 6,598,250 phantom
stock units during 1996. No grants were made during 1997.
The Company terminated the Phantom Stock Plan in October 1997 and issued
1,757,188 shares of Common Stock on October 13, 1997 and 3,187,612 shares of
Common Stock on October 16, 1997 to retire the Phantom Stock Plan and recognized
a related stock compensation charge of $14.7 million in October 1997. On October
16, 1997, the Company issued options to purchase 1,303,740 shares of Common
Stock under the
52
<PAGE> 54
Company's 1997 Incentive Plan with an exercise price of $2.85 per share to
former participants with unvested rights in the Phantom Stock Plan.
INDEMNIFICATION
The Revised Articles of Incorporation of the Company contain a provision
that limits the liability of the Company's directors as permitted under Texas
law. The provision eliminates the liability of a director to the Company or its
shareholders for monetary damages for acts or omissions in the director's
capacity as a director. The provision does not affect the liability of a
director (i) for breach of his duty of loyalty to the Company or to the
shareholders, (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of the law, (iii) for acts or
omissions for which the liability of a director is expressly provided by an
applicable statute or (iv) in respect of any transaction from which a director
received an improper personal benefit. Pursuant to the Revised Articles of
Incorporation, the liability of directors will be further limited or eliminated
without action by shareholders if Texas law is amended to further limit or
eliminate the personal liability of directors. 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.
53
<PAGE> 55
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information known to the Company
regarding beneficial ownership of its Common Stock as of May 31, 1998, and as
adjusted to reflect the sale of shares offered hereby, by (i) each person who is
known by the Company to own beneficially more than 5% of the Company's Common
Stock, (ii) each of the Named Officers, (iii) each of the Company's directors,
(iv) all current executive officers and directors as a group and (v) all Selling
Shareholders.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
PRIOR TO OFFERING NUMBER OF AFTER OFFERING(2)
------------------------- SHARES BEING --------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER(1) NUMBER PERCENT(3) OFFERED NUMBER PERCENT(3)
- --------------------------------------- ---------- ----------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C>
General Atlantic Partners, LLC(4)..... 4,713,481 29.3% -- 4,713,481 25.0%
3 Pickwick Plaza
Greenwich, CT 06830
JMI Equity Fund III, L.P.(5).......... 2,356,742 14.7 -- 2,356,742 12.5
12860 High Bluff Road, Suite 200
San Diego, CA 92130
Eric J. Pulaski....................... 5,861,000 36.5 586,100 5,274,900 28.0
Peter L. Bloom(4)..................... 4,713,481 29.3 -- 4,713,481 25.0
Scott R. Plantowsky(6)................ 987,125 5.8 160,713 826,412 4.2
Christopher J. Sole(7)................ 717,322 4.3 92,732 624,590 3.2
David E. Pulaski(8)................... 555,702 3.4 35,000 520,702 2.7
Nadeem Ghias(9)....................... 292,500 1.8 37,500 255,000 1.4
John J. Moores........................ -- * -- -- *
Richard A. Hosley II.................. -- * -- -- *
Edward Amash.......................... 160,000 1.0 16,000 144,000 *
Phil Bergeron......................... 44,642 * 1,250 43,392 *
Genevie Daniels....................... 1,625 * 812 813 *
Greg Hanka............................ 109,195 * 15,525 93,670 *
Kevin Le.............................. 1,250 * 625 625 *
David Locke........................... 2,500 * 1,250 1,250 *
Greg Major............................ 1,625 * 1,300 325 *
Mark Miller........................... 20,500 * 3,000 17,500 *
Ken Naumann........................... 47,760 * 1,000 46,760 *
Jonathan Olson........................ 1,625 * 812 813 *
Mike Reynolds......................... 17,580 * 8,508 9,072 *
Brenda Simon.......................... 4,500 * 450 4,050 *
Jeanet Steffey........................ 7,500 * 1,875 5,625 *
Kimberly Teller....................... 2,500 * 1,250 1,250 *
Richard Thomas........................ 3,250 * 812 2,438 *
Rudi Vanderbeeken..................... 56,250 * 22,500 33,750 *
Kim Wylie............................. 21,000 * 2,100 18,900 *
All directors and officers as a group
(8 persons)(10)..................... 13,127,130 71.3% 912,045 12,215,085 57.7%
</TABLE>
- ------------
* Represents beneficial ownership of less than 1% of the outstanding shares
of Common Stock.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting or investment power
with respect to securities. Unless otherwise indicated, the address for
each listed shareholder is c/o BindView Development Corporation, 3355 West
Alabama, Suite 1200, Houston, Texas 77098. To the Company's knowledge,
except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named in the table have
sole voting and investment power with respect to the shares of Common
Stock indicated.
(2) Assumes no exercise of the Underwriters' over-allotment option. See
"Underwriting."
54
<PAGE> 56
(3) Percentage of beneficial ownership is based on 16,073,612 shares of Common
Stock outstanding as of March 31, 1998, and 18,832,498 shares of Common
Stock outstanding after the completion of this offering. The number of
shares of Common Stock beneficially owned includes the shares issuable
pursuant to stock options that are either exercisable within 60 days of
March 31, 1998 or exercisable upon the effective date of this offering.
Shares issuable pursuant to stock options are deemed outstanding for
computing the percentage of the person holding such options but are not
outstanding for computing the percentage of any other person. The number
of shares of Common Stock outstanding after this offering includes
2,758,886 shares of Common Stock being offered for sale by the Company in
this offering.
(4) Consists of 3,495,820 shares of Common Stock and 414,837 shares of Common
Stock issuable upon exercise of Investor Warrants held by General Atlantic
Partners 44, L.P. ("GAP 44") and 717,662 shares of Common Stock and 85,162
shares of Common Stock issuable upon exercise of Investor Warrants held by
GAP Coinvestment Partners, L.P. ("GAP Coinvestment"). The general partner
of GAP 44 is General Atlantic Partners, LLC ("GAP LLC"). The managing
members of GAP LLC are also the general partners of GAP Coinvestment.
Peter L. Bloom is a managing member of GAP LLC. Mr. Bloom disclaims
beneficial ownership of such securities except to the extent of his
pecuniary interest therein.
(5) Includes 250,000 shares of Common Stock issuable upon exercise of
outstanding Investor Warrants. The general partner of JMI Equity Fund III,
L.P. is JMI Associates III, LLC. 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.
(6) Includes 875,000 shares of Common Stock issuable upon exercise of
outstanding options and warrants which are presently exercisable or will
become exercisable within 60 days of March 31, 1998. Also includes 5,000
shares held by Scott Plantowsky, Custodian for Hannah Plantowsky. Mr.
Plantowsky has voting power over such shares, however Mr. Plantowsky
disclaims beneficial ownership of such shares. In the event that Mr.
Plantowsky's employment with the Company is terminated by the Company
prior to January 1, 2000, for cause or upon Mr. Plantowsky's resignation,
the Company may purchase from him a portion of these shares at a purchase
price of $2.85 per share. See "Management -- Employment Agreements."
(7) Includes 69,997 shares of Common Stock issuable upon exercise of
outstanding options which will become exercisable within 60 days of March
31, 1998 and 647,325 shares of Common Stock issuable upon exercise of
outstanding options which will become exercisable upon the effective date
of this offering.
(8) Includes 187,500 shares of Common Stock issuable upon exercise of
outstanding options, all of which are presently exercisable. Also includes
125,000 shares held by David E. Pulaski, Trustee of the Pulaski Family
Charitable Remainder Trust (the "Pulaski Family Trust"). Mr. Pulaski has
voting power over shares held by the Pulaski Family Trust and has a
pecuniary interest in a portion of the income from the Pulaski Family
Trust. Mr. Pulaski disclaims beneficial ownership of shares held by the
Pulaski Family Trust except to the extent of his pecuniary interest
therein.
(9) Includes 48,750 shares of Common Stock issuable upon exercise at
outstanding options which will become exercisable within 60 days of March
31, 1998.
(10) Includes 1,828,572 shares of Common Stock issuable upon exercise of
outstanding options and warrants which are presently exercisable, will
become exercisable within 60 days of March 31, 1998 or will become
exercisable upon the effective date of this offering. Also includes
499,999 shares of Common Stock issuable upon exercise of Investor
Warrants.
55
<PAGE> 57
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, the authorized capital stock of the
Company will consist of 100,000,000 shares of Common Stock, no par value.
COMMON STOCK
As of May 31, 1998, there were 8,275,657 shares of Common Stock outstanding
that were held of record by approximately 57 shareholders after giving effect to
a 2 1/2-for-1 exchange of the Common Stock. There will be 18,832,498 shares of
Common Stock outstanding on a pro forma basis (assuming no exercise of the
Underwriters' over-allotment option and assuming no exercise after March 31,
1998, of outstanding options except those being sold by the Selling
Shareholders) after giving effect to (i) a 2 1/2-for-1 exchange of the Common
Stock, (ii) the conversion of all outstanding shares of Preferred Stock into
Common Stock, (iii) the exercise of all outstanding warrants and (iv) the sale
of the shares of Common Stock to the public offered hereby.
The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the shareholders. Subject to preferences that may be
applicable to any outstanding Preferred Stock, the holders of Common Stock are
entitled to receive ratably such dividends, if any, as may be declared from time
to time by the Board of Directors out of funds legally available therefor. See
"Dividend Policy." In the event of the liquidation, dissolution, or winding up
of the Company, the holders of Common Stock are entitled to share ratably in all
assets remaining after payment of liabilities, subject to prior distribution
rights of Preferred Stock, if any, then outstanding. The Common Stock has no
preemptive or conversion rights or other subscription rights. There are no
redemption or sinking fund provisions applicable to the Common Stock. All
outstanding shares of Common Stock are fully paid and nonassessable, and the
shares of Common Stock to be issued upon completion of this offering will be
fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors has the authority to issue the Preferred Stock in
one or more series and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series or the designation
of such series, without further vote or action by the shareholders. The issuance
of Preferred Stock may have the effect of delaying, deferring or preventing a
change in control of the Company without further action by the shareholders and
may adversely affect the voting and other rights of the holders of Common Stock.
The issuance of Preferred Stock with voting and conversion rights may adversely
affect the voting power of the holders of Common Stock, including the loss of
voting control to others. At present, the Company has no plans to issue any of
the Preferred Stock.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE ARTICLES OF INCORPORATION, BYLAWS AND
TEXAS LAW
Articles of Incorporation and Bylaws
The Revised Articles of Incorporation provides that, upon the closing of
this offering, the Board of Directors will be divided into three classes of
directors, with each class serving a staggered three-year term. The
classification of the Board of Directors has the effect of generally requiring
at least two annual shareholder meetings, instead of one, to replace a majority
of the Board members. The Revised Articles of Incorporation also provide that,
effective upon the closing of this offering, all shareholder actions must be
effected at a duly called meeting and not by a consent in writing. Further,
provisions of the Bylaws and the Revised Articles of Incorporation provide that
the shareholders may amend the Bylaws or certain provisions of the Revised
Articles of Incorporation only with the affirmative vote of 80% of the Company's
capital stock. These provisions of the Revised Articles of Incorporation and
Bylaws could discourage potential acquisition proposals and could delay or
prevent a change in control of the Company. These provisions are intended to
enhance the likelihood of continuity and stability in the composition of the
Board of Directors and in the policies formulated by the Board of Directors and
to discourage certain types of transactions that may involve an actual or
threatened change of control of the Company. These provisions are designed to
reduce the vulnerability of the Company to an unsolicited acquisition proposal.
The provisions also are intended to discourage certain tactics that may be used
in proxy fights. However, such provisions could have the effect of
56
<PAGE> 58
discouraging others from making tender offers for the Company's shares and, as a
consequence, they also may inhibit fluctuations in the market price of the
Company's shares that could result from actual or rumored takeover attempts.
Such provisions also may have the effect of preventing changes in the management
of the Company. See "Risk Factors -- Anti-Takeover Effects of Articles of
Incorporation, Bylaws and Texas Law."
Texas Takeover Statute
The Company is subject to Article 13.03 of the Texas Business Corporations
Act (the "TBCA"), which, subject to certain exceptions, prohibits a Texas
corporation from engaging in any business combination with any affiliated
shareholder, as defined under Article 13.01 of the TBCA, for a period of three
years following the date that such shareholder became an affiliated shareholder,
unless: (i) prior to such date, the board of directors of the corporation
approved either the business combination or the transaction that resulted in the
shareholder becoming an affiliated shareholder or (ii) the business combination
is approved and authorized by the affirmative vote of at least two-thirds of the
outstanding voting stock that is not owned or controlled by the interested
shareholder, at a meeting of shareholders and not by written consent, duly
called for that purpose not less than six months after the date that the
affiliated shareholder first became an affiliated shareholder of the
corporation.
Article 13.02 of the TBCA ("Article 13.02") defines 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 13,700,000 shares of Common Stock, including
shares of Common Stock issuable upon exercise of certain outstanding warrants,
are entitled to certain rights with respect to the registration of such shares
under the Securities Act. Under the terms of certain employment agreements
between the Company and holders of such registrable securities, if the Company
proposes to register any of its securities under the Securities Act, either for
its own account or for the account of other security holders exercising
registration rights, such holders are entitled to notice of such registration
and are entitled to include shares of such Common Stock therein. Additionally,
such holders are also entitled to certain demand registration rights pursuant to
which they may require the Company to file a registration statement under the
Securities Act at its expense with respect to their shares of Common Stock, and
the Company is required to use its best efforts to effect such registration.
Further, holders may require the Company to file additional registration
statements on Form S-3 at the Company's expense. All of these registration
rights are subject to certain conditions and limitations, including, without
limitation, the right of the underwriters of an offering to limit the number of
shares included in such registration and the right of the Company not to effect
a requested registration within six months following an offering of the
Company's securities, including the offering made hereby.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is ChaseMellon
Shareholder Services, L.L.C., and its telephone number is (214) 965-2235.
57
<PAGE> 59
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 18,832,498 shares
of Common Stock outstanding. Of this amount, the 3,750,000 shares offered hereby
will be available for immediate sale in the public market as of the date of this
Prospectus. An additional 82,500 shares are not subject to a 180-day lockup and
will be available for immediate sale in the public market pursuant to Rule 144
as of the date of this Prospectus. Approximately 13,936,723 additional shares
will be available for sale in the public market following the expiration of
180-day lockup agreements with the Representatives of the Underwriters or the
Company, subject in some cases to compliance with the volume and other
limitations of Rule 144.
<TABLE>
<CAPTION>
APPROXIMATE SHARES
DAYS AFTER DATE OF THIS PROSPECTUS ELIGIBLE FOR FUTURE SALE COMMENT
- ---------------------------------- ------------------------ -------
<S> <C> <C>
Upon Effectiveness............. 3,832,500 Freely tradeable shares sold in offering and shares
salable under Rule 144(k) that are not subject to
180-day lockup
180 days....................... 13,936,723 Lockup released; shares salable under Rule 144,
144(k) or 701
Thereafter..................... 1,063,275 Restricted securities held for one year or less
</TABLE>
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares for at least one
year is entitled to sell within any three-month period commencing 90 days after
the date of this Prospectus a number of shares that does not exceed the greater
of (i) 1% of the then outstanding shares of Common Stock (approximately 188,324
shares immediately after this offering) or (ii) the average weekly trading
volume during the four calendar weeks preceding such sale, subject to the filing
of a Form 144 with respect to such sale. A person (or persons whose shares are
aggregated) who is not deemed to have been an affiliate of the Company at any
time during the 90 days immediately preceding the sale who has beneficially
owned his or her shares for at least two years is entitled to sell such shares
pursuant to Rule 144(k) without regard to the limitations described above.
Persons deemed to be affiliates must always sell pursuant to Rule 144, even
after the applicable holding periods have been satisfied.
The Company is unable to estimate the number of shares that will be sold
under Rule 144, since this will depend on the market price for the Common Stock
of the Company, the personal circumstances of the sellers and other factors.
Prior to this offering, there has been no public market for the Common Stock,
and there can be no assurance that a significant public market for the Common
Stock will develop or be sustained after this offering. Any future sale of
substantial amounts of the Common Stock in the open market may adversely affect
the market price of the Common Stock offered hereby.
The Company, its directors, executive officers, shareholders with
registration rights and certain other shareholders have agreed pursuant to the
Underwriting Agreement and other agreements that they will not sell any Common
Stock without the prior consent of BancAmerica Robertson Stephens for a period
of 180 days from the date of this Prospectus (the "180-day Lockup Period"),
except that the Company may, without such consent, grant options and sell shares
pursuant to the Company's stock plans.
Any employee or consultant to the Company who purchased his or her shares
pursuant to a written compensatory plan or contract is entitled to rely on the
resale provisions of Rule 701, which permits nonaffiliates to sell their Rule
701 shares without having to comply with the public information, holding period,
volume limitation or notice provisions of Rule 144 and permits affiliates to
sell their Rule 701 shares without having to comply with the Rule 144 holding
period restrictions, in each case commencing 90 days after the date of this
Prospectus. As of the date of this Prospectus, the holders of options
exercisable into approximately 4,724,647 shares of Common Stock will be eligible
to sell their shares upon the expiration of the 180-day Lockup Period, or
subject in certain cases to vesting of such options.
The Company intends to file a registration statement on Form S-8 under the
Securities Act to register shares of Common Stock issued or reserved for
issuance under the Company's stock plans within 180 days
58
<PAGE> 60
after the date of this Prospectus, thus permitting the resale of such shares by
nonaffiliates in the public market without restriction under the Securities Act.
The Company intends to register these shares on Form S-8, along with options
that have not been issued under the Company's stock plans as of the date of this
Prospectus.
In addition, after this offering, the holders of approximately 13,700,000
shares of Common Stock, including shares of Common Stock issuable upon exercise
of certain outstanding warrants, will be entitled to certain rights with respect
to registration of such shares under the Securities Act. Registration of such
shares under the Securities Act would result in such shares becoming freely
tradeable without restriction under the Securities Act (except for shares
purchased by affiliates of the Company) immediately upon the effectiveness of
such registration. See "Description of Capital Stock -- Registration Rights."
59
<PAGE> 61
UNDERWRITING
The Underwriters named below, acting through their representatives,
BancAmerica Robertson Stephens, BT Alex. Brown Incorporated and Donaldson,
Lufkin & Jenrette Securities Corporation (the "Representatives"), have severally
agreed with the Company and the Selling Shareholders, subject to the terms and
conditions of the Underwriting Agreement, to purchase the number of shares of
Common Stock set forth opposite their respective names below. The Underwriters
are committed to purchase and pay for all such shares if any are purchased.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
BancAmerica Robertson Stephens..............................
BT Alex. Brown Incorporated.................................
Donaldson, Lufkin & Jenrette Securities Corporation.........
-------
Total............................................. 3,750,000
=======
</TABLE>
The Representatives have advised the Company that the Underwriters propose
to offer the shares of Common Stock to the public at the initial public offering
price set forth on the cover page of this Prospectus and to certain dealers at
such price less a concession of not in excess of $ per share, of which
$ may be reallowed to other dealers. After the initial public offering, the
public offering price, concession, and reallowance to dealers may be reduced by
the Representatives. No such reduction shall change the amount of proceeds to be
received by the Company as set forth on the cover page of this Prospectus.
The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to 562,500
additional shares of Common Stock at the same price per share as the Company
will receive for the 3,750,000 shares that the Underwriters have agreed to
purchase. To the extent that the Underwriters exercise such option, each of the
Underwriters will have a firm commitment to purchase approximately the same
percentage of such additional shares that the number of shares of Common Stock
to be purchased by it shown in the above table represents as a percentage of the
3,750,000 shares offered hereby. If purchased, such additional shares will be
sold by the Underwriters on the same terms as those on which the shares are
being sold.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters, the Company and the Selling Shareholders against certain civil
liabilities, including liabilities under the Securities Act and liabilities
arising from breaches of representations and warranties contained in the
Underwriting Agreement.
Each officer and director who holds shares of the Company and certain
holders (including such officers and directors) of shares of Common Stock have
agreed, for the 180-day Lockup Period, subject to certain exceptions, not to
offer to sell, contract to sell, or otherwise sell, dispose of, loan or grant
any rights with respect to any shares of Common Stock, any options or warrants
to purchase any shares of Common Stock, or any securities convertible into or
exchangeable for shares of Common Stock owned as of the date of this Prospectus
directly by such holders or with respect to which they have the power of
disposition, without the prior written consent of BancAmerica Robertson
Stephens. However, BancAmerica Robertson Stephens may, in its sole discretion
and at any time without notice, release all or any portion of the securities
subject to lock-up agreements. There are no agreements between the
Representatives and any of the Company's shareholders providing consent by the
Representatives to the sale of shares prior to the expiration of the 180-day
Lockup Period. In addition, the Company has agreed that during the 180-day
Lockup Period, the Company will not, without the prior written consent of
BancAmerica Robertson Stephens, subject to certain exceptions, issue, sell,
contract to sell, or otherwise dispose of, any shares of Common Stock, any
options or warrants to purchase any shares of Common Stock or any securities
convertible into, exercisable for or exchangeable for shares of Common Stock
other than the Company's sale of shares in this offering, the issuance of Common
Stock upon the exercise of outstanding options, and the Company's issuance of
options and shares under existing employee stock option and stock purchase
plans. See "Shares Eligible For Future Sale."
The Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
60
<PAGE> 62
Prior to this offering, there has been no public market for the Common
Stock of the Company. Consequently, the initial public offering price for the
Common Stock offered hereby will be determined through negotiations among the
Company, the Selling Shareholders and the Representatives. Among the factors to
be considered in such negotiations are prevailing market conditions, certain
financial information of the Company, market valuations of other companies that
the Company and the Representatives believe to be comparable to the Company,
estimates of the business potential of the Company, the present state of the
Company's development and other factors deemed relevant.
The Representatives have advised the Company that, pursuant to Regulation M
under the Securities Act, certain persons participating in this offering may
engage in transactions, including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids, that may have the effect of
stabilizing or maintaining the market price of the Common Stock at a level above
that which might otherwise prevail in the open market. A "stabilizing bid" is a
bid for or the purchase of the Common Stock on behalf of the Underwriters for
the purpose of fixing or maintaining the price of the Common Stock. A "syndicate
covering transaction" is the bid for or the purchase of the Common Stock on
behalf of the Underwriters to reduce a short position incurred by the
Underwriters in connection with this offering. A "penalty bid" is an arrangement
permitting the Representatives to reclaim the selling concession otherwise
accruing to an Underwriter or syndicate member in connection with this offering
if the Common Stock originally sold by such Underwriter or syndicate member is
purchased by the Representatives in a syndicate covering transaction and has
therefore not been effectively placed by such Underwriter or syndicate member.
The Representatives have advised the Company that such transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company and certain of the Selling Shareholders by Fulbright & Jaworski L.L.P.,
Houston, Texas. Certain legal matters in connection with this offering will be
passed upon for the Underwriters by Gunderson Dettmer Stough Villeneuve Franklin
& Hachigian, LLP, Austin, Texas.
EXPERTS
The consolidated financial statements as of December 31, 1996 and the years
ended December 31, 1995 and 1996, included in this Prospectus have been so
included in reliance on the report of Grant Thornton LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The consolidated financial statements as of December 31, 1997 and for the
year then ended included in this Prospectus, except as they relate to the
unaudited three-month periods ended March 31, 1997 and 1998, have been so
included in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
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.
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.
61
<PAGE> 63
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, wither
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.
62
<PAGE> 64
BINDVIEW DEVELOPMENT CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Price Waterhouse LLP.............................. F-2
Report of Grant Thornton LLP................................ F-3
Consolidated Balance Sheet at December 31, 1996 and 1997 and
March 31, 1998 (unaudited)................................ F-4
Consolidated Statement of Operations for each of the three
years in the period ended December 31, 1997 and for the
three months ended March 31, 1997 and 1998 (unaudited).... F-5
Consolidated Statement of Shareholders' Equity for each of
the three years in the period ended December 31, 1997 and
the three months ended March 31, 1998 (unaudited)......... F-6
Consolidated Statement of Cash Flows for each of the three
years in the period ended December 31, 1997 and for the
three months ended March 31, 1997 and 1998 (unaudited).... F-7
Notes to Consolidated Financial Statements.................. F-8
</TABLE>
F-1
<PAGE> 65
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS OF
BINDVIEW DEVELOPMENT CORPORATION
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of BindView
Development Corporation and its subsidiary at December 31, 1997, and the results
of their operations and their cash flows for the year in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Houston, Texas
March 31, 1998, except
as to Note 11, which
is as of May 15, 1998
F-2
<PAGE> 66
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Bindview Development Corporation
We have audited the accompanying balance sheet of Bindview Development
Corporation as of December 31, 1996, and the related statements of operations,
shareholders' equity, and cash flows for the years ended December 31, 1996 and
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Bindview Development
Corporation at December 31, 1996 and the results of its operations and its cash
flows for the years ended December 31, 1996 and 1995, in conformity with
generally accepted accounting principles.
GRANT THORNTON LLP
Houston, Texas
February 4, 1997
F-3
<PAGE> 67
BINDVIEW DEVELOPMENT CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- MARCH 31,
1996 1997 1998
------ ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 766 $ 7,203 $ 9,118
Accounts receivable, net.................................. 2,270 4,729 3,169
Other current assets...................................... 83 -- --
Deferred tax asset........................................ -- 3,150 3,028
------ ------- -------
Total current assets.............................. 3,119 15,082 15,315
Property and equipment, net................................. 805 1,370 1,746
Other assets................................................ 92 57 44
------ ------- -------
Total assets...................................... $4,016 $16,509 $17,105
====== ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 273 $ 785 $ 766
Accrued liabilities....................................... 334 831 697
Accrued compensation...................................... 192 614 508
Deferred revenue.......................................... 570 2,029 2,487
------ ------- -------
Total current liabilities......................... 1,369 4,259 4,458
------ ------- -------
Commitments and contingencies (Note 8)...................... -- -- --
Shareholders' equity:
Convertible preferred stock, $0.01 par value, 20,000,000
shares authorized, 0, 2,528,090 and 2,528,090 shares
issued and outstanding, respectively, liquidation
preference of $18,002.................................. -- 25 25
Common stock, no par value, 100,000,000 shares authorized,
7,740,000, 13,197,615 and 13,197,615 shares issued and
outstanding, respectively.............................. 1 1 1
Additional paid-in capital................................ 14 31,728 31,728
Common Stock Warrant to purchase 437,500 shares........... -- 550 550
Retained earnings (accumulated deficit)................... 2,632 (6,037) (5,640)
Treasury stock, 4,921,958 shares.......................... -- (14,017) (14,017)
------ ------- -------
Total shareholders' equity........................ 2,647 12,250 12,647
------ ------- -------
Total liabilities and shareholders' equity... $4,016 $16,509 $17,105
====== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 68
BINDVIEW DEVELOPMENT CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------- ---------------
1995 1996 1997 1997 1998
------ ------- -------- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Licenses......................................... $7,005 $ 9,720 $ 17,821 $2,950 $4,384
Services......................................... 328 1,282 3,017 473 1,456
------ ------- -------- ------ ------
Total revenues........................... 7,333 11,002 20,838 3,423 5,840
------ ------- -------- ------ ------
Cost of revenues:
Cost of licenses................................. 693 465 644 91 208
Cost of services................................. 139 362 624 105 215
------ ------- -------- ------ ------
Total cost of revenues................... 832 827 1,268 196 423
------ ------- -------- ------ ------
Gross profit....................................... 6,501 10,175 19,570 3,227 5,417
------ ------- -------- ------ ------
Costs and expenses:
Sales and marketing.............................. 3,234 4,197 9,088 1,369 2,708
Research and development......................... 1,249 2,088 3,573 622 1,643
General and administrative....................... 1,235 1,472 2,943 511 676
Stock compensation expense....................... -- 436 15,262 -- --
------ ------- -------- ------ ------
Operating income (loss)............................ 783 1,982 (11,296) 725 390
Other income (expense), net........................ (29) 8 118 14 129
------ ------- -------- ------ ------
Income (loss) before income tax provision.......... 754 1,990 (11,178) 739 519
Provision (benefit) for income taxes............... -- -- (3,150) -- 122
------ ------- -------- ------ ------
Net income (loss).................................. $ 754 $ 1,990 $ (8,028) $ 739 $ 397
====== ======= ======== ====== ======
Basic earnings per share........................... $ 0.05
Diluted earnings per share......................... $ 0.02
Pro forma information:
Net income (loss) as reported.................... $ 754 $ 1,990 $ (8,028) $ 739
Pro forma charge (benefit) in lieu of income
taxes......................................... 264 697 (765) 259
------ ------- -------- ------
Pro forma net income (loss)........................ $ 490 $ 1,293 $ (7,263) $ 480
====== ======= ======== ======
Pro forma basic net income (loss) per share........ $ 0.06 $ 0.16 $ (0.88) $ 0.06
====== ======= ======== ======
Pro forma diluted net income (loss) per share...... $ 0.06 $ 0.12 $ (0.88) $ 0.03
====== ======= ======== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 69
BINDVIEW DEVELOPMENT CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK ADDITIONAL COMMON EARNINGS TOTAL
PREFERRED ------------------- PAID-IN STOCK (ACCUMULATED TREASURY SHAREHOLDERS'
STOCK SHARES AMOUNT CAPITAL WARRANT DEFICIT) STOCK EQUITY
--------- ---------- ------ ---------- ------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1995..................... $ -- 7,740,000 $ 1 $ 14 -- $ 693 $ -- $ 708
S Corporation
distributions......... -- -- -- -- -- (248) -- (248)
Net income............... -- -- -- -- -- 754 -- 754
---- ---------- ---- ------- ------- ------- -------- --------
Balance at December 31,
1995..................... -- 7,740,000 1 14 -- 1,199 -- 1,214
S Corporation
distributions......... -- -- -- -- -- (557) -- (557)
Net income............... -- -- -- -- -- 1,990 -- 1,990
---- ---------- ---- ------- ------- ------- -------- --------
Balance at December 31,
1996.................. -- 7,740,000 1 14 -- 2,632 -- 2,647
S Corporation
distributions......... -- -- -- -- -- (1,274) -- (1,274)
Issuance of common stock
to satisfy 1993
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
Net income for three
months ended March 31,
1998 (unaudited)...... -- -- -- -- -- 397 -- 397
---- ---------- ---- ------- ------- ------- -------- --------
Balance at March 31, 1998
(unaudited).............. $ 25 13,197,615 $ 1 $31,728 550 $(5,640) $(14,017) $ 12,647
==== ========== ==== ======= ======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 70
BINDVIEW DEVELOPMENT CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------- ---------------
1995 1996 1997 1997 1998
------- ------ -------- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities: --
Net income (loss)........................... $ 754 $1,990 $ (8,028) $ 739 $ 397
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation and amortization expense.... 431 427 815 131 198
Stock compensation expense............... -- -- 14,642 -- --
Increase in provision for bad debts...... -- -- 170 -- --
Deferred income taxes.................... -- -- (3,150) -- 122
Changes in assets and liabilities:
(Increase) decrease in accounts
receivable.......................... (523) (902) (2,629) (337) 1,560
(Increase) decrease in other current
assets.............................. 7 (49) 83 59 --
Increase (decrease) in accounts
payable............................. 148 37 512 101 (19)
Increase (decrease) in accrued
liabilities......................... 26 51 1,191 17 (240)
Increase in deferred revenue........... 305 86 1,459 657 458
------- ------ -------- ------ ------
Net cash provided by operating
activities........................ 1,148 1,640 5,065 1,367 2,476
------- ------ -------- ------ ------
Cash flows from investing activities:
Purchase of property and equipment.......... (384) (583) (1,250) (248) (574)
Other....................................... (135) (130) (95) 26 13
------- ------ -------- ------ ------
Net cash used by investing
activities........................ (519) (713) (1,345) (222) (561)
------- ------ -------- ------ ------
Cash flows from financing activities:
S Corporation distributions................. (248) (557) (1,274) (125) --
Payments on notes payable and long-term
debt..................................... (2,755) (226) -- -- --
Proceeds from notes payable and long-term
debt..................................... 2,852 -- -- -- --
Proceeds from issuance of convertible
preferred stock and common stock
warrants................................. -- -- 18,002 -- --
Purchases of treasury stock................. -- -- (14,017) -- --
Exercise of stock options................... -- -- 6 -- --
------- ------ -------- ------ ------
Net cash provided (used) by
financing activities.............. (151) (783) 2,717 (125) --
------- ------ -------- ------ ------
Net increase in cash and cash equivalents..... 478 144 6,437 1,020 1,915
Cash and cash equivalents at beginning of
period...................................... 144 622 766 766 7,203
------- ------ -------- ------ ------
Cash and cash equivalents at end of period.... $ 622 $ 766 $ 7,203 $1,786 $9,118
======= ====== ======== ====== ======
Supplemental disclosures for cash flow
information:
Cash paid during the year for interest...... $ 27 $ 15 $ -- $ -- $ --
Noncash financing and investing activities:
Issuance of 502,850 shares of common stock
in 1997 to satisfy 1993 acquisition
liability
Issuance of warrant to purchase 437,500
shares of common stock in 1997 to satisfy
bonus obligation
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 71
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Operations
BindView Development Corporation (the Company), a Texas corporation, was
incorporated in May 1990. Previous to 1995, the Company was known as The LAN
Support Group, Inc. Pursuant to the sale of convertible preferred stock, the
Company's Subchapter S election terminated on October 16, 1997.
The Company develops, markets and supports a suite of systems management
software products that manage the security and integrity of complex, distributed
client/server networks operating on Microsoft Windows NT and Novell NetWare
environments.
Principles of Consolidation
The consolidated financial statements include the accounts of BindView
Development Corporation and BindView GmbH, its wholly-owned German subsidiary.
All significant intercompany transactions have been eliminated.
Revenue Recognition
In October 1997 the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") No. 97-2, "Software Revenue Recognition,"
which the Company adopted effective as of January 1, 1997. Such adoption had no
effect on the Company's method of recognizing revenue from its license and
subscription contract activities. Prior to 1997, the Company recognized revenue
in accordance with SOP No. 91-1, "Software Revenue Recognition." The Company
sells its products under perpetual licenses and recognizes its license revenue
upon meeting each of the following criteria: (i) execution of a written purchase
order, license agreement or contract; (ii) delivery of software or, if the
customer has previously received evaluation software, delivery of the software
license code; and (iii) issuance of the related license, with no significant
vendor obligations or customer acceptance rights outstanding; (iv) the license
fee is fixed or determinable; and (v) collectibility is assessed as being
probable. Revenues from perpetual licenses are recorded as license revenue in
the Statements of Operations. Service revenues include subscription contracts
and professional services. Subscription contracts are purchased separately by
customers at their discretion and revenues are an incremental component of each
contract and are recognized ratably over the one year contract term. The portion
of subscription contract revenues that have not yet been recognized as revenues
is reported as deferred revenue in the accompanying balance sheet.
The Company also derives a portion of its revenues through the sale of its
products by distributors, value-added resellers and system integrators.
Resellers have no return rights and end customers have, under the Company's
standard shrink-wrap license agreement, 30 days to return products. To date,
returns have been minor and, accordingly, the Company has not recorded a reserve
for returns. Revenues are recognized on these transactions upon (i) receipt of
an executed purchase order from the reseller and (ii) shipment of the software.
Postcontract Customer Support
Prior to January 1, 1998, the Company provided postcontract customer
support, consisting solely of telephone technical support, to its customers. The
costs of providing this support has been accrued and charged to expense at the
time the revenue is recognized. Accrued liabilities at December 31, 1996 and
1997 includes approximately $42 and $78, respectively, related to providing this
support.
F-8
<PAGE> 72
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
Advertising Costs
Advertising costs are charged to operations when incurred.
Research and Development
Research and development costs are charged to operations when incurred. In
accordance with the provisions of Statement of Financial Accounting Standards
No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed", the Company capitalizes costs incurred in the development
of software once technological feasibility has been determined. The Company
currently considers technological feasibility to have been established once a
working model of a product has been produced and tested. To date, costs incurred
and capitalizable subsequent to the establishment of technological feasibility
have not been material and are included in the Other Assets in the accompanying
consolidated balance sheet.
Stock-Based Compensation
The Company measures compensation expense for its stock-based employee
compensation plans using the intrinsic method, as prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees".
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the fair market value of the Company's stock at the date of the grant
over the amount the employee must pay to acquire the stock, and is recognized
over the related vesting period.
The Company provides supplemental disclosure of the effect on net income
and earnings per share as if the minimum value-based method had been applied in
measuring compensation expense, as prescribed for nonpublic enterprises in
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (Note 7).
Income Taxes
Prior to October 16, 1997, the Company had elected to be treated as an S
Corporation for federal income tax purposes. Accordingly, all federal income tax
liability prior to that date was the responsibility of the shareholders.
The provision for income taxes is computed based on income earned from the
termination date of the Company's Subchapter S election on October 16, 1997
through December 31, 1997. The asset and liability approach is used to recognize
deferred tax assets and liabilities for the expected future tax consequences of
temporary differences between the carrying amounts and the tax bases of the
assets and liabilities.
The pro forma results of operations of the Company reflect a pro forma
charge in lieu of income taxes prior to October 16, 1997.
Earnings Per Share
The Company's earnings per share data is presented in accordance with
Statement of Financial Accounting Standard No. 128, "Earnings Per Share". Basic
earnings per share is computed using the weighted average number of shares
outstanding. Diluted earnings per share is computed using the weighted average
number of shares outstanding adjusted for the incremental shares attributed to
outstanding securities with the ability to purchase or convert into common
stock.
Cash and Cash Equivalents
The Company considers investments with original maturity dates of three
months or less from the date of purchase to be cash equivalents.
F-9
<PAGE> 73
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
Concentration of Credit Risk
Financial instruments which subject the Company to concentrations of credit
risk consist primarily of cash equivalents and accounts receivable. The Company
maintains its cash equivalent balance in a money market fund invested in U.S.
Treasury Certificates. The fund is not FDIC insured. The Company has not
experienced any losses in such fund and believes it is not exposed to any
significant credit risk on cash equivalents.
Management believes that concentrations of credit risk with respect to
accounts receivable are limited due to the large number of customers comprising
the Company's customer base and their dispersion across many different
industries and geographic regions. The Company performs ongoing credit
evaluations of its customers to minimize credit risk. Approximately 16%, 10% and
13% of the Company's sales were made on an export basis, primarily to customers
in Europe and the United Kingdom in 1995, 1996 and 1997, respectively.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed by
applying the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are amortized over the lives of the respective leases or
the service lives of the improvements, whichever is shorter.
Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets, liabilities, sales and expenses and the disclosure of
contingent assets and liabilities. Actual results could differ from those
estimates. Management believes the estimates are reasonable.
Fair Value of Financial Instruments
The fair value of cash and cash equivalents, accounts receivable and
accounts payable reflected in the December 31, 1996 and 1997 Consolidated
Balance Sheet approximate their carrying value due to their short maturities.
Recent Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 130 "Reporting Comprehensive Income". This
standard is effective for fiscal years beginning after December 15, 1997. The
Company does not have any items of comprehensive income and therefore this
standard does not affect its financial statements or disclosures.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 131 "Disclosures About Segments of an
Enterprise and Related Information". This standard is effective for fiscal years
beginning after December 15, 1997. The Company currently operates in a single
industry and geographic segment and does not expect this standard to have a
material impact on disclosures with respect to the Company's financial condition
or results of operations.
F-10
<PAGE> 74
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
2. ACCOUNTS RECEIVABLE
Accounts receivable balances are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- MARCH 31,
1996 1997 1998
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Trade accounts receivable................................ $2,293 $4,911 $3,352
Other accounts receivable................................ 2 13 12
------ ------ ------
2,295 4,924 3,364
Less -- allowance for doubtful accounts.................. (25) (195) (195)
------ ------ ------
$2,270 $4,729 $3,169
====== ====== ======
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment balances are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
ESTIMATED ---------------- MARCH 31,
USEFUL LIVES 1996 1997 1998
------------ ------ ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Computer equipment and software............ 3 years $1,317 $ 2,296 $ 2,853
Office furniture and other equipment....... 3-7 years 250 378 395
Leasehold improvements..................... lease terms 108 206 206
------ ------- -------
1,675 2,880 3,454
Less -- accumulated depreciation........... (870) (1,510) (1,708)
------ ------- -------
$ 805 $ 1,370 $ 1,746
====== ======= =======
</TABLE>
Depreciation expense totaled $251, $326 and $685 in 1995, 1996 and 1997,
respectively, and $103 (unaudited) and $198 (unaudited) in the three months
ended March 31, 1997 and 1998.
4. CREDIT AGREEMENTS AND FINANCING ARRANGEMENTS
On June 10, 1997, the Company secured a $2,000 line of credit and a $500
line of credit. Any principal draws on the line of credit mature on June 10,
1998. Any principal draws on the $500 line of credit mature 30 months after the
date of such advances. The line is collateralized by accounts receivable and
property and equipment. There have been no borrowings outstanding under these
facilities.
5. INCOME TAXES
Effective October 16, 1997, the Company elected to be treated as a C
Corporation for federal income tax purposes. Accordingly, no federal income tax
expense was recorded by the Company for the years ended December 31, 1995 and
1996, and from January 1, 1997 through October 16, 1997 because operating
results are reported in the individual income tax returns of the shareholders.
The Company's income tax provision (benefit) was comprised of the
following:
<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 16,
1997 TO
DECEMBER 31,
1997
------------
<S> <C>
Deferred:
Federal............................................... $(3,060)
State................................................. (90)
-------
Total......................................... $(3,150)
=======
</TABLE>
F-11
<PAGE> 75
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
A reconciliation of the federal statutory tax rate and the Company's
provision for income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1995 1996 1997
----- ----- -------
<S> <C> <C> <C>
Income taxes at the applicable federal statutory rates... $ 256 $ 677 $(2,317)
State income taxes, net of federal benefit............... 8 20 (68)
Research and development credit.......................... -- -- --
Tax obligation allocated to S Corporation shareholders... (264) (697) (765)
----- ----- -------
Provision (benefit) for income taxes..................... $ -- $ -- $(3,150)
===== ===== =======
</TABLE>
Deferred tax assets at December 31, 1997 are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Assets:
Net operating loss carryforward........................... $2,849 $2,729
Allowance for bad debts................................... 68 68
Accrued liabilities....................................... 172 171
Other..................................................... 61 60
------ ------
$3,150 $3,028
====== ======
</TABLE>
The Company's net operating loss carryforward is attributable to the stock
compensation expense realized during the C Corporation period related to the
termination of the Company's phantom stock plan (Note 6). The Company's net
operating loss carryforward at December 31, 1997 of approximately $7,500 for
federal income tax purposes expires in 2012. The Company's ability to utilize
the net operating loss carryforward may be limited if certain changes of
ownership occur. Based on the historical earnings generated by the Company,
management believes it is more likely than not that the tax benefits related to
the net operating loss carryforward will be realized and has, therefore,
provided no valuation allowance for the related deferred tax asset.
6. STOCK COMPENSATION EXPENSE
Phantom Stock Plan Termination
In 1996, the Company implemented a phantom stock plan which granted phantom
stock units to certain employees. Each phantom stock unit provided the
participant with the right to receive shares of Company common stock upon the
occurrence of a change in control of the Company, an initial public offering of
the Company's common stock, liquidation of the Company or a sale of
substantially all of the Company's assets (the "Events"). Since the number of
shares of Common Stock a participant might receive would not be known until one
of the Events occurred, the Company has treated the Phantom Stock Plan 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
F-12
<PAGE> 76
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
stock on October 13, 1997 and 3,187,612 shares of common stock on October 16,
1997 to retire the Phantom Stock Plan. The Company recognized a related stock
compensation charge of $14,712 in October 1997.
On October 16, 1997, the Company issued 1,303,740 common stock options
under the Company's 1997 Employee Stock Option Plan with an exercise price of
$2.85 per share to former participants in the Phantom Stock Plan (Note 7). No
compensation expense has been recorded related to these options as the exercise
price is equal to the fair market value of the Company's common stock on the
date of grant.
Stock compensation expense of $436 was recognized in 1996 in connection
with cash payments made for the extinguishment of certain rights to receive
Company common stock which were held by a terminated employee.
Officer Warrants
In November 1997 the Company issued a warrant to purchase 437,500 shares of
common stock at a price of $2.85 per share to an officer to terminate a
provision of the stock option agreement with that officer. The Company has
recognized compensation expense of $550 during the fourth quarter of 1997 based
upon the fair value of the warrant issued.
7. SHAREHOLDERS' EQUITY
Issuance of Convertible Preferred Stock and Warrants
In October 1997, the Company issued 2,528,090 shares of $0.01 par value
convertible preferred stock and warrants to purchase 749,999 shares of common
stock, at $4.00 per share in exchange for $18,002 of cash. The warrants are
immediately exercisable and expire April 16, 2000. In the event of a liquidation
of the Company, the Company's preferred stock has liquidation preference over
its common stock. The preferred stock has a liquidation value of $7.12 per
preferred share and is convertible at the option of the holder into common stock
on a 2.5-for-1 basis. In the event of an initial public offering, the Company's
preferred stock would automatically convert into common stock and any
unexercised warrants would automatically expire.
At December 31, 1997, there were 6,320,225 shares of common stock reserved
by the Board of Directors for issuance to the holders of the preferred stock and
749,999 shares of common stock reserved by the Board of Directors for issuance
to the holders of the warrants.
Treasury Stock Transactions
The Company repurchased 4,921,958 shares of common stock for $2.85 per
share in October 1997.
Issuance of Common Stock to Satisfy Acquisition Liability
In April 1997, the Company issued 502,850 shares to satisfy its 1993
obligation incurred related to 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.
F-13
<PAGE> 77
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
Nonqualified Stock Option Plan
In 1996, the Company's Board of Directors adopted the Nonqualified Stock
Option Plan. At December 31, 1997, there were 1,747,325 shares of common stock
reserved by the Board of Directors for issuance under this plan. There were no
options exercisable at December 31, 1996. Options on 218,750 shares were
exercisable at December 31, 1997, with a weighted average exercise price per
share of $1.34.
1997 Employee Stock Option Plan
In 1997, the Company's Board of Directors adopted the 1997 Employee Stock
Option Plan. At December 31, 1997, there were 1,303,740 shares of common stock
reserved by the Board of Directors for issuance under this plan. There were no
options exercisable at December 31, 1997.
Substantially all options reserved under the Company's Incentive Stock
Option Plan, the Nonqualified Stock Option Plan and the 1997 Employee Stock
Option Plan have been issued.
Options granted under the Incentive and Nonqualified Stock Option Plans
vest 20% per year over five years, except for 647,325 and 875,000 options
granted in 1996 and 1997, respectively, which vest as follows: 218,750 in 1997,
975,450 in 1998, 109,375 in 1999, 109,375 in 2000 and 109,375 in 2001. Options
granted under the 1997 Employee Stock Option Plan vest at varying rates through
the year 2001. Options must be exercised no later than ten years from the date
of grant.
Stock options have been granted at the fair market value of the Company's
stock at the date of grant as determined by the Company's Board of Directors. In
pricing the options issued prior to October 1997, the Board used a multiple of
revenues resulting from 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.
The following table summarizes combined activity under the stock option
plans for each of the three years ended December 31, 1997:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
PRICE PER PRICE PER
OPTIONS SHARE SHARE
--------- ------------- ---------
<S> <C> <C> <C>
Options outstanding, December 31, 1995
Options granted................................. 1,528,575 $0.75 - $2.47 $1.50
Options lapsed or canceled...................... (132,500) $0.75 $0.75
Options exercised............................... -- -- --
---------
Options outstanding, December 31, 1996............ 1,396,075 $0.75 - $2.47 $1.57
Options granted................................. 3,391,385 $1.10 - $2.85 $2.01
Options lapsed or canceled...................... (213,250) $0.75 - $2.85 $0.97
Options exercised............................... (10,000) $0.75 - $0.76 $0.75
---------
Options outstanding, December 31, 1997............ 4,564,210 $0.75 - $2.85 $1.92
Options granted (unaudited)..................... 479,418 $3.85 -$4.48 $4.01
Options lapsed or canceled (unaudited).......... (28,750) $0.95 - $2.85 $1.34
Options exercised............................... -- -- --
---------
Options outstanding, March 31, 1998 (unaudited)... 5,014,878 $0.75 - $4.48 $2.13
---------
</TABLE>
F-14
<PAGE> 78
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
The following table summarizes significant ranges of outstanding and
exercisable options at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------ --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
SHARES IN REMAINING EXERCISE SHARES IN EXERCISE
THOUSANDS LIFE IN YEARS PRICE THOUSANDS PRICE
--------- ------------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
under $0.80....................... 495,500 7.0 $0.76 223,000 $0.75
$0.81 to $1.60.................... 1,933,750 9.3 $1.34 257,625 $1.30
$1.61 to $2.40.................... 22,500 9.7 $1.69 -- $ --
over $2.41........................ 2,112,460 9.4 $2.73 -- $ --
</TABLE>
Stock Based Compensation Disclosures
The minimum value of stock based compensation was calculated in accordance
with Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," using the Black-Scholes model with the following
weighted average assumptions (the minimum value method does not include
volatility):
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Expected life (in years) 4 4
Interest rate.............................................. 6% 6%
Volatility................................................. N/A N/A
Dividend yield............................................. 0% 0%
</TABLE>
Stock based compensation costs would have reduced pretax income by $18 and
$164 in 1996 and 1997 ($12 and $107 after tax, respectively and $0.01 per share
in 1997) if the minimum values of such compensation in that year had been
recognized as compensation expense on a straight-line basis over the vesting
period of the grant.
8. COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company conducts its operations in leased facilities under operating
leases expiring at various dates through 2001. The leases are cancelable upon
payment of six months rent and reimbursement of the unamortized balance of the
leasehold allowance. Total lease expense amounted to approximately $98, $279 and
$575 at December 31, 1995, 1996 and 1997, respectively.
The minimum rental commitments under operating leases at December 31, 1997
were: $420 in 1998, $401 in 1999, $305 in 2000 and $4 in 2001.
9. 401(K) PLAN
Effective January 1, 1995, the Company adopted a 401(k) plan which is
available to all full-time employees. Employees contribute to the plan through
payroll deductions. The Company matches 50% of the participant's contribution up
to a maximum of 6% of a participant's compensation. Additionally, the Company
may make a discretionary contribution as determined by the Board of Directors.
Total Company contributions were $130, $165 and $174 in 1995, 1996 and 1997,
respectively.
F-15
<PAGE> 79
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
10. NET INCOME PER SHARE
As a result of the Company's change from an S Corporation to a C
Corporation in October 1997, presentation of pro forma net income per share is
necessary for the years ended December 31, 1995, 1996 and 1997. Shares issued as
a result of a 10-for-1 stock split in 1997, and 502,850 shares issued in 1997 to
satisfy a 1993 technology acquisition liability have been treated as if they had
been effective and outstanding as of January 1, 1995 and included in weighted
average shares outstanding.
The computation of basic and diluted net income per share and pro forma
basic and diluted net income (loss) per share follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------- -------------------
1995 1996 1997 1997 1998
------ ------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net income............................ $ -- $ -- $ -- $ -- $ 397
=======
Pro forma net income (loss)........... $ 490 $ 1,293 $(7,263) $ 480 $ --
====== ======= ======= =======
Shares used in basic calculation (in
thousands):
Total basic shares.................. 8,228 8,228 8,232 8,228 8,275
Additional shares for diluted
computation:
Effect of stock options............. -- 70 593 286 1,569
Effect of warrants.................. -- -- -- -- 158
Effect of convertible preferred
stock............................ -- -- 1,318 -- 6,320
Effect of phantom stock............. -- 2,748 5,075 5,800 --
Exclusion of share equivalents that
are anti-dilutive because a loss
was incurred..................... -- -- (6,986) -- --
------ ------- ------- ------- -------
Total diluted shares........ 8,228 11,046 8,232 14,314 16,322
====== ======= ======= ======= =======
Basic net income per share............ $ 0.05
Diluted net income per share.......... $ 0.02
Pro forma basic net income (loss) per
share............................... $ 0.06 $ 0.16 $ (0.88) $ 0.06
Pro forma diluted net income (loss)
per share........................... $ 0.06 $ 0.12 $ (0.88) $ 0.03
</TABLE>
11. SUBSEQUENT EVENTS
Effective May 15, 1998, the Company's Board of Directors amended its
Articles of Incorporation to change the level of its authorized stock to 20
million shares of $0.01 par value Preferred Stock and 100 million shares of no
par Common Stock. The Board also approved the reservation of 1,750,000 shares of
Common Stock for the 1998 Omnibus Incentive Plan and 250,000 shares of Common
Stock for the Non-Employee Director Plan. The Board also declared a 2.5-for-1
stock split of the Common Stock of the Company for holders of shares immediately
prior to the effective date of the board resolution above. All share and per
share amounts contained herein have been retroactively adjusted to give effect
for this stock split.
F-16
<PAGE> 80
[BINDVIEW LOGO]
<PAGE> 81
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of Common Stock being registered. All amounts are estimates except
the SEC registration fee and the NASD filing fees.
<TABLE>
<S> <C>
SEC Registration fee........................................ $ 13,995
NASD fee.................................................... 4,928
Nasdaq National Market listing fee.......................... 100,000
Printing and engraving expenses............................. 150,000
Legal fees and expenses..................................... 400,000
Accounting fees and expenses................................ 200,000
Blue sky fees and expenses.................................. 25,000
Transfer agent fees......................................... 10,000
Miscellaneous fees and expenses............................. 72,010
----------
Total............................................. $ 975,000
==========
</TABLE>
- ---------------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article 2.02-1 of the Texas Business Corporations Act (the "TBCA")
authorizes a court to award or a corporation's Board of Directors to grant
indemnification to directors and officers in terms sufficiently broad to permit
such indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Securities Act"). Article IX of the Registrant's Bylaws
provides for mandatory indemnification of its directors and officers and
permissible indemnification of employees and other agents to the maximum extent
permitted by the TBCA.
The Registrant's Amended and Restated Articles of Incorporation (the
"Revised Articles of Incorporation") provide that, pursuant to Texas law, its
directors shall not be liable for monetary damages for breach of the directors'
fiduciary duty as directors to the Company and its shareholders. This provision
in the Articles of Incorporation does not eliminate the directors' fiduciary
duty, and in appropriate circumstances equitable remedies such as injunctive or
other forms of non-monetary relief will remain available under Texas law. In
addition, each director will continue to be subject to liability for breach of
the director's duty of loyalty to the Company for acts or omissions not in good
faith or involving intentional misconduct, for knowing violations of law, for
actions leading to improper personal benefit to the director, and for payment of
dividends or approval of stock repurchases or redemptions that are unlawful
under Texas law. The provision also does not affect a director's
responsibilities under any other law, such as the federal securities laws or
state or federal environmental laws. The Registrant has entered into
Indemnification Agreements with its officers and directors, a form of which is
attached as Exhibit 10.16 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 6,320,224 shares of its Class A
Preferred Stock for an aggregate price of approximately $18 million. Of these
shares of Preferred Stock, 3,495,820 were issued to General Atlantic Partners
44, L.P., 717,662 were issued to GAP Coinvestment Partners, L.P., and 2,106,742
were issued to JMI Equity Fund III, L.P. In connection with this transaction,
the Registrant also issued warrants to
II-1
<PAGE> 82
purchase an aggregate of 749,999 shares of the Registrant's Common Stock at an
exercise price of $4.00 per share. Of these warrants, 414,837 were issued to
General Atlantic Partners 44, L.P., 85,162 were issued to GAP Coinvestment
Partners, L.P., and 250,000 were issued to JMI Equity Fund, III, L.P. The
issuance of the above securities were deemed to be exempt from registration
under the Securities Act in reliance on Section 4(2) thereof as transactions by
an issuer not involving any public offering. In addition, the recipients of
securities in such transactions represented their intentions to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends were affixed to the share
certificates issued in such transactions. To the Registrant's knowledge, all
recipients had adequate access, through their relationships with the Registrant,
to information about the Registrant.
In October 1997, the Registrant also issued 4,944,800 shares of Common
Stock in connection with the termination of the Registrant's Phantom Stock Plan.
The issuance was deemed to be exempt from registration under the Securities Act
in reliance on Rule 701 and Section 4(2) of the Securities Act as issuances to
employees, directors and consultants under a compensatory plan or arrangement.
In addition, from time to time since May 1995 the Registrant has issued an
aggregate of 10,000 shares of Common Stock pursuant to the exercise of options
outstanding under the Registrant's Stock Option Plans. Such issuances were
deemed to be exempt under the Securities Act in reliance on Rule 701 and Section
4(2) of the Securities Act as issuances to employees, directors and consultants
under a compensatory plan or arrangement.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
1.1 -- Form of Underwriting Agreement
3.1 -- Amended and Restated Articles of Incorporation of the
Registrant
3.2 -- Bylaws of the Registrant
4.1 -- Reference is hereby made to Exhibits 3.1 and 3.2
4.2 -- Specimen Common Stock certificate
5.1 -- Opinion of Fulbright & Jaworski L.L.P.
10.1 -- Incentive Stock Option Plan
10.2 -- Stock Option Plan
10.3 -- 1997 Incentive Plan
10.4 -- Omnibus Incentive Plan
10.5 -- 1998 Non-Employee Director Stock Option Plan
10.6 -- Letter Loan Agreement dated June 10, 1996 between the
Registrant and Southwest Bank of Texas, N.A.
10.7 -- Lease Agreement dated June 20, 1995 between the
Registrant and School Employees Holding Corp., including
all amendments thereto
10.8 -- Agreement to Sublease dated June 25, 1998 between the
Registrant and Halliburton Energy Services, Inc.
10.9 -- Stock Ownership Agreement dated April 8, 1997 between the
Registrant and Nadeem Ghias
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
10.11 -- Registration Rights Agreement dated November 7, 1997
among Bindview Development Corporation and Scott R.
Plantowsky
</TABLE>
II-2
<PAGE> 83
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
10.12 -- Employee Agreement dated May 13, 1996 between the
Registrant and Christopher J. Sole, including all
amendments thereto
10.13 -- Amended and Restated Employment Agreement dated April 15,
1997 between the Registrant and Scott R. Plantowsky
10.14 -- Employee Agreement dated September 26, 1996 between the
Registrant and David E. Pulaski
10.15 -- Employee Agreement dated December 20, 1993 between the
Registrant and Nadeem Ghias, including all amendments
thereto
10.16 -- Form of Indemnification Agreement
*16.1 -- Letter regarding Change in Certifying Accountant
*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
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the TBCA, the Revised Articles of Incorporation or the
Bylaws of the Registrant, the Underwriting Agreement, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered hereunder, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 84
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 4 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the city
of Houston, State of Texas, on this 23th day of July, 1998.
BINDVIEW DEVELOPMENT CORPORATION
/s/ ERIC J. PULASKI
--------------------------------------
Eric J. Pulaski,
President and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Eric J. Pulaski and Scott R. Plantowsky,
and each of them, his true and lawful attorneys-in-fact and agents with full
power of substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and to sign any registration statement for the
same offering covered by this Registration Statement that is to be effective
upon filing pursuant to Rule 462(b) promulgated under the Securities Act of
1933, and all post-effective amendments thereto, and to file the same, with all
exhibits thereto and all documents in connection therewith, with the Securities
and Exchange Commission, granting unto said attorneys-in-fact and agents, and
each of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or his or
their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ ERIC J. PULASKI Chairman of the Board, July 23, 1998
- ----------------------------------------------------- President and Chief
Eric J. Pulaski Executive Officer
* /s/ CHRISTOPHER J. SOLE Director, Vice President and July 23, 1998
- ----------------------------------------------------- Chief Operating Officer
Christopher J. Sole
* /s/ SCOTT R. PLANTOWSKY Director, Vice President and July 23, 1998
- ----------------------------------------------------- Chief Financial Officer
Scott R. Plantowsky
* /s/ PETER L. BLOOM Director July 23, 1998
- -----------------------------------------------------
Peter L. Bloom
* /s/ JOHN J. MOORES Director July 23, 1998
- -----------------------------------------------------
John J. Moores
* /s/ RICHARD A. HOSLEY II Director July 23, 1998
- -----------------------------------------------------
Richard A. Hosley II
*By: /s/ ERIC J. PULASKI
- -----------------------------------------------------
Eric J. Pulaski
(Attorney-in-fact)
</TABLE>
II-4
<PAGE> 85
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated March 31, 1998, except as
to the stock split described in Note 11, which is as of May 15, 1998, relating
to the financial statements of BindView Development Corporation, which appears
in the Prospectus. We also consent to the references to us under the heading
"Experts" in such Prospectus. However, it should be noted that
PricewaterhouseCoopers LLP has not prepared or certified such "Selected
Financial Data."
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
July 23, 1998
II-5
<PAGE> 86
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated February 4, 1997, accompanying the
financial statements of BindView Development Corporation contained in the
Registration Statement and Prospectus. We consent to the use of the
aforementioned report in the Registration Statement and Prospectus, and to the
use of our name as it appears under the caption "Experts".
GRANT THORNTON LLP
Houston, Texas
July 23, 1998
II-6
<PAGE> 87
APPENDIX
TEXT FOR ARTWORK ON INSIDE FRONT COVER
Have you ever experienced a
security breach?
Is your PC LAN ready for the Year 2000?
Have you ever run out
of disk space?
Do you have an accurate inventory of your LAN assets?
BindView answers the questions you have about your network.
BindView gives organizations a way to manage the security and integrity of
complex, distributed client/server networks while reducing the Total Cost of
Ownership for enterprise computing.
BindView's primary product line, BindView EMS, provides software solutions for
systems administration, security management, enterprise inventory of LAN assets,
and year 2000 assessment of PC hardware and software. BindView EMS can be used
proactively to diagnose, and in many cases fix, a wide range of specific
problems occurring in Windows NT and NetWare environments. In addition, BindView
EMS is built to scale with networks as they grow enterprise-wide in scope.
BindView EMS provides customers with a product that is both easy to use and easy
to deploy enterprise-wide.
BindView EMS/NOSadmin for Windows NT
* Security assessment
* User and server administration
* Disk space management
* Enforce network standards
* System documentation
BindView EMS/NOSadmin for NetWare
* Security assessment
* User and server administration
* Disk space management
* Enforce network standards
* Make enterprise-wide changes to system configuration
* System documentation
BindView EMS/NETinventory
* Year 2000 assessment of PC hardware and software
* Perform ongoing audits
* Improve help desk response times
* Track software license compliance
* Make better-informed strategic technology decisions
[PHOTO SHOWING PC SCREEN AND BUILDING]
[PHOTO SHOWING PERSON ON TOP OF NETWORK BUILDING]
Scrutinize the network.
Secure the network.
Analyze the network.
Update the network.
Identify risks.
Diagnose the network.
Manage the network.
Analyze disk space usage.
Analyze network security.
Plan for network migration.
Track hardware & software.
Get detailed network information.
Prepare the PC LAN for Year 2000.
Automate network reports.
Track software compliance.
Make more efficient IT investments.
Flexible.
Intelligent.
Scalable.
Usable.
Easy to deploy.
Easy to use.
The BindView Solution.
BindView:
Enterprise capable, workgroup simple
network management.
TEXT FOR ARTWORK ON INSIDE BACK COVER
Remember Your Kids?
[PHOTO OF JASON L., SUZY Q. AND SAMUEL R.]
Jason L.
Wants you to see his soccer game on Tuesday, basketball game on wednesday, and
drama contest on Friday.
Suzy Q.
Presently starring as The Cowardly Lion in her elementary school's spring
musical.
Samuel R.
forgot about the school science project - and needs your help!
BindView EMS
NOSadmin
Everyone has priorities in life and sometimes it's difficult to keep them all
straight. One simple way to squeeze in a little more free time is with BindView
EMS. It scrutinizes your network, pinpoints risks to network integrity, helps
you quickly address daily operational issues, and then provides reports that are
easy to understand and distribute. BindView EMS also looks at hundreds of risks
that other security products ignore.
[PHOTO OF BINDVIEW SOFTWARE PACKAGE]
Windows NT and NetWare
<PAGE> 88
INDEX TO EXHIBITS
(A) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
1.1 -- Form of Underwriting Agreement
3.1 -- Amended and Restated Articles of Incorporation of the
Registrant
3.2 -- Bylaws of the Registrant
4.1 -- Reference is hereby made to Exhibits 3.1 and 3.2
4.2 -- Specimen Common Stock certificate
5.1 -- Opinion of Fulbright & Jaworski L.L.P.
10.1 -- Incentive Stock Option Plan
10.2 -- Stock Option Plan
10.3 -- 1997 Incentive Plan
10.4 -- Omnibus Incentive Plan
10.5 -- 1998 Non-Employee Director Stock Option Plan
10.6 -- Letter Loan Agreement dated June 10, 1996 between the
Registrant and Southwest Bank of Texas, N.A.
10.7 -- Lease Agreement dated June 20, 1995 between the
Registrant and School Employees Holding Corp., including
all amendments thereto
10.8 -- Agreement to Sublease dated June 25, 1998 between the
Registrant and Halliburton Energy Services, Inc.
10.9 -- Stock Ownership Agreement dated April 8, 1997 between the
Registrant and Nadeem Ghias
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
10.11 -- Registration Rights Agreement dated November 7, 1997
among Bindview Development Corporation and Scott R.
Plantowsky
10.12 -- Employee Agreement dated May 13, 1996 between the
Registrant and Christopher J. Sole, including all
amendments thereto
10.13 -- Amended and Restated Employment Agreement dated April 15,
1997 between the Registrant and Scott R. Plantowsky
10.14 -- Employee Agreement dated September 26, 1996 between the
Registrant and David E. Pulaski
10.15 -- Employee Agreement dated December 20, 1993 between the
Registrant and Nadeem Ghias, including all amendments
thereto
10.16 -- Form of Indemnification Agreement
*16.1 -- Letter regarding Change in Certifying Accountant
*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
EXHIBIT 16.1
In March 1998, BindView Development Corporation (the Company) changed
independent accounting firms from Grant Thornton LLP to Price Waterhouse LLP.
The Company dismissed Grant Thornton on March 6, 1998 in order to engage an
independent accountant from the Big Six. The change in independent accountants
was approved by the Audit Committee of the Company's Board of Directors.
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.
There were no consultations with independent accountants other than Grant
Thornton LLP on matters related to accounting principles or practices, financial
statement disclosure, or auditing scope or procedure prior to the termination of
the Company's relationship with Grant Thornton LLP.
<PAGE> 2
July 23, 1998
Securities and Exchange Commission
Washington, DC 20549
Re: BindView Development Corporation
File No. 333-52883
Dear Sir or Madam:
We have read this Exhibit 16.1 of Amendment No. 4 to Form S-1 of BindView
Development Corporation dated July 23, 1998, and agree with the statements
contained therein.
Very truly yours,
/s/ GRANT THORNTON LLP
GRANT THORNTON LLP
