<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 14, 1998
REGISTRATION NUMBER 333-52883
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
BINDVIEW DEVELOPMENT CORPORATION
(Exact name of registrant as specified in its charter)
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TEXAS 7372 76-0306721
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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3355 WEST ALABAMA, SUITE 1200
HOUSTON, TEXAS 77098
713/843-1799
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
SCOTT R. PLANTOWSKY
CHIEF FINANCIAL OFFICER
BINDVIEW DEVELOPMENT CORPORATION
3355 WEST ALABAMA, SUITE 1200
HOUSTON, TEXAS 77098
713/843-1799
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
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ROBERT F. GRAY, JR. JAY K. HACHIGIAN
RICHARD H. GILDEN BRIAN K. BEARD
FULBRIGHT & JAWORSKI L.L.P. GUNDERSON DETTMER STOUGH
1301 MCKINNEY, SUITE 5100 VILLENEUVE FRANKLIN & HACHIGIAN, LLP
HOUSTON, TEXAS 77010 8911 CAPITAL OF TEXAS HIGHWAY, SUITE 4240
713/651-5151 AUSTIN, TEXAS 78759
512/342-2300
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering.
[ ]
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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.
[ ]
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If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE PRICE(2) REGISTRATION FEE(3)
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Common Stock, no par value per
share............................ 4,312,500 Shares $11.00 $47,437,500 $13,995
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(1) Includes 562,500 shares of Common Stock which may be purchased by the
Underwriters to cover over-allotments; if any.
(2) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o).
(3) 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.
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SUBJECT TO COMPLETION, DATED JULY 14, 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.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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UNDERWRITING PROCEEDS
PRICE TO DISCOUNTS PROCEEDS TO TO SELLING
PUBLIC AND COMMISSIONS COMPANY(1) SHAREHOLDERS
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Per Share....................... $ $ $ $
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Total(2)........................ $ $ $ $
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(1) Before deducting expenses payable by the Company estimated at $975,000.
(2) The Company has granted to the Underwriters a 30-day option to purchase up
to an additional 562,500 shares of Common Stock solely to cover
over-allotments, if any. See "Underwriting." If such option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions,
Proceeds to the Company and Proceeds to Selling Shareholders will be
$ , $ , $ and $ , respectively.
------------------------------
The Common Stock is offered by the Underwriters as stated herein, subject
to receipt and acceptance by them and subject to their right to reject any order
in whole or in part. It is expected that delivery of such shares will be made
through the offices of BancAmerica Robertson Stephens, San Francisco,
California, on or about , 1998.
BANCAMERICA ROBERTSON STEPHENS
BT ALEX. BROWN
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
THE DATE OF THIS PROSPECTUS IS , 1998.
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CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, ENTERING STABILIZING BIDS, EFFECTING SYNDICATE
COVERING TRANSACTIONS AND IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
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NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, ANY SELLING SHAREHOLDER OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES
OR AN OFFER TO, OR A SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH
AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
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TABLE OF CONTENTS
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PAGE
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Summary..................................................... 4
Risk Factors................................................ 6
Use of Proceeds............................................. 17
Dividend Policy............................................. 17
Capitalization.............................................. 18
Dilution.................................................... 19
Selected Consolidated Financial Data........................ 20
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 21
Business.................................................... 30
Management.................................................. 42
Certain Transactions........................................ 51
Principal and Selling Shareholders.......................... 54
Description of Capital Stock................................ 56
Shares Eligible for Future Sale............................. 58
Underwriting................................................ 60
Legal Matters............................................... 61
Experts..................................................... 61
Additional Information...................................... 62
Index to Consolidated Financial Statements.................. F-1
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The Company intends to furnish to its shareholders annual reports
containing audited consolidated financial statements examined by its independent
public accountants and quarterly reports containing unaudited financial
statements for the first three quarters of each fiscal year.
BindView EMS, NOSadmin and ActiveAdmin are trademarks of the Company and
BindView is a registered trademark of the Company. Trade names, service marks or
trademarks of other companies appearing in this Prospectus are the property of
their respective holders.
The Company was incorporated in Texas in May 1990. The Company's principal
executive offices are located at 3355 West Alabama, Suite 1200, Houston, Texas
77098, and its telephone number is (713) 843-1799. The Company's Web site is
located at www.bindview.com. Information contained in the Company's Web site
shall not be deemed to be a part of this Prospectus. Unless otherwise indicated,
all references in this Prospectus to "BindView" or the "Company" refer to
BindView Development Corporation and its subsidiaries.
Unless otherwise indicated, the information in this Prospectus (i) assumes
no exercise of the Underwriters' over-allotment option, (ii) reflects a
2 1/2-to-1 split of the Company's common stock (the "Common Stock") that was
approved by the Company's Board of Directors on May 14, 1998, subject to
shareholder approval, and (iii) reflects, except in the Consolidated Financial
Statements, the conversion of all outstanding shares of Preferred Stock into
Common Stock and the exercise of outstanding warrants to purchase 749,999 shares
of Common Stock upon or prior to completion of this offering.
3
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SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors" and the Consolidated Financial Statements
and Notes thereto, appearing elsewhere in this Prospectus. This Prospectus
contains forward-looking statements that involve risks and uncertainties. The
Company's actual results may differ materially from the results discussed in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those discussed in "Risk Factors" and elsewhere in this
Prospectus.
THE COMPANY
BindView develops, markets and supports a suite of systems management
software products that manage the security and integrity of complex, distributed
client/server networks operating on Microsoft Windows NT and Novell NetWare
environments. The Company's primary product line, BindView EMS, provides
software solutions for systems administration, security management, enterprise
inventory of LAN assets and Year 2000 assessment of PC hardware and software.
BindView EMS can be used by network administrators, security auditors and other
IT personnel to proactively identify, diagnose and, in many cases, fix a wide
range of systems management problems allowing organizations to reduce the Total
Cost of Ownership of enterprise computing.
The use of distributed, client/server networks has grown tremendously in
the last ten years with the increase in PC-based LANs being one of the fastest
growing aspects of the client/server market. These LANs are largely dependent on
servers running network operating systems provided by Microsoft and Novell. As
these LANs have grown larger and technically more complex, the problems
associated with maintaining their security and integrity have increased and
become more difficult for IT departments to manage. As a result, network
security and integrity are increasingly at risk, and the Total Cost of Ownership
for client/server computing has often climbed far beyond management's
expectations. The market for systems management software to address these issues
is growing rapidly. IDC projects this market for the Windows and NetWare
platforms to grow to over $4.6 billion by the year 2000, with security
management software for Windows NT Server and NetWare accounting for $640
million of the total.
Historically, IT organizations have addressed LAN systems management
problems through a combination of manual processes, custom-built tools and
third-party software, but none of these alternatives have offered a completely
satisfactory solution. Third-party software solutions, in general, have been
more cost-effective, less time consuming and less prone to human error than
manual processes and custom-built tools. However, most of the traditional
third-party LAN suites in this market focus on management of the desktop and not
on the management of the network operating system. In addition, many of these
solutions were not built specifically to manage Windows NT and NetWare
environments, do not scale efficiently to manage networks as they grow to
enterprise-wide deployments and do not provide the diagnostic software to find
and fix the root cause of a problem. As an organization's dependence on its LAN
infrastructure increases, its IT department must be able to address these
shortcomings.
The Company's comprehensive suite of systems management software products
enable IT organizations to manage the increasingly complex issues associated
with managing the security and integrity of the LAN environment in a
cost-effective manner. BindView EMS has been built to be native to each of the
Windows NT and Novell NetWare platforms that it supports. BindView EMS has also
been designed to manage workgroup LANs as well as enterprise-wide networks of
tens of thousands of users. BindView's product offerings utilize a unique
query-based approach to systems management that allows users to perform
diagnostic and reporting tasks in a matter of minutes that previously took hours
or even days to complete. Finally, the Company's products are designed to be
both easy to install and use, with a typical enterprise-wide deployment taking
just days or weeks to install depending on the product.
The Company's products have been sold to more than 70% of the Fortune 100
companies. BindView markets and sells its products primarily through a direct
telesales organization of 75 people located in Houston, Texas and Frankfurt,
Germany, and, to a lesser extent, through VARs, distributors and systems
integrators. The Company has sold its software products through direct channels
to over 4,000 corporations, governmental agencies and other organizations
worldwide, and also to over 150 resellers and distributors. The Company's
customers currently include: 3Com, Blue Cross and Blue Shield, Chase, Ernst &
Young, Federal Reserve Bank, GE Capital, Hoechst, Kellogg, Michelin, PageNet,
Paramount Pictures, Proctor & Gamble, Sony, Sprint and Suntrust.
The Company's objective is to be the leading provider of systems management
software for enterprise networks. In order to meet this goal, the Company's
strategy is to enhance its leadership position in security assessment software,
enhance its systems administration capabilities, apply query-based management to
new applications, expand its direct telesales model, leverage its existing
customer base and strengthen its strategic relationships.
4
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THE OFFERING
Common Stock Offered by the Company....... 2,758,886 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)
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THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
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1993 1994 1995 1996 1997 1997 1998
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(UNAUDITED)
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CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues.......................................... $3,031 $5,171 $7,333 $11,002 $ 20,838 $ 3,423 $ 5,840
Operating income (loss)(3)........................ 396 509 783 1,982 (11,296) 725 390
Net income (loss)................................. 389 488 754 1,990 (8,028) 739 397
Pro forma net income (loss)(4)(5)................. 253 317 490 1,293 (7,263) 480 --(9)
Diluted pro forma net income (loss) per
share(4)(6)(7).................................. $ 0.03 $ 0.04 $ 0.06 $ 0.12 $ (0.88) $ 0.03 $ 0.02
Shares used in computing diluted pro forma net
income (loss) per share(6)(7)................... 8,228 8,228 8,228 11,046 8,232 14,314 16,322
</TABLE>
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MARCH 31, 1998
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PRO
ACTUAL FORMA(2) AS ADJUSTED(2)(8)
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(UNAUDITED)
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CONSOLIDATED BALANCE SHEET DATA:
Working capital............................................. $10,857 $15,559 $40,282
Total assets................................................ 17,105 21,847 46,530
Total shareholders' equity.................................. 12,647 17,389 42,072
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(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.
5
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RISK FACTORS
In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating the Company and its
business before purchasing shares of the Common Stock offered hereby. This
Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors" and elsewhere in this Prospectus.
OPERATING RESULTS SUBJECT TO SIGNIFICANT FLUCTUATIONS; SEASONALITY
The Company's quarterly revenues, expenses and operating results have in
the past varied and in the future will continue to vary significantly due to a
variety of factors, such as demand for the Company's products, the size and
timing of significant orders and their fulfillment, the length of the sales
cycle for larger orders, the number, timing and significance of product
enhancements and new product announcements by the Company and its competitors,
changes in pricing policies by the Company or its competitors, customer order
deferrals in anticipation of enhancements or new products offered by the Company
or its competitors or in anticipation of changes or delays in network operating
system ("NOS") platforms and technologies, the ability of the Company to
develop, introduce and market new and enhanced versions of its products on a
timely basis, changes in the Company's level of operating expenses, budgeting
cycles of its customers, product life cycles, undetected software errors and
other product quality problems, the Company's ability to attract and retain
qualified personnel, changes in the Company's sales incentive plans and staffing
of sales territories, changes in the mix of products and services sold, changes
in the mix of domestic and international revenues, the level of international
expansion, changes in the mix of channels through which the Company's products
are offered, the impact of industry consolidation, the Company's ability to
control costs and general domestic and international economic and political
conditions. The Company operates with virtually no order backlog because its
software products are shipped shortly after orders are received, which makes
product revenues in any quarter substantially dependent on orders booked
throughout that quarter. A disproportionate amount of the Company's sales are
booked in the last few weeks or days of each quarter as a result of customer
buying patterns. The Company believes this pattern will continue. Moreover, the
Company's expense levels are based to a significant extent on the Company's
expectations of future revenues and therefore are relatively fixed in the short
term. If revenue levels are below expectations, operating results are likely to
be adversely and disproportionately affected because only a small portion of the
Company's expenses vary with its revenues.
The Company's quarterly operating results are subject to certain seasonal
fluctuations, largely due to customer buying patterns. Historically, the
Company's revenues have tended to be strongest in the fourth quarter of the year
and to decrease in the first quarter of the following year. The Company believes
this seasonality is due to the calendar year budgeting cycles of many of its
customers and to compensation polices tending to compensate sales personnel for
achieving annual revenue quotas. In future periods, the Company expects these
seasonal trends may cause first quarter revenues to be significantly lower than
the level achieved in the preceding fourth quarter.
Prior to January 1, 1998, the Company provided telephone support free of
charge and sold product upgrades separately or through subscription contracts.
The Company now requires its customers to purchase a subscription policy in
order to receive product upgrades and technical support. Unlike software license
revenues that are generally recognized upon shipment of the product, the Company
recognizes revenues from the sale of subscription contracts ratably over the
life of the contract term. As a result, to the extent that the Company derives a
larger percentage of its revenues from the sale of subscription contracts, the
Company will experience an increase in deferred revenue that is likely to result
in decreases in operating margins that could have an adverse effect on the
Company's business operating results and financial condition.
Based upon all of the factors described above, the Company believes that
its quarterly revenues, expenses and operating results are likely to vary
significantly in the future, that period-to-period comparisons of its operating
results are not necessarily meaningful and that, in any event, such comparisons
should not be relied upon as indications of future performance. The Company has
limited ability to forecast future revenues, and it
6
<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
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Current and potential competitors may make strategic acquisitions or
establish cooperative relationships among themselves or with third parties,
thereby increasing their ability to address the needs of the Company's current
or prospective customers. Accordingly, it is possible that new competitors or
alliances among current and new competitors may emerge and rapidly gain
significant market share. Such competition could materially adversely affect the
Company's ability to obtain new licenses or to obtain maintenance and support
renewals for existing licenses on terms favorable to the Company. There can be
no assurance that the Company will be able to compete successfully against
current and future competitors, and the failure to do so would materially
adversely affect the Company's business, operating results and financial
condition. See "Business -- Competition."
RAPID TECHNOLOGICAL CHANGE AND NEW PRODUCTS
The market for the Company's products is characterized by rapid
technological change, frequent new product introductions and enhancements,
uncertain product life cycles, changes in customer demands and evolving industry
standards. The introduction of products embodying new technologies and the
emergence of new industry standards could render existing products obsolete and
unmarketable. The Company relies heavily on its relationships with Microsoft and
Novell and attempts to coordinate its product offerings with the future releases
of operating systems by such vendors. The Company may or may not be made aware
of such feature enhancements prior to their release and, therefore, may not be
able to introduce products on a timely basis that capitalize on such operating
system releases and feature enhancements. As a result of the complexities
inherent in client/server computing environments, the life cycles of the
Company's software products are difficult to estimate and new products and
product enhancements can require long development and testing periods and are
dependent on the Company's ability to hire and retain increasingly scarce and
technically competent personnel. As a result, significant delays in the general
availability of such new releases or significant problems in the installation or
implementation of such new releases could have a material adverse effect on the
Company's business, operating results and financial condition. The Company has,
on occasion, experienced delays in the scheduled introduction of new and
enhanced products and there can be no assurance that such delays will not be
experienced in the future. As a result, the Company's future success will
depend, in part, upon its ability to continue to enhance existing products and
develop and introduce in a timely manner new products to keep pace with
technological change and evolving industry standards, satisfy customer
requirements and achieve market acceptance. There can be no assurance that the
Company will successfully identify new product opportunities and develop and
bring new products to market in a timely and cost-effective manner, or that
products, capabilities or technologies developed by others will not render the
Company's products or technologies obsolete or noncompetitive or shorten the
life cycles of the Company's products. See "Business -- Product Development."
DEPENDENCE ON CONTINUED GROWTH OF THE MARKET FOR WINDOWS NT AND NOVELL NETWARE
OPERATING SYSTEMS
To date, all of the Company's revenues have been dependent upon Microsoft's
Windows NT and Novell's NetWare operating systems. Although demand for Windows
NT and Novell NetWare operating systems has grown in recent years with the
proliferation of distributed computing, this market is still emerging and there
can be no assurance that it will continue to grow or that, even if the market
does grow, organizations will continue to adopt the Company's products. The rate
of acceptance of the Company's products is dependent upon the increasing
complexity of Windows NT and NetWare operating systems and the lack of effective
tools to simplify system administration and security management for these
environments. There can be no assurance that the market for the Company's
products will continue to develop or that the Company's products will be widely
accepted. Additionally, there can be no assurance that the market for system
administration and security management software generally will continue to grow.
If the markets for the Company's products fail to develop or develop more slowly
than the Company currently anticipates, the Company's business, operating
results and financial condition would be materially adversely affected. The
percentages of the Company's revenues attributable to licenses of its software
operating on particular platforms are subject to change from time to time due to
a number of factors outside the Company's control, such as changing market
acceptance and penetration of the various operating system platforms supported
by the Company and the relative mix of development and installation by
value-added resellers ("VARs") of
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application software operating on such platforms. See "Business -- Industry
Background," "-- Products and Technology" and "-- Sales and Marketing."
PRODUCT CONCENTRATION
Substantially all of the Company's revenues to date have been attributable
to the sale of its NOSadmin and NETinventory products, and these products are
currently expected to account for substantially all of the Company's revenues
for the foreseeable future. The Company's future operating results are dependent
upon continued market acceptance of its NOSadmin and NETinventory products and
enhancements to these products, as well as the continued development of
additional snap-in modules to its Enterprise Console product. Consequently, a
decline in the demand for, or market acceptance of, the Company's NOSadmin and
NETinventory products as a result of competition, technological change or other
factors, would have a material adverse effect on the Company's business,
operating results and financial condition. Although the Company currently has
plans to broaden its product line, there can be no assurance that such product
concentration will be reduced. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business -- Products and
Technology."
RISKS ASSOCIATED WITH LENGTH OF SALES CYCLE
The Company has traditionally focused sales of its products to the
workgroups and divisions of a customer, resulting in a sales cycle ranging
between three and six months. Recently, the Company has focused more of its
selling effort on products for the customer's entire enterprise, since such
sales represent a larger revenue opportunity. However, the sales cycle for these
enterprise-wide sales typically ranges between six and twelve months, which can
be more than twice as long as the sales cycle for smaller scale implementations.
Because of the costs involved, customers of enterprise-wide sales generally
commit significant resources to an evaluation of available network management
software and require the Company to expend substantial time, effort and money
educating them about the value of the Company's products and services.
Enterprise-wide sales of the Company's software products require an extensive
sales effort throughout a customer's organization because decisions to license
and deploy such software generally involve the evaluation of the software by a
significant number of customer personnel in various functional and geographic
areas, each often having specific and conflicting requirements. A variety of
factors, including factors over which the Company has little or no control, may
cause potential customers to favor competing products or to delay or forego a
purchase. As a result of the length of the sales cycle for larger,
enterprise-wide sales of its products and services, the Company has a limited
ability to forecast the timing and amount of specific sales. The delay or
failure to complete one or more large, enterprise-wide sales in a particular
quarter or calendar year could have a materially adverse effect on the Company's
business, operating results and financial condition and could cause the
Company's operating results to vary significantly from quarter to quarter. See
"-- Operating Results Subject to Significant Fluctuations; Seasonality."
MANAGEMENT OF A RAPIDLY CHANGING BUSINESS
The Company has recently experienced a period of significant expansion that
has placed significant demands upon its management, systems and resources. In
particular, the Company had a total of 178 employees at March 31, 1998, as
compared to 85 at March 31, 1997. This expansion of the Company's business has
placed, and any future expansion is expected to continue to place, a significant
strain on the Company's management and operations, including its sales, customer
support, research and development, finance and administrative operations. The
Company is in the process of upgrading its internal financial, reporting and
sales contact management systems to enhance the Company's ability to obtain,
analyze and manage information and sales contacts derived from its domestic and
international operations. There can be no assurance, however, that the Company's
existing or future controls, systems or procedures will be adequate to support
the Company's operations. The Company is also considering moving to new
headquarters facilities in 1998, which can be a disruptive, time consuming and
expensive process. The Company's ability to manage its future growth, if any,
will require the Company to continually improve its financial and management
controls, reporting systems and procedures on a timely basis, implement new
systems as necessary, expand,
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train and manage its employee workforce and recruit qualified management
personnel. There can be no assurance that the Company's controls, systems,
procedures or management will be adequate to support the Company's operations.
Further, the implementation of such controls, systems or procedures could entail
substantial expense and require the time and attention of key management
personnel, either of which could have a materially adverse effect on the
Company's business, operating results or financial condition. The rapid
expansion of the Company's business may result in the Company being subject to a
variety of local, state, federal and international taxes. Although the Company
believes it is currently in compliance with the rules and regulations of such
tax jurisdictions, due to the complexity inherent in such tax laws, any
discovered current or future tax liabilities could have a materially adverse
effect on the Company's business, operating results and financial condition. The
founders of the Company, including the Company's Chief Executive Officer, have
had no prior experience managing a large or public company, and have only
limited experience managing a rapidly growing business organization. The failure
of the Company's management to respond effectively to changing business
conditions would have a material adverse effect upon the Company's business,
operating results and financial condition.
DEPENDENCE ON KEY PERSONNEL; NEED FOR ADDITIONAL QUALIFIED PERSONNEL
The Company's success depends to a significant extent upon the efforts of
Eric J. Pulaski, the Company's President and Chief Executive Officer, who is not
bound by an employment contract, and other key management, sales and marketing,
technical support and research and development personnel. The loss of key
management or technical personnel could adversely affect the Company. The
Company does not maintain key man life insurance policies on any of its
executive officers. The Company believes that its future success will depend in
large part upon its continuing ability to attract and retain highly skilled
research and development, technical support and sales and marketing personnel.
Like other software companies, the Company faces intense competition for such
personnel and the Company has at times experienced and continues to experience
difficulty in recruiting qualified personnel. The Company anticipates that it
will need to continue to increase the size of its research and development,
direct telesales, services and support personnel in future periods. In
particular, the Company has experienced difficulties in hiring and retaining
qualified research and development personnel. In order to support sales growth,
if any, the Company will need to increase the size of its sales and marketing
staff, increase the staff's productivity and, in selected markets, develop
indirect distribution channels. There can be no assurance that the Company will
be able to successfully leverage its sales force or that the Company's sales and
marketing organization will successfully compete against the more extensive and
better funded sales and marketing organizations of many of the Company's current
and future competitors. There can be no assurance that the Company will be
successful in attracting, assimilating and retaining additional qualified
personnel in the future. The loss of the services of one or more of the
Company's key individuals or the failure to attract and retain additional
qualified personnel, could have a material adverse effect on the Company's
business, operating results and financial condition. See "Business -- Employees"
and "Management."
RISKS ASSOCIATED WITH INTERNATIONAL SALES AND OPERATIONS
During 1995, 1996 and 1997, and during the three months ended March 31,
1998, the Company derived approximately 16%, 10%, 13% and 10% of its revenues,
respectively, from sales outside North America. The Company only recently opened
its first direct telesales and service office outside the United States.
Historically, the Company has generated revenues outside North America through
indirect channels, including VARs and other distributors. The Company is in the
early stages of developing its indirect distribution channels in certain markets
outside the United States. There can be no assurance that the Company will be
able to attract third parties that will be able to market the Company's products
effectively and will be qualified to provide timely and cost-effective customer
support and service. The Company's arrangements with its resellers generally
provide that such resellers may carry competing product offerings. There can be
no assurance that any distributor or reseller will continue to represent the
Company's products. The inability to recruit, or the loss of, important sales
personnel, distributors or resellers could materially adversely affect the
Company's business, operating results and financial condition.
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The Company anticipates that for the foreseeable future an increasing
percentage of its revenues may be derived from sources outside North America as
the Company seeks to expand its sales and support operations internationally. In
January 1998, the Company established its first international direct telesales
office and is still adapting the telesales model utilized by the Company in
North America to local conditions. In order to successfully expand international
sales, the Company must establish additional international direct telesales
offices, expand the management and support organizations for its international
sales channel, hire additional personnel, customize its products for local
markets, recruit additional international resellers where appropriate and expand
the use of its direct telesales model. There are currently only a limited number
of companies that have established a direct telesales model in countries outside
the United States. In the event the Company is unable to establish and generate
increased sales through a direct telesales model, it will incur higher personnel
costs without corresponding increases in revenue, resulting in lower operating
margins for its international operations. In addition, the differing employment
policies of countries outside the United States potentially reduce the Company's
flexibility in managing headcount and, in turn, managing personnel-related
expenses. To the extent that the Company is unable to address the risks
associated with these international sales in a timely and cost-effective manner,
the Company's sales growth internationally, if any, will be limited, operating
margins could be reduced by increases in personnel-related expenses without
corresponding increases in revenues, and the Company's business, operating
results and financial condition could be materially adversely affected. Even if
the Company is able to successfully expand its international operations, there
can be no assurance that the Company will be able to maintain or increase
international market demand for its products. See "Business -- Sales and
Marketing."
The Company's international operations are generally subject to a number of
risks, including costs of customizing products for foreign countries,
protectionist laws and business practices favoring local competition, dependence
on local vendors, compliance with multiple, conflicting and changing
governmental laws and regulations, longer sales cycles, greater difficulty or
delay in accounts receivable collection, import and export restrictions and
tariffs, difficulties in staffing and managing foreign operations, foreign
currency exchange rate fluctuations, multiple and conflicting tax laws and
regulations and political and economic instability. To date, substantially all
of the Company's revenues and costs have been denominated in U.S. dollars.
However, the Company believes that in the future, an increasing portion of the
Company's revenues and costs will be denominated in foreign currencies. There
can be no assurance that future fluctuations in the value of foreign currencies
will not have a material adverse effect on the Company's business, operating
results and financial condition. Management currently does not have an active
foreign exchange hedging program. As a result the Company's foreign operations
are subject to the risks of future foreign currency fluctuations, to the extent
that they are not hedged by obligations denominated in local currencies. See
"-- Operating Results Subject to Significant Fluctuations; Seasonality" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
LIMITED PROTECTION OF PROPRIETARY TECHNOLOGY; RISKS OF INFRINGEMENT
The Company relies primarily on a combination of copyright, trademark and
trade secret laws, confidentiality procedures and contractual provisions to
protect its proprietary rights. However, the Company believes that such measures
afford only limited protection. There can be no assurance that others will not
develop technologies that are similar or superior to the Company's technology or
design around the copyrights and trade secrets owned by the Company. The Company
licenses its software products primarily under "shrink wrap" licenses (i.e.,
licenses included as part of the product packaging). Shrink wrap licenses are
not negotiated with or signed by individual licensees and purport to take effect
upon the opening of the product package. In cases where the Company negotiates a
specific license with a customer, the license agreement contains provisions
purporting to protect the Company's proprietary rights. The Company believes,
however, that these measures afford only limited protection. Despite the
Company's efforts to protect its proprietary rights, unauthorized parties may
attempt to copy aspects of the Company's products or to obtain and use
information that the Company regards as proprietary. Policing unauthorized use
of the Company's products is difficult and the Company is unable to determine
the extent to which its products may be copied by unauthorized parties. In
addition, the laws of some foreign countries do not protect the Company's
proprietary rights as fully as do the laws of the United States. There can be no
assurance that the Company's means of
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protecting its proprietary rights will be adequate or that competition will not
independently develop similar or superior technology.
The Company is not aware that it is infringing upon any proprietary rights
of third parties. There can be no assurance, however, that third parties will
not claim infringement by the Company of their intellectual property rights. The
Company expects that software product developers increasingly will be subject to
infringement claims as the number of products and competitors in the Company's
industry segment grows and the functionality of products in different industry
segments overlaps. Any such claims, with or without merit, could be time
consuming to defend, result in costly litigation, divert management's attention
and resources, cause product shipment delays or require the Company to enter
into royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to the Company, if at all. In
the event of a successful claim of product infringement against the Company and
failure or inability of the Company to either license the infringed or similar
technology or develop alternative technology on a timely basis, the Company's
business, operating results and financial condition could be materially
adversely affected. See "Business -- Proprietary Rights."
RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS
Historically, the Company has not engaged in a substantial number of
acquisitions. However, in order to remain competitive in the future, the Company
may find it necessary to acquire businesses, products and technologies that
could complement or expand the Company's business. In the event that the Company
identifies an appropriate acquisition candidate, there can be no assurance that
the Company would be able to successfully negotiate the terms of any such
acquisition, finance such acquisition or integrate such acquired business,
products or technologies into the Company's existing business and operations.
Furthermore, the negotiation of potential acquisitions as well as the
integration of an acquired business could cause diversions of management time
and resources. There can be no assurance that a given acquisition, whether or
not consummated, would not materially adversely affect the Company's business,
operating results and financial condition. If the Company proceeds with one or
more significant acquisitions in which the consideration consists of cash, the
Company may be required to use a substantial portion of the Company's available
cash (including proceeds of this offering) to consummate the acquisitions. If
the Company consummates one or more significant acquisitions in which the
consideration consists of stock, shareholders of the Company could suffer a
significant dilution of their interests in the Company. See "Use of Proceeds"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
RISK OF UNDETECTED SOFTWARE ERRORS
Software products as complex as those offered by the Company may contain
certain undetected errors, particularly when first introduced or when new
versions or enhancements are released. The Company has in the past discovered
software errors in certain of its new products after their introduction. There
can be no assurance that, despite testing by the Company, such errors will not
be found in current versions, new versions or enhancements of its products after
commencement of commercial shipments, resulting in adverse publicity, loss of
revenues, delay in market acceptance or claims by customers brought against the
Company, all of which could have a material adverse effect on the Company's
business, operating results and financial condition. See "Business -- Product
Development."
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products were not
built to cope with issues that will result from accepting and processing dates
beyond December 31, 1999. This problem stems from the fact that many software
products, computer systems, and other equipment with embedded hardware chips
that use dates, have stored the year component of such dates as a two-digit
number relative to the year 1900 rather than as a four-digit number (e.g.,
storing the year as "98" rather than "1998"). On January 1, 2000, systems using
only a two-digit year may interpret the year "00" as "1900" rather than "2000"
and continue to misinterpret subsequent years as well. In addition, the clocks
of many systems that automatically compute leap years may incorrectly compute
leap years beyond 1999. Many other associated problems could also occur,
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including system failures or miscalculations causing disruption of operations.
As a result, in the next two years, computer systems and/or software used by
many companies may need to be upgraded to comply with such "Year 2000"
requirements. Significant uncertainty exists in the software industry concerning
the potential effects associated with such compliance. Although the latest
versions of BindView EMS are designed to be Year 2000 compliant, releases of
BindView EMS before version 5.2a are not Year 2000 compliant or have not been
tested for Year 2000 compliance. There can be no assurance the Company's
software products designed to be Year 2000 compliant contain all necessary date
code changes.
The Company believes that the purchasing patterns of customers and
potential customers may be affected by Year 2000 issues in a variety of ways.
Many companies are expending significant resources to correct or patch their
current software systems for Year 2000 compliance. These expenditures may result
in reduced funds available to purchase products and services such as those
offered by the Company. Potential customers may also choose to defer purchasing
Year 2000 compliant products until they believe it is absolutely necessary, thus
resulting in depressed market sales within the industry. Conversely, Year 2000
issues may cause other companies to accelerate purchases, thereby causing an
increase in short-term demand and a consequent decrease in long-term demand for
software products. Additionally, Year 2000 issues could cause a significant
number of companies, including current customers of the Company, to reevaluate
their current software needs and, as a result, switch to other systems or
suppliers. Any of the foregoing could result in a material adverse effect on the
Company's business, operating results and financial condition.
BindView currently uses third-party software applications some of which are
not Year 2000 compliant. The Company is in the process of upgrading these
systems to be able to handle the transition to the Year 2000 and beyond and
plans to have these upgrades completed within the next 12 months. In addition,
the Company is not yet certain as to the extent to which the computer software
and business systems of its suppliers are Year 2000 compliant. If systems of
third parties on which the Company relies are not converted on a timely basis,
the Year 2000 issue could have a material adverse effect on the Company's
business, financial conditions or results of operations.
PRODUCT LIABILITY
Although the Company's license agreements with its customers typically
contain provisions designed to limit the Company's exposure to potential product
liability claims, it is possible that such limitation of liability provisions
may not be effective as a result of existing or future laws or unfavorable
judicial decisions. The Company has not experienced any material product
liability claims to date. However, the sale and support of the Company's
products may entail the risks of such claims, which may be substantial in light
of the use of the Company's products in business-critical applications. In
particular, because certain products of the Company are sold to customer's with
the intent of aiding them in their attempt to resolve security management,
inventory management and Year 2000 issues, it is possible that the Company could
be exposed to product liability claims in the event such products result in
additional problems for the customer or do not perform as the customer might
expect. A successful product liability claim brought against the Company could
have a material adverse effect on the Company's business, operating results and
financial condition. Moreover, defending such a suit, regardless of its merits,
could entail substantial expense and require the time and attention of key
management personnel, either of which could have a materially adverse effect on
the Company's business, operating results and financial condition. See
"Business -- Products and Technology" and "-- Product Development."
NO PRIOR TRADING MARKET FOR THE COMMON STOCK; POTENTIAL VOLATILITY OF STOCK
PRICE
Prior to this offering, there has been no public market for the Common
Stock and there can be no assurance that an active trading market will develop
or be sustained after this offering. The initial public offering price will be
determined by negotiation among the Company, the Selling Shareholders and the
representatives of the Underwriters and may not be indicative of the price that
will prevail in the open market. See "Underwriting" for a discussion of the
factors to be considered in determining the initial public offering price.
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The market price of the Common Stock is likely to be highly volatile and
may be significantly affected by factors such as actual or anticipated
fluctuations in the Company's revenue and operating results, announcements of
technological innovations, new or enhanced products by the Company or its
competitors, developments with respect to copyrights or proprietary rights,
conditions and trends in the software and other technology industries, adoption
of new accounting standards affecting the software industry, changes in
financial estimates by securities analysts, general market conditions and other
factors. In addition, the stock market has from time to time experienced
significant price and volume fluctuations that have particularly affected the
market prices for the securities of technology companies. In the past, following
periods of volatility in the market price of a particular company's securities,
securities class action litigation has often been brought against the company.
There can be no assurance that such litigation will not occur in the future with
respect to the Company. Such litigation could result in substantial costs and a
diversion of management's attention and resources, which could have a material
adverse effect upon the Company's business, operating results and financial
condition. See "Underwriting."
CONTROL OF COMPANY BY OFFICERS, DIRECTORS AND FIVE PERCENT SHAREHOLDERS
Upon the consummation of this offering, the officers, directors, five
percent or greater shareholders and their affiliates in the aggregate will
beneficially own approximately 71.4% of the outstanding Common Stock (69.5% if
the Underwriters' over-allotment option is exercised in full). As a result,
these shareholders will be able to exercise control over all matters requiring
shareholder approval, including the election of directors and approval of
significant corporate transactions. Such concentration of ownership may have the
effect of delaying or preventing a change in control of the Company. See
"Principal and Selling Shareholders."
BENEFITS OF THE OFFERING TO EXISTING STOCKHOLDERS
The existing stockholders of the Company will recognize significant
benefits from this offering. These benefits include the creation of a public
market for the Company's Common Stock, which will afford existing stockholders
the ability to liquidate their investments, subject, in certain cases, to volume
limitations and other limitations and restrictions upon the sale of the Common
Stock. See "Shares Eligible For Future Sale." Certain of the Company's
stockholders will sell shares in this offering. See "Principal and Selling
Stockholders." As of March 31, 1998, existing stockholders held 16,073,612
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 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
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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."
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IMMEDIATE AND SUBSTANTIAL DILUTION
The initial public offering price is substantially higher than the book
value per share of the outstanding Common Stock. As a result, investors
purchasing Common Stock in this offering will incur immediate and substantial
dilution of $7.77 per share. In addition, the Company has issued options to
acquire Common Stock at prices significantly below the assumed initial public
offering price. To the extent such outstanding options are exercised, there will
be further dilution. See "Dilution" and "Shares Eligible for Future Sale."
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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."
Pricing of the Company's software product licenses is based on the number
of servers, workstations and/or users. The Company may provide discounts for
customers with large installations or when several BindView EMS products are
licensed concurrently. The annual subscription contract is purchased separately
by customers at their discretion and is a separate component that is offered for
a fee generally equal to 21% of the retail price of the perpetual license fee.
Prior to January 1, 1998, the Company provided telephone support services free
of charge and sold product upgrades separately or through subscription
contracts. Subsequent to that date, the Company began requiring customers to
purchase a subscription contract in order to have access to such support
services and updates. Subscription contract revenues both before and after
January 1, 1998 are recognized ratably over the contract term. Subscription
contracts typically include telephone support and product updates, when and if
available. Most customers with large implementations of BindView EMS products
have purchased subscription contracts and have renewed such contracts on an
annual basis.
The Company recognizes revenues in accordance with the American Institute
of Certified Public Accountants Statement of Position No. 97-2. The Company
sells its products under perpetual licenses and recognizes its license revenues
upon meeting each of the following criteria: (i) execution of a written purchase
order, license agreement or contract; (ii) delivery of software or, if the
customer has previously received evaluation software, delivery of the software
license code; (iii) issuance of the related license, with no significant vendor
obligations or customer acceptance rights outstanding; (iv) the license fee is
fixed or
21
<PAGE> 23
determinable; and (v) collectibility is assessed as being probable. Revenues
from perpetual licenses are recorded as license revenues in the Statements of
Operations. Service revenues include subscription contracts and professional
services. Subscription contract revenues are recognized ratably over the one
year contract term. The portion of subscription contract revenues that have not
yet been recognized as revenue is reported as deferred revenue in the
accompanying balance sheet. However, costs associated with selling such
contracts are recognized in the period in which they were incurred. Professional
service revenues are recognized as such services are performed and have
historically been immaterial.
The Company markets and sells its products through direct telesales, VARs,
distributors and systems integrators. The Company's direct telesales
organization generates the substantial majority of sales to North America
customers. Conversely, VARs, distributors and systems integrators generate the
substantial majority of sales to international customers. In 1998, the Company
launched its first international direct telesales effort by forming a wholly
owned German subsidiary, BindView Development GmbH. Historically, substantially
all sales have been invoiced and paid in U.S. dollars. However, the Company
anticipates international expansion will result in the Company transacting
business in foreign currencies. The Company may implement a foreign currency
forward-hedging program to mitigate the foreign currency transaction risk in the
future. See "Risk Factors -- Risks Associated with International Sales and
Operations."
At the time of its incorporation, the Company (then operating as The LAN
Support Group, Inc.) elected to be treated as an S Corporation under Subchapter
S of the Internal Revenue Code. As an S Corporation, the Company's shareholders
were liable for federal income tax liabilities resulting from the Company's
operations. On October 16, 1997, the Company's status as an S Corporation was
terminated and for periods thereafter the Company has been liable for federal
income taxes. The Company has recognized a pro forma charge in lieu of income
taxes in its Consolidated Statements of Operations for the periods prior to its
C Corporation status to reflect income tax charges as if the Company had been a
C Corporation for all periods presented. Prior to the termination of its S
Corporation status, the Company declared distributions as dividends to
shareholders payable in cash in an amount generally equal the tax consequence
created by the S Corporation's earnings up to the date of such termination. The
Company has no plans to pay any dividends or distributions in the foreseeable
future.
22
<PAGE> 24
RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data as a
percentage of total revenues for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------- ---------------
1995 1996 1997 1997 1998
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues:
Licenses..................................... 95.5% 88.3% 85.5% 86.2% 75.1%
Services..................................... 4.5 11.7 14.5 13.8 24.9
----- ----- ----- ----- -----
Total revenues....................... 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- -----
Cost of revenues:
Cost of licenses............................. 9.5 4.2 3.1 2.6 3.6
Cost of services............................. 1.8 3.3 3.0 3.1 3.6
----- ----- ----- ----- -----
Total cost of revenues............... 11.3 7.5 6.1 5.7 7.2
----- ----- ----- ----- -----
Gross margin................................... 88.7 92.5 93.9 94.3 92.8
----- ----- ----- ----- -----
Costs and expenses:
Sales and marketing.......................... 44.1 38.1 43.6 40.0 46.4
Research and development..................... 17.0 19.0 17.1 18.2 28.1
General and administrative................... 16.8 13.4 14.1 14.9 11.6
Stock compensation expense................... -- 4.0 73.2 -- --
----- ----- ----- ----- -----
Operating income (loss)........................ 10.8 18.0 (54.1) 21.2 6.7
Other income (expense), net.................... (0.4) 0.1 0.6 0.4 2.2
----- ----- ----- ----- -----
Income (loss) before income tax provision...... 10.4 18.1 (53.5) 21.6 8.9
Provision (benefit) for income tax............. -- -- (15.1) -- 2.1
----- ----- ----- ----- -----
Net income (loss).............................. 10.4 18.1 (38.4) 21.6 6.8
Pro forma charge (benefit) in lieu of income
taxes........................................ 3.6 6.3 (3.6) 7.6 --
----- ----- ----- ----- -----
Pro forma net income (loss).................... 6.8 11.8 (34.8) 14.0 --
===== ===== ===== ===== =====
</TABLE>
Revenues
The Company's revenues are derived from the sale of software products and
related services including subscription contracts. The Company's revenues were
$7.3 million, $11.0 million and $20.8 million in 1995, 1996 and 1997,
respectively, representing increases of $3.7 million or 50% from 1995 to 1996
and $9.8 million or 89% from 1996 to 1997. The Company's revenues were $3.4
million and $5.8 million for the three months ended March 31, 1997 and 1998,
respectively, representing an increase in the first quarter of 1998 of $2.4
million or 71% over the comparable quarter of the prior year. The Company had no
customer that accounted for more than 10% of its revenues in 1996, 1997 or for
the three months ended March 31, 1998. Revenues recognized from sales to
customers outside North America, primarily in the United Kingdom and Europe,
represented approximately 16%, 10%, 13% and 10% in 1995, 1996, 1997 and for the
three months ended March 31, 1998, respectively.
The Company's license revenues were $7.0 million, $9.7 million and $17.8
million in 1995, 1996 and 1997, respectively, representing increases of $2.7
million or 39% from 1995 to 1996 and $8.1 million or 83% from 1996 to 1997. The
Company's license revenues were $3.0 million and $4.4 million for the three
months ended March 31, 1997 and 1998, respectively, representing an increase in
the first quarter of 1998 of $1.4 million or 49% over the comparable quarter of
the prior year. The increase in the Company's license revenues over this time
period has resulted from new product introductions and enhancements, increases
in the average transaction size and increases in the size and productivity of
the Company's sales force. The increase in the Company's license revenues from
1995 to 1996 resulting from the release of the Windows-based BindView EMS
product family, including NOSadmin for NetWare 3 and NOSadmin for NetWare 4,
approximated $3.9 million. The increase in the Company's license revenues from
1996 to 1997 resulting from
23
<PAGE> 25
continued market acceptance of BindView EMS, including the release of NOSadmin
for Windows NT and the release of NETinventory which approximated $4.8 million.
The increase in the Company's license revenues from the three months ended March
31, 1997 to the three months ended March 31, 1998, resulted from those reasons
cited for the growth between 1996 and 1997, as well as product enhancements to
NETinventory to include Year 2000 auditing capabilities for PC hardware and
software which contributed $1.4 million.
The Company's service revenues were $328,000, $1.3 million and $3.0 million
in 1995, 1996 and 1997, respectively, representing increases of $1.0 million or
291% from 1995 to 1996 and $1.7 million or 135% from 1996 to 1997. The Company's
subscription contract revenues were $473,000 and $1.5 million for the three
months ended March 31, 1997 and 1998, respectively, representing an increase in
the first quarter of 1998 of $1.0 million or 208% over the comparable quarter of
the prior year. The increase in the Company's service revenues from 1995 through
the first quarter of 1998 resulted primarily from increases in purchases of
subscription contracts by the Company's growing installed customer base and
larger dollar value of subscription agreements resulting from increases in the
average size of customer licensing agreements. In particular, the increase in
the Company's service revenues from the three months ended March 31, 1997 to the
three months ended March 31, 1998 resulted primarily from increases in sales of
subscription contracts to new and existing customers as a result of a change in
the Company's policies with respect to technical support and product upgrades.
Prior to January 1, 1998, the Company provided telephone support free of charge
and sold product upgrades separately or through subscription contracts.
Subsequent to that date, the Company began requiring customers to purchase a
subscription contract in order to have access to such support services and
updates. As subscription contracts are recognized ratably over the one year
contract term, an increase in such revenues as a percentage of total revenues
would result in greater deferred revenue recognition. This would, in turn,
impact the Company's operating margins. See "Risk Factors -- Operating Results
Subject to Significant Fluctuations; Seasonality."
Cost of Revenues
Cost of licenses includes product manuals, packaging, distribution and
media costs for the Company's software products. Cost of licenses were $693,000,
$465,000 and $644,000 in 1995, 1996 and 1997, respectively, and $91,000 and
$208,000 for the three months ended March 31, 1997 and 1998, respectively. The
cost of licenses decreased $228,000 or 33% from 1995 to 1996, increased $179,000
or 38% from 1996 to 1997 and increased $117,000 or 129% for the three months
ended March 31, 1997 as compared to the three months ended March 31, 1998. In
1996, the Company instituted a policy of qualifying potential customers before
delivering evaluation copies of the Company's software, resulting in a decrease
in the absolute cost of licenses. Since 1996, the cost of licenses has increased
primarily due to increases in product shipments. Cost of licenses as a
percentage of license revenues were 9.9%, 4.8% and 3.6% for 1995, 1996 and 1997,
respectively, and 3.1% and 4.7% for the three months ended March 31, 1997 and
1998, respectively. The Company believes these costs will remain relatively
consistent on a percentage basis in the future, although there will continue to
be quarterly fluctuations due to the timing of certain expenses, as was
exemplified in the first quarter of 1998 as compared to the comparable period in
1997.
Cost of services includes personnel and other costs related to technical
support and professional services. Cost of services were $139,000, $362,000 and
$624,000 in 1995, 1996 and 1997, respectively, and $105,000 and $215,000 for the
three months ended March 31, 1997 and 1998, respectively. The cost of services
increased $223,000 or 160% from 1995 to 1996, $262,000 or 72% from 1996 to 1997
and $110,000 or 105% for the three months ended March 31, 1997 as compared to
the three months ended March 31, 1998. The increase in the Company's cost of
services from 1995 through the first quarter of 1998 resulted primarily from
increases in the cost of technical support staff providing support to the
Company's growing customer base. Cost of services as a percentage of service
revenues were 42.4%, 28.2% and 20.7% for 1995, 1996 and 1997, respectively, and
22.2% and 14.8% for the three months ended March 31, 1997 and 1998,
respectively. These decreases in the Company's cost of services as a percentage
of service revenues from 1995 to the first quarter of 1998 resulted primarily
from service revenues outpacing technical support staffing levels. The Company
believes services gross margin as a percentage of service revenues in the future
will remain relatively consistent with services
24
<PAGE> 26
gross margins realized in the first quarter of 1998. Professional service
revenues generally results in a lower gross margin than other types of revenues
and in the event that professional service revenues increase as a percentage of
total revenues, the Company's gross margin may be adversely affected.
Costs and Expenses
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries, commissions and bonuses earned by sales and marketing personnel,
general office expenses, travel and entertainment and promotional expenses.
Sales and marketing expenses were $3.2 million, $4.2 million and $9.1 million in
1995, 1996 and 1997, respectively, and $1.4 million and $2.7 million for the
three months ended March 31, 1997 and 1998, respectively. Sales and marketing
expenses increased $1.0 million or 30% from 1995 to 1996, $4.9 million or 117%
from 1996 to 1997 and $1.3 million or 98% for the three months ended March 31,
1997 as compared to the three months ended March 31, 1998. The increase in the
Company's sales and marketing expenses from 1995 through the first quarter of
1998 resulted primarily from the hiring of sales management and additional sales
personnel, as well as higher commissions paid as a result of the Company's
revenue growth. The increase in the Company's sales and marketing expenses from
1996 to 1997 also resulted from increases in investment in marketing programs,
particularly a series of NT Security Seminars utilized to raise awareness of the
Company's security products. The increase in the Company's sales and marketing
expenses from the three months ended March 31, 1997 to the three months ended
March 31, 1998 also resulted from personnel and start-up costs associated with
the launch of a direct telesales organization in Germany during the first
quarter of 1998. Sales and marketing expenses as a percentage of total revenues
were 44.1%, 38.1% and 43.6% for 1995, 1996 and 1997, respectively, and 40.0% and
46.4% for the three months ended March 31, 1997 and 1998, respectively. As the
Company continues to devote resources to the expansion of the Company's sales
and marketing organization, the Company expects that sales and marketing
expenses as a percentage of total revenues will continue to be similar to the
percentage recorded in 1997 for the foreseeable future.
Research and Development. Research and development expenses consist
primarily of salaries and benefits of product development, product management
and quality assurance personnel, payments to contract programmers and expendable
equipment purchases. Research and development expenses were $1.2 million, $2.1
million and $3.6 million for 1995, 1996 and 1997, respectively, and $622,000 and
$1.6 million for the three months ended March 31, 1997 and 1998, respectively.
Research and development expenses increased $0.9 million or 67% from 1995 to
1996, $1.5 million or 71% from 1996 to 1997 and $1.0 million or 164% for the
three months ended March 31, 1997 as compared to the three months ended March
31, 1998. The increase in the Company's research and development expenses for
each period resulted primarily from an increase in the number of development and
quality assurance personnel to support the development of new products and
enhancements to existing products and an increase in compensation levels for
such personnel. In addition, in 1997 the Company formed a new product management
group to identify technical specifications and market opportunities for new and
existing products. Most of the new members of this group were hired in the
fourth quarter of 1997 and the first quarter of 1998. Research and development
expenses as a percentage of total revenues represented 17.0%, 19.0% and 17.1%
for 1995, 1996 and 1997, respectively, and 18.2% and 28.1% for the three months
ended March 31, 1997 and 1998, respectively. The increase in the Company's
research and development expenses as a percentage of total revenues from the
three months ended March 31, 1997 to the three months ended March 31, 1998
resulted primarily from hiring of new product management personnel dedicated to
identifying new market opportunities for its products. The Company believes that
a significant increase in its research and development investment is essential
for it to maintain market leadership and continue to expand its product line.
Accordingly, the Company anticipates it will continue to devote substantial
resources to product research and development for the foreseeable future, and
research and development expenses as a percentage of total revenues are likely
to increase in future periods. The Company has adopted Statement of Financial
Accounting Standards ("SFAS") No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed." Research and development
expenditures generally have been charged to operations as incurred and any
capitalizable amounts have been immaterial.
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<PAGE> 27
General and Administrative. General and administrative expenses consist
primarily of salaries, personnel and related costs for the Company's executive,
administrative, finance and information services staff. General and
administrative expenses were $1.2 million, $1.5 million and $2.9 million for
1995, 1996 and 1997, respectively, and $511,000 and $676,000 for the three
months ended March 31, 1997 and 1998, respectively. The increase in the
Company's general and administrative expenses of $0.3 million or 19% from 1995
to 1996 resulted primarily from additions to the Company's executive management
team and finance department. The increase in the Company's general and
administrative expenses of $1.4 million or 100% from 1996 to 1997 resulted
primarily from increases in compensation levels, including bonuses, resulting
from the Company's operating results exceeding budgeted levels, a nonrecurring
provision made for the early termination of the Company's operating facility
lease, increases in provisions for bad debt reserves related to the Company's
1997 fourth quarter revenue growth and increases in legal and accounting fees
due to the termination of the Phantom Stock Plan and the related private
placement and stock repurchase with each of these factors contributing equally
to the increase. The increase in the Company's general and administrative
expenses of $165,000 or 32% for the three months ended March 31, 1997 as
compared to the three months ended March 31, 1998 resulted from increases in the
numbers of employees. General and administrative expenses as a percentage of
total revenues were 16.8%, 13.4% and 14.1% for 1995, 1996 and 1997,
respectively, and 14.9% and 11.6% for the three months ended March 31, 1997 and
1998, respectively. The Company expects that general and administrative expenses
will decrease as a percentage of total revenue in 1998, but will increase in
absolute dollars as the Company increases the number of administrative personnel
and upgrades its internal and financial reporting systems. Also, the Company
anticipates additional expenses due to a relocation of its office facilities and
costs related to being a public company, including, but not limited to, annual
and other public reporting costs, directors' and officers' liability insurance,
investor relations programs and professional services fees.
Stock Compensation Expense. Stock compensation expenses were $436,000 and
$15.3 million for 1996 and 1997, respectively an increase of $14.8 million or
3400%. In 1996, such expenses resulted from a lump sum cash payment to an
employee in consideration of forfeiture of certain phantom stock units under the
Company's Phantom Stock Plan. In 1997, $14.7 million of such expense resulted
from the non-recurring issuance of 4,944,800 million shares of Common Stock in
connection with the termination of the Company's Phantom Stock Plan and $550,000
of such expense resulted from the issuance of a warrant to purchase 437,500
shares of Common Stock to an officer in exchange for the extinguishment of a
bonus provision in his option agreement. See "Certain Transactions -- Phantom
Stock Plan."
Provision for Income Taxes. Prior to October 16, 1997, the Company was
treated as a Subchapter S Corporation for federal income tax purposes.
Accordingly, the Company recorded no federal income tax expense for 1995, 1996
and the period from January 1, 1997 to October 16, 1997. The taxable income
generated by the Company's operations during the period were reported in the
income tax returns of the individual shareholders. A pro forma charge in lieu of
income taxes has been recognized in the Company's Consolidated Statement of
Operations to reflect income taxes as if the Company had been a C Corporation
for all periods. At December 31, 1997, the Company had a federal net operating
loss carryforward of approximately $7.5 million, that may be utilized to reduce
future taxable income through the year 2012, subject to certain annual
limitations.
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<PAGE> 28
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth certain unaudited consolidated statements of
operations data for the nine quarters ended March 31, 1998, as well as the
percentage of the Company's revenues represented by each item. This data has
been derived from unaudited interim consolidated financial statements prepared
on the same basis as the audited Consolidated Financial Statements contained
herein and, in the opinion of management, include all adjustments, consisting
only of normal recurring adjustments, that the Company considers necessary for a
fair presentation of such information when read in conjunction with the
Consolidated Financial Statements and Notes thereto appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1996 1996 1996 1996 1997 1997 1997 1997 1998
-------- -------- --------- -------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenues:
Licenses................... $1,599 $2,020 $2,460 $3,641 $2,950 $3,308 $4,524 $ 7,039 $4,384
Services................... 299 336 212 435 473 604 794 1,146 1,456
------ ------ ------ ------ ------ ------ ------ -------- ------
Total revenues....... 1,898 2,356 2,672 4,076 3,423 3,912 5,318 8,185 5,840
------ ------ ------ ------ ------ ------ ------ -------- ------
Cost of revenues:
Cost of licenses........... 76 97 117 175 91 138 150 265 208
Cost of services........... 90 96 71 105 105 142 139 238 215
------ ------ ------ ------ ------ ------ ------ -------- ------
Total cost of
revenues........... 166 193 188 280 196 280 289 503 423
------ ------ ------ ------ ------ ------ ------ -------- ------
Gross profit................. 1,732 2,163 2,484 3,796 3,227 3,632 5,029 7,682 5,417
------ ------ ------ ------ ------ ------ ------ -------- ------
Costs and expenses:
Sales and marketing........ 738 944 1,180 1,335 1,369 1,827 2,325 3,567 2,708
Research and development... 430 454 586 618 622 700 837 1,414 1,643
General and
administrative........... 266 386 338 482 511 483 550 1,399 676
Stock compensation
expense.................. -- -- -- 436 -- -- -- 15,262 --
------ ------ ------ ------ ------ ------ ------ -------- ------
Operating income (loss)...... 298 379 380 925 725 622 1,317 (13,960) 390
Other income (expense),
net........................ 1 2 5 14 15 22 67 129
------ ------ ------ ------ ------ ------ ------ -------- ------
Income (loss) before income
tax provision.............. 298 380 382 930 739 637 1,339 (13,893) 519
Provision (benefit) for
income tax................. -- -- -- -- -- -- -- (3,150) 122
------ ------ ------ ------ ------ ------ ------ -------- ------
Net income (loss)............ 298 380 382 930 739 637 1,339 (10,743) 397
Pro forma charge (benefit) in
lieu of income taxes....... 104 133 134 326 259 223 469 (1,716) --
------ ------ ------ ------ ------ ------ ------ -------- ------
Pro forma net income
(loss)..................... $ 194 $ 247 $ 248 $ 604 $ 480 $ 414 $ 870 $ (9,027) --
====== ====== ====== ====== ====== ====== ====== ======== ======
AS A PERCENTAGE OF TOTAL
REVENUES:
Revenues:
Licenses................... 84.2% 85.7% 92.1% 89.3% 86.2% 84.6% 85.1% 86.0% 75.1%
Services................... 15.8 14.3 7.9 10.7 13.8 15.4 14.9 14.0 24.9
------ ------ ------ ------ ------ ------ ------ -------- ------
Total revenues....... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
------ ------ ------ ------ ------ ------ ------ -------- ------
Cost of revenues:
Cost of licenses........... 4.0 4.1 4.3 4.3 2.6 3.6 2.8 3.2 3.6
Cost of services........... 4.7 4.1 2.7 2.6 3.1 3.6 2.6 2.9 3.6
------ ------ ------ ------ ------ ------ ------ -------- ------
Total cost of
revenues........... 8.7 8.2 7.0 6.9 5.7 7.2 5.4 6.1 7.2
------ ------ ------ ------ ------ ------ ------ -------- ------
Gross margin................. 91.3 91.8 93.0 93.1 94.3 92.8 94.6 93.9 92.8
------ ------ ------ ------ ------ ------ ------ -------- ------
Costs and expenses:
Sales and marketing........ 38.9 40.1 44.2 32.8 40.0 46.7 43.7 43.6 46.4
Research and development... 22.7 19.2 22.0 15.1 18.2 17.9 15.8 17.3 28.1
General and
administrative........... 14.0 16.4 12.6 11.8 14.9 12.3 10.3 17.1 11.6
Stock compensation
expense.................. -- -- -- 10.7 -- -- -- 186.5 --
------ ------ ------ ------ ------ ------ ------ -------- ------
Operating income (loss)...... 15.7 16.1 14.2 22.7 21.2 15.9 24.8 (170.6) 6.7
Other income (expense),
net........................ -- -- 0.1 0.1 0.4 0.4 0.4 0.8 2.2
------ ------ ------ ------ ------ ------ ------ -------- ------
Income (loss) before income
tax provision.............. 15.7 16.1 14.3 22.8 21.6 16.3 25.2 (169.8) 8.9
Provision (benefit) for
income tax................. -- -- -- -- -- -- -- (38.5) 2.1
------ ------ ------ ------ ------ ------ ------ -------- ------
Net income (loss)............ 15.7 16.1 14.3 22.8 21.6 16.3 25.2 (131.3) 6.8
Pro forma charge (benefit) in
lieu of income taxes....... 5.5 5.6 5.0 8.0 7.6 5.7 8.8 (21.0) --
------ ------ ------ ------ ------ ------ ------ -------- ------
Pro forma net income
(loss)..................... 10.2 10.5 9.3 14.8 14.0 10.6 16.4 (110.3) --
====== ====== ====== ====== ====== ====== ====== ======== ======
</TABLE>
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<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.
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<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
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<PAGE> 32
computer security breaches within the last 12 months. Although many IT
organizations have installed firewalls and implemented security management
strategies focusing on preventing "hacking in" from outside the organization,
these efforts do not address the most serious security-related losses which are
the result of unauthorized access by insiders. In fact, the CSI survey found
that only 24% of respondents reported penetration from outside the organization
while 44% reported unauthorized access by employees. The top 18 respondents
reporting unauthorized access by insiders averaged losses of over $2.8 million
each.
Asset Management. Both IT and finance departments need to identify and
manage their organization's technology assets. These departments need to plan
for expansion, budget for software and hardware expenditures and trouble-shoot
problems with PC configurations, as well as track potential theft of expensive
components. Given the proliferation of diverse products, platforms and
technologies within the typical enterprise-wide IT infrastructure, taking an
accurate inventory of LAN assets has been a costly and time-consuming process.
Year 2000 Assessment. Although many organizations have focused upon the
mainframe issues of the Year 2000 exposure, the costs of bringing distributed
computing into compliance are now estimated by some sources at nearly half of
the total cost to fix mainframe systems. The Gartner Group recently estimated
the total cost to find and fix desktop-related Year 2000 compliance issues to be
between $10 billion and $42 billion. Year 2000 compliance issues on the LAN
include problems with PC hardware, firmware and applications.
IT departments are faced with conflicting pressures to both: (i) manage
increasing complexity and guarantee better service for users who are demanding
assurance of high productivity and availability and (ii) reduce the Total Cost
of Ownership for client/server computing. Adding to this challenge is a lack of
qualified IT personnel. In March 1998, the Information Technology Association of
America estimated that there were 346,000 IT-related job vacancies in the United
States. Pressure to reduce the Total Cost of Ownership and the increasing
difficulty and expense in locating qualified IT personnel has driven IT
management to establish processes and develop or purchase tools to manage their
organization's IT assets.
Historically, IT organizations have addressed LAN systems management
problems through a combination of manual processes, custom-built tools and
third-party software, but none of these alternatives have offered a completely
satisfactory solution.
Manual processes, such as performing a security audit, an inventory of
network assets or a Year 2000 project assessment, are costly, time consuming and
prone to human error. Many IT organizations custom-build their own systems
management tools. However, these custom-built solutions (i) are generally
developed by costly and hard-to-find programmers, (ii) take time to develop and
thoroughly test, (iii) are frequently designed for a single purpose and cannot
be used for other tasks and (iv) often need to be rewritten with new versions of
the NOS.
Most organizations have purchased at least some third-party software
solutions to manage their networks and are budgeting to purchase more. IDC
projects the systems management software market for the Windows and NetWare
platforms to grow to over $4.6 billion by the year 2000, with security
management software for Windows NT Server and NetWare accounting for $640
million of the total. Many third-party tools, including traditional "LAN
Suites," focus on management of the desktop, but not on management of the NOS.
Most tools that have been designed for the LAN -- including point products for
security management, disk space management and other systems management
tasks -- were built for managing single servers or small workgroups, and do not
scale to efficiently manage networks as they grow enterprise-wide to thousands
or tens of thousands of users. In addition, vendors that have traditionally
developed UNIX-based systems management software have begun to port or redevelop
their products to PC-based LAN environments. These products often do not meet
the specific needs of the Windows NT and NetWare platforms. For example,
security products from vendors of UNIX-based products are not designed to
effectively deal with the configuration flexibility and complexity of Windows NT
and NetWare platforms. Finally, many third-party products can often alert the IT
staff that a problem has occurred but do not provide the diagnostic software to
find the root cause of the problem or fix it. As an organization's dependence
upon its LAN infrastructure increases, its IT department must be able to both
proactively and reactively diagnose and repair its LAN-based computing
resources.
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<PAGE> 33
As Windows NT and NetWare networks have grown so have the challenges of
deploying, upgrading, managing and changing the configuration of these networks.
Organizations seek software solutions that (i) can quickly and proactively
diagnose and fix a wide range of problems, (ii) are comprehensive in scope and
can be used effectively by a wide range of the organization's existing IT
personnel, (iii) scale to manage large, complex networks, (iv) address the
unique aspects of each NOS they support and (v) can be easily deployed and
maintained.
THE BINDVIEW SOLUTION
BindView develops, markets and supports a suite of systems management
software products that manage the security and integrity of complex, distributed
client server networks while reducing the Total Cost of Ownership for enterprise
computing. The Company's primary product line, BindView EMS provides software
solutions for systems administration, security management, enterprise inventory
of LAN assets and Year 2000 assessment of PC hardware and software. BindView EMS
can be used proactively to diagnose, and in many cases fix, a wide range of
specific problems occurring in Windows NT and NetWare environments. In addition,
BindView EMS is built to scale with networks as they grow enterprise-wide.
BindView EMS provides customers with products which are both easy to use and
easy to deploy enterprise-wide.
Proactive, Query-based Systems Management
BindView offers a query-based approach to systems management for Windows NT
and NetWare environments. The query-based approach provides systems
administrators, security auditors and other IT professionals with a simple,
graphical user interface ("GUI") for asking questions, or "queries," about the
configuration and security of the NOS environment. This approach provides a
framework for proactive management of the NOS environment. Rather than waiting
for an event or alarm to occur, the systems administrator can locate, and in
many cases fix, issues with the configuration and security of the network before
they turn into problems. For those IT organizations with existing event
management systems, BindView provides a diagnostic tool to help find the root
cause of a NOS-related problem when an alarm is triggered. The query-based
approach can perform diagnostic and reporting tasks in a matter of minutes that
previously took hours or even days to complete. In addition, the modular
architecture of this query-based technology facilitates the development of new
add-on products. The Company believes this provides BindView with a competitive
advantage in the development of future applications.
Comprehensive in Scope
BindView EMS covers a complete range of system administration and security
issues, including file server management, user and group administration, disk
space management and management of directory services. All of the critical
configuration parameters and security settings of Windows NT and NetWare network
operating systems are made available through the simple user interface of
BindView EMS. As a result, BindView EMS empowers a broader group of IT
personnel, rather than just a limited number of IT experts, to solve problems
quickly by providing a way to automate the labor-intensive tasks necessary to
ensure the integrity and security of enterprise servers, applications and users.
Architected to Scale
BindView EMS has been designed to manage both workgroup LANs as well as
enterprise-wide networks that are frequently geographically dispersed. Customers
often purchase BindView EMS to manage one or two workgroups and then over time
purchase more products to manage their LAN as it grows to an enterprise-wide,
distributed network. BindView EMS is used routinely to manage networks ranging
from tens to tens of thousands of users. A Fortune 25 consumer goods company,
for example, uses BindView EMS to manage over 70,000 users on its global
NetWare-based network.
Native to Each Environment
BindView's products for managing Windows NT and NetWare operating systems
each have a different agent architecture that works best for that particular
environment and can exploit the unique features of each platform. BindView's
object-oriented architecture separates the user interface from the back-end data
gathering modules. This approach allows BindView to build each of these modules
to be native to the specific platform it supports. BindView products are not
programmed with a "least common denominator" approach
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<PAGE> 34
across heterogeneous platforms. The Company believes this enables BindView to
build "best-of-breed" products for managing and exploiting each operating
environment.
Easy to Deploy, Maintain and Use
BindView's products are built to be both easy to install and easy to use.
In addition to being easy to install on a single server or workstation, the
Company's products can be rapidly deployed enterprise-wide. BindView's systems
administration and security products can typically be deployed enterprise-wide
in a matter of days, and BindView's enterprise inventory and Year 2000
assessment products can typically be deployed enterprise-wide in a matter of
weeks. BindView's products are also designed to be easy to upgrade and maintain
on an ongoing basis following initial deployment. As a result, customers can
rapidly implement and utilize BindView's products with minimal training, thereby
reducing their Total Cost of Ownership without placing additional burdens on
customer's IT personnel.
STRATEGY
The Company's objective is to be the leading provider of systems management
software for enterprise networks. Key elements of the Company's strategy to
achieve these objectives include:
Enhance Leadership Position in Security Assessment Software. The Company
believes it is currently 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.
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<PAGE> 35
PRODUCTS AND TECHNOLOGY
The Company's primary product line is BindView EMS. BindView EMS is
designed to provide a wide range of systems management capabilities to the
Company's customers for use with their heterogeneous, distributed networks.
BindView EMS employs a Windows-based console to provide scalable and
comprehensive systems management solutions. BindView EMS utilizes an
object-oriented architecture enabling the management of a wide variety of
network operating systems and managed objects to be supported through snap-in
modules. These snap-in modules are sold either separately or as a "suite." Each
snap-in module to the Enterprise Console increases the scope of BindView EMS to
cover a new set of management issues for a particular platform. Current snap-in
modules for BindView EMS include the NOSadmin series (for both Windows NT and
NetWare) and NETinventory. The Enterprise Console provides an effective set of
tools that work across all snap-in modules.
PRODUCT CHART
Central to the BindView EMS architecture is the Universal Data Processing
Engine ("UDPE") which enables the query-processing capabilities of BindView EMS
by utilizing an object-oriented design separating the common components of the
Enterprise Console from the specific features and platforms of the snap-in
modules. The UDPE provides a querying engine that gathers the necessary data
from across the network and presents the query results to the user through the
Enterprise Console. Query results may be displayed in a variety of meaningful
ways, including tabular spreadsheets, printed reports, graphs and charts, or may
be exported to over a dozen popular formats, including those viewable through
e-mail or a web browser. The user can create queries from scratch, or can select
a predefined query from an initial set of over one hundred sample reports
supplied "out-of-the-box" with BindView EMS. Once queries have been created,
they can be saved to build a suite of management reports monitoring the
deployment of "best practices" and IT-mandated policies across the network.
With this architecture, BindView EMS enables the management of
heterogeneous, distributed networks through a common GUI. Customers typically
purchase one Enterprise Console per administrator and one or more snap-in
modules to manage their particular network, often including both NOSadmin for
NetWare and NOSadmin for Windows NT.
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<PAGE> 36
All components of BindView EMS have been developed using industry-standard
compilers, development tools and languages, including C, C++, Java and Assembly
for Intel hardware platforms.
Enterprise Console
The Enterprise Console is the central component and user interface of
BindView EMS. It provides a common tool-set used by security auditors and
network administrators for the analysis, reporting, policy management and
automated administration of enterprise resources and assets. The Enterprise
Console's query-based approach provides the ability to ask questions,
automatically collect the data necessary to answer those questions, present the
answers in meaningful ways and, in some instances (where ActiveAdmin features
are available), make necessary corrections while documenting any required
changes. The Company is working to add and expand ActiveAdmin capabilities to
future versions of all BindView EMS modules, increasing the user's ability to
both diagnose and fix problems from the Enterprise Console.
NOSadmin Series
The NOSadmin series of products provides comprehensive security assessment
and systems management across heterogeneous environments. The NOSadmin series
addresses a complete range of systems administration and security issues,
including file server management, user and group administration, disk space
management and management of directory services. All of the critical
configuration parameters and security settings of Windows NT and NetWare network
operating systems are made available through a simple user interface, without
requiring an agent to be placed on every managed server and workstation. As a
result, the NOSadmin series empowers a broader group of IT personnel, rather
than just a limited number of IT experts, to solve problems quickly by providing
them with a way to automate the labor-intensive tasks necessary to ensure the
integrity and security of enterprise servers, applications and users.
- NOSadmin for Windows NT enables IT professionals to view and analyze
multi-domain Windows NT networks enterprise-wide from a single
administrative console. The product includes the capability to pinpoint a
variety of potential security risks for Windows NT servers and
workstations. Within the next 12 months, the Company plans to release an
updated NOSadmin for Windows NT with "ActiveAdmin" capabilities, enabling
the user to make changes to the NOS configuration and fix problems
enterprise-wide directly from the Enterprise Console.
- NOSadmin for NetWare 3 and NOSadmin for NetWare 4 provide comprehensive
security and configuration management of NetWare servers enterprise-wide
from a single administrative console. These include the capability to
make changes to the NOS configuration and fix problems enterprise-wide
through a feature called "ActiveAdmin." In addition, NOSadmin for NetWare
4 enables management of Novell Directory Services ("NDS") for a variety
of platforms (including NetWare 4, Windows NT and UNIX servers).
All NOSadmin modules "snap in" to the Enterprise Console through a
Windows-based Dynamic Link Library ("DLL") that interfaces the snap-in module to
the UDPE. In addition to this snap-in DLL, each NOSadmin module utilizes a
distributed agent architecture that is particular to the native environment that
it supports. The distributed agents for the NOSadmin for Windows NT run as
Windows NT services in each Windows NT domain. The distributed agents for the
NOSadmin for NetWare products run as NetWare Loadable Modules on one or more
NetWare file servers.
NETinventory
NETinventory is a scalable, fast and accurate asset management and
inventory analysis tool for large multi-site networks. It extends the
capabilities of BindView EMS to include comprehensive network inventory and
asset tracking for an entire enterprise. As a result, the user can discover,
document and evaluate PC assets throughout the entire enterprise and make
better-informed strategic technology decisions . NETinventory also reduces help
desk costs and response times by providing immediate access to any end-user's
hardware and software configuration changes. NETinventory also provides powerful
Year 2000 auditing capabilities allowing the execution and automation of Year
2000 compliance testing and reporting for PC hardware and software in a fraction
of the time it would take to do manually.
The following table describes the BindView EMS product family.
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<PAGE> 37
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
BINDVIEW EMS
PRODUCT FEATURES/BENEFITS
- -------------------------------------------------------------------------------------------------
<S> <C>
Enterprise Console - The Desktop Manager allows for the delegation of tasks to
individuals filling special roles (for example, security
auditors or help desk personnel) by giving them customized
desktops focused on the tasks they perform
- A Query Builder to ask questions about the state of the
network through an easy-to-use GUI
- Spreadsheet and graphics/charting interfaces to view query
results
- A Report Writer to generate presentation-quality reports
- An export function to export data to over a dozen popular
file formats
- ---------------------------------------------------------------------------------------------
NOSadmin for Windows NT - Comprehensive security assessments
- Configuration analysis of both servers and workstations,
including services, sessions, shares and device drivers
- Network integrity analysis of domain infrastructure,
users, groups, policies and trust relationships between
domains
- A single report can span multiple Windows NT domains for
enterprise-wide analysis of all Windows NT servers and
workstations
- Documention and analysis of the values of any registry
keys across all servers and workstations enterprise-wide
- File system and disk space management
- ----------------------------------------------------------------------------------------------
NOSadmin for NetWare 4 - Comprehensive security assessments
- Management of file server configuration, NetWare Loadable
Modules and "Set" variables
- User and group administration
- File system and disk space management
- Documention of organizational policies throughout the
enterprise
- ActiveAdmin for making global changes to system
configuration
- Management of NDS and ActiveAdmin for making global
changes to NDS
- ----------------------------------------------------------------------------------------------
NOSadmin for NetWare 3 - See features/benefits for NOSadmin for NetWare 4 above,
except supports NetWare binding services instead of NDS
- ----------------------------------------------------------------------------------------------
NETinventory - Integrated Year 2000 compliance testing and reporting for
PC hardware and software
- Automated discovery and tracking of hardware assets
- Automated detection of over 4,000 software packages
- A three-tiered architecture providing central
administration and synchronization services, with
fault-tolerant collection and distribution of asset
management information
- Management of database integrity across all segments of
the distributed inventory database enterprise-wide
- Generation of complete reports for all PC hardware and
software assets across the enterprise
</TABLE>
CUSTOMERS
The Company's products have been sold to more than 70% of the Fortune 100
companies. The Company has sold software products through direct channels to
over 4,000 corporations, governmental agencies and other organizations
worldwide, and also to over 150 resellers and distributors. The following table
is a selected
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<PAGE> 38
list of the Company's end-user customers that accounted for more than $50,000 in
total revenue (license and service) to BindView since January 1, 1996:
<TABLE>
<S> <C> <C>
3Com GTE Mobile Communications Scudder, Stevens & Clark
American Stores Hoechst Sony
Baltimore Gas & Electric ITT Industries Sprint
Banc One Capital Kellogg USA Suntrust Banks
Blue Cross and Blue Shield Kimberley-Clark Tandy Corporation
California Federal Bank KPMG Peat Marwick Trans Union
Chase Manhattan Bank LCI International Union Pacific
CIBC Asia Limited Michelin U.S. Bank
Cigna Mellon Bank U.S. Customs Service
Citicorp Mobil U.S. Trust
CoreStates Bank Oxford Health Plans Wells Fargo
CSX Corporation PageNet
Deloitte & Touche Paramount Pictures
El Paso Energy Phillips Petroleum
Emory Clinic Procter & Gamble
Ernst & Young Providian Financial
Excel Telecommunications Quantum
Federal Reserve Bank Raytheon
First Chicago Sallie Mae
GE Capital San Diego Gas & Electric
</TABLE>
Although the Company has sold its software on an enterprise-wide basis, the
majority of the Company's existing customers continue to represent larger sales
opportunities. Customers typically buy for a single department or division and
then, based upon the initial success of the products in such department or
division, later expand their use of the Company's products into other parts of
the organization. The Company believes it can sell more deeply within these
existing customer sites and sell more products as the Company expands its
product line. In 1996, 1997, and for the three months ended March 31, 1998, no
customer comprised more than 10% of the Company's sales.
SALES AND MARKETING
The Company sells its products primarily through its direct telesales
force, and, to a lesser extent, through VARs, distributors and systems
integrators. In addition, the Company has strategic marketing relationships with
professional service organizations and software vendors that provide the Company
with increased visibility as well as sales leads.
Direct Telesales
The Company sells its products primarily through a direct telesales force.
The Company utilizes a direct telesales model that minimizes the number of
remote sales offices and customer site visits and focuses on effective use of
the telephone and Internet communications for product demonstrations and product
sales. When necessary, the Company's sales force will also travel to customer
locations. The Company believes its direct telesales approach allows it to
achieve control of the sales process and respond rapidly to customer needs,
while maintaining an efficient, low-cost sales model. Sales cycles typically
range between as little as three months for departmental sales and up to 12
months for enterprise-wide contracts.
As of March 31, 1998, the Company had 75 persons in its direct telesales
organization worldwide. The direct telesales force for North America is based in
Houston and accounts for a substantial majority of the Company's revenues. In
January 1998, the Company established its first international direct telesales
office in Frankfurt, Germany. The Company has increased the size of its direct
telesales organization from 32 to 75 individuals over the last year and expects
to continue hiring sales personnel, both domestically and internationally, over
the next 12 months.
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<PAGE> 39
VARs and Distributors
In addition to its direct telesales strategy, the Company has established
indirect distribution channels through VARs and distributors. Outside North
America, where the Company is in the process of developing its direct telesales
presence, the Company relies heavily on its reseller channel. The Company has
established a network of VARs and distributors in Europe, Latin America and the
Pacific Rim, with the concentration of such distributors being located in
European markets.
The Company's international VARs and distributors typically perform
marketing, sales and technical support functions in their country or region.
Each one may distribute direct to the customer, via other resellers or through a
mixture of both channels. The Company actively trains its international VARs and
distributors in both product and sales methodology.
Systems Integrators and Service Providers
In addition to more traditional resellers, the Company markets its products
through service organizations that help customers install, manage and secure
large Windows NT and NetWare networks. Such organizations include large systems
integrators, outsourcing companies, security auditing groups in the Big Six
accounting firms and service companies performing Year 2000 compliance work.
Some of these companies sell BindView's products directly to their end-users,
while others license the BindView products from the Company and include these
products in their standard toolkits used at their clients' sites.
Marketing Partnerships and Programs
To support its growing sales organization and channel, the Company in the
last year has devoted significant resources to building a series of marketing
partnerships and programs. The Company has developed a partnership with
IBM/Tivoli for marketing BindView EMS as a companion product to Tivoli TME 10,
as well as partnerships with other key vendors, including Microsoft, Novell and
Computer Associates. The Company is a Microsoft Solution Provider, and holds
"Microsoft Back Office" certification for its products. The Company also
partners with many of the Big Six accounting firms to increase awareness of
network security issues. Results of these partnerships in the past year include
a seminar series with Ernst & Young entitled "Issues in Windows NT Security"
given in over 25 cities in the United States and Europe, and a white paper
published by Coopers & Lybrand entitled "Evaluating Novell NetWare 4.X Security
Using BindView EMS."
In addition to the above partnerships, the Company's marketing efforts have
resulted in a number of programs, such as seminars, industry trade shows, vendor
executive briefings, analyst and press tours, advertising and public relations.
CUSTOMER SUPPORT AND PROFESSIONAL SERVICES
BindView believes that high quality customer support and professional
services are requirements for continued growth and increased sales of its
products. The Company has made a significant investment in increasing the size
of its support and services organization in the past and plans to continue to do
so in the future. As of March 31, 1998, the Company's customer support and
professional services organization consisted of 15 employees. Customer support
personnel provide technical support by telephone, e-mail and fax, and maintain
the Company's Web site and bulletin boards to complement these services.
Technical support for customers is provided at no charge for 30 days after the
product's sale and on a subscription basis thereafter. Future versions of the
Company's products are provided at no extra charge as part of the subscription
service. International offices and resellers extend this service for overseas
customers.
The Company's professional services group provides product training,
consulting and implementation services for a fee in order to assist customers in
maximizing the benefits of the Company's products. In addition, the Company
periodically offers training to its channel partners and employees.
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PRODUCT DEVELOPMENT
BindView has been an innovator and leader in the development of systems
management tools for the LAN marketplace. The Company believes that a
technically skilled, quality oriented and highly productive software development
organization is the key to the continued success of new product offerings. The
software development staff is also responsible for enhancing the Company's
existing products and expanding its product line. The Company's product
development staff consisted of 18 employees as of March 31, 1997 and 32
employees as of March 31, 1998. The Company expects that it will continue to
invest substantial resources in product development expenditures.
BindView is currently developing enhancements to existing products as well
as working to develop new products for managing additional applications and
platforms not currently within the scope of BindView EMS. Potential future
applications include a product to manage e-mail applications such as Microsoft
Exchange. In addition, the Company plans to release ActiveAdmin for Windows NT
in the next 12 months, and is currently developing the next generation of the
BindView EMS product family. There can be no assurance that these development
efforts will be completed within the Company's anticipated schedules or that, if
completed, they will have the features necessary to make them successful in the
marketplace. Moreover, products as complex as the Company's may contain
undetected errors when first introduced or as new versions are released. Such
undetected errors in new products may be found after commencement of commercial
shipments, resulting in loss of or delay in market acceptance. Future delays in
the development or marketing of product enhancements or new products could
result in a material adverse effect on the Company's business, financial
condition and results of operations. See "Risk Factors -- Rapid Technological
Change and New Products."
COMPETITION
The market in which the Company competes is intensely competitive and
characterized by rapidly changing technology and evolving standards. Companies
offering competitive products vary in the scope and breadth of the products and
services offered and include: (i) providers of security analysis and audit
products, such as Axent Technologies, Inc. and Security Dynamics Technologies,
Inc.; (ii) providers of standalone inventory and asset management products such
as Tally Systems Corp.; (iii) providers of LAN desktop management suites, such
as Intel Corporation, Hewlett-Packard Company and Microsoft Corporation; and
(iv) providers of Year 2000 assessment products such as Network Associates, Inc.
In addition, the native tools provided by Novell, Inc. and third-party tools
provided by certain vendors, such as Computer Associates, Inc. and other
companies, may compete with certain management features of the Company's
products. The Company has experienced, and expects to continue to experience,
increased competition from current and potential competitors, many of whom have
greater name recognition, a larger installed customer base and significantly
greater financial, technical, marketing, and other resources than the Company.
Such competitors may be able to respond more quickly to new or emerging
technologies and changes in customer requirements or devote greater resources to
the development, promotion and sale of their products than the Company. The
Company expects additional competition as other established and emerging
companies enter into the systems management software market and new products and
technologies are introduced. Increased competition could result in price
reductions, fewer customer orders, reduced gross margins, longer sales cycles
and loss of market share, any of which would materially adversely affect the
Company's business, operating results and financial condition.
In addition, vendors of operating system software, particularly Microsoft
and Novell, may in the future enhance their products to include functionality
that is currently provided by the Company's products. The widespread inclusion
of the functionality of the Company's software as standard features of operating
system software could render the Company's products obsolete and unmarketable,
particularly if the quality of such functionality were comparable to that of the
Company's products. Even if the functionality provided as standard features by
operating system software is more limited than that of the Company's software,
there can be no assurance that a significant number of customers would not elect
to accept more limited functionality in lieu of purchasing additional software.
Current and potential competitors may make strategic acquisitions or
establish cooperative relationships among themselves or with third parties,
thereby increasing their ability to address the needs of the Company's
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<PAGE> 41
current or prospective customers. Accordingly, it is possible that new
competitors or alliances among current and new competitors may emerge and
rapidly gain significant market share. Such competition could materially
adversely affect the Company's ability to obtain new licenses or to obtain
maintenance and support renewals for existing licenses on terms favorable to the
Company. There can be no assurance that the Company will be able to compete
successfully against current and future competitors, and the failure to do so
would materially adversely affect the Company's business, operating results and
financial condition.
The Company believes that significant competitive factors affecting the
markets described above are depth of product functionality, breadth of platform
support, product quality and performance, conformance to industry standards,
product price and customer support. In addition the ability to rapidly develop
and implement new products and features for these markets is critical. See "Risk
Factors -- Significant Competition."
PROPRIETARY RIGHTS
The Company relies primarily on a combination of copyright, trademark and
trade secret laws, confidentiality procedures and contractual provisions to
protect its proprietary rights. However, the Company believes that such measures
afford only limited protection. There can be no assurance that others will not
develop technologies that are similar or superior to the Company's technology or
design around the copyrights and trade secrets owned by the Company. The Company
licenses its software products primarily under "shrink wrap" licenses (i.e.,
licenses included as part of the product packaging). Shrink wrap licenses are
not negotiated with or signed by individual licensees, and purport to take
effect upon the opening of the product package. The Company believes, however,
that these measures afford only limited protection. Despite the Company's
efforts to protect its proprietary rights, unauthorized parties may attempt to
copy aspects of the Company's products or to obtain and use information that the
Company regards as proprietary. Policing unauthorized use of the Company's
products is difficult and the Company is unable to determine the extent to which
piracy of its software products exists. In addition, the laws of some foreign
countries do not protect the Company's proprietary rights as fully as do the
laws of the United States. There can be no assurance that the Company's means of
protecting its proprietary rights will be adequate or that competition will not
independently develop similar or superior technology.
The Company is not aware that it is infringing any proprietary rights of
third parties. There can be no assurance, however, that third parties will not
claim infringement by the Company of their intellectual property rights. The
Company expects that software product developers will increasingly be subject to
infringement claims as the number of products and competitors in the Company's
industry segment grows and the functionality of products in different industry
segments overlaps. Any such claims, with or without merit, could be time
consuming to defend, result in costly litigation, divert management's attention
and resources, cause product shipment delays or require the Company to enter
into royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to the Company, if at all. In
the event of a successful claim of product infringement against the Company and
failure or inability of the Company to either license the infringed or similar
technology or develop alternative technology on a timely basis, the Company's
business, operating results and financial condition could be materially
adversely affected. See "Risk Factors - Limited Protection of Proprietary
Technology; Risks of Infringement."
EMPLOYEES
As of March 31, 1998, the Company employed 178 full-time employees,
including 83 in sales and marketing, 57 in research and development, 15 in
technical support and professional services and 23 in general and
administrative. The Company believes that its future success will depend in
large part upon its continuing ability to attract and retain highly skilled
managerial, sales, marketing, customer support and research and development
personnel. Like other software companies, the Company faces intense competition
for such personnel, and the Company has at times experienced and continues to
experience difficulty in recruiting qualified personnel. There can be no
assurance that the Company will be successful in attracting, assimilating and
retaining other qualified personnel in the future. The Company is not subject to
any collective bargaining agreement and it believes that its relationships with
its employees are good. See "Risk Factors - Dependence on Key Personnel; Need
for Additional Qualified Personnel."
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FACILITIES
The Company's principal administrative, sales, marketing, support and
research and development facility is located in approximately 35,000 square feet
of space in Houston, Texas. Although the lease on this office space expires
October 2000, the Company notified its landlord in 1997 of its intention to
terminate its lease in order to secure more space in Houston, Texas. 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.
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<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
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manager. Prior to joining the Company in February 1993, Mr. Pulaski was a
licensed securities broker for Paine Webber and Lehman Brothers. Mr. Pulaski is
the brother of Eric J. Pulaski.
Nadeem Ghias has served as the Company's Vice President -- Research &
Development since May 1996. Prior to becoming Vice President of Product
Development, Mr. Ghias was a Product Architect and Senior Windows Developer for
the Company. From April 1989 to December 1993, Mr. Ghias was the founder and
Chief Executive Officer of Micronix, Inc. ("Micronix"), a. developer and
marketer of products for the xBASE after-market, which was purchased by the
Company in 1993. From August 1988 to April 1989, Mr. Ghias held senior
development positions at Vitesse Semiconductor, a manufacturer of high-speed
microchips, and General Motors Corporation. Mr. Ghias holds a B.S. degree in
Electrical Engineering from Marquette University.
Peter L. Bloom has served as a Director of the Company since October 1997.
Mr. Bloom is a Managing Member of General Atlantic Partners, LLC, a private
investment firm focused exclusively on strategic investments in software and
related services worldwide. Prior to joining General Atlantic Partners, LLC in
1996, Mr. Bloom spent 13 years at Salomon Brothers, an investment banking firm,
where he last was the Managing Director of Salomon's U.S. Technology Division.
Mr. Bloom is a Special Advisor to the Board of Directors of E-TRADE Securities,
Inc. and a board member of a number of private companies. Mr. Bloom holds a B.A.
in Computer Studies and Economics from Northwestern University.
John J. Moores has served as a Director of the Company since October 1997.
In 1980, Mr. Moores founded BMC Software, Inc. ("BMC"), a vendor of system
software utilities for IBM mainframe computing environments. Mr. Moores served
as BMC's President and Chief Executive Officer from 1980 to 1986 and as Chairman
of the Board of Directors from 1980 to 1992. Prior to that, Mr. Moores was
employed by IBM and Shell Oil Corporation in various MIS positions. Since
December 1994, Mr. Moores has served as owner and Chairman of the Board of the
San Diego Padres Baseball Club, L.P. and since September 1991 as Chairman of the
Board of JMI Services, Inc., a private investment company. Mr. Moores also
serves as Chairman of the Board of Peregrine Systems, Inc., a publicly held
infrastructure management software company, and numerous privately held
companies. Mr. Moores holds a B.S. in Economics and a J.D. from the University
of Houston.
Richard A. Hosley II has served as a Director of the Company since January
1998. Since October 1990, Mr. Hosley has been a private investor. From 1980 to
1990, Mr. Hosley was employed by BMC, where he held a variety of positions
including Vice President of Sales and Marketing, President, Chief Executive
Officer and Vice Chairman. Prior to joining BMC , Mr. Hosley was employed by
IBM. Mr. Hosley serves as a director of Logic Works, Inc., a database design
software company, and Peregrine Systems, Inc. Mr. Hosley holds a B.A. in
Economics from Texas A&M University.
Key Employees
Rudi Vanderbeeken has served as the Company's Managing Director of sales to
Europe, the Middle East and Africa since August 1997. From January 1995 to June
1997, Mr. Vanderbeeken was a shareholder and Managing Director for Europe for
Triteal Corporation, a U.S. based developer of UNIX-based windowing software and
was responsible for building a direct and indirect sales channel in Europe. From
June 1992 to January 1995, Mr. Vanderbeeken was employed by Uniface
International, a Netherlands based developer of client /server application
development systems as Sales Director for Europe, Japan and Asia Pacific. Prior
to that Mr. Vanderbeeken was employed by Performance Software Ltd and
Computerland Europe.
Mark Miller has served as the Company's Director of Technical Services
since March 1997, and oversees the quality assurance, information systems,
technical support and professional services departments. From March 1996 until
March 1997, Mr. Miller was Technical Support Manager for the Company. From April
1995 to March 1996, Mr. Miller was a Technical Support Representative for the
Company. Prior to joining the Company, Mr. Miller served on active duty in the
United States Air Force from October 1989 to March 1995 where he held a variety
of positions, including Manager of an Air Base help desk, Data Base
Administrator, Systems Analyst and Manager and Main Frame operator.
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<PAGE> 45
Irl Nathan has served as the Company's Vice President of Product Marketing
since March 1997 and oversees the execution of the Company's product strategy.
From November 1990 to March 1997, Mr. Nathan managed the Company's marketing
department as well as managing the sales department from January 1991 to
February 1993. Prior to joining the Company, Mr. Nathan founded a consulting and
publishing firm specializing in network integration for the legal community. Mr.
Nathan holds a B.A. in Government from the University of Texas at Austin and a
J.D. with honors from St. Mary's University.
BOARD COMPOSITION
The Company's Revised Articles of Incorporation provide for a Board of
Directors consisting of not less than four members and shall consist of six
members initially unless and until increased by resolution of the Board of
Directors. The Company currently has six Directors. Each of the Company's
officers and directors, other than non-employee directors, devotes substantially
full time to the affairs of the Company. The Company's non-employee directors
devote such time to the affairs of the Company as is necessary to discharge
their duties. Each officer is elected and serves at the discretion of the Board
of Directors.
The terms of office of the Board of Directors are divided into three
classes of staggered terms. Class I, whose term will expire at the annual
meeting of shareholders to be held in 1999; Class II, whose term will expire at
the annual meeting of shareholders to be held in 2000; and Class III, whose term
will expire at the annual meeting of shareholders to be held in 2001. The Class
I directors are Christopher J. Sole and Richard A. Hosley II, the Class II
directors are John J. Moores and Scott R. Plantowsky and the Class III directors
are Eric J. Pulaski and Peter L. Bloom. At each annual meeting of shareholders
after the initial classification, the successors to directors whose term will
then expire will be elected to serve from the time of election and qualification
until the third annual meeting following election. This classification of the
Board of Directors may have the effect of delaying or preventing changes in
control or management of the Company. See "Risk Factors -- Anti-Takeover Effects
of Articles of Incorporation, Bylaws and Texas Law."
COMMITTEES OF THE BOARD
The Bylaws authorize the Board of Directors to designate one or more
committees. As of January 27, 1998, the Board of Directors had authorized an
Audit Committee and a Compensation Committee.
The Audit Committee reviews, acts on and reports to the Board of Directors
with respect to various auditing and accounting matters, including the selection
of the Company's independent accountants, the scope of the annual audits, fees
to be paid to the independent accountants, the performance of the Company's
independent accountants and the accounting practices of the Company. The Audit
Committee is comprised of John J. Moores as Chairman and Peter L. Bloom.
The Compensation Committee establishes salaries, incentives and other forms
of compensation for officers and other employees of the Company as well as
administering the incentive compensation and benefit plans of the Company. The
Compensation Committee is comprised of Peter L. Bloom as Chairman and John J.
Moores.
DIRECTOR COMPENSATION
The Company reimburses each member of the Company's Board of Directors for
out-of-pocket expenses incurred in connection with attending Board meetings.
Except for Richard A. Hosley II, no member of the Company's Board of Directors
currently receives any additional cash compensation. Mr. Hosley receives $1,000
per board meeting attended. The Company has granted each of John J. Moores,
Richard A. Hosley II and Peter L. Bloom options to acquire 50,000 shares of
Common Stock at an exercise price of $3.85 per share under the Company's 1998
Non-Employee Directors Stock Option Plan. See "-- 1998 Non-Employee Directors
Stock Option Plan." All such options vest in annual installments over five
years, except that they vest in full if the Company is subject to a change in
control (as defined in such Plan) and in the event of the optionee's death or
disability. Such options expire ten years from the date of grant or, if earlier,
90 days after the optionee ceases to be a director or 12 months after the
optionee's death. See "Principal and Selling Shareholders."
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<PAGE> 46
EXECUTIVE COMPENSATION
The following table sets forth the compensation earned by the Company's
Chief Executive Officer and the four other most highly compensated officers
whose salary and bonus for 1997 were in excess of $100,000 (collectively, the
"Named Officers"), for services rendered in all capacities to the Company and
its subsidiaries for that fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-----------------------
AWARDS
-----------------------
ANNUAL COMPENSATION RESTRICTED SECURITIES
--------------------- STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) AWARDS($) OPTIONS(#) COMPENSATION($)(3)
--------------------------- --------- -------- ---------- ---------- ------------------
<S> <C> <C> <C> <C> <C>
Eric J. Pulaski(1)............ $141,000 $36,044 0 0 $ 9,500
President and Chief
Executive Officer
Christopher J. Sole........... 110,000 83,301 0 279,990 9,054
Chief Operating Officer
Scott R. Plantowsky........... 110,000 113,179 1,335,000(4) 1,500,000(5) 9,500
Chief Financial Officer
David E. Pulaski.............. 65,000 121,225 1,335,000(6) 187,500(7) 9,500
Vice President -- Sales,
North America
Nadeem Ghias(2)............... 114,950 83,455 231,400(8) 97,500(9) 9,500
Vice President -- Research &
Development
</TABLE>
- ------------
(1) Does not include S Corporation dividends of $1,207,545 paid in 1997.
(2) Does not include S Corporation dividends of $28,910 paid in 1997.
(3) Includes contributions made by the Company to a 401(k) Plan.
(4) Issued in connection with the termination of the Phantom Stock Plan. At the
end of 1997, Mr. Plantowsky held 107,125 shares of restricted stock valued
at $412,217. Dividends will be paid on restricted stock to the same extent
that dividends are paid on unrestricted stock.
(5) Includes a warrant for 437,500 shares of Common Stock at $2.85 per share,
vested as of December 31, 1997 and expiring October 2007. Also includes
options for 218,750 shares of Common Stock, vested as of December 31, 1997,
with the remaining options vesting in the amount of 218,750 shares on
January 1, 1998, 109,375 shares on July 1998, 187,500 shares on September 1,
1998 and 109,375 shares on each of the following dates: January 1, 1999,
July 1, 1999 and January 1, 2000.
(6) Issued in connection with the termination of the Phantom Stock Plan. At end
of fiscal year 1997, Mr. Pulaski held 243,202 shares of restricted stock
valued at $935,841. Dividends will be paid on restricted stock to the same
extent that dividends are paid on unrestricted stock.
(7) Granted in connection with the termination of the Phantom Stock Plan all of
which became fully vested and exercisable in February 1998. In addition in
January 1998, Mr. Pulaski was granted options for 37,500 shares of Common
Stock at an exercise price of $3.85 per share.
(8) Issued in connection with the termination of the Phantom Stock Plan. At end
of fiscal year 1997, Mr. Ghias held no shares of restricted stock. Dividends
will be paid on restricted stock to the same extent that dividends are paid
on unrestricted stock.
(9) Granted in connection with the termination of the Phantom Stock Plan. In
addition, in March 1998, Mr. Ghias was granted options for 37,500 shares of
Common Stock at an exercise price of $4.48 per share.
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<PAGE> 47
The following table contains information concerning the stock option grants
made to each of the Named Officers in the year ended December 31, 1997. No stock
appreciation rights were granted to these individuals during such year.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------------- POTENTIAL REALIZABLE VALUE
% OF TOTAL AT ASSUMED ANNUAL RATES OF
NUMBER OF OPTIONS STOCK PRICE APPRECIATION
SECURITIES GRANTED TO EXERCISE FOR OPTION TERM(3)
UNDERLYING EMPLOYEES IN PRICE EXPIRATION --------------------------
NAME OPTIONS GRANTED FISCAL YEAR(1) ($/SHARE)(2) DATE 5%($) 10%($)
---- --------------- -------------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Eric J. Pulaski........ 0 -- -- -- -- --
Christopher J. Sole.... 279,990(4) 7.3% $2.85 10/2007 $501,488 $1,270,869
Scott R. Plantowsky.... 875,000(5) 22.9 1.34 4/2007 737,379 1,868,663
437,500(6) 11.4 2.85 10/2007 783,603 1,985,803
187,500(7) 4.9 2.85 10/2007 335,830 851,058
David E. Pulaski....... 187,500(8) 4.9 2.85 10/2007 335,830 851,058
Nadeem Ghias........... 97,500(9) 2.5 2.85 10/2007 174,631 442,550
</TABLE>
- ------------
(1) Based on an aggregate of 3,828,885 shares subject to options and warrants
granted to employees of the Company under the Incentive Stock Option Plan,
Stock Option Plan and 1997 Incentive Plan during 1997.
(2) The Company's Board of Directors has authorized stock option grants during
1997 based upon its estimate of the fair market value of the Company's
Common Stock at the date of grant. The estimates of fair market value of the
Company's Common Stock for the first three quarters of the year were based
upon multiplying Company revenues for the preceding twelve months by a
factor implicit in 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.
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<PAGE> 48
The following table sets forth information concerning the shares acquired
and the value realized upon the exercise of stock options during 1997 and the
year-end number and value of unexercised options with respect to each of the
Named Officers. No stock appreciation rights were exercised by the Named
Officers in 1997 or were outstanding at the end of that year.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT DECEMBER 31, AT DECEMBER 31,
1997 1997(1)
----------------------- ------------------------
NAME VESTED UNVESTED VESTED UNVESTED
---- -------- --------- -------- ----------
<S> <C> <C> <C> <C>
Eric J. Pulaski........................... -- -- -- --
Christopher J. Sole....................... -- 927,315 -- $1,170,709
Scott R. Plantowsky....................... 656,250 843,750 $986,125 1,833,375
David E. Pulaski.......................... -- 187,500 -- 187,500
Nadeem Ghias.............................. 48,750 48,750 48,750 48,750
</TABLE>
- ------------
(1) Based on the fair market value of Common Stock of $3.85 per share at the
year ending December 31, 1997, as determined by the Company's Board of
Directors, less the exercise price payable for such shares.
BONUS PLAN
The Company has adopted a bonus program pursuant to which all employees may
be awarded cash bonuses based on individual performance and the performance and
profitability of the Company.
STOCK OPTION PLANS
Incentive Stock Option Plan.
The Company's Incentive Stock Option Plan, as amended (the "Incentive
Plan"), provides for the grant to certain key employees of options intended to
qualify as incentive stock options ("ISOs") under Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"). The Incentive Plan was adopted by
the Board of Directors in January 1996 and approved by the Company's
stockholders in December 1996. Unless terminated sooner, the Incentive Plan will
terminate automatically in December 2004. A total of 1,875,000 shares of Common
Stock had been reserved for issuance under the Incentive Plan at March 31, 1998.
The Incentive Plan shall be administered by the Board of Directors. The Board
has the power to designate the employees or classes of employees eligible to
participate in the Incentive Plan, grant options provided for in the Incentive
Plan in the form and amounts as the Board shall determine and impose such
limitations, restrictions and conditions upon such options as the Board deems
appropriate. Options granted under the Incentive Plan are not generally
transferable by the optionee, and each option is generally exercisable during
the lifetime of the optionee only by such optionee. Options granted under the
Incentive Plan shall expire immediately on the date of termination of the
optionee's employment with the Company and will expire six months after such
optionee's death, but in no event will any option be exercisable later than ten
years from the date of grant of such option. The exercise price of all ISOs
granted under the Incentive Plan must be equal to the fair market value of the
Common Stock on the date of grant. No options may be granted to any participant
who owns stock possessing more than ten percent of the voting power of all
classes of the Company's outstanding capital stock. The aggregate fair market
value of options granted to an optionee may not exceed $100,000 in any calendar
year. The term of options granted under the Incentive Plan may not exceed ten
years. The Incentive Plan provides that in the event of a stock dividend,
merger, consolidation, exchange of shares or other similar event, the Board of
Directors may appropriately adjust the number of shares of Common Stock issuable
under and the option price of such options. As of March 31, 1998, 10,000 shares
of Common Stock had been issued upon exercise of options outstanding under the
Incentive Plan. The recipient of any option under the Incentive Plan has no
rights as a shareholder unless and until certificates for shares of Common Stock
have been issued to him. Options to purchase 1,487,520 shares of Common Stock at
a weighted average exercise price of $1.28 were outstanding under the Incentive
Plan. At March 31, 1998, 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, 1,303,740
shares of Common Stock had been issued upon exercise of options outstanding
under the 1997 Plan. No option granted under the 1997 Plan shall confer on any
optionee the rights of a shareholder unless and until stock is duly issued or
transferred, or if the option is duly exercised. Options to purchase 1,303,740
shares of Common Stock at a weighted average exercise price of $2.85 were
outstanding under the 1997 Plan. At March 31, 1998, no shares remained available
for future issuance under the 1997 Plan. After May 1998, all options outstanding
under the 1997 Plan are to be governed, for administration purposes only, by the
Omnibus Plan.
Omnibus Incentive Plan.
The Company's Board of Directors has adopted the Company's Omnibus
Incentive Plan (the "Omnibus Plan"). The Company expects the Omnibus Plan to be
approved by the Company's stockholders in May 1998.
Under the Omnibus Plan, 1,750,000 shares of Common Stock are reserved for
issuance pursuant to the direct award or sale of shares or the exercise of
options. If any options granted under the Omnibus Plan are forfeited or
terminate for any other reason without having been exercised in full, then the
unpurchased shares subject to those options will become available for additional
grants under the Omnibus Plan. If shares granted or purchased under the Omnibus
Plan are forfeited, then those shares will also become available for additional
grants under the Omnibus Plan.
Under the Omnibus Plan, all employees (including officers) of the Company
or any subsidiary are eligible to purchase shares of Common Stock, to receive
awards of shares or to receive nonstatutory options or ISOs within the meaning
of Section 422 of the Code. The Omnibus Plan is administered by the Board of
Directors, which selects the persons to whom shares will be sold or awarded or
options will be granted, determines the number of shares to be made subject to
each sale, award or grant, and prescribes the other terms and conditions of each
sale, award or grant, including the type of consideration to be paid to the
Company upon sale or exercise and the vesting schedule.
The exercise price under ISOs cannot be lower than 100% of the fair market
value of the Common Stock on the date of grant and, in the case of ISOs granted
to holders of more than 10% of the voting power of the Company, not less than
110% of such fair market value. There is no minimum exercise price for
nonstatutory options. Options granted under the Omnibus Plan generally are not
transferable, except that an optionee may transfer nonstatutory options to an
immediate family member or an entity controlled by the optionee or an immediate
family member.
The term of any option cannot exceed ten years, and the term of an ISO
granted to a holder of more than 10% of the voting power of the Company cannot
exceed five years. Options generally terminate three months after the optionee's
employment terminates for any reason other than retirement, disability or death.
In the event of the optionee's retirement, the optionee generally may exercise
the vested portion of the option within 12 months after retirement. In the event
of the optionee's disability, the option vests in full and the optionee
generally may exercise the option within 12 months after the optionee's
employment terminated. In the event of the optionee's death, the option also
vests in full and the optionee's successors generally may exercise the option
within 12 months after the optionee's death. Restricted stock awards likewise
vest in full in the event of the recipient's disability or death.
As of March 31, 1998, options to purchase an aggregate of 326,293 shares of
Common Stock were outstanding under the Omnibus Plan at a weighted average
exercise price of $4.12. A total of 1,423,707 shares of Common Stock are
available for future issuance under the Omnibus Plan.
1998 Non-Employee Director Stock Option Plan.
The Company's Board of Directors has adopted the Company's 1998
Non-Employee Director Stock Option Plan (the "Director Plan"). The Company
expects that the Director Plan will be approved by the Company's stockholders in
May, 1998.
Under the Director Plan, 250,000 shares of Common Stock are reserved for
issuance upon the exercise of options. If any options granted under the Director
Plan are forfeited or terminate for any other reason without
49
<PAGE> 51
having been exercised in full, then the unpurchased shares subject to those
options will become available for additional grants under the Director Plan.
Under the Director Plan, each new director who is not an employee of the
Company or any affiliate is automatically granted, as of the date when he or she
is elected to the Company's Board of Directors, an option to purchase 50,000
shares of Common Stock at an exercise price equal to the fair market value of
the Common Stock on the date of grant. These options vest in equal annual
installments over the five-year period commencing on the date of grant, except
that they vest in full in the event of the optionee's death or disability or in
the event that the Company is subject to a change in control.
The term of the options is ten years. Options generally terminate 90 days
after the optionee's service as a director terminates for any reason other than
death. In the event of the optionee's death, the optionee's successors may
exercise the option within 12 months after the optionee's death. Options granted
under the Director Plan generally are not transferable, except that an optionee
may transfer the options to an immediate family member or an entity controlled
by the optionee or an immediate family member.
As of March 31, 1998, options to purchase an aggregate of 150,000 shares of
Common Stock were outstanding under the Director Plan at a weighted average
exercise price of $3.85. A total of 100,000 shares of Common Stock are available
for future issuance under the Director Plan.
401(K) PLAN
The Company has adopted a 401(k) retirement savings plan referred to as the
BindView Development Corporation 401(k) Profit Sharing Plan. This plan is
available to all employees who have attained age 21 and have completed three
months of service. An employee may contribute, on a pre-tax basis, up to 15% of
the employee's wages from the Company, subject to limitations specified under
the Internal Revenue Code. Under the terms of the BindView Development
Corporation 401(k) Profit Sharing Plan, the Company shall match employee
contributions up to 50% of the first 6% contributed by the employee and may make
discretionary profit sharing contributions. Contributions are allocated to each
employee's individual account and are, at the employee's election, invested in
one, all or some combination of the investment funds available under such 401(k)
plan. Employee contributions are fully vested and non-forfeitable. Employees
will vest in any Company contributions at the rate of 20% for each year of
service commencing after the first year of service.
EMPLOYMENT AGREEMENTS
The Company has employment agreements with Christopher J. Sole, Scott R.
Plantowsky, David E. Pulaski and Nadeem Ghias. Mr. Sole's employment agreement
remains in effect until such agreement is terminated by Mr. Sole upon two weeks
notice, subject to the Company's right to terminate the agreement immediately
for cause or Mr. Sole's death. The Company may also terminate Mr. Sole at any
time for any reason (or no reason), subject to the obligation of the Company to
pay Mr. Sole an amount equal to six months of base salary. Mr. Sole's annual
salary is currently $110,000, subject to review by the Compensation Committee.
Mr. Sole is also eligible to receive annual cash bonuses, stock option grants
and other awards under the Company's existing stock plans, by and at the
discretion of the Compensation Committee. Mr. Sole is prohibited from soliciting
customers of the Company for a period of up to 12 months after Mr. Sole's
termination.
Mr. Plantowsky's employment agreement remains in effect until January 1,
2000, or until such agreement is terminated by Mr. Plantowsky upon 60 days
notice, subject to the Company's right to terminate the agreement immediately
for cause or Mr. Plantowsky's death. In connection with Mr. Plantowsky's
employment, Mr. Plantowsky received, among other things, a nonstatutory stock
option to purchase 875,000 shares of the Company's Common Stock that vest over a
three year period from April 1997. Under this option, if Mr. Plantowsky's
employment is terminated for any reason other than for cause, including a
constructive termination, the Company is obligated to either (i) pay Mr.
Plantowsky $1 million and one-half of his then unvested shares shall immediately
vest or (ii) cause all of Mr. Plantowsky's shares to immediately vest. Mr.
Plantowsky's annual salary is currently $110,000, subject to review by the
Compensation Committee.
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<PAGE> 52
Mr. Plantowsky is also eligible to receive annual cash bonuses, stock option
grants and other awards under the Company's existing stock plans, by and at the
discretion of the Compensation Committee. In addition, in the event that Mr.
Plantowsky's employment with the Company is terminated for cause or Mr.
Plantowsky resigns, in either case prior to January 1, 1999, July 1, 1999 or
January 1, 2000, then the Company shall have the option to purchase up to
164,062 shares, 109,375 shares and 54,687 shares, respectively, of Common Stock
from Mr. Plantowsky at a price per share of $2.85. Mr. Plantowsky is prohibited
from (i) directly or indirectly engaging in the same or similar business
activities to those carried on by the Company and (ii) soliciting customers of
the Company for a period of two years after Mr. Plantowsky's termination.
Mr. Ghias' employment agreement remains in effect until such agreement is
terminated by Mr. Ghias upon two weeks notice, subject to the Company's right to
terminate the agreement immediately for cause or Mr. Ghias' death. Mr. Ghias'
annual salary is currently $114,950, subject to review by the Compensation
Committee. Mr. Ghias is also eligible to receive annual cash bonuses, stock
option grants and other awards under the Company's existing stock plans, by and
at the discretion of the Compensation Committee. Mr. Ghias is prohibited from
(i) directly or indirectly engaging in the same or similar business activities
to those carried on by the Company and (ii) soliciting customers of the Company
for a period of 12 months after Mr. Ghias' termination.
David E. Pulaski's employment agreement remains in effect until such
agreement is terminated by Mr. Pulaski upon two weeks notice, subject to the
Company's right to terminate the agreement immediately for cause or Mr.
Pulaski's death. Mr. Pulaski's annual salary is currently $96,000, subject to
review by the Compensation Committee. Mr. Pulaski is also eligible to receive
annual cash bonuses, stock option grants and other awards under the Company's
existing stock plans, by and at the discretion of the Compensation Committee.
Mr. Pulaski is prohibited from (i) directly or indirectly engaging in the same
or similar business activities to those carried on by the Company and (ii)
soliciting customers of the Company for a period of 12 months at Mr. Pulaski's
termination.
The Company also maintains employment/confidentiality agreements with
substantially all of its employees. Such agreements are not for a specific term
and are generally terminable at will by the Company, subject to the obligation
of the Company to pay the employee an amount equal to accrued vacation time and
severance pay in the amount of at least one-half month's salary. These
agreements provide for annual base salaries, other benefits, such as vacation
and sick leave, and non-compete and confidentiality agreements. The employees
who are parties to these agreements are also entitled to bonuses based on
achieving targets to be set by the Company's Board of Directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Peter L. Bloom, a director of the Company, is a member of the Compensation
Committee of the Board of Directors. Mr. Bloom is also a general partner of both
General Atlantic Partners 44, L.P. and GAP Coinvestment Partners, L.P., owners
of approximately 24.3% and 5.0%, respectively, of the capital stock of the
Company prior to the offering.
CERTAIN TRANSACTIONS
TRANSACTIONS WITH DIRECTORS AND OFFICERS
On April 8, 1997, the Company delivered 487,500 shares of Common Stock to
Nadeem Ghias, the Company's Vice President -- Research & Development, to settle
its obligation pursuant to the sale of technology by Mr. Ghias to the Company in
1993. Under the terms of a related agreement (the "Agreement"), the Company has
the option to purchase the 487,500 shares of Common Stock subject to the
Agreement within 60 days of certain triggering events. The triggering events are
the death or disability of Mr. Ghias, the termination of his employment with the
Company or any disposition of the shares. The purchase price of the shares is
determined by the following formula: the Company is to be valued at an amount
equal to 1.56 times the net sales of the Company in the preceding 12 month
period, and the value of one share is determined by dividing the value of the
Company by the total number of outstanding shares of Common Stock. In the event
that Mr. Ghias' employment has been terminated with the Company for any reason
other than death or disability, or if the Company exercises its option due to an
involuntary disposition
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<PAGE> 53
by Mr. Ghias, the purchase price of the shares will be 1.56 times the amount
calculated in the preceding formula. The terms of the Agreement provide that the
Agreement will terminate upon an initial public offering of Common Stock of the
Company.
On October 16, 1997, the Company issued in a private placement an aggregate
of 6,320,225 shares of Class A Convertible Preferred Stock of the Company
("Class A Preferred Stock") and warrants (the "Investor Warrants") to purchase
an aggregate of 749,999 shares of Common Stock of the Company with an exercise
price of $4.00 per share. The Class A Preferred Stock and Investor Warrants were
purchased by General Atlantic Partners 44, L.P., GAP Coinvestment Partners, L.P.
and JMI Equity Fund III, L.P. (collectively, the "Purchasers") for an aggregate
consideration of $18 million. Pursuant to the agreements entered into in
connection with this offering and sale of the Class A Preferred Stock and
Investor Warrants, among other provisions, the Company agreed to nominate, and
Eric J. Pulaski, a significant shareholder, agreed to vote his shares to elect,
representatives of the Purchasers to the Board of Directors of the Company.
Immediately prior to the private placement and sale of the Class A
Preferred Stock and Investor Warrants, the Company terminated its Phantom Stock
Plan. In connection with the termination of the Phantom Stock Plan, the Company
issued shares of Common Stock and options to purchase shares of the Common Stock
of the Company to the participants in the plan as consideration for the
cancellation of their interests in the plan. The Company issued 1,757,188 shares
of Common Stock before terminating its S Corporation status, creating a loss in
the short S Corporation year. Subsequently, the shareholders elected to convert
the Company into a C Corporation and issued 3,187,612 shares of Common Stock
creating a loss in the short C Corporation year. Upon issuance of the Common
Stock to the employee recipients, the Company incurred a one-time aggregate
compensation charge of approximately $14.7 million. Contemporaneously, the
Company initiated a stock repurchase, in aggregate, of 4,921,958 shares of
Common Stock for approximately $14 million, equal to approximately $2.85 per
share. The stock repurchase provided funds for personal income tax liabilities
for employees resulting from the receipt of Common Stock in consideration of
cancellation of their interest in the Phantom Stock Plan, to the extent vested,
and provided liquidity for certain selling shareholders. Options were granted to
purchase 1,303,740 shares of Common Stock at an exercise price of $2.85 in
consideration of cancellation of the participant's unvested interest in the
Phantom Stock Plan pursuant to the Company's 1997 Incentive Plan.
In November, 1997, the Company granted Scott R. Plantowsky, the Company's
Vice President, Chief Financial Officer and a member of its Board of Directors,
a warrant (the "Warrant") to purchase 437,500 shares of its Common Stock at an
exercise price of $2.85 per share in exchange for the extinguishment of a bonus
provision in his option agreement. This warrant was exercised in May 1998.
The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future transactions, including loans between the
Company and its officers, directors, principal shareholders and their affiliates
will be approved by a majority of the Board of Directors, including a majority
of the independent and disinterested outside directors on the Board of
Directors, and will continue to be on terms no less favorable to the Company
than could be obtained from unaffiliated third parties.
PHANTOM STOCK PLAN
In 1996, the Company implemented a Phantom Stock Plan which granted phantom
stock units to certain employees. Each phantom stock unit provided the
participant with the right to receive shares of the Company's Common Stock upon
the occurrence of a change in control of the Company, an initial public offering
of the Company's Common Stock, liquidation of the Company or a sale of
substantially all of the Company's assets. The Company granted 6,598,250 phantom
stock units during 1996. No grants were made during 1997.
The Company terminated the Phantom Stock Plan in October 1997 and issued
1,757,188 shares of Common Stock on October 13, 1997 and 3,187,612 shares of
Common Stock on October 16, 1997 to retire the Phantom Stock Plan and recognized
a related stock compensation charge of $14.7 million in October 1997. On October
16, 1997, the Company issued options to purchase 1,303,740 shares of Common
Stock under the
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<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.
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<PAGE> 55
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information known to the Company
regarding beneficial ownership of its Common Stock as of 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."
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<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.
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<PAGE> 57
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, the authorized capital stock of the
Company will consist of 100,000,000 shares of Common Stock, no par value.
COMMON STOCK
As of 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
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<PAGE> 58
discouraging others from making tender offers for the Company's shares and, as a
consequence, they also may inhibit fluctuations in the market price of the
Company's shares that could result from actual or rumored takeover attempts.
Such provisions also may have the effect of preventing changes in the management
of the Company. See "Risk Factors -- Anti-Takeover Effects of Articles of
Incorporation, Bylaws and Texas Law."
Texas Takeover Statute
The Company is subject to Article 13.03 of the Texas Business Corporations
Act (the "TBCA"), which, subject to certain exceptions, prohibits a Texas
corporation from engaging in any business combination with any affiliated
shareholder, as defined under Article 13.01 of the TBCA, for a period of three
years following the date that such shareholder became an affiliated shareholder,
unless: (i) prior to such date, the board of directors of the corporation
approved either the business combination or the transaction that resulted in the
shareholder becoming an affiliated shareholder or (ii) the business combination
is approved and authorized by the affirmative vote of at least two-thirds of the
outstanding voting stock that is not owned or controlled by the interested
shareholder, at a meeting of shareholders and not by written consent, duly
called for that purpose not less than six months after the date that the
affiliated shareholder first became an affiliated shareholder of the
corporation.
Article 13.02 of the TBCA ("Article 13.02") defines 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.
WARRANTS
Following this offering, and assuming that the Underwriters' over-allotment
options are not exercised, the Company will have outstanding warrants to
purchase an aggregate of 749,999 shares of Common Stock at an average exercise
price of $4.00 per share. All outstanding warrants contain customary
anti-dilution provisions.
REGISTRATION RIGHTS
The holders of approximately 13,700,000 shares of Common Stock, including
shares of Common Stock issuable upon exercise of certain outstanding warrants,
are entitled to certain rights with respect to the registration of such shares
under the Securities Act. Under the terms of certain employment agreements
between the Company and holders of such registrable securities, if the Company
proposes to register any of its securities under the Securities Act, either for
its own account or for the account of other security holders exercising
registration rights, such holders are entitled to notice of such registration
and are entitled to include shares of such Common Stock therein. Additionally,
such holders are also entitled to certain demand registration rights pursuant to
which they may require the Company to file a registration statement under the
Securities Act at its expense with respect to their shares of Common Stock, and
the Company is required to use its best efforts to effect such registration.
Further, holders may require the Company to file additional registration
statements on Form S-3 at the Company's expense. All of these registration
rights are subject to certain conditions and limitations, including, without
limitation, the right of the underwriters of an offering to limit the number of
shares included in such registration and the right of the Company not to effect
a requested registration within six months following an offering of the
Company's securities, including the offering made hereby.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is ChaseMellon
Shareholder Services, L.L.C., and its telephone number is (214) 965-2235.
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<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, 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
acquisition
liability............. -- 502,850 -- 272 -- -- -- 272
Issuance of common stock
pursuant to
termination of Phantom
Stock Plan............ -- 4,944,800 -- 14,092 -- -- -- 14,092
Transfer of S Corporation
accumulated deficit
upon conversion to C
Corporation........... -- -- -- (633) -- 633 -- --
Issuance of convertible
preferred stock
(2,528,090 shares).... 25 -- -- 17,977 -- -- -- 18,002
Issuance of warrant to
purchase common stock
(437,500 shares)...... -- -- -- -- 550 -- -- 550
Purchase of treasury
stock (4,921,958
shares)............... -- -- -- -- -- -- (14,017) (14,017)
Exercise of stock
options............... -- 9,965 -- 6 -- -- -- 6
Net loss................. -- -- -- -- -- (8,028) -- (8,028)
---- ---------- ---- ------- ------- ------- -------- --------
Balance at December 31,
1997..................... 25 13,197,615 1 31,728 550 (6,037) (14,017) 12,250
Net income for three
months ended March 31,
1998 (unaudited)...... -- -- -- -- -- 397 -- 397
---- ---------- ---- ------- ------- ------- -------- --------
Balance at March 31, 1998
(unaudited).............. $ 25 13,197,615 $ 1 $31,728 550 $(5,640) $(14,017) $ 12,647
==== ========== ==== ======= ======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 70
BINDVIEW DEVELOPMENT CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------- ---------------
1995 1996 1997 1997 1998
------- ------ -------- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities: --
Net income (loss)........................... $ 754 $1,990 $ (8,028) $ 739 $ 397
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation and amortization expense.... 431 427 815 131 198
Stock compensation expense............... -- -- 14,642 -- --
Increase in provision for bad debts...... -- -- 170 -- --
Deferred income taxes.................... -- -- (3,150) -- 122
Changes in assets and liabilities:
(Increase) decrease in accounts
receivable.......................... (523) (902) (2,629) (337) 1,560
(Increase) decrease in other current
assets.............................. 7 (49) 83 59 --
Increase (decrease) in accounts
payable............................. 148 37 512 101 (19)
Increase (decrease) in accrued
liabilities......................... 26 51 1,191 17 (240)
Increase in deferred revenue........... 305 86 1,459 657 458
------- ------ -------- ------ ------
Net cash provided by operating
activities........................ 1,148 1,640 5,065 1,367 2,476
------- ------ -------- ------ ------
Cash flows from investing activities:
Purchase of property and equipment.......... (384) (583) (1,250) (248) (574)
Other....................................... (135) (130) (95) 26 13
------- ------ -------- ------ ------
Net cash used by investing
activities........................ (519) (713) (1,345) (222) (561)
------- ------ -------- ------ ------
Cash flows from financing activities:
S Corporation distributions................. (248) (557) (1,274) (125) --
Payments on notes payable and long-term
debt..................................... (2,755) (226) -- -- --
Proceeds from notes payable and long-term
debt..................................... 2,852 -- -- -- --
Proceeds from issuance of convertible
preferred stock and common stock
warrants................................. -- -- 18,002 -- --
Purchases of treasury stock................. -- -- (14,017) -- --
Exercise of stock options................... -- -- 6 -- --
------- ------ -------- ------ ------
Net cash provided (used) by
financing activities.............. (151) (783) 2,717 (125) --
------- ------ -------- ------ ------
Net increase in cash and cash equivalents..... 478 144 6,437 1,020 1,915
Cash and cash equivalents at beginning of
period...................................... 144 622 766 766 7,203
------- ------ -------- ------ ------
Cash and cash equivalents at end of period.... $ 622 $ 766 $ 7,203 $1,786 $9,118
======= ====== ======== ====== ======
Supplemental disclosures for cash flow
information:
Cash paid during the year for interest...... $ 27 $ 15 $ -- $ -- $ --
Noncash financing and investing activities:
Issuance of 502,850 shares of common stock
in 1997 to satisfy 1993 acquisition
liability
Issuance of warrant to purchase 437,500
shares of common stock in 1997 to satisfy
bonus obligation
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 71
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Operations
BindView Development Corporation (the Company), a Texas corporation, was
incorporated in May 1990. Previous to 1995, the Company was known as The LAN
Support Group, Inc. Pursuant to the sale of convertible preferred stock, the
Company's Subchapter S election terminated on October 16, 1997.
The Company develops, markets and supports a suite of systems management
software products that manage the security and integrity of complex, distributed
client/server networks operating on Microsoft Windows NT and Novell NetWare
environments.
Principles of Consolidation
The consolidated financial statements include the accounts of BindView
Development Corporation and BindView GmbH, its wholly-owned German subsidiary.
All significant intercompany transactions have been eliminated.
Revenue Recognition
In October 1997 the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") No. 97-2, "Software Revenue Recognition,"
which the Company adopted effective as of January 1, 1997. Such adoption had no
effect on the Company's method of recognizing revenue from its license and
subscription contract activities. Prior to 1997, the Company recognized revenue
in accordance with SOP No. 91-1, "Software Revenue Recognition." The Company
sells its products under perpetual licenses and recognizes its license revenue
upon meeting each of the following criteria: (i) execution of a written purchase
order, license agreement or contract; (ii) delivery of software or, if the
customer has previously received evaluation software, delivery of the software
license code; and (iii) issuance of the related license, with no significant
vendor obligations or customer acceptance rights outstanding; (iv) the license
fee is fixed or determinable; and (v) collectibility is assessed as being
probable. Revenues from perpetual licenses are recorded as license revenue in
the Statements of Operations. Service revenues include subscription contracts
and professional services. Subscription contracts are purchased separately by
customers at their discretion and revenues are an incremental component of each
contract and are recognized ratably over the one year contract term. The portion
of subscription contract revenues that have not yet been recognized as revenues
is reported as deferred revenue in the accompanying balance sheet.
The Company also derives a portion of its revenues through the sale of its
products by distributors, value-added resellers and system integrators.
Resellers have no return rights and end customers have, under the Company's
standard shrink-wrap license agreement, 30 days to return products. To date,
returns have been minor and, accordingly, the Company has not recorded a reserve
for returns. Revenues are recognized on these transactions upon (i) receipt of
an executed purchase order from the reseller and (ii) shipment of the software.
Postcontract Customer Support
Prior to January 1, 1998, the Company provided postcontract customer
support, consisting solely of telephone technical support, to its customers. The
costs of providing this support has been accrued and charged to expense at the
time the revenue is recognized. Accrued liabilities at December 31, 1996 and
1997 includes approximately $42 and $78, respectively, related to providing this
support.
F-8
<PAGE> 72
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
Advertising Costs
Advertising costs are charged to operations when incurred.
Research and Development
Research and development costs are charged to operations when incurred. In
accordance with the provisions of Statement of Financial Accounting Standards
No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed", the Company capitalizes costs incurred in the development
of software once technological feasibility has been determined. The Company
currently considers technological feasibility to have been established once a
working model of a product has been produced and tested. To date, costs incurred
and capitalizable subsequent to the establishment of technological feasibility
have not been material and are included in the Other Assets in the accompanying
consolidated balance sheet.
Stock-Based Compensation
The Company measures compensation expense for its stock-based employee
compensation plans using the intrinsic method, as prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees".
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the fair market value of the Company's stock at the date of the grant
over the amount the employee must pay to acquire the stock, and is recognized
over the related vesting period.
The Company provides supplemental disclosure of the effect on net income
and earnings per share as if the minimum value-based method had been applied in
measuring compensation expense, as prescribed for nonpublic enterprises in
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (Note 7).
Income Taxes
Prior to October 16, 1997, the Company had elected to be treated as an S
Corporation for federal income tax purposes. Accordingly, all federal income tax
liability prior to that date was the responsibility of the shareholders.
The provision for income taxes is computed based on income earned from the
termination date of the Company's Subchapter S election on October 16, 1997
through December 31, 1997. The asset and liability approach is used to recognize
deferred tax assets and liabilities for the expected future tax consequences of
temporary differences between the carrying amounts and the tax bases of the
assets and liabilities.
The pro forma results of operations of the Company reflect a pro forma
charge in lieu of income taxes prior to October 16, 1997.
Earnings Per Share
The Company's earnings per share data is presented in accordance with
Statement of Financial Accounting Standard No. 128, "Earnings Per Share". Basic
earnings per share is computed using the weighted average number of shares
outstanding. Diluted earnings per share is computed using the weighted average
number of shares outstanding adjusted for the incremental shares attributed to
outstanding securities with the ability to purchase or convert into common
stock.
Cash and Cash Equivalents
The Company considers investments with original maturity dates of three
months or less from the date of purchase to be cash equivalents.
F-9
<PAGE> 73
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
Concentration of Credit Risk
Financial instruments which subject the Company to concentrations of credit
risk consist primarily of cash equivalents and accounts receivable. The Company
maintains its cash equivalent balance in a money market fund invested in U.S.
Treasury Certificates. The fund is not FDIC insured. The Company has not
experienced any losses in such fund and believes it is not exposed to any
significant credit risk on cash equivalents.
Management believes that concentrations of credit risk with respect to
accounts receivable are limited due to the large number of customers comprising
the Company's customer base and their dispersion across many different
industries and geographic regions. The Company performs ongoing credit
evaluations of its customers to minimize credit risk. Approximately 16%, 10% and
13% of the Company's sales were made on an export basis, primarily to customers
in Europe and the United Kingdom in 1995, 1996 and 1997, respectively.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed by
applying the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are amortized over the lives of the respective leases or
the service lives of the improvements, whichever is shorter.
Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets, liabilities, sales and expenses and the disclosure of
contingent assets and liabilities. Actual results could differ from those
estimates. Management believes the estimates are reasonable.
Fair Value of Financial Instruments
The fair value of cash and cash equivalents, accounts receivable and
accounts payable reflected in the December 31, 1996 and 1997 Consolidated
Balance Sheet approximate their carrying value due to their short maturities.
Recent Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 130 "Reporting Comprehensive Income". This
standard is effective for fiscal years beginning after December 15, 1997. The
Company does not have any items of comprehensive income and therefore this
standard does not affect its financial statements or disclosures.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 131 "Disclosures About Segments of an
Enterprise and Related Information". This standard is effective for fiscal years
beginning after December 15, 1997. The Company currently operates in a single
industry and geographic segment and does not expect this standard to have a
material impact on disclosures with respect to the Company's financial condition
or results of operations.
F-10
<PAGE> 74
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
2. ACCOUNTS RECEIVABLE
Accounts receivable balances are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- MARCH 31,
1996 1997 1998
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Trade accounts receivable................................ $2,293 $4,911 $3,352
Other accounts receivable................................ 2 13 12
------ ------ ------
2,295 4,924 3,364
Less -- allowance for doubtful accounts.................. (25) (195) (195)
------ ------ ------
$2,270 $4,729 $3,169
====== ====== ======
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment balances are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
ESTIMATED ---------------- MARCH 31,
USEFUL LIVES 1996 1997 1998
------------ ------ ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Computer equipment and software............ 3 years $1,317 $ 2,296 $ 2,853
Office furniture and other equipment....... 3-7 years 250 378 395
Leasehold improvements..................... lease terms 108 206 206
------ ------- -------
1,675 2,880 3,454
Less -- accumulated depreciation........... (870) (1,510) (1,708)
------ ------- -------
$ 805 $ 1,370 $ 1,746
====== ======= =======
</TABLE>
Depreciation expense totaled $251, $326 and $685 in 1995, 1996 and 1997,
respectively, and $103 (unaudited) and $198 (unaudited) in the three months
ended March 31, 1997 and 1998.
4. CREDIT AGREEMENTS AND FINANCING ARRANGEMENTS
On June 10, 1997, the Company secured a $2,000 line of credit and a $500
line of credit. Any principal draws on the line of credit mature on June 10,
1998. Any principal draws on the $500 line of credit mature 30 months after the
date of such advances. The line is collateralized by accounts receivable and
property and equipment. There have been no borrowings outstanding under these
facilities.
5. INCOME TAXES
Effective October 16, 1997, the Company elected to be treated as a C
Corporation for federal income tax purposes. Accordingly, no federal income tax
expense was recorded by the Company for the years ended December 31, 1995 and
1996, and from January 1, 1997 through October 16, 1997 because operating
results are reported in the individual income tax returns of the shareholders.
The Company's income tax provision (benefit) was comprised of the
following:
<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 16,
1997 TO
DECEMBER 31,
1997
------------
<S> <C>
Deferred:
Federal............................................... $(3,060)
State................................................. (90)
-------
Total......................................... $(3,150)
=======
</TABLE>
F-11
<PAGE> 75
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
A reconciliation of the federal statutory tax rate and the Company's
provision for income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1995 1996 1997
----- ----- -------
<S> <C> <C> <C>
Income taxes at the applicable federal statutory rates... $ 256 $ 677 $(2,317)
State income taxes, net of federal benefit............... 8 20 (68)
Research and development credit.......................... -- -- --
Tax obligation allocated to S Corporation shareholders... (264) (697) (765)
----- ----- -------
Provision (benefit) for income taxes..................... $ -- $ -- $(3,150)
===== ===== =======
</TABLE>
Deferred tax assets at December 31, 1997 are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Assets:
Net operating loss carryforward........................... $2,849 $2,729
Allowance for bad debts................................... 68 68
Accrued liabilities....................................... 172 171
Other..................................................... 61 60
------ ------
$3,150 $3,028
====== ======
</TABLE>
The Company's net operating loss carryforward is attributable to the stock
compensation expense realized during the C Corporation period related to the
termination of the Company's phantom stock plan (Note 6). The Company's net
operating loss carryforward at December 31, 1997 of approximately $7,500 for
federal income tax purposes expires in 2012. The Company's ability to utilize
the net operating loss carryforward may be limited if certain changes of
ownership occur. Based on the historical earnings generated by the Company,
management believes it is more likely than not that the tax benefits related to
the net operating loss carryforward will be realized and has, therefore,
provided no valuation allowance for the related deferred tax asset.
6. STOCK COMPENSATION EXPENSE
Phantom Stock Plan Termination
In 1996, the Company implemented a phantom stock plan which granted phantom
stock units to certain employees. Each phantom stock unit provided the
participant with the right to receive shares of Company common stock upon the
occurrence of a change in control of the Company, an initial public offering of
the Company's common stock, liquidation of the Company or a sale of
substantially all of the Company's assets (the "Events"). Since the number of
shares of Common Stock a participant might receive would not be known until one
of the Events occurred, the Company has treated the Phantom Stock Plan as a
junior stock plan in accordance with Financial Accounting Standards Board
Interpretation No. 38 (FIN 38) and accordingly has not recognized stock
compensation expense upon the grant of the units. Stock compensation expense was
recognized by the Company in October 1997 when the plan participants voted to
have the Company terminate the Plan in connection with the sale of Convertible
Preferred Stock and Warrants and the number of shares to be issued under the
Plan were known.
The Company granted 6,598,250 phantom stock units during 1996. No grants
were made during 1997. The Company terminated the Phantom Stock Plan in October
1997 and issued 1,757,188 shares of common
F-12
<PAGE> 76
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
stock on October 13, 1997 and 3,187,612 shares of common stock on October 16,
1997 to retire the Phantom Stock Plan. The Company recognized a related stock
compensation charge of $14,712 in October 1997.
On October 16, 1997, the Company issued 1,303,740 common stock options
under the Company's 1997 Employee Stock Option Plan with an exercise price of
$2.85 per share to former participants in the Phantom Stock Plan (Note 7). No
compensation expense has been recorded related to these options as the exercise
price is equal to the fair market value of the Company's common stock on the
date of grant.
Stock compensation expense of $436 was recognized in 1996 in connection
with cash payments made for the extinguishment of certain rights to receive
Company common stock which were held by a terminated employee.
Officer Warrants
In November 1997 the Company issued a warrant to purchase 437,500 shares of
common stock at a price of $2.85 per share to an officer to terminate a
provision of the stock option agreement with that officer. The Company has
recognized compensation expense of $550 during the fourth quarter of 1997 based
upon the fair value of the warrant issued.
7. SHAREHOLDERS' EQUITY
Issuance of Convertible Preferred Stock and Warrants
In October 1997, the Company issued 2,528,090 shares of $0.01 par value
convertible preferred stock and warrants to purchase 749,999 shares of common
stock, at $4.00 per share in exchange for $18,002 of cash. The warrants are
immediately exercisable and expire April 16, 2000. In the event of a liquidation
of the Company, the Company's preferred stock has liquidation preference over
its common stock. The preferred stock has a liquidation value of $7.12 per
preferred share and is convertible at the option of the holder into common stock
on a 2.5-for-1 basis. In the event of an initial public offering, the Company's
preferred stock would automatically convert into common stock and any
unexercised warrants would automatically expire.
At December 31, 1997, there were 6,320,225 shares of common stock reserved
by the Board of Directors for issuance to the holders of the preferred stock and
749,999 shares of common stock reserved by the Board of Directors for issuance
to the holders of the warrants.
Treasury Stock Transactions
The Company repurchased 4,921,958 shares of common stock for $2.85 per
share in October 1997.
Issuance of Common Stock to Satisfy Acquisition Liability
In April 1997, the Company issued 502,850 shares to satisfy its 1993
obligation incurred related to the acquisition of certain technology rights.
Incentive Stock Option Plan
In 1996, the Company's Board of Directors adopted the Incentive Stock
Option Plan. At December 31, 1997, there were 1,875,000 shares of common stock
reserved by the Board of Directors for issuance under this plan. Options on
170,250 and 261,875 shares were exercisable at December 31, 1996 and 1997 with a
weighted average exercise price per share of $0.78 and $0.80, respectively.
F-13
<PAGE> 77
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
Nonqualified Stock Option Plan
In 1996, the Company's Board of Directors adopted the Nonqualified Stock
Option Plan. At December 31, 1997, there were 1,747,325 shares of common stock
reserved by the Board of Directors for issuance under this plan. There were no
options exercisable at December 31, 1996. Options on 218,750 shares were
exercisable at December 31, 1997, with a weighted average exercise price per
share of $1.34.
1997 Employee Stock Option Plan
In 1997, the Company's Board of Directors adopted the 1997 Employee Stock
Option Plan. At December 31, 1997, there were 1,303,740 shares of common stock
reserved by the Board of Directors for issuance under this plan. There were no
options exercisable at December 31, 1997.
Substantially all options reserved under the Company's Incentive Stock
Option Plan, the Nonqualified Stock Option Plan and the 1997 Employee Stock
Option Plan have been issued.
Options granted under the Incentive and Nonqualified Stock Option Plans
vest 20% per year over five years, except for 647,325 and 875,000 options
granted in 1996 and 1997, respectively, which vest as follows: 218,750 in 1997,
975,450 in 1998, 109,375 in 1999, 109,375 in 2000 and 109,375 in 2001. Options
granted under the 1997 Employee Stock Option Plan vest at varying rates through
the year 2001. Options must be exercised no later than ten years from the date
of grant.
Stock options have been granted at the fair market value of the Company's
stock at the date of grant as determined by the Company's Board of Directors. In
pricing the options issued prior to October 1997, the Board used a multiple of
revenues resulting from 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. 2 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 14th 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 14, 1998
- ----------------------------------------------------- President and Chief
Eric J. Pulaski Executive Officer
* /s/ CHRISTOPHER J. SOLE Director, Vice President and July 14, 1998
- ----------------------------------------------------- Chief Operating Officer
Christopher J. Sole
* /s/ SCOTT R. PLANTOWSKY Director, Vice President and July 14, 1998
- ----------------------------------------------------- Chief Financial Officer
Scott R. Plantowsky
* /s/ PETER L. BLOOM Director July 14, 1998
- -----------------------------------------------------
Peter L. Bloom
* /s/ JOHN J. MOORES Director July 14, 1998
- -----------------------------------------------------
John J. Moores
* /s/ RICHARD A. HOSLEY II Director July 14, 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 14, 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 14, 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 1.1
____________ Shares(1)
BINDVIEW DEVELOPMENT CORPORATION
COMMON STOCK
UNDERWRITING AGREEMENT
July __, 1998
BANCAMERICA ROBERTSON STEPHENS
BT ALEX. BROWN, INCORPORATED
DONALDSON LUFKIN & JENRETTE
As Representatives of the several Underwriters
c/o BancAmerica Robertson Stephens
555 California Street
Suite 2600
San Francisco, California 94104
Ladies/Gentlemen:
BindView Development Corporation, a Texas corporation (the
"Company"), and certain shareholders of the Company named in Schedule B hereto
(hereafter called the "Selling Shareholders") address you as the
Representatives of each of the persons, firms and corporations listed in
Schedule A hereto (herein collectively called the "Underwriters") and hereby
confirm their respective agreements with the several Underwriters as follows:
1. Description of Shares. The Company proposes to issue and sell
_________ shares of its authorized and unissued Common Stock, no par value, to
the several Underwriters. The Selling Shareholders, acting severally and not
jointly, propose to sell an aggregate of ________ shares of the Company's
authorized and outstanding Common Stock, no par value, to the several
Underwriters. The _________ shares of Common Stock, no par value, of the
Company to be sold by the Company are hereinafter called the "Company Shares"
and the _________ shares of Common Stock, no par value, to be sold by the
Selling Shareholders are hereinafter called the "Selling Shareholder Shares."
The Company Shares and the Selling Shareholder Shares are hereinafter
collectively referred to as the "Firm Shares." The Company also proposes to
grant to the Underwriters an option to purchase up to ________ additional
shares of the Company's Common Stock, no par value (the "Option Shares"), as
provided in Section 7 hereof. As used in this Agreement, the term "Shares"
shall include the Firm Shares and the Option Shares. All shares of Common
Stock, no par value, of the Company to be outstanding after giving effect to
the sales contemplated hereby, including the Shares, are hereinafter referred
to as "Common Stock."
2. Representations, Warranties and Agreements of the Company and
the Selling Shareholders.
I. The Company represents and warrants to and agrees
with each Underwriter and each Selling Shareholder that:
(a) A registration statement on Form S-1 (File
No. 333-52883) with respect to the Shares, including a prospectus subject to
completion, has been prepared by the Company in conformity with the
requirements of the Securities Act of 1933, as amended (the "Act"), and the
applicable rules and regulations (the
- ----------------------------------------
(1) Plus an option to purchase up to _________ additional shares from the
Company to cover over-allotments.
<PAGE> 2
"Rules and Regulations") of the Securities and Exchange Commission (the
"Commission") under the Act and has been filed with the Commission; such
amendments to such registration statement, such amended prospectuses subject to
completion and such abbreviated registration statements pursuant to Rule 462(b)
of the Rules and Regulations as may have been required prior to the date hereof
have been similarly prepared and filed with the Commission; and the Company
will file such additional amendments to such registration statement, such
amended prospectuses subject to completion and such abbreviated registration
statements as may hereafter be required. Copies of such registration statement
and amendments, of each related prospectus subject to completion (the
"Preliminary Prospectuses") and of any abbreviated registration statement
pursuant to Rule 462(b) of the Rules and Regulations have been delivered to
you.
If the registration statement relating to the
Shares has been declared effective under the Act by the Commission, the Company
will prepare and promptly file with the Commission the information omitted from
the registration statement pursuant to Rule 430A(a) or, if BancAmerica
Robertson Stephens, on behalf of the several Underwriters, shall agree to the
utilization of Rule 434 of the Rules and Regulations, the information required
to be included in any term sheet filed pursuant to Rule 434(b) or (c), as
applicable, of the Rules and Regulations pursuant to subparagraph (1), (4) or
(7) of Rule 424(b) of the Rules and Regulations or as part of a post-effective
amendment to the registration statement (including a final form of prospectus).
If the registration statement relating to the Shares has not been declared
effective under the Act by the Commission, the Company will prepare and
promptly file an amendment to the registration statement, including a final
form of prospectus, or, if BancAmerica Robertson Stephens, on behalf of the
several Underwriters, shall agree to the utilization of Rule 434 of the Rules
and Regulations, the information required to be included in any term sheet
filed pursuant to Rule 434(b) or (c), as applicable, of the Rules and
Regulations. The term "Registration Statement" as used in this Agreement shall
mean such registration statement, including financial statements, schedules and
exhibits, in the form in which it became or becomes, as the case may be,
effective (including, if the Company omitted information from the registration
statement pursuant to Rule 430A(a) or files a term sheet pursuant to Rule 434
of the Rules and Regulations, the information deemed to be a part of the
registration statement at the time it became effective pursuant to Rule 430A(b)
or Rule 434(d) of the Rules and Regulations) and, in the event of any amendment
thereto or the filing of any abbreviated registration statement pursuant to
Rule 462(b) of the Rules and Regulations relating thereto after the effective
date of such registration statement, shall also mean (from and after the
effectiveness of such amendment or the filing of such abbreviated registration
statement) such registration statement as so amended, together with any such
abbreviated registration statement. The term "Prospectus" as used in this
Agreement shall mean the prospectus relating to the Shares as included in such
Registration Statement at the time it becomes effective (including, if the
Company omitted information from the Registration Statement pursuant to Rule
430A(a) of the Rules and Regulations, the information deemed to be a part of
the Registration Statement at the time it became effective pursuant to Rule
430A(b) of the Rules and Regulations); provided, however, that if in reliance
on Rule 434 of the Rules and Regulations and with the consent of BancAmerica
Robertson Stephens, on behalf of the several Underwriters, the Company shall
have provided to the Underwriters a term sheet pursuant to Rule 434(b) or (c),
as applicable, prior to the time that a confirmation is sent or given for
purposes of Section 2(10)(a) of the Act, the term "Prospectus" shall mean the
"prospectus subject to completion" (as defined in Rule 434(g) of the Rules and
Regulations) last provided to the Underwriters by the Company and circulated by
the Underwriters to all prospective purchasers of the Shares (including the
information deemed to be a part of the Registration Statement at the time it
became effective pursuant to Rule 434(d) of the Rules and Regulations).
Notwithstanding the foregoing, if any revised prospectus shall be provided to
the Underwriters by the Company for use in connection with the offering of the
Shares that differs from the prospectus referred to in the immediately
preceding sentence (whether or not such revised prospectus is required to be
filed with the Commission pursuant to Rule 424(b) of the Rules and
Regulations), the term "Prospectus" shall refer to such revised prospectus from
and after the time it is first provided to the Underwriters for such use. If in
reliance on Rule 434 of the Rules and Regulations and with the consent of
BancAmerica Robertson Stephens, on behalf of the several Underwriters, the
Company shall have provided to the Underwriters a term sheet pursuant to Rule
434(b) or (c), as applicable, prior to the time that a confirmation is sent or
given for purposes of Section 2(10)(a) of the Act, the Prospectus and the term
sheet, together, will not be materially different from the prospectus in the
Registration Statement.
(b) The Commission has not issued any order
preventing or suspending the use of any Preliminary Prospectus or instituted
proceedings for that purpose, and each such Preliminary Prospectus has
2
<PAGE> 3
conformed in all material respects to the requirements of the Act and the Rules
and Regulations and, as of its date, has not included any untrue statement of a
material fact or omitted to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; and at the time the Registration Statement became or
becomes, as the case may be, effective and at all times subsequent thereto up
to and on the Closing Date (hereinafter defined) and on any later date on which
Option Shares are to be purchased, (i) the Registration Statement and the
Prospectus, and any amendments or supplements thereto, contained and will
contain all material information required to be included therein by the Act and
the Rules and Regulations and will in all material respects conform to the
requirements of the Act and the Rules and Regulations, (ii) the Registration
Statement, and any amendments or supplements thereto, did not and will not
include any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, and (iii) the Prospectus, and any amendments or supplements
thereto, did not and will not include any untrue statement of a material fact
or omit to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading;
provided, however, that none of the representations and warranties contained in
this subparagraph (b) shall apply to information contained in or omitted from
the Registration Statement or Prospectus, or any amendment or supplement
thereto, in reliance upon, and in conformity with, written information relating
to any Underwriter furnished to the Company by such Underwriter specifically
for use in the preparation thereof.
(c) Each of the Company and its subsidiaries has
been duly incorporated and is validly existing as a corporation in good
standing under the laws of the jurisdiction of its incorporation with full
power and authority (corporate and other) to own, lease and operate its
properties and conduct its business as described in the Prospectus; the Company
owns all of the outstanding capital stock of its subsidiaries free and clear of
any pledge, lien, security interest, encumbrance, claim or equitable interest;
each of the Company and its subsidiaries is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction in which the
ownership or leasing of its properties or the conduct of its business requires
such qualification, except where the failure to be so qualified or be in good
standing would not have a material adverse effect on the condition (financial
or otherwise), earnings, operations or business of the Company and its
subsidiaries considered as one enterprise; no proceeding has been instituted in
any such jurisdiction, revoking, limiting or curtailing, or seeking to revoke,
limit or curtail, such power and authority or qualification; each of the
Company and its subsidiaries is in possession of and operating in compliance
with all authorizations, licenses, certificates, consents, orders and permits
from state, federal and other regulatory authorities which are material to the
conduct of its business, all of which are valid and in full force and effect;
neither the Company nor any of its subsidiaries is in violation of its
respective charter or bylaws or in default in the performance or observance of
any material obligation, agreement, covenant or condition contained in any
material bond, debenture, note or other evidence of indebtedness, or in any
material lease, contract, indenture, mortgage, deed of trust, loan agreement,
joint venture or other agreement or instrument to which the Company or any of
its subsidiaries is a party or by which it or any of its subsidiaries or their
respective properties may be bound; and neither the Company nor any of its
subsidiaries is in material violation of any law, order, rule, regulation,
writ, injunction, judgment or decree of any court, government or governmental
agency or body, domestic or foreign, having jurisdiction over the Company or
any of its subsidiaries or over their respective properties of which it has
knowledge. The Company does not own or control, directly or indirectly, any
corporation, association or other entity other than BindView Development GmbH.
(d) The Company has full legal right, power and
authority to enter into this Agreement and perform the transactions
contemplated hereby. This Agreement has been duly authorized, executed and
delivered by the Company and is a valid and binding agreement on the part of
the Company, enforceable in accordance with its terms, except as rights to
indemnification hereunder may be limited by applicable law and except as the
enforcement hereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles; the performance
of this Agreement and the consummation of the transactions herein contemplated
will not result in a material breach or violation of any of the terms and
provisions of, or constitute a default under, (i) any bond, debenture, note or
other evidence of indebtedness, or under any lease, contract, indenture,
mortgage, deed of trust, loan agreement, joint venture or other agreement or
instrument to which the Company or any of its subsidiaries is a party or by
which it or any of its subsidiaries or their respective properties may be
bound, (ii) the charter or bylaws of the Company or any of its subsidiaries, or
(iii) any law, order, rule, regulation, writ, injunction, judgment or
3
<PAGE> 4
decree of any court, government or governmental agency or body, domestic or
foreign, having jurisdiction over the Company or any of its subsidiaries or
over their respective properties. No consent, approval, authorization or order
of or qualification with any court, government or governmental agency or body,
domestic or foreign, having jurisdiction over the Company or any of its
subsidiaries or over their respective properties is required for the execution
and delivery of this Agreement and the consummation by the Company or any of
its subsidiaries of the transactions herein contemplated, except such as may be
required under the Act, or under state or other securities or Blue Sky laws,
all of which requirements have been satisfied in all material respects.
(e) There is not any pending or, to the best of
the Company's knowledge, threatened action, suit, claim or proceeding against
the Company, any of its subsidiaries or any of their respective officers or any
of their respective properties, assets or rights before any court, government
or governmental agency or body, domestic or foreign, having jurisdiction over
the Company or any of its subsidiaries or over their respective officers or
properties or otherwise which (i) might result in any material adverse change
in the condition (financial or otherwise), earnings, operations or business of
the Company and its subsidiaries considered as one enterprise or might
materially and adversely affect their properties, assets or rights, (ii) might
prevent consummation of the transactions contemplated hereby or (iii) is
required to be disclosed in the Registration Statement or Prospectus and is not
so disclosed; and there are no agreements, contracts, leases or documents of
the Company or any of its subsidiaries of a character required to be described
or referred to in the Registration Statement or Prospectus or to be filed as an
exhibit to the Registration Statement by the Act or the Rules and Regulations
which have not been accurately described in all material respects in the
Registration Statement or Prospectus or filed as exhibits to the Registration
Statement.
(f) All outstanding shares of capital stock of
the Company (including the Selling Shareholder Shares) have been duly
authorized and validly issued and are fully paid and nonassessable, have been
issued in compliance with all federal and state securities laws, were not
issued in violation of or subject to any preemptive rights or other rights to
subscribe for or purchase securities, and the authorized and outstanding
capital stock of the Company is as set forth in the Prospectus under the
caption "Capitalization" and conforms in all material respects to the
statements relating thereto contained in the Registration Statement and the
Prospectus (and such statements correctly state the substance of the
instruments defining the capitalization of the Company); the Firm Shares and
the Option Shares to be purchased from the Company hereunder have been duly
authorized for issuance and sale to the Underwriters pursuant to this Agreement
and, when issued and delivered by the Company against payment therefor in
accordance with the terms of this Agreement, will be duly and validly issued
and fully paid and nonassessable, and will be sold free and clear of any
pledge, lien, security interest, encumbrance, claim or equitable interest; and
no preemptive right, co-sale right, registration right, right of first refusal
or other similar right of shareholders exists with respect to any of the Firm
Shares or Option Shares to be purchased from the Company hereunder or the
issuance and sale thereof other than those that have been expressly waived
prior to the date hereof and those that will automatically expire upon and will
not apply to the consummation of the transactions contemplated on the Closing
Date. No further approval or authorization of any shareholder, the Board of
Directors of the Company or others is required for the issuance and sale or
transfer of the Shares except as may be required under the Act or under state
or other securities or Blue Sky laws. All issued and outstanding shares of
capital stock of each subsidiary of the Company have been duly authorized and
validly issued and are fully paid and nonassessable, and were not issued in
violation of or subject to any preemptive right, or other rights to subscribe
for or purchase shares and are owned by the Company free and clear of any
pledge, lien, security interest, encumbrance, claim or equitable interest.
Except as disclosed in the Prospectus and the financial statements of the
Company, and the related notes thereto, included in the Prospectus, neither the
Company nor any subsidiary has outstanding any options to purchase, or any
preemptive rights or other rights to subscribe for or to purchase, any
securities or obligations convertible into, or any contracts or commitments to
issue or sell, shares of its capital stock or any such options, rights,
convertible securities or obligations. The description of the Company's stock
option, stock bonus and other stock plans or arrangements, and the options or
other rights granted and exercised thereunder, set forth in the Prospectus
accurately and fairly presents the information required to be shown with
respect to such plans, arrangements, options and rights.
(g) Price Waterhouse LLP, which has examined the
consolidated financial statements of the Company, together with the related
schedules and notes, as of December 31, 1996 and 1997 and
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for each of the years in the three (3) years ended December 31, 1997 filed with
the Commission as a part of the Registration Statement, which are included in
the Prospectus, are independent accountants within the meaning of the Act and
the Rules and Regulations; the audited consolidated financial statements of the
Company, together with the related schedules and notes, and the unaudited
consolidated financial information, forming part of the Registration Statement
and Prospectus, fairly present the financial position and the results of
operations of the Company and its subsidiaries at the respective dates and for
the respective periods to which they apply; and all audited consolidated
financial statements of the Company, together with the related schedules and
notes, and the unaudited consolidated financial information, filed with the
Commission as part of the Registration Statement, have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods involved except as may be otherwise stated therein. The
selected and summary financial and statistical data included in the
Registration Statement present fairly the information shown therein and have
been compiled on a basis consistent with the audited financial statements
presented therein. No other financial statements or schedules are required to
be included in the Registration Statement.
(h) Subsequent to the respective dates as of
which information is given in the Registration Statement and Prospectus, there
has not been (i) any material adverse change in the condition (financial or
otherwise), earnings, operations or business of the Company and its
subsidiaries considered as one enterprise, (ii) any transaction that is
material to the Company and its subsidiaries considered as one enterprise,
except transactions entered into in the ordinary course of business, (iii) any
obligation, direct or contingent, that is material to the Company and its
subsidiaries considered as one enterprise, incurred by the Company or its
subsidiaries, except obligations incurred in the ordinary course of business,
(iv) any change in the capital stock or outstanding indebtedness of the Company
or any of its subsidiaries that is material to the Company and its subsidiaries
considered as one enterprise, (v) any dividend or distribution of any kind
declared, paid or made on the capital stock of the Company or any of its
subsidiaries, or (vi) any loss or damage (whether or not insured) to the
property of the Company or any of its subsidiaries which has been sustained or
will have been sustained which has a material adverse effect on the condition
(financial or otherwise), earnings, operations or business of the Company and
its subsidiaries considered as one enterprise.
(i) Except as set forth in the Registration
Statement and Prospectus, (i) each of the Company and its subsidiaries has good
and marketable title to all properties and assets described in the Registration
Statement and Prospectus as owned by it, free and clear of any pledge, lien,
security interest, encumbrance, claim or equitable interest, other than such as
would not have a material adverse effect on the condition (financial or
otherwise), earnings, operations or business of the Company and its
subsidiaries considered as one enterprise, (ii) the agreements to which the
Company or any of its subsidiaries is a party described in the Registration
Statement and Prospectus are valid agreements, enforceable by the Company and
its subsidiaries (as applicable), except as the enforcement thereof may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting creditors' rights generally or by
general equitable principles and, to the best of the Company's knowledge, the
other contracting party or parties thereto are not in material breach or
material default under any of such agreements, and (iii) each of the Company
and its subsidiaries has valid and enforceable leases for all properties
described in the Registration Statement and Prospectus as leased by it, except
as the enforcement thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles. Except as set
forth in the Registration Statement and Prospectus, the Company owns or leases
all such properties as are necessary to its operations as now conducted or as
proposed to be conducted.
(j) The Company and its subsidiaries have timely
filed all necessary federal, state and foreign income and franchise tax returns
and have paid all taxes shown thereon as due, and there is no tax deficiency
that has been or, to the best of the Company's knowledge, might be asserted
against the Company or any of its subsidiaries that might have a material
adverse effect on the condition (financial or otherwise), earnings, operations
or business of the Company and its subsidiaries considered as one enterprise;
and all tax liabilities are adequately provided for on the books of the Company
and its subsidiaries.
(k) The Company and its subsidiaries maintain
insurance with insurers of recognized financial responsibility of the types and
in the amounts generally deemed adequate for their respective
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<PAGE> 6
businesses and consistent with insurance coverage maintained by similar
companies in similar businesses, including, but not limited to, insurance
covering real and personal property owned or leased by the Company or its
subsidiaries against theft, damage, destruction, acts of vandalism and all
other risks customarily insured against, all of which insurance is in full
force and effect; neither the Company nor any such subsidiary has been refused
any insurance coverage sought or applied for; and neither the Company nor any
such subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the condition
(financial or otherwise), earnings, operations or business of the Company and
its subsidiaries considered as one enterprise.
(l) To the best of Company's knowledge, no labor
disturbance by the employees of the Company or any of its subsidiaries exists
or is imminent; and the Company is not aware of any existing or imminent labor
disturbance by the employees of any of its principal suppliers, subassemblers,
value added resellers, subcontractors, authorized dealers or international
distributors that might be expected to result in a material adverse change in
the condition (financial or otherwise), earnings, operations or business of the
Company and its subsidiaries considered as one enterprise. No collective
bargaining agreement exists with any of the Company's employees and, to the
best of the Company's knowledge, no such agreement is imminent.
(m) Each of the Company and its subsidiaries owns
or possesses adequate rights to use all patents, patent rights, inventions,
trade secrets, know-how, trademarks, service marks, trade names and copyrights
which are necessary to conduct its businesses as described in the Registration
Statement and Prospectus; the expiration of any patents, patent rights, trade
secrets, trademarks, service marks, trade names or copyrights would not have a
material adverse effect on the condition (financial or otherwise), earnings,
operations or business of the Company and its subsidiaries considered as one
enterprise; the Company has not received any notice of, and has no knowledge
of, any infringement of or conflict with asserted rights of the Company by
others with respect to any patent, patent rights, inventions, trade secrets,
know-how, trademarks, service marks, trade names or copyrights; and the Company
has not received any notice of, and has no knowledge of, any infringement of or
conflict with asserted rights of others with respect to any patent, patent
rights, inventions, trade secrets, know-how, trademarks, service marks, trade
names or copyrights which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, might have a material adverse effect
on the condition (financial or otherwise), earnings, operations or business of
the Company and its subsidiaries considered as one enterprise.
(n) The Common Stock has been approved for
quotation on The Nasdaq National Market, subject to official notice of
issuance.
(o) The Company has been advised concerning the
Investment Company Act of 1940, as amended (the "1940 Act"), and the rules and
regulations thereunder, and has in the past conducted, and intends in the
future to conduct, its affairs in such a manner as to ensure that it will not
become an "investment company" or a company "controlled" by an "investment
company" within the meaning of the 1940 Act and such rules and regulations.
(p) The Company has not distributed and will not
distribute prior to the later of (i) the Closing Date, or any date on which
Option Shares are to be purchased, as the case may be, and (ii) completion of
the distribution of the Shares, any offering material in connection with the
offering and sale of the Shares other than any Preliminary Prospectuses, the
Prospectus, the Registration Statement and other materials, if any, permitted
by the Act.
(q) Neither the Company nor any of its
subsidiaries has at any time during the last five (5) years (i) made any
unlawful contribution to any candidate for foreign office or failed to disclose
fully any contribution in violation of law, or (ii) made any payment to any
federal or state governmental officer or official, or other person charged with
similar public or quasi-public duties, other than payments required or
permitted by the laws of the United States or any jurisdiction thereof.
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<PAGE> 7
(r) The Company has not taken and will not take,
directly or indirectly, any action designed to or that might reasonably be
expected to cause or result in stabilization or manipulation of the price of
the Common Stock to facilitate the sale or resale of the Shares.
(s) Each officer and director of the Company,
each Selling Shareholder and beneficial owners of an aggregate of [ ________ ]
shares of Common Stock have agreed in writing that such person will not, for a
period of 180 days from the date that the Registration Statement is declared
effective by the Commission (the "Lock-up Period"), offer to sell, contract to
sell, or otherwise sell, dispose of, loan or grant any rights with respect to
(collectively, a "Disposition") any shares of Common Stock, any options or
warrants to purchase any shares of Common Stock or any securities convertible
into or exchangeable for shares of Common Stock (collectively, "Securities")
now owned or hereafter acquired directly by such person or with respect to
which such person has the power of disposition, otherwise than (i) as a bona
fide pledge or pledgee, provided the donee or donees thereof agrees in writing
to be bound by this restriction, (ii) as a distribution to partners or
shareholders of such person, provided that the distributees thereof agree in
writing to be bound by the terms of this restriction, (iii) with the prior
written consent of BancAmerica Robertson Stephens or (iv) as may be acquired
after the effective date of the Registration Statement in open market
transactions. The foregoing restriction has been expressly agreed to preclude
the holder of the Securities from engaging in any hedging or other transaction
which is designed to or reasonably expected to lead to or result in a
Disposition of Securities during the Lock-up Period, even if such Securities
would be disposed of by someone other than such holder. Such prohibited hedging
or other transactions would include, without limitation, any short sale
(whether or not against the box) or any purchase, sale or grant of any right
(including, without limitation, any put or call option) with respect to any
Securities or with respect to any security (other than a broad-based market
basket or index) that includes, relates to or derives any significant part of
its value from Securities. Furthermore, such person has also agreed and
consented to the entry of stop transfer instructions with the Company's
transfer agent against the transfer of the Securities held by such person
except in compliance with this restriction. The Company has provided to counsel
for the Underwriters a complete and accurate list of all securityholders of the
Company and the number and type of securities held by each securityholder. The
Company has provided to counsel for the Underwriters true, accurate and
complete copies of all of the agreements pursuant to which its officers,
directors and shareholders have agreed to such or similar restrictions (the
"Lock-up Agreements") presently in effect or effected hereby. The Company
hereby represents and warrants that it will not release any of its officers,
directors or other shareholders from any Lock-up Agreements currently existing
or hereafter effected without the prior written consent of BancAmerica
Robertson Stephens.
(t) Except as set forth in the Registration
Statement and Prospectus, (i) the Company is in compliance with all rules, laws
and regulations relating to the use, treatment, storage and disposal of toxic
substances and protection of health or the environment ("Environmental Laws")
which are applicable to its business, (ii) the Company has received no notice
from any governmental authority or third party of an asserted claim under
Environmental Laws, which claim is required to be disclosed in the Registration
Statement and the Prospectus, (iii) the Company will not be required to make
future material capital expenditures to comply with Environmental Laws and (iv)
no property which is owned, leased or occupied by the Company has been
designated as a Superfund site pursuant to the Comprehensive Response,
Compensation, and Liability Act of 1980, as amended (42 U.S.C. Section 9601, et
seq.), or otherwise designated as a contaminated site under applicable state or
local law.
(u) The Company and each of its subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurances that (i) transactions are executed in accordance with
management's general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain accountability for
assets, (iii) access to assets is permitted only in accordance with
management's general or specific authorization, and (iv) the recorded
accountability for assets is compared with existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
(v) There are no material outstanding loans,
advances (except normal advances for business expenses in the ordinary course
of business) or guarantees of indebtedness by the Company to or for the benefit
of any of the officers or directors of the Company or any of the members of the
families of any of them, except as disclosed in the Registration Statement and
the Prospectus.
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<PAGE> 8
(w) The Company has complied with all provisions
of Section 517.075, Florida Statutes relating to doing business with the
Government of Cuba or with any person or affiliate located in Cuba.
II. Each Selling Shareholder, severally and not jointly,
represents and warrants to and agrees with each Underwriter and the Company
that:
(a) Such Selling Shareholder now has and on the
Closing Date, and on any later date on which Option Shares are purchased, will
have valid marketable title to the Shares to be sold by such Selling
Shareholder, free and clear of any pledge, lien, security interest,
encumbrance, claim or equitable interest other than pursuant to this Agreement;
and upon delivery of such Shares hereunder and payment of the purchase price as
herein contemplated, each of the Underwriters will obtain valid marketable
title to the Shares purchased by it from such Selling Shareholder, free and
clear of any pledge, lien, security interest pertaining to such Selling
Shareholder or such Selling Shareholder's property, encumbrance, claim or
equitable interest, including any liability for estate or inheritance taxes, or
any liability to or claims of any creditor, devisee, legatee or beneficiary of
such Selling Shareholder.
(b) Such Selling Shareholder has duly authorized
(if applicable), executed and delivered, in the form heretofore furnished to
the Representatives, an irrevocable Power of Attorney (the "Power of Attorney")
appointing Eric J. Pulaski and Scott R. Plantowsky as attorneys-in-fact
(collectively, the "Attorneys" and individually, an "Attorney") and a Custody
Agreement (the "Custody Agreement") with BindView Development Corporation, as
custodian (the "Custodian"); each of the Power of Attorney and the Custody
Agreement constitutes a valid and binding agreement on the part of such Selling
Shareholder, enforceable in accordance with its terms, except as the
enforcement thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles; and each of
such Selling Shareholder's Attorneys, acting alone, is authorized to execute
and deliver this Agreement and the certificate referred to in Section 6(h)
hereof on behalf of such Selling Shareholder, to determine the purchase price
to be paid by the several Underwriters to such Selling Shareholder as provided
in Section 3 hereof, to authorize the delivery of the Selling Shareholder
Shares under this Agreement and to duly endorse (in blank or otherwise) the
certificate or certificates representing such Shares or a stock power or powers
with respect thereto, to accept payment therefor, and otherwise to act on
behalf of such Selling Shareholder in connection with this Agreement.
(c) All consents, approvals, authorizations and
orders required for the execution and delivery by such Selling Shareholder of
the Power of Attorney and the Custody Agreement, the execution and delivery by
or on behalf of such Selling Shareholder of this Agreement and the sale and
delivery of the Selling Shareholder Shares under this Agreement (other than, at
the time of the execution hereof (if the Registration Statement has not yet
been declared effective by the Commission), the issuance of the order of the
Commission declaring the Registration Statement effective and such consents,
approvals, authorizations or orders as may be necessary under state or other
securities or Blue Sky laws) have been obtained and are in full force and
effect; such Selling Shareholder, if other than a natural person, has been duly
organized and is validly existing in good standing under the laws of the
jurisdiction of its organization as the type of entity that it purports to be;
and such Selling Shareholder has full legal right, power and authority to enter
into and perform its obligations under this Agreement and such Power of
Attorney and Custody Agreement, and to sell, assign, transfer and deliver the
Shares to be sold by such Selling Shareholder under this Agreement.
(d) Such Selling Shareholder will not, during the
Lock-up Period, effect the Disposition of any Securities now owned or hereafter
acquired directly by such Selling Shareholder or with respect to which such
Selling Shareholder has or hereafter acquires the power of disposition,
otherwise than (i) as a bona fide pledge or pledgee, provided the donee or
donees thereof agrees in writing to be bound by this restriction, (ii) as a
distribution to partners or shareholders of such Selling Shareholder, provided
that the distributees thereof agree in writing to be bound by the terms of this
restriction, (iii) with the prior written consent of BancAmerica Robertson
Stephens or (iv) as may be acquired after the effective date of the
Registration Statement in open market transactions. The foregoing restriction
is expressly agreed to preclude the holder of the Securities from engaging in
any hedging or other transaction which is designed to or reasonably expected to
lead to or result in a Disposition of Securities during the Lock-up Period,
even if such Securities would be disposed of by someone other than the
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<PAGE> 9
Selling Shareholder. Such prohibited hedging or other transactions would
including, without limitation, any short sale (whether or not against the box)
or any purchase, sale or grant of any right (including, without limitation, any
put or call option) with respect to any Securities or with respect to any
security (other than a broad-based market basket or index) that includes,
relates to or derives any significant part of its value from Securities. Such
Selling Shareholder also agrees and consents to the entry of stop transfer
instructions with the Company's transfer agent against the transfer of the
securities held by such Selling Shareholder except in compliance with this
restriction.
(e) Certificates in negotiable form for all
Shares to be sold by such Selling Shareholder under this Agreement, together
with a stock power or powers duly endorsed in blank by such Selling
Shareholder, have been placed in custody with the Custodian for the purpose of
effecting delivery hereunder.
(f) This Agreement has been duly authorized by
each Selling Shareholder that is not a natural person and has been duly
executed and delivered by or on behalf of such Selling Shareholder and is a
valid and binding agreement of such Selling Shareholder, enforceable in
accordance with its terms, except as rights to indemnification hereunder may be
limited by applicable law and except as the enforcement hereof may be limited
by bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by general equitable
principles; and the performance of this Agreement and the consummation of the
transactions herein contemplated will not result in a breach or violation of
any of the terms and provisions of or constitute a default under any bond,
debenture, note or other evidence of indebtedness, or under any lease,
contract, indenture, mortgage, deed of trust, loan agreement, joint venture or
other agreement or instrument to which such Selling Shareholder is a party or
by which such Selling Shareholder, or any Selling Shareholder Shares hereunder,
may be bound or, to the best of such Selling Shareholders' knowledge, result in
any violation of any law, order, rule, regulation, writ, injunction, judgment
or decree of any court, government or governmental agency or body, domestic or
foreign, having jurisdiction over such Selling Shareholder or over the
properties of such Selling Shareholder, or, if such Selling Shareholder is
other than a natural person, result in any violation of any provisions of the
charter, bylaws or other organizational documents of such Selling Shareholder.
(g) Such Selling Shareholder has not taken and
will not take, directly or indirectly, any action designed to or that might
reasonably be expected to cause or result in stabilization or manipulation of
the price of the Common Stock to facilitate the sale or resale of the Shares.
(h) Such Selling Shareholder has not distributed
and will not distribute any prospectus or other offering material in connection
with the offering and sale of the Shares.
(i) All information furnished by or on behalf of
such Selling Shareholder relating to such Selling Shareholder and the Selling
Shareholder Shares that is contained in the representations and warranties of
such Selling Shareholder in such Selling Shareholder's Power of Attorney or set
forth in the Registration Statement or the Prospectus is, and at the time the
Registration Statement became or becomes, as the case may be, effective and at
all times subsequent thereto up to and on the Closing Date, was or will be,
true, correct and complete, and does not, and at the time the Registration
Statement became or becomes, as the case may be, effective and at all times
subsequent thereto up to and on the Closing Date (hereinafter defined) will
not, contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make such
information not misleading.
(j) Such Selling Shareholder will review the
Prospectus and will comply with all agreements and satisfy all conditions on
its part to be complied with or satisfied pursuant to this Agreement on or
prior to the Closing Date and will advise one of its Attorneys and BancAmerica
Robertson Stephens prior to the Closing Date if any statement to be made on
behalf of such Selling Shareholder in the certificate contemplated by Section
6(h) would be inaccurate if made as of the Closing Date.
(k) Such Selling Shareholder does not have, or
has waived prior to the date hereof, any preemptive right, co-sale right or
right of first refusal or other similar right to purchase any of the Shares
that are to be sold by the Company or any of the other Selling Shareholders to
the Underwriters pursuant to this Agreement; such Selling Shareholder does not
have, or has waived prior to the date hereof, any registration right or
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<PAGE> 10
other similar right to participate in the offering made by the Prospectus,
other than such rights of participation as have been satisfied by the
participation of such Selling Shareholder in the transactions to which this
Agreement relates in accordance with the terms of this Agreement; and such
Selling Shareholder does not own any warrants, options or similar rights to
acquire, and does not have any right or arrangement to acquire, any capital
stock, rights, warrants, options or other securities from the Company, other
than those described in the Registration Statement and the Prospectus.
(l) Such Selling Shareholder is not aware
(without having conducted any investigation or inquiry) that any of the
representations and warranties of the Company set forth in Section 2.I. above
is untrue or inaccurate in any material respect.
3. Purchase, Sale and Delivery of Shares. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company and the Selling Shareholders
agree, severally and not jointly, to sell to the Underwriters, and each
Underwriter agrees, severally and not jointly, to purchase from the Company and
the Selling Shareholders, respectively, at a purchase price of $_____ per
share, the respective number of Company Shares as hereinafter set forth and
Selling Shareholder Shares set forth opposite the names of the Company and the
Selling Shareholders in Schedule B hereto. The obligation of each Underwriter
to the Company and to each Selling Shareholder shall be to purchase from the
Company or such Selling Shareholder that number of Company Shares or Selling
Shareholder Shares, as the case may be, which (as nearly as practicable, as
determined by you) is in the same proportion to the number of Company Shares or
Selling Shareholder Shares, as the case may be, set forth opposite the name of
the Company or such Selling Shareholder in Schedule B hereto as the number of
Firm Shares which is set forth opposite the name of such Underwriter in
Schedule A hereto (subject to adjustment as provided in Section 10) is to the
total number of Firm Shares to be purchased by all the Underwriters under this
Agreement.
The certificates in negotiable form for the Selling
Shareholder Shares have been placed in custody (for delivery under this
Agreement) under the Custody Agreement. Each Selling Shareholder agrees that
the certificates for the Selling Shareholder Shares of such Selling Shareholder
so held in custody are subject to the interests of the Underwriters hereunder,
that the arrangements made by such Selling Shareholder for such custody,
including the Power of Attorney is to that extent irrevocable and that the
obligations of such Selling Shareholder hereunder shall not be terminated by
the act of such Selling Shareholder or by operation of law, whether by the
death or incapacity of such Selling Shareholder or the occurrence of any other
event, except as specifically provided herein or in the Custody Agreement. If
any Selling Shareholder should die or be incapacitated, or if any other such
event should occur, before the delivery of the certificates for the Selling
Shareholder Shares hereunder, the Selling Shareholder Shares to be sold by such
Selling Shareholder shall, except as specifically provided herein or in the
Custody Agreement, be delivered by the Custodian in accordance with the terms
and conditions of this Agreement as if such death, incapacity or other event
had not occurred, regardless of whether the Custodian shall have received
notice of such death or other event.
Delivery of definitive certificates for the Firm Shares to be
purchased by the Underwriters pursuant to this Section 3 shall be made against
payment of the purchase price therefor by the several Underwriters by certified
or official bank check or checks drawn in same-day funds, payable to the order
of the Company with regard to the Shares being purchased from the Company, and
to the order of the Custodian for the respective accounts of the Selling
Shareholders with regard to the Shares being purchased from such Selling
Shareholders at the offices of Fulbright & Jaworski LLP, 1301 McKinney, Suite
5100, Houston, Texas 77010-3095 (or at such other place as may be agreed upon
among the Representatives and the Company and the Attorneys), at 9:00 A.M.,
Houston time (a) on the third (3rd) full business day following the first day
that Shares are traded, (b) if this Agreement is executed and delivered after
3:30 P.M., Houston time, the fourth (4th) full business day following the day
that this Agreement is executed and delivered or (c) at such other time and
date not later than seven (7) full business days following the first day that
Shares are traded as the Representatives and the Company and the Attorneys may
determine (or at such time and date to which payment and delivery shall have
been postponed pursuant to Section 10 hereof), such time and date of payment
and delivery being herein called the "Closing Date;" provided, however, that if
the Company has not made available to the Representatives copies of the
Prospectus within the time provided in Section 4(d) hereof, the Representatives
may, in their sole discretion, postpone the
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Closing Date until no later than two (2) full business days following delivery
of copies of the Prospectus to the Representatives. The certificates for the
Firm Shares to be so delivered will be made available to you at such office or
such other location including, without limitation, in New York City, as you may
reasonably request for checking at least one (1) full business day prior to the
Closing Date and will be in such names and denominations as you may request,
such request to be made at least two (2) full business days prior to the
Closing Date. If the Representatives so elect, delivery of the Firm Shares may
be made by credit through full fast transfer to the accounts at The Depository
Trust Company designated by the Representatives.
It is understood that you, individually, and not as the
Representatives of the several Underwriters, may (but shall not be obligated
to) make payment of the purchase price on behalf of any Underwriter or
Underwriters whose check or checks shall not have been received by you prior to
the Closing Date for the Firm Shares to be purchased by such Underwriter or
Underwriters. Any such payment by you shall not relieve any such Underwriter or
Underwriters of any of its or their obligations hereunder.
After the Registration Statement becomes effective, the
several Underwriters intend to make an initial public offering (as such term is
described in Section 11 hereof) of the Firm Shares at an initial public
offering price of $_____ per share. After the initial public offering, the
several Underwriters may, in their discretion, vary the public offering price.
The information set forth in the last paragraph on the front
cover page (insofar as such information relates to the Underwriters), on the
inside front cover concerning stabilization and over-allotment by the
Underwriters, and under the second, sixth and eighth paragraphs under the
caption "Underwriting" in any Preliminary Prospectus and in the Prospectus
constitutes the only information furnished by the Underwriters to the Company
for inclusion in any Preliminary Prospectus, the Prospectus or the Registration
Statement, and you, on behalf of the respective Underwriters, represent and
warrant to the Company and the Selling Shareholders that the statements made
therein do not include any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
4. Further Agreements of the Company. The Company agrees with the
several Underwriters that:
(a) The Company will use its best efforts to
cause the Registration Statement and any amendment thereof, if not effective at
the time and date that this Agreement is executed and delivered by the parties
hereto, to become effective as promptly as possible; the Company will use its
best efforts to cause any abbreviated registration statement pursuant to Rule
462(b) of the Rules and Regulations as may be required subsequent to the date
the Registration Statement is declared effective to become effective as
promptly as possible; the Company will notify you, promptly after it shall
receive notice thereof, of the time when the Registration Statement, any
subsequent amendment to the Registration Statement or any abbreviated
registration statement has become effective or any supplement to the Prospectus
has been filed; if the Company omitted information from the Registration
Statement at the time it was originally declared effective in reliance upon
Rule 430A(a) of the Rules and Regulations, the Company will provide evidence
satisfactory to you that the Prospectus contains such information and has been
filed, within the time period prescribed, with the Commission pursuant to
subparagraph (1) or (4) of Rule 424(b) of the Rules and Regulations or as part
of a post-effective amendment to such Registration Statement as originally
declared effective which is declared effective by the Commission; if the
Company files a term sheet pursuant to Rule 434 of the Rules and Regulations,
the Company will provide evidence satisfactory to you that the Prospectus and
term sheet meeting the requirements of Rule 434(b) or (c), as applicable, of
the Rules and Regulations, have been filed, within the time period prescribed,
with the Commission pursuant to subparagraph (7) of Rule 424(b) of the Rules
and Regulations; if for any reason the filing of the final form of Prospectus
is required under Rule 424(b)(3) of the Rules and Regulations, it will provide
evidence satisfactory to you that the Prospectus contains such information and
has been filed with the Commission within the time period prescribed; it will
notify you promptly of any request by the Commission for the amending or
supplementing of the Registration Statement or the Prospectus or for additional
information; promptly upon your request, it will prepare and file with the
Commission any amendments or supplements to the Registration Statement or
Prospectus which, in the opinion of counsel for the Company and counsel for the
several Underwriters ("Underwriters' Counsel"), may
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<PAGE> 12
be necessary or advisable in connection with the distribution of the Shares by
the Underwriters; it will promptly prepare and file with the Commission, and
promptly notify you of the filing of, any amendments or supplements to the
Registration Statement or Prospectus which may be necessary to correct any
statements or omissions, if, at any time when a prospectus relating to the
Shares is required to be delivered under the Act, any event shall have occurred
as a result of which the Prospectus or any other prospectus relating to the
Shares as then in effect would include any untrue statement of a material fact
or omit to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading; in
case any Underwriter is required to deliver a prospectus nine (9) months or
more after the effective date of the Registration Statement in connection with
the sale of the Shares, it will prepare promptly upon request, but at the
expense of such Underwriter, such amendment or amendments to the Registration
Statement and such prospectus or prospectuses as may be necessary to permit
compliance with the requirements of Section 10(a)(3) of the Act; and it will
file no amendment or supplement to the Registration Statement or Prospectus
which shall not previously have been submitted to you a reasonable time prior
to the proposed filing thereof or to which you shall reasonably object in
writing, subject, however, to compliance with the Act and the Rules and
Regulations and the provisions of this Agreement.
(b) The Company will advise you, promptly after
it shall receive notice or obtain knowledge, of the issuance of any stop order
by the Commission suspending the effectiveness of the Registration Statement or
of the initiation or threat of any proceeding for that purpose; and it will
promptly use its best efforts to prevent the issuance of any stop order or to
obtain its withdrawal at the earliest possible moment if such stop order should
be issued.
(c) The Company will use its best efforts to
qualify the Shares for offering and sale under the securities laws of such
jurisdictions as you may designate and to continue such qualifications in
effect for so long as may be required for purposes of the distribution of the
Shares, except that the Company shall not be required in connection therewith
or as a condition thereof to qualify as a foreign corporation or to execute a
general consent to service of process in any jurisdiction in which it is not
otherwise required to be so qualified or to so execute a general consent to
service of process. In each jurisdiction in which the Shares shall have been
qualified as above provided, the Company will make and file such statements and
reports in each year as are or may be required by the laws of such
jurisdiction.
(d) The Company will furnish to you, as soon as
available, and, in the case of the Prospectus and any term sheet or abbreviated
term sheet under Rule 434, in no event later than the first (1st) full business
day following the first day that Shares are traded, copies of the Registration
Statement (three of which will be signed and which will include all exhibits),
each Preliminary Prospectus, the Prospectus and any amendments or supplements
to such documents, including any prospectus prepared to permit compliance with
Section 10(a)(3) of the Act, all in such quantities as you may from time to
time reasonably request. Notwithstanding the foregoing, if BancAmerica
Robertson Stephens, on behalf of the several Underwriters, shall agree to the
utilization of Rule 434 of the Rules and Regulations, the Company shall provide
to you copies of a Preliminary Prospectus updated in all respects through the
date specified by you in such quantities as you may from time to time
reasonably request.
(e) The Company will make generally available to
its securityholders as soon as practicable, but in any event not later than the
forty-fifth (45th) day following the end of the fiscal quarter first occurring
after the first anniversary of the effective date of the Registration
Statement, an earnings statement (which will be in reasonable detail but need
not be audited) complying with the provisions of Section 11(a) of the Act and
covering a twelve (12) month period beginning after the effective date of the
Registration Statement.
(f) During a period of five (5) years after the
date hereof, the Company will furnish to its shareholders as soon as
practicable after the end of each respective period, annual reports (including
financial statements audited by independent certified public accountants) and
unaudited quarterly reports of operations for each of the first three quarters
of the fiscal year, and will furnish to you and the other several Underwriters
hereunder, upon request (i) concurrently with furnishing such reports to its
shareholders, statements of operations of the Company for each of the first
three (3) quarters in the form furnished to the Company's shareholders, (ii)
concurrently with furnishing to its shareholders, a balance sheet of the
Company as of the end of such fiscal
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<PAGE> 13
year, together with statements of operations, of shareholders' equity, and of
cash flows of the Company for such fiscal year, accompanied by a copy of the
certificate or report thereon of independent certified public accountants,
(iii) as soon as they are available, copies of all reports (financial or other)
mailed to shareholders, (iv) as soon as they are available, copies of all
publicly available reports and financial statements furnished to or filed with
the Commission, any securities exchange or the National Association of
Securities Dealers, Inc. ("NASD"), (v) every material press release and every
material news item or article in respect of the Company or its affairs which
was generally released to shareholders or prepared by the Company or any of its
subsidiaries, and (vi) any additional information of a public nature concerning
the Company or its subsidiaries, or its business which you may reasonably
request. During such five (5) year period, if the Company shall have active
subsidiaries, the foregoing financial statements shall be on a consolidated
basis to the extent that the accounts of the Company and its subsidiaries are
consolidated, and shall be accompanied by similar financial statements for any
significant subsidiary which is not so consolidated.
(g) The Company will apply the net proceeds from
the sale of the Shares being sold by it in the manner set forth under the
caption "Use of Proceeds" in the Prospectus.
(h) The Company will maintain a transfer agent
and, if necessary under the jurisdiction of incorporation of the Company, a
registrar (which may be the same entity as the transfer agent) for its Common
Stock.
(i) If the transactions contemplated hereby are
not consummated by reason of any failure, refusal or inability on the part of
the Company or any Selling Shareholder to perform any agreement on their
respective parts to be performed hereunder or to fulfill any condition of the
Underwriters' obligations hereunder, or if the Company shall terminate this
Agreement pursuant to Section 11(a) hereof, or if the Underwriters shall
terminate this Agreement pursuant to Section 11(b)(i), the Company will
reimburse the several Underwriters for all out-of-pocket expenses (including
fees and disbursements of Underwriters' Counsel) incurred by the Underwriters
in investigating or preparing to market or marketing the Shares.
(j) If at any time during the ninety (90) day
period after the Registration Statement becomes effective, any rumor,
publication or event relating to or affecting the Company shall occur as a
result of which in your opinion the market price of the Common Stock has been
or is likely to be materially affected (regardless of whether such rumor,
publication or event necessitates a supplement to or amendment of the
Prospectus), the Company will, after written notice from you advising the
Company to the effect set forth above, forthwith prepare, consult with you
concerning the substance of and disseminate a press release or other public
statement, reasonably satisfactory to you, responding to or commenting on such
rumor, publication or event.
(k) During the Lock-up Period, the Company will
not, without the prior written consent of BancAmerica Robertson Stephens,
effect the Disposition of, directly or indirectly, any Securities other than
(i) the sale of the Company Shares and the Option Shares hereunder and (ii) the
Company's issuance of options or Common Stock under the Company's presently
authorized Incentive Stock Option Plan, Omnibus Stock Option Plan and 1998
Non-Employee Director Stock Option Plan (the "Option Plans").
(l) During a period of ninety (90) days from the
effective date of the Registration Statement, the Company will not file a
registration statement registering shares under the Option Plan or other
employee benefit plan.
5. Expenses.
(a) The Company and the Selling Shareholders
agree with each Underwriter that:
(i) The Company will pay and bear all
costs and expenses in connection with the preparation, printing and filing of
the Registration Statement (including financial statements, schedules and
exhibits), Preliminary Prospectuses and the Prospectus and any amendments or
supplements thereto; the printing of this Agreement, the Agreement Among
Underwriters, the Selected Dealer Agreement, the Preliminary Blue Sky
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<PAGE> 14
Survey and any Supplemental Blue Sky Survey, the Underwriters' Questionnaire
and Power of Attorney, and any instruments related to any of the foregoing; the
issuance and delivery of the Shares hereunder to the several Underwriters,
including transfer taxes, if any, the cost of all certificates representing the
Shares and transfer agents' and registrars' fees; the fees and disbursements of
counsel for the Company; all fees and other charges of the Company's
independent certified public accountants; the cost of furnishing to the several
Underwriters copies of the Registration Statement (including appropriate
exhibits), Preliminary Prospectus and the Prospectus, and any amendments or
supplements to any of the foregoing; NASD filing fees and the cost of
qualifying the Shares under the laws of such jurisdictions as you may designate
(including filing fees and fees and disbursements of Underwriters' Counsel in
connection with such NASD filings and filing fees and fees and disbursements of
Underwriters' Counsel in connection with such Blue Sky qualifications); and all
other expenses directly incurred by the Company and the Selling Shareholders in
connection with the performance of their obligations hereunder. Any additional
expenses incurred as a result of the sale of the Shares by the Selling
Shareholders will be borne collectively by the Company and the Selling
Shareholders. The provisions of this Section 5(a)(i) are intended to relieve
the Underwriters from the payment of the expenses and costs which the Selling
Shareholders and the Company hereby agree to pay, but shall not affect any
agreement which the Selling Shareholders and the Company may make, or may have
made, for the sharing of any of such expenses and costs. Such agreements shall
not impair the obligations of the Company and the Selling Shareholders
hereunder to the several Underwriters.
(ii) In addition to its other obligations
under Section 8(a) hereof, the Company agrees that, as an interim measure
during the pendency of any claim, action, investigation, inquiry or other
proceeding described in Section 8(a) hereof, it will reimburse the Underwriters
on a monthly basis for all reasonable legal or other expenses incurred in
connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the Company's
obligation to reimburse the Underwriters for such expenses and the possibility
that such payments might later be held to have been improper by a court of
competent jurisdiction. To the extent that any such interim reimbursement
payment is so held to have been improper, the Underwriters shall promptly
return such payment to the Company together with interest, compounded daily,
determined on the basis of the prime rate (or other commercial lending rate for
borrowers of the highest credit standing) listed from time to time in The Wall
Street Journal which represents the base rate on corporate loans posted by a
substantial majority of the nation's thirty (30) largest banks (the "Prime
Rate"). Any such interim reimbursement payments which are not made to the
Underwriters within thirty (30) days of a request for reimbursement shall bear
interest at the Prime Rate from the date of such request.
(iii) In addition to their other
obligations under Section 8(b) hereof, each Selling Shareholder, acting
severally and not jointly, agrees that, as an interim measure during the
pendency of any claim, action, investigation, inquiry or other proceeding
described in Section 8(b) hereof relating to such Selling Shareholder, it will
reimburse the Underwriters on a monthly basis for all reasonable legal or other
expenses incurred in connection with investigating or defending any such claim,
action, investigation, inquiry or other proceeding, notwithstanding the absence
of a judicial determination as to the propriety and enforceability of such
Selling Shareholder's obligation to reimburse the Underwriters for such
expenses and the possibility that such payments might later be held to have
been improper by a court of competent jurisdiction. To the extent that any such
interim reimbursement payment is so held to have been improper, the
Underwriters shall promptly return such payment to the Selling Shareholders,
together with interest, compounded daily, determined on the basis of the Prime
Rate. Any such interim reimbursement payments which are not made to the
Underwriters within thirty (30) days of a request for reimbursement shall bear
interest at the Prime Rate from the date of such request.
(b) In addition to their other obligations under
Section 8(c) hereof, the Underwriters severally and not jointly agree that, as
an interim measure during the pendency of any claim, action, investigation,
inquiry or other proceeding described in Section 8(c) hereof, they will
reimburse the Company and each Selling Shareholder on a monthly basis for all
reasonable legal or other expenses incurred in connection with investigating or
defending any such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of the Underwriters' obligation to reimburse the Company and
each such Selling Shareholder for such expenses and the possibility that such
payments might later be held to have been improper by a court of competent
jurisdiction. To the extent that any such interim reimbursement
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<PAGE> 15
payment is so held to have been improper, the Company and each such Selling
Shareholder shall promptly return such payment to the Underwriters together
with interest, compounded daily, determined on the basis of the Prime Rate. Any
such interim reimbursement payments which are not made to the Company and each
such Selling Shareholder within thirty (30) days of a request for reimbursement
shall bear interest at the Prime Rate from the date of such request.
(c) It is agreed that any controversy arising out
of the operation of the interim reimbursement arrangements set forth in
Sections 5(a)(ii), 5(a)(iii) and 5(b) hereof, including the amounts of any
requested reimbursement payments, the method of determining such amounts and
the basis on which such amounts shall be apportioned among the reimbursing
parties, shall be settled by arbitration conducted under the provisions of the
Constitution and Rules of the Board of Governors of the New York Stock
Exchange, Inc. or pursuant to the Code of Arbitration Procedure of the NASD.
Any such arbitration must be commenced by service of a written demand for
arbitration or a written notice of intention to arbitrate, therein electing the
arbitration tribunal. In the event the party demanding arbitration does not
make such designation of an arbitration tribunal in such demand or notice, then
the party responding to said demand or notice is authorized to do so. Any such
arbitration will be limited to the operation of the interim reimbursement
provisions contained in Sections 5(a)(ii), 5(a)(iii) and 5(b) hereof and will
not resolve the ultimate propriety or enforceability of the obligation to
indemnify for expenses which is created by the provisions of Sections 8(a),
8(b) and 8(c) hereof or the obligation to contribute to expenses which is
created by the provisions of Section 8(e) hereof.
6. Conditions of Underwriters' Obligations. The obligations of
the several Underwriters to purchase and pay for the Shares as provided herein
shall be subject to the accuracy, as of the date hereof and the Closing Date
and any later date on which Option Shares are to be purchased, as the case may
be, of the representations and warranties of the Company and the Selling
Shareholders herein, to the performance by the Company and the Selling
Shareholders of their respective obligations hereunder and to the following
additional conditions:
(a) The Registration Statement shall have become
effective not later than 4:00 P.M., Houston time, on the date following the
date of this Agreement, or such later date as shall be consented to in writing
by you; and no stop order suspending the effectiveness thereof shall have been
issued and no proceedings for that purpose shall have been initiated or, to the
knowledge of the Company, any Selling Shareholder or any Underwriter,
threatened by the Commission, and any request of the Commission for additional
information (to be included in the Registration Statement or the Prospectus or
otherwise) shall have been complied with to the reasonable satisfaction of
Underwriters' Counsel.
(b) All corporate proceedings and other legal
matters in connection with this Agreement, the form of Registration Statement
and the Prospectus, and the registration, authorization, issue, sale and
delivery of the Shares, shall have been reasonably satisfactory to
Underwriters' Counsel, and such counsel shall have been furnished with such
papers and information as they may reasonably have requested to enable them to
pass upon the matters referred to in this Section.
(c) Subsequent to the execution and delivery of
this Agreement and prior to the Closing Date, or any later date on which Option
Shares are to be purchased, as the case may be, there shall not have been any
change in the condition (financial or otherwise), earnings, operations or
business of the Company and its subsidiaries considered as one enterprise from
that set forth in the Registration Statement or Prospectus, which, in your sole
judgment, is material and adverse and that makes it, in your sole judgment,
impracticable or inadvisable to proceed with the public offering of the Shares
as contemplated by the Prospectus.
(d) You shall have received on the Closing Date
and on any later date on which Option Shares are to be purchased, as the case
may be, the following opinion of counsel for the Company and the Selling
Shareholders, dated the Closing Date or such later date on which Option Shares
are to be purchased addressed to the Underwriters and with reproduced copies or
signed counterparts thereof for each of the Underwriters, to the effect that:
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(i) The Company has been duly
incorporated and is validly existing as a corporation in good standing under
the laws of the jurisdiction of its incorporation;
(ii) The Company has the corporate power
and authority to own, lease and operate its properties and to conduct its
business as described in the Prospectus;
(iii) The Company is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction,
if any, in which the ownership or leasing of its properties or the conduct of
its business requires such qualification, except where the failure to be so
qualified or be in good standing would not have a material adverse effect on
the condition (financial or otherwise), earnings, operations or business of the
Company and its subsidiaries considered as one enterprise. To such counsel's
knowledge, the Company does not own or control, directly or indirectly, any
corporation, association or other entity other than BindView Development GmbH;
(iv) The authorized, issued and
outstanding capital stock of the Company is as set forth in the Prospectus
under the caption "Capitalization" as of the dates stated therein, the issued
and outstanding shares of capital stock of the Company (including the Selling
Shareholder Shares) have been duly and validly issued and are fully paid and
nonassessable, and, to such counsel's knowledge, will not have been issued in
violation of or subject to any preemptive right, co-sale right, registration
right, right of first refusal or other similar right;
(v) All issued and outstanding shares of
capital stock of BindView Development GmbH are owned by the Company and have
been duly authorized and validly issued and are fully paid and nonassessable,
and, to such counsel's knowledge, have not been issued in violation of or
subject to any preemptive right, co-sale right, registration right, right of
first refusal or other similar right and are owned by the Company free and
clear of any pledge, lien, security interest, encumbrance, claim or equitable
interest;
(vi) The Firm Shares or the Option
Shares, as the case may be, to be issued by the Company pursuant to the terms
of this Agreement have been duly authorized and, upon issuance and delivery
against payment therefor in accordance with the terms hereof, will be duly and
validly issued and fully paid and nonassessable, and, to such counsel's
knowledge, will not have been issued in violation of or subject to any
preemptive right, co-sale right, registration right, right of first refusal or
other similar right.
(vii) The Company has the corporate power
and authority to enter into this Agreement and to issue, sell and deliver to
the Underwriters the Shares to be issued and sold by it hereunder;
(viii) This Agreement has been duly
authorized by all necessary corporate action on the part of the Company and has
been duly executed and delivered by the Company and, assuming due
authorization, execution and delivery by you, is a valid and binding agreement
of the Company, enforceable in accordance with its terms, except insofar as
indemnification provisions may be limited by applicable law and except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to or affecting creditors' rights generally
or by general equitable principles;
(ix) The Registration Statement has
become effective under the Act and, to such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement has been issued and
no proceedings for that purpose have been instituted or are pending or
threatened under the Act;
(x) The Registration Statement and the
Prospectus, and each amendment or supplement thereto (other than the financial
statements (including supporting schedules) and financial data derived
therefrom as to which such counsel need express no opinion), as of the
effective date of the Registration Statement, complied as to form in all
material respects with the requirements of the Act and the applicable rules and
Regulations;
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(xi) The statements in the Prospectus
under the caption "Risk Factors - Shares Eligible for Future Sale," "Management
- - Incentive Stock Option Plan," "Management - Stock Option Plan," "Management -
1997 Incentive Plan," "Management - Omnibus Incentive Plan," "Management - 1998
Non-Employee Director Stock Option Plan," "Management - 401(k) Plan,"
"Management - Employment Agreements," "Certain Transactions," "Description of
Capital Stock," "Shares Eligible for Future Sale," and "Underwriting," to the
extent that they constitute matters of law or legal conclusions, have been
reviewed by such counsel and are fair summaries of such matters and
conclusions; and the forms of certificates evidencing the Common Stock and
filed as exhibits to the Registration Statement comply with Texas law;
(xii) The description in the Registration
Statement and the Prospectus of the charter and bylaws of the Company and of
statutes are accurate and fairly present the information required to be
presented by the Act and the applicable Rules and Regulations;
(xiii) To such counsel's knowledge, there
are no agreements, contracts, leases or documents to which the Company is a
party of a character required to be described or referred to in the
Registration Statement or Prospectus or to be filed as an exhibit to the
Registration Statement which are not described or referred to therein or filed
as required;
(xiv) The performance of this Agreement
and the consummation of the transactions herein contemplated (other than
performance of the Company's indemnification obligations hereunder, concerning
which no opinion need be expressed) will not (a) result in any violation of the
Company's charter or bylaws or (b) to such counsel's knowledge, result in a
material breach or violation of any of the terms and provisions of, or
constitute a default under, any bond, debenture, note or other evidence of
indebtedness, or any lease, contract, indenture, mortgage, deed of trust, loan
agreement, joint venture or other agreement or instrument known to such counsel
to which the Company is a party or by which its properties are bound, or any
applicable statute, Rule or regulation known to such counsel or, to such
counsel's knowledge, any order, writ or decree of any court, government or
governmental agency or body having jurisdiction over the Company or any of its
subsidiaries, or over any of their properties or operations;
(xv) No consent, approval, authorization
or order of or qualification with any court, government or governmental agency
or body having jurisdiction over the Company or any of its subsidiaries, or
over any of their properties or operations is necessary in connection with the
consummation by the Company of the transactions herein contemplated, except
such as have been obtained under the Act or such as may be required under state
or other securities or Blue Sky laws in connection with the purchase and the
distribution of the Shares by the Underwriters;
(xvi) To such counsel's knowledge, there
are no legal or governmental proceedings pending or threatened against the
Company or any of its subsidiaries of a character required to be disclosed in
the Registration Statement or the Prospectus by the Act or the Rules and
Regulations, other than those described therein;
(xvii) To such counsel's knowledge, neither
the Company nor any of its subsidiaries is presently (a) in material violation
of its respective charter or bylaws, or (b) in material breach of any
applicable statute, Rule or regulation known to such counsel or, to such
counsel's knowledge, any order, writ or decree of any court or governmental
agency or body having jurisdiction over the Company or any of its subsidiaries,
or over any of their properties or operations;
(xviii) To such counsel's knowledge, except
as set forth in the Registration Statement and Prospectus, no holders of Common
Stock or other securities of the Company have registration rights with respect
to securities of the Company and, except as set forth in the Registration
Statement and Prospectus, all holders of securities of the Company having
rights known to such counsel to registration of such shares of Common Stock or
other securities, because of the filing of the Registration Statement by the
Company have, with respect to the offering contemplated thereby, waived such
rights or such rights have expired by reason of lapse of time
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<PAGE> 18
following notification of the Company's intent to file the Registration
Statement or have included securities in the Registration Statement pursuant to
the exercise of and in full satisfaction of such rights;
(xix) Each Selling Shareholder which is
not a natural person has full right, power and authority to enter into and to
perform its obligations under the Power of Attorney and Custody Agreement to be
executed and delivered by it in connection with the transactions contemplated
herein; the Power of Attorney and Custody Agreement of each Selling Shareholder
that is not a natural person has been duly authorized by such Selling
Shareholder; the Power of Attorney and Custody Agreement of each Selling
Shareholder has been duly executed and delivered by or on behalf of such
Selling Shareholder; and the Power of Attorney and Custody Agreement of each
Selling Shareholder constitutes the valid and binding agreement of such Selling
Shareholder, enforceable in accordance with its terms, except as the
enforcement thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally or by general equitable principles;
(xx) Each of the Selling Shareholders has
full right, power and authority to enter into and to perform its obligations
under this Agreement and to sell, transfer, assign and deliver the Shares to be
sold by such Selling Shareholder hereunder;
(xxi) This Agreement has been duly
authorized by each Selling Shareholder that is not a natural person and has
been duly executed and delivered by or on behalf of each Selling Shareholder;
and
(xxii) Upon the delivery of and payment for
the Shares as contemplated in this Agreement, each of the Underwriters will
receive valid marketable title to the Shares purchased by it from such Selling
Shareholder, free and clear of any pledge, lien, security interest,
encumbrance, claim or equitable interest. In rendering such opinion, such
counsel may assume that the Underwriters are without notice of any defect in
the title of the Shares being purchased from the Selling Shareholders.
In addition, such counsel shall state that such
counsel has participated in conferences with officials and other
representatives of the Company, the Representatives, Underwriters' Counsel and
the independent certified public accountants of the Company, at which such
conferences the contents of the Registration Statement and Prospectus and
related matters were discussed, and although they have not verified the
accuracy or completeness of the statements contained in the Registration
Statement or the Prospectus, nothing has come to the attention of such counsel
which leads them to believe that, at the time the Registration Statement became
effective and at all times subsequent thereto up to and on the Closing Date and
on any later date on which Option Shares are to be purchased, the Registration
Statement and any amendment or supplement thereto (other than the financial
statements including supporting schedules and other financial and statistical
information derived therefrom, as to which such counsel need express no
comment) contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading, or at the Closing Date or any later date on
which the Option Shares are to be purchased, as the case may be, the
Registration Statement, the Prospectus and any amendment or supplement thereto
(except as aforesaid) contained any untrue statement of a material fact or
omitted to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
Counsel rendering the foregoing opinion may rely as
to questions of law not involving the laws of the United States or the State of
Texas upon opinions of local counsel, and as to questions of fact upon
representations or certificates of officers of the Company, the Selling
Shareholders or officers of the Selling Shareholders (when the Selling
Shareholder is not a natural person), and of government officials, in which
case their opinion is to state that they are so relying and that they have no
knowledge of any material misstatement or inaccuracy in any such opinion,
representation or certificate. Copies of any opinion, representation or
certificate so relied upon shall be delivered to you, as Representatives of the
Underwriters, and to Underwriters' Counsel.
(e) You shall have received on the Closing Date
and on any later date on which Option Shares are to be purchased, as the case
may be, an opinion of Gunderson Dettmer Stough Villeneuve
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<PAGE> 19
Franklin & Hachigian, LLP in form and substance satisfactory to you, with
respect to the sufficiency of all such corporate proceedings and other legal
matters relating to this Agreement and the transactions contemplated hereby as
you may reasonably require, and the Company shall have furnished to such
counsel such documents as they may have requested for the purpose of enabling
them to pass upon such matters.
(f) You shall have received on the Closing Date
and on any later date on which Option Shares are to be purchased, as the case
may be, a letter from Price Waterhouse LLP, addressed to the Underwriters,
dated the Closing Date or such later date on which Option Shares are to be
purchased, as the case may be, confirming that they are independent certified
public accountants with respect to the Company within the meaning of the Act
and the applicable published Rules and Regulations and based upon the
procedures described in such letter delivered to you concurrently with the
execution of this Agreement (herein called the "Original Letter"), but carried
out to a date not more than five (5) business days prior to the Closing Date or
such later date on which Option Shares are to be purchased, as the case may be,
(i) confirming, to the extent true, that the statements and conclusions set
forth in the Original Letter are accurate as of the Closing Date or such later
date on which Option Shares are to be purchased, as the case may be, and (ii)
setting forth any revisions and additions to the statements and conclusions set
forth in the Original Letter which are necessary to reflect any changes in the
facts described in the Original Letter since the date of such letter, or to
reflect the availability of more recent financial statements, data or
information. The letter shall not disclose any change in the condition
(financial or otherwise), earnings, operations or business of the Company and
its subsidiaries considered as one enterprise from that set forth in the
Registration Statement or Prospectus, which, in your sole judgment, is material
and adverse and that makes it, in your sole judgment, impracticable or
inadvisable to proceed with the public offering of the Shares as contemplated
by the Prospectus. The Original Letter from Price Waterhouse LLP shall be
addressed to or for the use of the Underwriters in form and substance
satisfactory to the Underwriters and shall (i) represent, to the extent true,
that they are independent certified public accountants with respect to the
Company within the meaning of the Act and the applicable published Rules and
Regulations, (ii) set forth their opinion with respect to their examination of
the consolidated balance sheet of the Company as of December 31, 1997 and
related consolidated statements of operations, shareholders' equity, and cash
flows for the twelve (12) months ended December 31, 1997, (iii) state that
Price Waterhouse LLP has performed the procedures set out in Statement on
Auditing Standards No. 71 ("SAS 71") for a review of interim financial
information and providing the report of Price Waterhouse LLP as described in
SAS 71 on the financial statements for each of the quarters in the nine-quarter
period ended March 31, 1998 (the "Quarterly Financial Statements"), (iv) state
that in the course of such review, nothing came to their attention that leads
them to believe that any material modifications need to be made to any of the
Quarterly Financial Statements in order for them to be in compliance with
generally accepted accounting principles consistently applied across the
periods presented, and (v) address other matters agreed upon by Price
Waterhouse LLP and you. In addition, you shall have received from Price
Waterhouse LLP a letter addressed to the Company and made available to you for
the use of the Underwriters stating that their review of the Company's system
of internal accounting controls, to the extent they deemed necessary in
establishing the scope of their examination of the Company's consolidated
financial statements as of December 31, 1997, did not disclose any weaknesses
in internal controls that they considered to be material weaknesses.
(g) You shall have received on the Closing Date
and on any later date on which Option Shares are to be purchased, as the case
may be, a certificate of the Company, dated the Closing Date or such later date
on which Option Shares are to be purchased, as the case may be, signed by the
Chief Executive Officer and Chief Financial Officer of the Company, to the
effect that, and you shall be satisfied that:
(i) The representations and warranties
of the Company in this Agreement are true and correct, as if made on and as of
the Closing Date or any later date on which Option Shares are to be purchased,
as the case may be, and the Company has complied with all the agreements and
satisfied all the conditions on its part to be performed or satisfied at or
prior to the Closing Date or any later date on which Option Shares are to be
purchased, as the case may be;
(ii) No stop order suspending the
effectiveness of the Registration Statement has been issued and no proceedings
for that purpose have been instituted or are pending or threatened under the
Act;
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(iii) When the Registration Statement
became effective and at all times subsequent thereto up to the delivery of such
certificate, the Registration Statement and the Prospectus, and any amendments
or supplements thereto, contained all material information required to be
included therein by the Act and the Rules and Regulations, and in all material
respects conformed to the requirements of the Act and the Rules and
Regulations, the Registration Statement, and any amendment or supplement
thereto, did not and does not include any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, the Prospectus, and any amendment
or supplement thereto, did not and does not include any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, and, since the effective date of the Registration Statement, there
has occurred no event required to be set forth in an amended or supplemented
Prospectus which has not been so set forth; and
(iv) Subsequent to the respective dates
as of which information is given in the Registration Statement and Prospectus,
there has not been (a) any material adverse change in the condition (financial
or otherwise), earnings, operations or business of the Company and its
subsidiaries considered as one enterprise, (b) any transaction that is material
to the Company and its subsidiaries considered as one enterprise, except
transactions entered into in the ordinary course of business, (c) any
obligation, direct or contingent, that is material to the Company and its
subsidiaries considered as one enterprise, incurred by the Company or its
subsidiaries, except obligations incurred in the ordinary course of business,
(d) any change in the capital stock or outstanding indebtedness of the Company
or any of its subsidiaries that is material to the Company and its subsidiaries
considered as one enterprise, (e) any dividend or distribution of any kind
declared, paid or made on the capital stock of the Company or any of its
subsidiaries, or (f) any loss or damage (whether or not insured) to the
property of the Company or any of its subsidiaries which has been sustained or
will have been sustained which has a material adverse effect on the condition
(financial or otherwise), earnings, operations or business of the Company and
its subsidiaries considered as one enterprise.
(h) You shall be satisfied that, and you shall
have received a certificate, dated the Closing Date, or any later date on which
Option Shares are to be purchased, as the case may be, from the Attorneys for
each Selling Shareholder to the effect that, as of the Closing Date, or any
later date on which Option Shares are to be purchased, as the case may be, they
have not been informed that:
(i) The representations and warranties
made by such Selling Shareholder herein are not true or correct in any material
respect on the Closing Date or on any later date on which Option Shares are to
be purchased, as the case may be; or
(ii) Such Selling Shareholder has not
complied with any obligation or satisfied any condition which is required to be
performed or satisfied on the part of such Selling Shareholder at or prior to
the Closing Date or any later date on which Option Shares are to be purchased,
as the case may be.
(i) The Company shall have obtained and delivered
to you an agreement from each officer and director of the Company, each Selling
Shareholder and the beneficial owners of an aggregate of [ ______ ]shares of
Common Stock in writing prior to the date hereof that such person will not,
during the Lock-up Period, effect the Disposition of any Securities now owned
or hereafter acquired directly by such person or with respect to which such
person has the power of disposition, otherwise than (i) as a bona fide pledge
or pledgee, provided the donee or donees thereof agrees in writing to be bound
by this restriction, (ii) as a distribution to partners or shareholders of such
person, provided that the distributees thereof agree in writing to be bound by
the terms of this restriction, (iii) with the prior written consent of
BancAmerica Robertson Stephens or (iv) as may be acquired after the effective
date of the Registration Statement in open market transactions. The foregoing
restriction shall have been expressly agreed to preclude the holder of the
Securities from engaging in any hedging or other transaction which is designed
to or reasonably expected to lead to or result in a Disposition of Securities
during the Lock-up Period, even if such Securities would be disposed of by
someone other than the such holder. Such prohibited hedging or other
transactions would including, without limitation, any short sale (whether or
not against the box) or any purchase, sale or grant of any right (including,
without limitation, any put or call option) with respect to any Securities or
with respect to any security (other than a broad-based market basket or index)
that
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includes, relates to or derives any significant part of its value from
Securities. Furthermore, such person will have also agreed and consented to the
entry of stop transfer instructions with the Company's transfer agent against
the transfer of the Securities held by such person except in compliance with
this restriction.
(j) The Company and the Selling Shareholders
shall have furnished to you such further certificates and documents as you
shall reasonably request (including certificates of officers of the Company,
the Selling Shareholders or officers of the Selling Shareholders (when the
Selling Shareholder is not a natural person) as to the accuracy of the
representations and warranties of the Company and the Selling Shareholders
herein, as to the performance by the Company and the Selling Shareholders of
their respective obligations hereunder and as to the other conditions
concurrent and precedent to the obligations of the Underwriters hereunder.
All such opinions, certificates, letters and
documents will be in compliance with the provisions hereof only if they are
reasonably satisfactory to Underwriters' Counsel. The Company and the Selling
Shareholders will furnish you with such number of conformed copies of such
opinions, certificates, letters and documents as you shall reasonably request.
7. Option Shares.
(a) On the basis of the representations,
warranties and agreements herein contained, but subject to the terms and
conditions herein set forth, the Company hereby grants to the several
Underwriters, for the purpose of covering over-allotments in connection with
the distribution and sale of the Firm Shares only, a nontransferable option to
purchase up to an aggregate of ________ Option Shares at the purchase price per
share for the Firm Shares set forth in Section 3 hereof. Such option may be
exercised by the Representatives on behalf of the several Underwriters on one
(1) or more occasions in whole or in part during the period of thirty (30) days
after the date on which the Firm Shares are initially offered to the public, by
giving written notice to the Company. The number of Option Shares to be
purchased by each Underwriter upon the exercise of such option shall be the
same proportion of the total number of Option Shares to be purchased by the
several Underwriters pursuant to the exercise of such option as the number of
Firm Shares purchased by such Underwriter (set forth in Schedule A hereto)
bears to the total number of Firm Shares purchased by the several Underwriters
(set forth in Schedule A hereto), adjusted by the Representatives in such
manner as to avoid fractional shares.
Delivery of definitive certificates for the Option
Shares to be purchased by the several Underwriters pursuant to the exercise of
the option granted by this Section 7 shall be made against payment of the
purchase price therefor by the several Underwriters by certified or official
bank check or checks drawn in same-day funds, payable to the order of the
Company. Such delivery and payment shall take place at the offices of Fulbright
& Jaworski, LLP, 1301 McKinney, Suite 5100, Houston, Texas 77010-3095 or at
such other place as may be agreed upon among the Representatives and the
Company (i) on the Closing Date, if written notice of the exercise of such
option is received by the Company at least two (2) full business days prior to
the Closing Date, or (ii) on a date which shall not be later than the third
(3rd) full business day following the date the Company receives written notice
of the exercise of such option, if such notice is received by the Company less
than two (2) full business days prior to the Closing Date.
The certificates for the Option Shares to be so
delivered will be made available to you at such office or such other location
including, without limitation, in New York City, as you may reasonably request
for checking at least one (1) full business day prior to the date of payment
and delivery and will be in such names and denominations as you may request,
such request to be made at least two (2) full business days prior to such date
of payment and delivery. If the Representatives so elect, delivery of the
Option Shares may be made by credit through full fast transfer to the accounts
at The Depository Trust Company designated by the Representatives.
It is understood that you, individually, and not as
the Representatives of the several Underwriters, may (but shall not be
obligated to) make payment of the purchase price on behalf of any Underwriter
or Underwriters whose check or checks shall not have been received by you prior
to the date of payment and delivery for the Option Shares to be purchased by
such Underwriter or Underwriters. Any such payment by you shall not relieve any
such Underwriter or Underwriters of any of its or their obligations hereunder.
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<PAGE> 22
(b) Upon exercise of any option provided for in
Section 7(a) hereof, the obligations of the several Underwriters to purchase
such Option Shares will be subject (as of the date hereof and as of the date of
payment and delivery for such Option Shares) to the accuracy of and compliance
with the representations, warranties and agreements of the Company and the
Selling Shareholders herein, to the accuracy of the statements of the Company,
the Selling Shareholders and officers of the Company made pursuant to the
provisions hereof, to the performance by the Company and the Selling
Shareholders of their respective obligations hereunder, to the conditions set
forth in Section 6 hereof, and to the condition that all proceedings taken at
or prior to the payment date in connection with the sale and transfer of such
Option Shares shall be reasonably satisfactory in form and substance to you and
to Underwriters' Counsel, and you shall have been furnished with all such
documents, certificates and opinions as you may reasonably request in order to
evidence the accuracy and completeness of any of the representations,
warranties or statements, the performance of any of the covenants or agreements
of the Company and the Selling Shareholders or the satisfaction of any of the
conditions herein contained.
8. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold
harmless each Underwriter against any losses, claims, damages or liabilities,
joint or several, to which such Underwriter may become subject under the Act,
the Exchange Act or otherwise, specifically including, but not limited to,
losses, claims, damages or liabilities (or actions in respect thereof) arising
out of or based upon (i) any breach of any representation, warranty, agreement
or covenant of the Company herein contained, (ii) any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement or any amendment or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or (iii) any untrue
statement or alleged untrue statement of any material fact contained in any
Preliminary Prospectus or the Prospectus or any amendment or supplement
thereto, or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading, and
agrees to reimburse each Underwriter for any legal or other expenses reasonably
incurred by it in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the Company shall
not be liable in any such case to the extent that any such loss, claim, damage,
liability or action arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in the
Registration Statement, such Preliminary Prospectus or the Prospectus, or any
such amendment or supplement thereto, in reliance upon, and in conformity with,
written information relating to any Underwriter furnished to the Company by
such Underwriter, directly or through you, specifically for use in the
preparation thereof and, provided further, that the indemnity agreement
provided in this Section 8(a) with respect to any Preliminary Prospectus shall
not inure to the benefit of any Underwriter from whom the person asserting any
losses, claims, damages, liabilities or actions based upon any untrue statement
or alleged untrue statement of material fact or omission or alleged omission to
state therein a material fact purchased Shares, if a copy of the Prospectus in
which such untrue statement or alleged untrue statement or omission or alleged
omission was corrected had not been sent or given to such person within the
time required by the Act and the Rules and Regulations, unless such failure is
the result of noncompliance by the Company with Section 4(d) hereof.
The indemnity agreement in this Section 8(a) shall
extend upon the same terms and conditions to, and shall inure to the benefit
of, each person, if any, who controls any Underwriter within the meaning of the
Act or the Exchange Act. This indemnity agreement shall be in addition to any
liabilities which the Company may otherwise have.
(b) Each Selling Shareholder, severally and not
jointly, agrees to indemnify and hold harmless each Underwriter against any
losses, claims, damages or liabilities, joint or several, to which such
Underwriter may become subject (including, without limitation, in its capacity
as an Underwriter or as a "qualified independent underwriter" within the
meaning of Schedule E or the Bylaws of the NASD) under the Act, the Exchange
Act or otherwise, specifically including, but not limited to, losses, claims,
damages or liabilities (or actions in respect thereof) arising out of or based
upon (i) any breach of any representation, warranty, agreement or covenant of
such Selling Shareholder herein contained, (ii) any untrue statement or alleged
untrue statement of any material fact contained in the Registration Statement
or any amendment or supplement thereto, or the omission or
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<PAGE> 23
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, or (iii) any untrue
statement or alleged untrue statement of any material fact contained in any
Preliminary Prospectus or the Prospectus or any amendment or supplement
thereto, or the omission or alleged omission to state therein a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, in the case of subparagraphs (ii)
and (iii) of this Section 8(b) to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission
was made in reliance upon and in conformity with written information furnished
to the Company or such Underwriter by such Selling Shareholder, directly or
through such Selling Shareholder's representatives, specifically for use in the
preparation thereof, and agrees to reimburse each Underwriter for any legal or
other expenses reasonably incurred by it in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the indemnity agreement provided in this Section 8(b) with respect to any
Preliminary Prospectus shall not inure to the benefit of any Underwriter from
whom the person asserting any losses, claims, damages, liabilities or actions
based upon any untrue statement or alleged untrue statement of a material fact
or omission or alleged omission to state therein a material fact purchased
Shares, if a copy of the Prospectus in which such untrue statement or alleged
untrue statement or omission or alleged omission was corrected had not been
sent or given to such person within the time required by the Act and the Rules
and Regulations, unless such failure is the result of noncompliance by the
Company with Section 4(d) hereof.
The indemnity agreement in this Section 8(b) shall
extend upon the same terms and conditions to, and shall inure to the benefit
of, each person, if any, who controls any Underwriter within the meaning of the
Act or the Exchange Act. This indemnity agreement shall be in addition to any
liabilities which such Selling Shareholder may otherwise have.
(c) Each Underwriter, severally and not jointly,
agrees to indemnify and hold harmless the Company and each Selling Shareholder
against any losses, claims, damages or liabilities, joint or several, to which
the Company or such Selling Shareholder may become subject under the Act or
otherwise, specifically including, but not limited to, losses, claims, damages
or liabilities (or actions in respect thereof) arising out of or based upon (i)
any breach of any representation, warranty, agreement or covenant of such
Underwriter herein contained, (ii) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement or any
amendment or supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, or (iii) any untrue statement or alleged
untrue statement of any material fact contained in any Preliminary Prospectus
or the Prospectus or any amendment or supplement thereto, or the omission or
alleged omission to state therein a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, in the case of subparagraphs (ii) and (iii) of this
Section 8(c) to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in
reliance upon and in conformity with written information furnished to the
Company by such Underwriter, directly or through you, specifically for use in
the preparation thereof, and agrees to reimburse the Company and each such
Selling Shareholder for any legal or other expenses reasonably incurred by the
Company and each such Selling Shareholder in connection with investigating or
defending any such loss, claim, damage, liability or action.
The indemnity agreement in this Section 8(c) shall extend upon
the same terms and conditions to, and shall inure to the benefit of, each
officer of the Company who signed the Registration Statement and each director
of the Company, each Selling Shareholder and each person, if any, who controls
the Company or any Selling Shareholder within the meaning of the Act or the
Exchange Act. This indemnity agreement shall be in addition to any liabilities
which each Underwriter may otherwise have.
(d) Promptly after receipt by an indemnified
party under this Section 8 of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against
any indemnifying party under this Section 8, notify the indemnifying party in
writing of the commencement thereof but the omission so to notify the
indemnifying party will not relieve it from any liability which it may have to
any indemnified party otherwise than under this Section 8. In case any such
action is brought against any indemnified party, and it notified the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein and, to the extent that it shall elect by
written notice delivered to the indemnified party
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<PAGE> 24
promptly after receiving the aforesaid notice from such indemnified party, to
assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party; provided, however, that if the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party, the
indemnified party or parties shall have the right to select separate counsel to
assume such legal defenses and to otherwise participate in the defense of such
action on behalf of such indemnified party or parties. Upon receipt of notice
from the indemnifying party to such indemnified party of the indemnifying
party's election so to assume the defense of such action and approval by the
indemnified party of counsel, the indemnifying party will not be liable to such
indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed separate counsel
in accordance with the proviso to the next preceding sentence (it being
understood, however, that the indemnifying party shall not be liable for the
expenses of more than one separate counsel (together with appropriate local
counsel) approved by the indemnifying party representing all the indemnified
parties under Section 8(a), 8(b) or 8(c) hereof who are parties to such
action), (ii) the indemnifying party shall not have employed counsel reasonably
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of commencement of the action or (iii) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party. In no event shall any
indemnifying party be liable in respect of any amounts paid in settlement of
any action unless the indemnifying party shall have approved the terms of such
settlement; provided that such consent shall not be unreasonably withheld. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened proceeding in respect
of which any indemnified party is or could have been a party and
indemnification could have been sought hereunder by such indemnified party,
unless such settlement includes an unconditional release of such indemnified
party from all liability on all claims that are the subject matter of such
proceeding.
(e) In order to provide for just and equitable
contribution in any action in which a claim for indemnification is made
pursuant to this Section 8 but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the
expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that this Section 8 provides for indemnification in such case, all the parties
hereto shall contribute to the aggregate losses, claims, damages or liabilities
to which they may be subject (after contribution from others) in such
proportion so that, except as set forth in Section 8(f) hereof, the
Underwriters severally and not jointly are responsible pro rata for the portion
represented by the percentage that the underwriting discount bears to the
initial public offering price, and the Company and the Selling Shareholders are
responsible for the remaining portion, provided, however, that (i) no
Underwriter shall be required to contribute any amount in excess of the amount
by which the underwriting discount applicable to the Shares purchased by such
Underwriter exceeds the amount of damages which such Underwriter has otherwise
required to pay and (ii) no person guilty of a fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who is not guilty of such fraudulent
misrepresentation. The contribution agreement in this Section 8(e) shall extend
upon the same terms and conditions to, and shall inure to the benefit of, each
person, if any, who controls any Underwriter, the Company or any Selling
Shareholder within the meaning of the Act or the Exchange Act and each officer
of the Company who signed the Registration Statement and each director of the
Company.
(f) The liability of each Selling Shareholder
under the representations, warranties and agreements contained herein, under
the indemnity agreements contained in the provisions of this Section 8 and
under the reimbursement agreement contained in Section 5(a)(iii) shall be
limited to an amount equal to the initial public offering price of the Selling
Shareholder Shares sold by such Selling Shareholder to the Underwriters minus
the amount of the underwriting discount paid thereon to the Underwriters by
such Selling Shareholder. The Company and such Selling Shareholders may agree,
as among themselves and without limiting the rights of the Underwriters under
this Agreement, as to the respective amounts of such liability for which they
each shall be responsible.
(g) The parties to this Agreement hereby
acknowledge that they are sophisticated business persons who were represented
by counsel during the negotiations regarding the provisions hereof
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including, without limitation, the provisions of this Section 8, and are fully
informed regarding said provisions. They further acknowledge that the
provisions of this Section 8 fairly allocate the risks in light of the ability
of the parties to investigate the Company and its business in order to assure
that adequate disclosure is made in the Registration Statement and Prospectus
as required by the Act and the Exchange Act.
9. Representations, Warranties, Covenants and Agreements to
Survive Delivery. All representations, warranties, covenants and agreements of
the Company, the Selling Shareholders and the Underwriters herein or in
certificates delivered pursuant hereto, and the indemnity and contribution
agreements contained in Section 8 hereof shall remain operative and in full
force and effect regardless of any investigation made by or on behalf of any
Underwriter or any person controlling any Underwriter within the meaning of the
Act or the Exchange Act, or by or on behalf of the Company or any Selling
Shareholder, or any of their officers, directors or controlling persons within
the meaning of the Act or the Exchange Act, and shall survive the delivery of
the Shares to the several Underwriters hereunder or termination of this
Agreement.
10. Substitution of Underwriters. If any Underwriter or
Underwriters shall fail to take up and pay for the number of Firm Shares agreed
by such Underwriter or Underwriters to be purchased hereunder upon tender of
such Firm Shares in accordance with the terms hereof, and if the aggregate
number of Firm Shares which such defaulting Underwriter or Underwriters so
agreed but failed to purchase does not exceed 10% of the Firm Shares, the
remaining Underwriters shall be obligated, severally in proportion to their
respective commitments hereunder, to take up and pay for the Firm Shares of
such defaulting Underwriter or Underwriters.
If any Underwriter or Underwriters so defaults and the
aggregate number of Firm Shares which such defaulting Underwriter or
Underwriters agreed but failed to take up and pay for exceeds 10% of the Firm
Shares, the remaining Underwriters shall have the right, but shall not be
obligated, to take up and pay for (in such proportions as may be agreed upon
among them) the Firm Shares which the defaulting Underwriter or Underwriters so
agreed but failed to purchase. If such remaining Underwriters do not, at the
Closing Date, take up and pay for the Firm Shares which the defaulting
Underwriter or Underwriters so agreed but failed to purchase, the Closing Date
shall be postponed for twenty- four (24) hours to allow the several
Underwriters the privilege of substituting within twenty-four (24) hours
(including non-business hours) another underwriter or underwriters (which may
include any nondefaulting Underwriter) satisfactory to the Company. If no such
underwriter or underwriters shall have been substituted as aforesaid by such
postponed Closing Date, the Closing Date may, at the option of the Company, be
postponed for a further twenty-four (24) hours, if necessary, to allow the
Company the privilege of finding another underwriter or underwriters,
satisfactory to you, to purchase the Firm Shares which the defaulting
Underwriter or Underwriters so agreed but failed to purchase. If it shall be
arranged for the remaining Underwriters or substituted underwriter or
underwriters to take up the Firm Shares of the defaulting Underwriter or
Underwriters as provided in this Section 10, (i) the Company shall have the
right to postpone the time of delivery for a period of not more than seven (7)
full business days, in order to effect whatever changes may thereby be made
necessary in the Registration Statement or the Prospectus, or in any other
documents or arrangements, and the Company agrees promptly to file any
amendments to the Registration Statement, supplements to the Prospectus or
other such documents which may thereby be made necessary, and (ii) the
respective number of Firm Shares to be purchased by the remaining Underwriters
and substituted underwriter or underwriters shall be taken as the basis of
their underwriting obligation. If the remaining Underwriters shall not take up
and pay for all such Firm Shares so agreed to be purchased by the defaulting
Underwriter or Underwriters or substitute another underwriter or underwriters
as aforesaid and the Company shall not find or shall not elect to seek another
underwriter or underwriters for such Firm Shares as aforesaid, then this
Agreement shall terminate.
In the event of any termination of this Agreement pursuant to
the preceding paragraph of this Section 10, neither the Company nor any Selling
Shareholder shall be liable to any Underwriter (except as provided in Sections
5 and 8 hereof) nor shall any Underwriter (other than an Underwriter who shall
have failed, otherwise than for some reason permitted under this Agreement, to
purchase the number of Firm Shares agreed by such Underwriter to be purchased
hereunder, which Underwriter shall remain liable to the Company, the Selling
Shareholders and the other Underwriters for damages, if any, resulting from
such default) be liable to the Company or any Selling Shareholder (except to
the extent provided in Sections 5 and 8 hereof).
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The term "Underwriter" in this Agreement shall include any
person substituted for an Underwriter under this Section 10.
11. Effective Date of this Agreement and Termination.
(a) This Agreement shall become effective at the
earlier of (i) 8:30 A.M., Houston time, on the first full business day
following the effective date of the Registration Statement, or (ii) the time of
the initial public offering of any of the Shares by the Underwriters after the
Registration Statement becomes effective. The time of the initial public
offering shall mean the time of the release by you, for publication, of the
first newspaper advertisement relating to the Shares, or the time at which the
Shares are first generally offered by the Underwriters to the public by letter,
telephone, telegram or telecopy, whichever shall first occur. By giving notice
as set forth in Section 12 before the time this Agreement becomes effective,
you, as Representatives of the several Underwriters, or the Company, may
prevent this Agreement from becoming effective without liability of any party
to any other party, except as provided in Sections 4(j), 5 and 8 hereof.
(b) You, as Representatives of the several
Underwriters, shall have the right to terminate this Agreement by giving notice
as hereinafter specified at any time on or prior to the Closing Date or on or
prior to any later date on which Option Shares are to be purchased, as the case
may be, (i) if the Company or any Selling Shareholder shall have failed,
refused or been unable to perform any agreement on its part to be performed, or
because any other condition of the Underwriters' obligations hereunder required
to be fulfilled is not fulfilled, including, without limitation, any change in
the condition (financial or otherwise), earnings, operations or business of the
Company and its subsidiaries considered as one enterprise from that set forth
in the Registration Statement or Prospectus, which, in your sole judgment, is
material and adverse, or (ii) if additional material governmental restrictions,
not in force and effect on the date hereof, shall have been imposed upon
trading in securities generally or minimum or maximum prices shall have been
generally established on the New York Stock Exchange or on the American Stock
Exchange or in the over the counter market by the NASD, or trading in
securities generally shall have been suspended on either such exchange or in
the over the counter market by the NASD, or if a banking moratorium shall have
been declared by federal, New York or California authorities, or (iii) if the
Company shall have sustained a loss by strike, fire, flood, earthquake,
accident or other calamity of such character as to interfere materially with
the conduct of the business and operations of the Company regardless of whether
or not such loss shall have been insured, or (iv) if there shall have been a
material adverse change in the general political or economic conditions or
financial markets as in your reasonable judgment makes it inadvisable or
impracticable to proceed with the offering, sale and delivery of the Shares, or
(v) if there shall have been an outbreak or escalation of hostilities or of any
other insurrection or armed conflict or the declaration by the United States of
a national emergency which, in the reasonable opinion of the Representatives,
makes it impracticable or inadvisable to proceed with the public offering of
the Shares as contemplated by the Prospectus. In the event of termination
pursuant to subparagraph (i) above, the Company shall remain obligated to pay
costs and expenses pursuant to Sections 4(j), 5 and 8 hereof. Any termination
pursuant to any of subparagraphs (ii) through (v) above shall be without
liability of any party to any other party except as provided in Sections 5 and
8 hereof.
If you elect to prevent this Agreement from becoming effective
or to terminate this Agreement as provided in this Section 11, you shall
promptly notify the Company by telephone, telecopy or telegram, in each case
confirmed by letter. If the Company shall elect to prevent this Agreement from
becoming effective, the Company shall promptly notify you by telephone,
telecopy or telegram, in each case, confirmed by letter.
12. Notices. All notices or communications hereunder, except as
herein otherwise specifically provided, shall be in writing and if sent to you
shall be mailed, delivered, telegraphed (and confirmed by letter) or telecopied
(and confirmed by letter) to you c/o BancAmerica Robertson Stephens, 555
California Street, Suite 2600, San Francisco, California 94104, telecopier
number (415) 781-0278, Attention: General Counsel; if sent to the Company, such
notice shall be mailed, delivered, telegraphed (and confirmed by letter) or
telecopied (and confirmed by letter) to 3355 West Alabama, 12th Floor, Houston,
Texas 77098, telecopier number (713) 881-9200, Attention: Eric
26
<PAGE> 27
J. Pulaski, Chief Executive Officer; if sent to one or more of the Selling
Shareholders, such notice shall be sent mailed, delivered, telegraphed (and
confirmed by letter) or telecopied (and confirmed by letter) to Eric J. Pulaski
or Scott R. Plantowsky, each as Attorney-in-Fact for the Selling Shareholders,
at 3355 West Alabama, 12th Floor, Houston, Texas 77098, telecopier number (713)
881-9200.
13. Parties. This Agreement shall inure to the benefit of and be
binding upon the several Underwriters and the Company and the Selling
Shareholders and their respective executors, administrators, successors and
assigns. Nothing expressed or mentioned in this Agreement is intended or shall
be construed to give any person or entity, other than the parties hereto and
their respective executors, administrators, successors and assigns, and the
controlling persons within the meaning of the Act or the Exchange Act, officers
and directors referred to in Section 8 hereof, any legal or equitable right,
remedy or claim in respect of this Agreement or any provisions herein
contained, this Agreement and all conditions and provisions hereof being
intended to be and being for the sole and exclusive benefit of the parties
hereto and their respective executors, administrators, successors and assigns
and said controlling persons and said officers and directors, and for the
benefit of no other person or entity. No purchaser of any of the Shares from
any Underwriter shall be construed a successor or assign by reason merely of
such purchase.
In all dealings with the Company and the Selling Shareholders
under this Agreement, you shall act on behalf of each of the several
Underwriters, and the Company and the Selling Shareholders shall be entitled to
act and rely upon any statement, request, notice or agreement made or given by
you jointly or by BancAmerica Robertson Stephens on behalf of you.
14. Applicable Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California.
15. Counterparts. This Agreement may be signed in several
counterparts, each of which will constitute an original.
27
<PAGE> 28
If the foregoing correctly sets forth the understanding among
the Company, the Selling Shareholders and the several Underwriters, please so
indicate in the space provided below for that purpose, whereupon this letter
shall constitute a binding agreement among the Company, the Selling
Shareholders and the several Underwriters.
Very truly yours,
BINDVIEW DEVELOPMENT CORPORATION
By
-------------------------------------
SELLING SHAREHOLDERS
By
-------------------------------------
Attorney-in-Fact for the Selling
Shareholders named in Schedule B
hereto
Accepted as of the date first above written:
BANCAMERICA ROBERTSON STEPHENS
BT ALEX. BROWN, INC.
DONALDSON LUFKIN & JENRETTE
On their behalf and on behalf of each of the
several Underwriters named in Schedule A hereto.
By BANCAMERICA ROBERTSON STEPHENS
By
-----------------------------------------------
Authorized Signatory
<PAGE> 29
SCHEDULE A
<TABLE>
<CAPTION>
Number of Firm
Underwriters Shares To Be Purchased
- --------------------------------------------------------------------------- ------------------------------------
<S> <C>
BancAmerica Robertson Stephens . . . . . . . . . . . . . . . . . . . . . .
BT Alex. Brown Incorporated . . . . . . . . . . . . . . . . . . . . . . . .
Donaldson Lufkin & Jenrette . . . . . . . . . . . . . . . . . . . . . . . .
------------------------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
====================================
</TABLE>
S-1
<PAGE> 30
SCHEDULE B
<TABLE>
<CAPTION>
Number of Firm
Company Shares To Be Sold
- ------------------------------------------------------------------------- ---------------------------
<S> <C>
BindView Development Corporation
---------------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
===========================
</TABLE>
<TABLE>
<CAPTION>
Number of Selling
Shareholder
Name of Selling Shareholder Shares To Be Sold
- ------------------------------------------------------------------------- --------------------------------
<S> <C>
---------------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
===========================
</TABLE>
S-2
<PAGE> 1
EXHIBIT 5.1
[FULBRIGHT & JAWORSKI L.L.P. LETTERHEAD]
July 14, 1998
BindView Development Corporation
3355 West Alabama, Suite 1200
Houston, Texas 77098
Ladies and Gentlemen:
We refer to the Registration Statement on Form S-1 (Registration No.
333-52883), as amended (the "Registration Statement"), filed by BindView
Development Corporation, a Texas corporation (the "Company"), with the
Securities and Exchange Commission under the Securities Act of 1933, relating
to (i) the offer by the Company of 3,750,000 shares of the Company's Common
Stock, no par value per share (the "Common Stock"), and up to 562,500 shares
of Common Stock that may be sold by the Company in the event the underwriters
for the offering elect to exercise their over-allotment option and (ii) the
offer by the selling shareholders of the Company listed in the Registration
Statement (the "Selling Shareholders") of 991,114 shares of Common Stock.
As counsel to the Company, we have examined such corporate records,
documents and questions of law as we have deemed necessary or appropriate for
the purposes of this opinion. In such examinations, we have assumed the
genuineness of signatures and the conformity to the originals of the documents
supplied to us as copies. As to various questions of fact material to this
opinion, we have relied upon statements and certificates of officers and
representatives of the Company.
Upon the basis of such examination, we are of the opinion that:
(i) The 4,312,500 shares of Common Stock offered by the Company,
when sold in accordance with the terms agreed upon in the
Underwriting Agreement filed as Exhibit 1.1 to the
Registration Statement, will be legally issued, fully paid and
nonassessable.
(ii) The 991,114 shares of Common Stock offered by the Selling
Stockholders have been legally issued and are fully paid and
nonassessable.
<PAGE> 2
BindView Development Corporation
July 14, 1998
Page 2
We consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the prospectus contained therein. This consent is not to be
construed as an admission that we are a person whose consent is required to be
filed with the Registration Statement under the provisions of the Securities
Act of 1933.
Very truly yours,
/s/ FULBRIGHT & JAWORSKI L.L.P.
Fulbright & Jaworski L.L.P.
<PAGE> 1
EXHIBIT 10.8
AGREEMENT TO SUBLEASE
This Agreement to Sublease (this "Sublease") is made this June 25,
1998, between HALLIBURTON ENERGY SERVICES, INC., a Delaware corporation
("Sublessor"), formerly known as HALLIBURTON COMPANY, a Delaware corporation,
and BINDVIEW DEVELOPMENT CORPORATION, a Texas corporation ("Sublessee").
WHEREAS, the Sublessor is presently the Tenant under a certain lease
dated December 18, 1992, as amended by Amendment No. 1 to Lease Agreement dated
December 18, 1992 and Amendment No. 2 to Lease Agreement dated March 18, 1993
(as amended, the "Prime Lease"), between BARNHART INTERESTS, INC. AS AGENT FOR
SAGE PLAZA ONE LTD., as Landlord (the "Landlord"), and HALLIBURTON COMPANY, as
Tenant, a copy of which is attached hereto as Exhibit "B" and incorporated
herein by this reference, covering approximately 320,151 square feet of Net
Rentable Area (the "Prime Leased Premises") in the building located at 5151 San
Felipe Road, Houston, Harris County, Texas (the "Building"); and
WHEREAS, the Sublessor and Sublessee have agreed upon a subletting of
space in the Building within the Prime Leased Premises, consisting of
approximately One Hundred Four Thousand Six Hundred Seventy (104,670) square
feet of Net Rentable Area (the "Subleased Premises"), as shown on the drawings
which are attached hereto as Exhibit "A" and incorporated herein by this
reference, on the terms and conditions hereinafter specified;
NOW, THEREFORE for good and valuable consideration, the receipt and
sufficiency of which are acknowledged, Sublessor and Sublessee agree as
follows:
1. PRIME LEASE.
a. Except for the provisions, exceptions, and conditions set forth
herein, all covenants, terms and conditions of the Prime Lease shall be binding
upon Sublessor and Sublessee and their successors and assigns in their
respective capacities. Except as otherwise provided herein, it is the intent of
the parties that such terms and conditions binding Landlord in the Prime Lease
shall bind Sublessor herein, and those binding Tenant in the Prime Lease shall
bind Sublessee herein. Sublessor represents and warrants that a true, correct,
and complete copy of the Prime Lease is attached hereto as Exhibit "B".
Capitalized terms not otherwise defined in this Sublease shall have the meaning
assigned to them in the Prime Lease.
b. Sublessor covenants and agrees that Sublessor will duly and
faithfully perform each of its obligations, duties and liabilities under the
Prime Lease. Sublessor hereby covenants and agrees it will deliver to
Sublessee, within forty-eight (48) hours after its receipt thereof, copies of
any and all notices or other correspondence received by Sublessor from Landlord
that might affect Sublessee's rights under this Sublease or its occupancy and
use of the Subleased Premises in any manner, including, but not limited, to any
changes to the terms and conditions of the Prime Lease.
c. Sublessee covenants and agrees that it will not do anything which
would breach the terms of the Prime Lease or cause Sublessor to be in default
thereunder. Sublessee covenants and
<PAGE> 2
agrees to deliver to Sublessor, within forty-eight (48) hours after Sublessee's
receipt thereof, copies of any and all notices or other correspondence
received by Sublessee from Landlord that might affect Sublessor in any manner.
d. Sublessee shall be entitled to the use and benefit of all of the
services and amenities applicable to the Subleased Premises that Landlord is
obligated to provide to Sublessor under the Prime Lease. If at any time during
the term of this Sublease Sublessor becomes entitled to any reduction or
abatement of the rentals due under the Prime Lease with respect to the
Subleased Premises, Sublessee shall receive a corresponding reduction or
abatement of its rental obligations under this Sublease.
2. DEMISE OF THE SUBLEASED PREMISES. Sublessor hereby subleases and
demises to the Sublessee and the Sublessee hereby subleases and takes from the
Sublessor, the Subleased Premises, subject to and upon the terms and conditions
set forth herein.
3. TERM. The term of this Sublease shall commence as to each floor of the
Subleased Premises on the earlier of (i) the date each floor of the Subleased
Premises is ready for occupancy by Sublessee to the extent that Sublessee is
able to conduct its business in a reasonable manner, (ii) the date Sublessee
actually occupies such floor, or (iii) April 1, 1999 (the "Commencement Dates")
and shall continue until August 31, 2003 (the "Expiration Date").
4. DELIVERY AND OCCUPANCY OF SUBLEASED PREMISES.
a. Sublessor shall deliver to Sublessee the Subleased Premises in
full floor increments, in a broom clean condition, and free of all movable
equipment and furniture, in accordance with the schedule set forth below. This
Lease shall be in full force and effect as to each floor of the Subleased
Premises upon the delivery by Sublessor and acceptance by Sublessee of each
such floor.
<TABLE>
<CAPTION>
Subleased Premises Delivery Dates
------------------ --------------
<S> <C>
Floor 18 No later than July 1, 1998
Floor 19 No later than September 1, 1998
Floor 20 No later than September 1, 1998
Floor 21 No later than September 1, 1998
Floor 22 No later than October 1, 1998
</TABLE>
If any floor of the Subleased Premises is not delivered to Sublessee on or
before the delivery dates set forth above, Sublessee shall receive a rental
abatement, with respect to the floor not timely delivered, equal to four (4)
days' Rental (as hereinafter defined) for each one (1) day of delay until
possession of such floor is tendered to Sublessee. Any such abatement shall be
credited against the Base Rental next becoming due.
If the first full floor of the Subleased Premises is not delivered to Sublessee
by August 1, 1998, or all of the remaining floors of the Subleased Premises are
not delivered to Sublessee by December 31, 1998, Sublessee may, as its sole and
exclusive remedy therefor, terminate this Sublease by written notice
("Cancellation Notice") to Sublessor. Within forty-five (45) days after
receipt of Sublessee's Cancellation Notice, Sublessor shall pay to Sublessee as
liquidated damages the sum of $300,000.
2
<PAGE> 3
It is agreed that such amount is a reasonable forecast of just compensation for
the harm that would be caused by Sublessor's failure to deliver the remaining
floors by such date and that the harm so caused would be incapable or very
difficult to accurately estimate..
b. The Commencement Date of each floor of the Subleased Premises is
estimated to be as follows:
<TABLE>
<CAPTION>
Subleased Premises Estimated Commencement Dates
------------------ ----------------------------
<S> <C>
Floor 18 September 1, 1998
Floor 19 November 1, 1998
Floor 20 November 1, 1998
Floor 21 November 1, 1998
Floor 22 January 1, 1999
</TABLE>
Sublessee, at its option, may occupy any floor of the Subleased Premises prior
to the estimated Commencement Date for such floor, in which case the
Commencement Date shall be the date Sublessee actually occupies such floor.
5. BASE RENTAL.
a. Except as otherwise provided herein, the annual base rent ("Base
Rental") during the term of this Sublease shall be Sixteen and 22/100 Dollars
($16.22) per square foot of Net Rentable Area, being a total annual Base Rental
of One Million Six Hundred Ninety-Seven Thousand Seven Hundred Forty-Seven and
No/100 Dollars ($1,697,747.00) for all floors of the Subleased Premises,
divided into equal monthly installments, payable in advance, of One Hundred
Forty-One Thousand Four Hundred Seventy-Eight and 95/100 Dollars ($141,478.95),
covering the periods from the Commencement Date of each floor of the Subleased
Premises to the Expiration Date.
b. Except as otherwise provided herein, the proportional amounts
payable by Sublessee under Article 5. BASE RENTAL ADJUSTMENT of the Prime
Lease, which relates to the same amounts due in the Sublease in Article 5.
ADDITIONAL RENTAL, shall be due and payable monthly to Sublessor on or before
forty-five (45) days after Sublessee's receipt of an itemized invoice therefor.
c. Notwithstanding Subparagraphs a and b of this Paragraph, for any
floor of the Subleased Premises having a Commencement Date prior to April 1,
1999, Rental shall be abated until April 1, 1999. Sublessor and Sublessee
intend that Sublessee shall not pay any Rental under this Sublease until April
1, 1999. The term "Rental" as used in this Sublease shall mean Base Rental,
Additional Rental (as hereinafter defined), and parking charges.
d. All amounts payable by Sublessee to Sublessor under this Sublease
shall be made by Sublessee to Halliburton Energy Services, P. O. Drawer 951046,
Dallas, Texas 75395-1046 or in such other manner and to such other place later
designated by Sublessor in writing, or as is set forth in any invoice from
Sublessor to Sublessee. The amounts due under this Sublease shall be paid in
one monthly check.
3
<PAGE> 4
6. ADDITIONAL RENTAL.
a. The clauses under Article 5. BASE RENTAL ADJUSTMENT of the Prime
Lease, covering additional rental shall apply to this Sublease.
b. The base year for Base Rental Adjustment (as defined in Article 5
of the Prime Lease and herein called "Additional Rental") computations shall be
1998 (the "Base Year").
c. Sublessee shall pay as Additional Rental any costs incurred in
connection with Sublessee's operation or after hours use of the heating,
ventilation, and air conditioning system ("HVAC") within the Subleased Premises
as permitted by Section 15.a hereof.
d. Beginning in 1999 and for each year thereafter during the
Sublease term, Sublessee shall pay to Sublessor as Additional Rental its
proportionate share (i.e. the percentage determined from time to time by
dividing the Net Rentable Area of the Subleased Premises by the total Net
Rentable Area of the Prime Leased Premises - initially 32.69 %) of the amount,
if any, by which the Basic Cost for each such year exceeds the Base Year Basic
Cost.
e. Sublessee's proportionate share of the Additional Rent shall be
payable monthly commencing April 1, 1999, based on the estimates of Basic Cost
being paid by Sublessor under Sections 5.04 and 5.05 of the Prime Lease. In
the event of any adjustment to Sublessor's payments with respect to Basic Cost
under Sections 5.06 or 5.07 of the Prime Lease, Sublessee shall pay or receive,
as the case may be, a corresponding adjustment of its payments with respect to
Basic Cost under this Paragraph.
f. Sublessor shall provide to Sublessee, within fifteen (15) days
after Sublessor's receipt thereof, copies of all estimates and statements
received by Sublessor from Landlord with respect to the amount or payment of
Basic Cost for any year during the term of this Sublease. If Sublessor elects
to exercise its right to audit the Landlord's books and records relating to
Basic Cost, Sublessee shall have the right to examine the results of such
audit. Sublessor further agrees that it will exercise its audit rights with
respect to any years during the term of this Sublease upon Sublessee's written
request, provided that Sublessee agrees to reimburse Sublessor for its actual
out-of-pocket costs and expenses incurred in connection with such audit.
7. IMPROVEMENT ALLOWANCE. Sublessor agrees to provide Sublessee an
allowance ("Improvement Allowance") in the amount of Nine and No/100 Dollars
($9.00) per square foot of Net Rentable Area in the Subleased Premises, (i.e.,
$942,030.00) to be applied to the payment of or reimbursement of Sublessee for
the costs and expenses incurred by Sublessee in connection with the preparation
(including, without limitation, architectural and engineering fees and costs)
and construction of the leasehold improvements in the Subleased Premises.
Monthly, upon receipt of a requisition form signed by Sublessee's construction
manager or other authorized individual setting forth the costs expended or
incurred to such date substantiated by true and correct copies of paid invoices
for such improvements, Sublessor shall, within forty-five (45) days after
receipt of such requisition form and copies of the paid invoices, forward to
Sublessee a check payable to Sublessee in the amount of such requisition.
Until Sublessor is notified differently in writing by Sublessee, Scott
Plantowsky will be Sublessee's construction manager for purposes of this
Paragraph. Sublessor shall not be obligated to pay for or reimburse Sublessee
for any leasehold improvements after July 1, 1999.
4
<PAGE> 5
8. ADA COMPLIANCE. Sublessee shall instruct its architect to design the
leasehold improvements to be in compliance with Title III of the Americans With
Disabilities Act of 1990, as amended, and all regulations promulgated
thereunder (the "ADA").
9. USE OF IMPROVEMENTS ON SUBLEASED PREMISES. Sublessee shall have the
option to utilize, at no charge to Sublessee, any and all leasehold
improvements presently located within the Subleased Premises, including, but
not limited to, all doors, cabling, components of the ceiling, floor coverings,
and window coverings, to the fullest extent permitted under the Prime Lease.
10. LEASEHOLD IMPROVEMENTS. The Subleased Premises shall be taken by
Sublessee in its "as is" condition, and, except as provided in Paragraphs 7 and
8 above, Sublessee shall be responsible for all improvements within the
Subleased Premises which shall meet the building standards, at its sole cost
and expense.
11. SECURITY DEPOSIT. Sublessee shall, at the signing of this Sublease,
either (i) provide to Sublessor a letter of credit or (ii) deposit with an
escrow agent mutually acceptable to Sublessor and Sublessee in an interest
bearing account, cash in an amount equal to five (5) months Base Rental as
security for the performance by the Sublessee of all the covenants, terms, and
conditions on its part to be performed under this Sublease and the Prime Lease.
Said security deposit shall be applied to Sublessee's Base Rental for the
months of April, May, and June 1999, and January and February 2000, and accrued
interest, if any, shall be paid to Sublessee quarterly commencing three (3)
months from the date such funds are deposited with the escrow agent.
12. USE. The Subleased Premises shall be used and occupied by Sublessee for
general office purposes and for no other purpose. Such permitted use shall
expressly, include, but not be limited, to software development, and such
ancillary uses in connection therewith as shall be reasonable and customary
with respect to general office use, and the operation for the noncommercial use
by Sublessee's employees and invitees of microwave ovens, refrigerators, and
other equipment typically found in an employee lunchroom.
13. PARKING. Sublessor shall provide and make available, at no additional
cost to Sublessee for Sublessee's employees, three (3) parking spaces in the
Building Parking Garage for each one thousand (1,000) square feet of Net
Rentable Area contained in the Subleased Premises (i.e., initially 314 parking
spaces). Twenty (20) of such parking spaces shall be designated as reserved
parking spaces and two hundred ninety-four (294) shall be designated as
unreserved parking spaces. In addition, Sublessor shall provide ten (10)
designated visitor parking spaces in the locations in the Building Parking
Garage depicted in the floor plan attached hereto as Exhibit "C". Sublessor
shall also provide and make available, at no additional cost to Sublessee,
three (3) parking spaces in the Building Parking Garage for each one thousand
(1,000) square feet of Preferential Right Space or Available Refusal Space (all
as hereinafter defined) that is subleased by Sublessee hereunder at the same
ratios as provided herein.
14. SIGNAGE.
a. Sublessor shall, within three (3) months after the execution of
this Sublease, use its best efforts to obtain for Sublessee signage identity on
the existing Building monument sign bearing Sublessee's name in the area shown
on the sign plan attached hereto as Exhibit "D" and approved by
5
<PAGE> 6
Sublessee. At such time as Sublessor shall no longer occupy 100,000 square
feet of Net Rentable Area in the Building, Sublessor shall provide Sublessee
with one-half (1/2) of the identity space currently provided to Sublessor on
the existing Building monument, which monument identity shall be in addition to
any other provision for identity provided to Sublessee prior to such time.
Subject to Sublessor's signage rights under Section 7.08.01 of the Prime Lease,
in the event another sublessee of Sublessor does not occupy a minimum of 50,000
square feet of Net Rentable Space in the Prime Leased Space, Sublessee shall be
entitled to all of the identity space currently provided to Sublessor on the
existing Building monument sign, which monument identity shall be in addition
to any other provision for identity provided to Sublessee prior to such time.
Sublessor shall use its best efforts to obtain the approval of Landlord and any
other party required to approve signage on the Building or grounds of the
Building pursuant to Section 7.08 of the Prime Lease.
b. On or before the Commencement Date, Sublessor shall use its best
efforts to cause Landlord to provide, at Sublessee's sole cost and expense, a
listing of Sublessee's name and the names of a reasonable number of Sublessee's
employees and/or divisions (as designated by Sublessee from time to time) on
the Building directory (or its computer equivalent), if any, located in the
main lobby of the Building.
c. All of this Paragraph 14 shall be subject to Sublessor's signage
rights under Section 7.08.01 of the Prime Lease.
15. UTILITIES AND SERVICES.
a. Sublessor shall cooperate with Sublessee to cause Landlord, at
Sublessee's sole cost and expense, to install or permit Sublessee to install a
system enabling Sublessee to activate, control, and monitor the usage of the
HVAC system within the Subleased Premises on a floor by floor basis. The cost
to Sublessee for operating the HVAC systems after hours shall be as set forth
in Section 7.04.2 of the Prime Lease. Sublessor hereby authorizes Sublessee to
contact Landlord directly with regard to Sublessee's use of the HVAC and other
building systems and services. In that regard, Sublessee agrees to indemnify
Sublessor for all such costs incurred thereby (except as may be provided
specifically otherwise herein).
b. If Sublessee's electrical equipment requires additional
electrical and/or air conditioning capacity above that which is provided to
Sublessor pursuant to the Prime Lease, Sublessor shall use its best efforts to
cause Landlord, at Sublessee's sole cost and expense, to permit Sublessee to
install, operate, and maintain such additional electrical and air conditioning
facilities and units as Sublessee may require in connection with Sublessee's
use of the Subleased Premises. Sublessor shall provide reasonable access to and
within the Prime Leased Premises as Sublessee may require to install, operate,
and maintain such additional facilities and units.
c. Sublessor shall use its best efforts to cause Landlord to provide
to Sublessee the same right Landlord provides to Sublessor under Section 9.05
of the Prime Lease to install, operate, and maintain communications and
telecommunications equipment and antennae on the roof of the Building (at
Sublessee's sole cost and expense) as Sublessee may require in connection with
Sublessee's use of the Subleased Premises.
6
<PAGE> 7
16. ENTRY FOR REPAIRS AND INSPECTION. Sublessor may enter into and upon any
part of the Subleased Premises (other than specific areas designated by
Sublessee as "secure areas") at all reasonable hours with reasonable prior
notice and with the right of Sublessee to accompany such persons (except in the
event of an emergency, when no prior notice will be required) to inspect the
same, clean, or make repairs or alterations, or additions thereto, as Sublessor
may deem necessary or desirable; provided, however, such work shall not
unreasonably interfere with Sublessee's use of the Subleased Premises. The
secure areas shall include, without limitation, Sublessee's Server Room and
Quality Assurance Lab.
17. INSURANCE.
a. Sublessee shall maintain, at its sole cost and expense, fire and
extended coverage insurance on all of its personal property, including
removable trade fixtures, located in the Subleased Premises, and on all non-
Building Standard leasehold improvements in the Subleased Premises. Sublessee
shall maintain, at its sole cost and expense, commercial general liability
insurance, with limits of liability of not less than $5,000,000.00 with respect
to death of or injury to one or more persons and not less than $2,000,000.00
with respect to loss of or damage to property, issued by and binding upon a
solvent insurance company approved in writing by Sublessor.
b. Anything in this Sublease to the contrary notwithstanding,
whenever any loss, cost, damage, or expense resulting from fire, the elements,
explosion or other casualty or occurrence is incurred by the parties to this
Sublease in connection with the Subleased Premises or any improvements thereto,
or of which the Subleased Premises are a part, or any personal property of such
party therein, or the Building, or Parking Garage, and such party is required
to be covered under this Sublease or Article V of the Prime Lease in whole or
in part by insurance with respect thereto, then the party so insured hereby
releases the other party from any liability it may have on account of such
loss, cost, damage, or expense to the extent of any amount recovered by reason
of such insurance and hereby waives any right of subrogation which might
otherwise exist in or accrue to any person on account thereof, provided such
release and waiver of subrogation shall not be operative in any case where the
effect thereof is to invalidate such insurance coverage. Sublessor and
Sublessee shall use their respective best efforts to obtain such release and
waiver of subrogation from their respective insurance carriers and shall
immediately notify the other of any failure to obtain or maintain same.
18. FIRE OR OTHER CASUALTY; CONDEMNATION.
a. In the event of fire or other casualty in the Prime Leased
Premises or the Subleased Premises, if the Subleased Premises is damaged so
that it is reasonably estimated by a responsible contractor selected by
Sublessee that fifty percent (50%) or more of the Subleased Premises will be
untenantable and/or not usable by Sublessee for the purpose for which same have
been subleased for a period of one hundred eighty (180) days or longer after
such destruction, Sublessee shall so notify Sublessor in writing within five
(5) days after Sublessee's receipt of notice of the estimated time to repair
the Subleased Premises. Sublessee shall have the option to cancel this
Sublease by delivery of written notice thereof to Sublessor within twenty-one
(21) days after receipt of such notice. If Sublessee elects not to cancel this
Sublease, the Rental herein shall proportionally abate thereafter until such
time as the affected portion of the Subleased Premises is made tenantable.
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<PAGE> 8
b. In the event of fire or other casualty in the Prime Leased
Premises or the Subleased Premises, such that Sublessor elects to terminate the
Prime Lease as provided in Article 11 thereof, Sublessor shall notify Sublessee
in writing of Sublessor's intention to cancel the Prime Lease at least twenty
(20) days prior to notifying Landlord of same. If Sublessee desires to
continue the Sublease as to all or part of the Subleased Premises, Sublessee
shall notify Sublessor of same within ten (10) days after its receipt of
Sublessor's notice, whereupon (i) Sublessor shall not terminate the Prime
Lease, and (ii) the Sublease shall remain in full force and effect until the
expiration or earlier termination of the term of this Sublease.
c. If, as a result of a taking by virtue of eminent domain or for
public or quasi public use or purpose, the Prime Leased Premises, the Subleased
Premises, a portion of the Building not including the Prime Leased Premises or
the Subleased Premises, or the Parking Garage or access thereto, is affected in
a manner that (i) renders the Subleased Premises untenantable, (ii)
substantially impairs Sublessee's use of the remainder of the Subleased
Premises, or (iii) if more than fifty percent (50%) the Subleased Premises (or
any lesser percentage which renders the remainder unusable for the purposes
intended) shall be taken or condemned, Sublessee shall have the option to
cancel this Sublease by delivery of written notice thereof to Sublessor within
thirty (30) days after the date the condemning authority takes possession.
d. If, as a result of a taking of all or substantially all of the
Prime Leased Premises or the Subleased Premises by virtue of eminent domain or
for public or quasi public use or purpose, Sublessor elects to terminate the
Prime Lease as provided in Article 15 thereof, Sublessor shall notify Sublessee
in writing of Sublessor's intention to cancel the Prime Lease at least twenty
(20) days prior to notifying Landlord of same. If Sublessee desires to
continue the Sublease as to all or part of the Subleased Premises, Sublessee
shall notify Sublessor of same within ten (10) days after its receipt of
Sublessor's notice, whereupon (i) Sublessor shall not terminate the Prime
Lease, and (ii) the Sublease shall remain in full force and effect until the
expiration or earlier termination of the term of this Sublease.
19. HOLD HARMLESS. Sublessee shall not be liable to Sublessor, or to
Sublessor's agents, servants, employees, customers, or invitees for any damage
to person or property caused by any act, omission or neglect of Sublessor, its
agents, servants, or employees, and Sublessor agrees to indemnify and hold
Sublessee harmless from all liability and claims for any such damages.
Sublessor shall not be liable to Sublessee, or to Sublessee's agents, servants,
employees, customers, or invitees for any damage to person or property caused
by any act, omission or neglect of Sublessee, its agents, servants, or
employees, and Sublessee agrees to indemnify and hold Sublessor harmless from
all liability and claims for any such damages.
20. MANAGEMENT COMMITTEE. Sublessor hereby assigns to Sublessee all its
rights to positions on and participation in the Management Committee described
in Section 6.10 of the Prime Lease. Sublessor shall cooperate with Sublessee
in causing Landlord to provide a position on the Management Committee for
Sublessee.
21. SURRENDER OF PREMISES. Upon the expiration or earlier termination of
the term of this Sublease, Sublessee shall surrender the Subleased Premises in
good order, condition, and repair, except for ordinary wear and tear.
Sublessee shall be under no obligation to remove any leasehold improvements
existing in the Subleased Premises at the time of execution of this Sublease or
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<PAGE> 9
thereafter installed by Sublessee, with Sublessor's approval. Sublessee may
remove its trade fixtures, office supplies, telecommunications and movable
office equipment and furniture.
22. SUBLESSOR'S NON-LIABILITY FOR DEFAULTS OF LANDLORD. Sublessor shall not
be responsible, answerable or liable to Sublessee for or by any reason of any
default by Landlord under the Prime Lease, nor shall Sublessor under this
Sublease have any such obligations impressed upon it. Notwithstanding the
foregoing, upon the written request of Sublessee, Sublessor shall diligently
pursue all reasonable efforts to enforce the Prime Lease and obtain Landlord's
compliance with its obligations thereunder and Sublessee shall have any rights
of recovery against Landlord, which flow to Sublessor through the Prime Lease,
to the extent Sublessee is entitled to such under this Sublease.
23. ASSIGNMENT OR SUBLEASE.
a. Except as provided in Subparagraphs b and c of this Paragraph,
Sublessee shall not have the right to assign or sublet the Subleased Premises,
in whole or in part, without Sublessor's prior written consent, which shall not
be unreasonably withheld, conditioned, or delayed.
b. The consent of Sublessor shall not be required for any assignment
of this Sublease, or sub-sublet of the Subleased Premises or any part thereof,
to an Affiliate of Sublessee; provided, however, that Sublessee shall promptly
notify Sublessor of any such assignment or sub-subletting, and with respect to
any assignment of this Sublease, shall deliver a written assumption in favor of
Sublessor of the duties, obligations and liabilities of Sublessee hereunder by
such Affiliate, and further, provided Sublessee has obtained Landlord's
approval or consent thereof. An "Affiliate" for purposes of this section shall
be any person or entity which Sublessee controls or is wholly owned by
Sublessee.
c. The transfer of this Sublease from Sublessee by merger or
consolidation or any change in ownership or power to vote of the voting stock
in Sublessee, or any reincorporation or recapitalization, or any sale or public
offering of Sublessee's stock, shall not constitute an assignment for purposes
of this Sublease, provided Sublessee has obtained Landlord's approval or
consent thereof. For purposes of this Subparagraph, the term "voting stock"
shall refer to shares of stock regularly entitled to vote for the election of
directors of the corporation involved.
d. No assignment or subletting by Sublessee shall relieve Sublessee
of any obligation under this Sublease, and Sublessee and Sublessee's assignee
or sublessee shall remain jointly and severally liable hereunder.
24. PREMISES USED AS SECURITY. Sublessee shall not use the Subleased
Premises as security on any obligation, and in the event of the attempt of
Sublessee to cause the Subleased Premises to be used as security, Sublessee
shall be in default of the terms of this Sublease and Sublessor shall have the
option to immediately terminate this Sublease and the provisions of Paragraph
20 herein shall thereafter become applicable.
25. NOTICES. Any notices which shall be required or desired to be given by
the parties hereto shall be in writing and either delivered by hand or sent by
United States certified mail, return receipt requested and postage prepaid, to
the persons at the addresses set forth below:
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<PAGE> 10
Sublessor: Sublessee:
Halliburton Energy Services, Inc. Prior to occupancy:
5151 San Felipe BindView Development
Suite 200 Corporation
Houston, Texas 77056 3355 West Alabama, 12th Floor
Houston, Texas 77098
After occupancy:
5151 San Felipe, 22nd Floor
Houston, Texas 77056
With a copy to the Landlord: Barnhart Interests, Inc.
5151 San Felipe
Suite 1399
Houston, Texas 77056
Such notice shall be deemed received on the date indicated on the delivery
receipt of such notice.
26. BROKER. Sublessee covenants, warrants and represents that it has not
dealt with or signed any commission agreement with any broker in connection
with this Sublease other than Moody Rambin Interests, Inc. ("MRI") and
Sublessor agrees to pay any commission due said broker in accordance with a
separate agreement entered into with MRI.
27. ONGOING PREFERENTIAL RIGHT.
a. Sublessee shall have a continuous and recurring right of first
opportunity (the "Preferential Right") to sublet any of floors twenty-three
(23), twenty-four (24) or twenty-five (25) (collectively, the "Preferential
Right Space"), if Sublessor elects to make available for lease all or any
portion of the Preferential Right Space. In subleasing the Preferential Right
Space, Sublessor will use its best efforts to lease floors twenty-four (24) and
twenty-five (25) prior to leasing floor twenty-three (23) and to lease floor
twenty-five (25) prior to leasing floor twenty-four (24), if such floors are
leased in partial or one(1) floor increments.
b. At such time that Sublessor has received a signed bona fide offer
(the "Offer") to sublease from a prospective sublessee, Sublessee shall have
the right to exercise its Preferential Right to sublease (i) as to that portion
of the Preferential Right Space to be subleased to such prospective sublessee
(the "Offer Space"), if the Offer Space covers a portion of a floor of the
Preferential Right Space or (ii) as to all or a portion of the Offer Space, but
in no event less than one (1) full floor of the Offer Space, if the Offer Space
is equal or greater than one (1) full floor of the Preferential Right Space.
Sublessor shall send written notice of the Offer (the "Exercise Notice"), in
accordance with Paragraph 25 hereof, together with a copy of the Offer showing
the Base Rental to be paid thereunder and the tenant allowance to be provided
to the prospective sublessee with respect thereto, a floor plan depicting the
demising lines of the Offer Space, and other material terms and conditions of
the proposed sublease. Sublessee shall have the right to exercise its
Preferential Right within ten (10) days after its receipt of the Exercise
Notice (the "Exercise Period") to sublease all or a portion of the Offer Space,
as the case may be, upon the same terms and conditions as those outlined in the
Offer, provided, however, the Base Rental, Base Year, and allowances (with
respect to improvements,
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<PAGE> 11
refurbishment or otherwise) shall not be less favorable to Sublessee than the
Base Rental, Base Year, and allowances contained in this Sublease. Base Rental
for the Offer Space shall commence on the later of (i) April 1, 1999, or (ii)
four (4) months after the contemplated commencement date of the proposed
sublease. Regardless of the date Sublessee exercises a Preferential Right, the
term with respect to any Offer Space covered thereunder shall be coterminous
with the term of this Sublease. If Sublessee fails to respond to the Exercise
Notice during the Exercise Period, Sublessee shall be deemed to have elected
not to lease the Offer Space. If Sublessee fails or declines to exercise its
Preferential Right after receipt of an Exercise Notice from Sublessor as
provided herein, Sublessor may sublease the Offer Space to the prospective
sublessee on substantially the same terms and conditions set forth in the
Exercise Notice. If Sublessor does not enter into a sublease of the Offer
Space with the prospective sublessee with respect to the space and in
accordance with the terms that were the subject of the Exercise Notice within
ninety (90) days after the expiration of the Exercise Period, Sublessee's
Preferential Right shall apply again to any proposed subleasing of the
Preferential Right Space.
28. ONGOING RIGHT OF FIRST REFUSAL.
a. Subject to Apache Corporation's Preferential Right to lease
floors two and seven of the Building, Sublessee shall have a continuous and
recurring right of first refusal (the "Right of First Refusal") to sublease any
remaining rentable space within the Prime Leased Premises as it becomes
available for subletting during the term of this Sublease (the "First Refusal
Space").
b. Sublessor shall deliver written notice to Sublessee (the
"Availability Notice") when any First Refusal Space becomes available for
subletting (the "Available Refusal Space"). The Availability Notice shall be
sent in accordance with Paragraph 25 hereof, and shall include a floor plan
depicting the demising lines of the Available Refusal Space, the date that
Sublessor expects same to be available, and the annual rental and other
material terms and conditions upon which Sublessor is willing to sublease the
Available Refusal Space (including, without limitation, allowances for
improvements, refurbishment or otherwise, the Base Year, the sublease term,
renewal and expansion options, and other preferential rights). Sublessee shall
have the right to exercise its Right of First Refusal within ten (10) days
after receipt of the Availability Notice (the "Acceptance Period") to sublease
the Available Refusal Space upon the terms and conditions as stated in the
Availability Notice. If Sublessee fails to exercise its Right of First Refusal
during the Acceptance Period, Sublessee shall be deemed to have elected not to
sublease the Available Refusal Space. If Sublessee shall fail to exercise its
Right of First Refusal after receipt of an Availability Notice from Sublessor
as provided herein, Sublessor may sublease the Available Refusal Space to the
prospective sublessee on the terms and conditions set forth in the Availability
Notice. If Sublessor does not enter into a sublease of the Available Refusal
Space with the prospective sublessee with respect to the space and in
accordance with the terms that were the subject of the Availability Notice
within one hundred eighty (180) days after the expiration of the Acceptance
Period, Sublessee's Right of First Refusal shall apply again to any proposed
subleasing of the Available Refusal Space.
29. RENEWAL OPTION.
a. If Sublessor intends to exercise Sublessor's First Renewal Option
to renew and extend the term of the Prime Lease for an additional five (5)
years, Sublessor shall send to Sublessee a copy of its written request to
Landlord for Landlord's opinion of the prevailing Fair Market Value rental
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<PAGE> 12
rate pursuant to Section 21.01.3 of the Prime Lease concurrently with the
sending of such request to Landlord. Sublessee shall have the right to consult
with Sublessor with respect to its evaluation of Landlord's opinion of such
rental rate.
b. If Sublessor elects to exercise the First Renewal Option,
Sublessor shall send to Sublessee a copy of its written notice to Landlord
exercising such option pursuant to Section 21.01.1 of the Prime Lease
concurrently with the sending of such renewal notice to Landlord. Sublessee
shall have the option to renew this Sublease (the "First Sublease Renewal
Option") as to all or a part of the Subleased Premises for a term coterminous
with the First Renewal Period by delivering written notice to Sublessor within
ninety (90) days after receipt of the copy of Sublessor's renewal notice to
Landlord. If Sublessee elects to exercise its First Sublease Renewal Option,
then all terms of this Sublease shall apply to the renewal term, except the
Base Rental rate, the Base Year, and the improvement allowance payable under
this Sublease shall be the same rental rates and tenant improvement allowance
(per square foot of Net Rentable Area) as provided during the First Renewal
Period under Sections 21.01.5 and 21.03 of the Prime Lease.
c. Provided Sublessee effectively exercised its First Sublease
Renewal Option pursuant to Subparagraph b of this Paragraph, if Sublessor
intends to exercise its Second Renewal Option to extend the term of the Prime
Lease for an additional five (5)-year period, Sublessor shall send to Sublessee
a copy of its written request to Landlord for Landlord's opinion of the
prevailing Fair Market Value rental rate pursuant to Section 21.01.3 of the
Prime Lease concurrently with the sending of such request of Landlord.
Sublessee shall have the right to consult with Sublessor with respect to its
evaluation of Landlord's opinion of such rental rate.
d. If Sublessor elects to exercise the Second Renewal Option,
Sublessor shall send to Sublessee a copy of its written notice to Landlord
exercising such option pursuant to Section 21.01.2 of the Prime Lease
concurrently with the sending of such renewal notice to Landlord. Sublessee
shall have the option to renew this Sublease (the "Second Sublease Renewal
Option") as to all or a part of the Subleased Premises for a term coterminous
with the Second Renewal Period by delivering written notice to Sublessor within
ninety (90) days after receipt of the copy of Sublessor's renewal notice to
Landlord. If Sublessee elects to exercise its Second Sublease Renewal Option,
then all terms of this Sublease shall apply to the renewal term, except the
Base Rental rate, the Base Year, and the tenant improvement allowance payable
under this Sublease shall be the same rental rates, the Base Year, and
improvement allowance (per square foot of Net Rentable Area) as provided during
the Second Renewal Period under Sections 21.01.5 and 21.03 of the Prime Lease.
30. LANDLORD'S, MORTGAGEE'S, AND APACHE CORPORATION'S CONSENT.
a. Sublessor and Sublessee acknowledge and agree, however, that a
condition precedent to this Sublease is Landlord's execution of the Consent to
Sublease. If Landlord does not execute and return an original counterpart of
the Consent to Sublease to Sublessor and Sublessee on or before June 19, 1998,
Sublessee shall at its sole and absolute discretion either: (i) terminate this
Sublease by written notice to Sublessee, or (ii) extend the date by which
Landlord must execute and return an original counterpart of the Consent to
Sublease to Sublessor and Sublessee until June 30, 1998.
b. Sublessor and Sublessee acknowledge and agree, however, that a
condition precedent to this Sublease is Landlord's Mortgagee, or any other
beneficiary of a mortgage, deed of trust or
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<PAGE> 13
other lien encumbering the Complex (or any part thereof), execution of the
Consent to Sublease. If Landlord's Mortgagee, or other beneficiary does not
execute and return an original counterpart of the Consent of Sublease to
Sublessor and Sublessee on or before June 30, 1998, Sublessee shall at its sole
and absolute discretion either: (i) terminate this Sublease by written notice
to Sublessee, or (ii) extend the date by which Landlord's Mortgagee, or other
beneficiary execute and return an original counterpart of the Consent to
Sublease to Sublessor and Sublessee until July 7, 1998.
c. Unless Sublessee notifies Sublessor otherwise, this Sublease
shall not be effective until Sublessee has been provided with an executed
agreement whereby Apache Corporation releases its rights to the signage
identification on the existing monument sign.
d. If Landlord does not approve the plans and specifications for
Sublessee's leasehold improvements on the 18th floor of the Building by June
24, 1998, Sublessee shall at its sole and absolute discretion either: (i)
terminate this Sublease by written notice to Sublessee, or (ii) extend the date
by which Landlord must approve the plans and specifications for Sublessee's
leasehold improvements until June 30, 1998.
31. MISCELLANEOUS.
a. This Sublease shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns in accordance
with the terms of this Sublease.
b. This Sublease shall be governed and construed in accordance with
the laws of the State of Texas.
c. If any term or provision of this Sublease, or the application
thereof to any person or circumstance shall to any extent be invalid or
unenforceable, the remainder of this Sublease, or the application of such
provision to persons or circumstances other than those as to which it is
invalid or unenforceable, shall not be affected thereby, and each provision of
this Sublease shall be valid and shall be enforceable to the extent permitted
by law.
d. This Sublease may be executed in multiple counterparts, and by
the parties hereto on separate counterparts, each of which shall constitute an
original of this Sublease, but all of which taken together shall constitute a
single agreement.
e. If either party defaults in the performance of any of the terms,
agreements or conditions contained in this Sublease and the other party engages
an attorney to enforce this Sublease, should such non-defaulting party prevail
in a suit upon same, the defaulting party agrees to pay the other party's
reasonable legal fees.
f. To the extent the terms and provision of this Sublease conflict
with the terms and provisions of the Prime Lease, the terms and provision of
this Sublease shall prevail.
32. TIME IS OF THE ESSENCE. Time is of the essence with respect to
Sublessor's execution and delivery of this document to Sublessee. If Sublessor
fails to execute and delivery a signed copy hereof to Sublessee by 5:00 p.m.,
June 19, 1998, this document shall be deemed null and void and
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<PAGE> 14
shall have no force and effect, unless otherwise agreed in writing between
Sublessee and Sublessor.
IN WITNESS WHEREOF, and intending to be legally bound hereby, the parties have
executed this Sublease the day and year first above written.
SUBLESSOR: HALLIBURTON ENERGY SERVICES, INC.,
a Delaware corporation
By: /s/ TAMARA W. BLAIR
---------------------------------------
Name: Tamara W. Blair
-------------------------------------
Title: Director of Real Estate Services
------------------------------------
Attorney-in-Fact
SUBLESSEE: BINDVIEW DEVELOPMENT CORPORATION,
a Texas corporation
By: /s/ SCOTT R. PLANTOWSKY
---------------------------------------
Name: Scott R. Plantowsky
-------------------------------------
Title: Chief Financial Officer
------------------------------------
14
<PAGE> 1
REGISTRATION RIGHTS AGREEMENT
among
BINDVIEW DEVELOPMENT CORPORATION
and
SCOTT R. PLANTOWSKY
Dated: November 7, 1997
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C> <C>
1. Definitions...........................................................1
2. General: Securities Subject to this Agreement........................3
(a) Grant of Rights.............................................3
(b) Registrable Securities......................................3
(c) Holders of Registrable Securities...........................3
3. Demand Registration...................................................3
(a) Request for Demand Registration.............................3
(b) Incidental or "Piggy-Back" Rights with Respect to a Demand
Registration................................................4
(c) Effective Demand Registration...............................4
(d) Expenses....................................................4
(e) Underwriting Procedures.....................................5
(f) Selection of Underwriters...................................5
4. Incidental or "Piggy-Back" Registration...............................5
(a) Request for Incidental Registration.........................5
(b) Expenses....................................................6
5. Form S-3 Registration.................................................6
(a) Request for a Form S-3 Registration.........................6
(b) Form S-3 Underwriting Procedures............................6
(c) Limitations on Form S-3 Registrations.......................7
(d) Expenses....................................................7
(e) No Demand Registration......................................7
6. Holdback Agreements...................................................7
(a) Restrictions on Public Sale by Designated Holders...........7
(b) Restrictions on Public Sale by the Company..................8
7. Registration Procedures...............................................8
(a) Obligations of the Company..................................8
(b) Seller information.........................................11
(c) Notice to Discontinue......................................11
(d) Registration Expenses......................................11
8. Indemnification: Contribution.......................................12
(a) Indemnification by the Company.............................12
(b) Indemnification by Designated Holders......................12
(c) Conduct of Indemnification Proceedings.....................12
(d) Contribution...............................................13
9. Rule 144.............................................................13
</TABLE>
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<TABLE>
<CAPTION>
Page
<S> <C> <C>
10. Miscellaneous........................................................13
(a) Recapitalizations, Exchanges, etc..........................14
(b) No Inconsistent Agreements.................................14
(c) Remedies...................................................14
(d) Amendments and Waivers.....................................14
(e) Notices....................................................14
(f) Successors and Assigns.....................................15
(g) Third Party Beneficiaries..................................15
(h) Counterparts...............................................15
(i) Headings...................................................16
(j) Governing Law..............................................16
(k) Severability...............................................16
(l) Entire Agreement...........................................16
(m) Further Assurances.........................................16
</TABLE>
ii
<PAGE> 4
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated November 7, 1997 (this
"Agreement"), among BindView Development Corporation, a Texas corporation (the
"Company") and Scott R. Plantowsky ("Plantowsky").
This Agreement is made in connection with the issue and sale by the
Company to Plantowsky of a warrant (the "Warrant") to purchase, subject to the
terms and conditions thereof, an aggregate of up to 175,000 shares of Common
Stock.
WHEREAS, in order to induce Plantowsky, the Company has agreed to grant
registration rights with respect to the Registrable Securities (as hereinafter
defined) as set forth in this Agreement.
The parties hereby agree as follows:
1. Definitions. As used in this Agreement the following terms have the
meanings indicated:
"Affiliate" shall mean, with respect to any Person, any other Person
who is an "affiliate" as defined in Rule 12b-2 of the General Rules and
Regulations under the Exchange Act.
"Approved Underwriter" has the meaning set forth in Section 3(f) of
this Agreement.
"Business Day" means any day other than a Saturday, Sunday or other
day on which commercial banks in the State of Texas are authorized or required
by law or executive order to close.
"Common Stock" has the meaning assigned to such term in the recital
to this Agreement. "Common Stock" shall also include any other equity securities
of the Company into which such securities are converted, reclassified,
reconstituted or exchanged.
"Company" has the meaning assigned to such term in the recital to
this Agreement.
"Company Underwriter" has the meaning set forth in Section 4(a) of
this Agreement.
"Demand Registration" has the meaning set forth in Section 3(a) of
this Agreement.
"Designated Holder" means each of the Plantowsky Shareholders and any
transferee of any of them to whom Registrable Securities have been transferred
in accordance with the provisions of the Shareholders' Agreement and Section
9(f) of this Agreement, other than a transferee to whom such securities have
been transferred pursuant to a registration statement under the Securities Act
or Rule 144 or Regulation S under the Securities Act.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"Holders' Counsel" has the meaning set forth in Section 7(a)(i) of
this Agreement.
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<PAGE> 5
"Incidental Registration" has the meaning set forth in Section 4(a)
of this Agreement.
"Indemnified Party" has the meaning set forth in Section 8(c) of this
Agreement.
"Indemnifying Party" has the meaning set forth in Section 8(c) of
this Agreement.
"Initial Public Offering" means an underwritten initial public
offering pursuant to an effective Registration Statement filed under the
Securities Act covering the offer and sale of shares of Common Stock for the
account of the Company.
"Initiating Holder" has the meaning set forth in Section 3(a) of this
Agreement.
"Inspector" has the meaning set forth in Section 7(a)(vii) of this
Agreement.
"IPO Effectiveness Date" means the date upon which the Company
commences its Initial Public Offering.
"NASD" has the meaning set forth in Section 7(a)(xii) of this
Agreement.
"Person" means any individual, firm, corporation, partnership,
limited liability company, trust, incorporated or unincorporated association,
joint venture, joint stock company, limited liability company, government (or an
agency or political subdivision thereof) or other entity of any kind, and shall
include any successor (by merger or otherwise) of such entity.
"Plantowsky" has the meaning assigned to such term in the recital to
this Agreement.
"Plantowsky Shareholders" means Plantowsky and any Permitted
Transferee (as defined in the Shareholders' Agreement) thereof to which
Registrable Securities are transferred in accordance with Section 2.2 of the
Shareholders' Agreement.
"Records" has the meaning set forth in Section 7(a)(vii) of this
Agreement.
"Registrable Securities" means each of the following: (a) any and all
shares of Common Stock owned or acquired after the date hereof by the Designated
Holders or issued or issuable upon exercise of the Warrants, including, without
limitation, any additional shares of Common Stock issuable upon conversion or
exercise of any warrants or options acquired by any of the Designated Holders
after the date hereof, (b) any other shares of Common Stock acquired or owned by
any of the Designated Holders prior to the IPO Effectiveness Date, or acquired
or owned by any of the Designated Holders after the IPO Effectiveness Date if
such Designated Holder is an Affiliate of the Company and (c) any shares of
Common Stock issued or issuable to any of the Designated Holders with respect to
shares of Common Stock by way of stock dividend or stock split or in connection
with a combination of shares, recapitalization, merger, consolidation or other
reorganization or otherwise and shares of Common Stock issuable upon conversion,
exercise or exchange thereof.
"Registration Expenses" has the meaning set forth in Section 7(d) of
this Agreement.
"Registration Statement" means a registration statement filed
pursuant to the Securities Act.
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"SEC" means the Securities and Exchange Commission or any similar
agency then having jurisdiction to enforce the Securities Act.
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
"Shareholders' Agreement" means the Shareholders' Agreement, dated
October 16, 1997, among the Company and the shareholders that are signatories
thereto.
2. General: Securities Subject to this Agreement.
(a) Grant of Rights. Company hereby grants registration rights to the
Plantowsky Shareholders upon the terms and conditions set forth in this
Agreement.
(b) Registrable Securities. For the purposes of this Agreement,
Registrable Securities will cease to be Registrable Securities when (i) a
registration statement covering such Registrable Securities has been declared
effective under the Securities Act by the SEC and such Registrable Securities
have been disposed of pursuant to such effective registration statement, (ii)
the entire amount of Registrable Securities proposed to be sold by a Designated
Holder in a single sale, in the opinion of counsel satisfactory to the Company
and the Designated Holder, each in their reasonable judgment, may be distributed
to the public without any limitation as to volume pursuant to Rule 144 (or any
successor provision then in effect) under the Securities Act or (iii) the
Registrable Securities are proposed to be sold or distributed by a Person not
entitled to the registration rights granted by this Agreement.
(c) Holders of Registrable Securities. A Person is deemed to be a
holder of Registrable Securities whenever such Person owns of record Registrable
Securities, or holds an option to purchase, or a security convertible into or
exercisable or exchangeable for, Registrable Securities whether or not such
acquisition or conversion has actually been effected and disregarding any legal
restrictions upon the exercise of such rights. If the Company receives
conflicting instructions, notices or elections from two or more Persons with
respect to the same Registrable Securities, the Company may act upon the basis
of the instructions, notice or election received from the registered owner of
such Registrable Securities. Registrable Securities issuable upon exercise of an
option or upon conversion of another security shall be deemed outstanding for
the purposes of this Agreement.
3. Demand Registration.
(a) Request for Demand Registration. At any time after the IPO
Effectiveness Date, the Plantowsky Shareholders as a group, acting through
Plantowsky (the "Initiating Holder(s)") may make a written request to the
Company to register, under the Securities Act (other than pursuant to a
registration statement on Form S-4 or S-8 or any successor thereto) and under
the securities or "blue sky" laws of any jurisdiction designated by such holder
or holders (a "Demand Registration"), the number of Registrable Securities
stated in such request; provided, however, that the Company shall not be
obligated to effect more than one (1) Demand Registration for the Plantowsky
Shareholders pursuant to this Section 3; provided, further, however, that the
Company shall not be obligated to effect more than one such Demand Registration
in any twelve month period. If at the time of any request to register
Registrable Securities pursuant to this Section 3(a), the Company is engaged in,
or has fixed plans to engage in within thirty (30) days of the time of such
request, a registered public offering or is engaged in any other activity which,
in the good faith
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determination of the Board of Directors of the Company, would be adversely
affected by the requested registration to the material detriment of the Company,
then the Company may at its option direct that such request be delayed for a
reasonable period not in excess of three (3) months from the effective date of
such offering or the date of completion of such other material activity, as the
case may be, such right to delay a request to be exercised by the Company not
more than once in any one-year period. In addition, the Company shall not be
required to effect any registration within ninety (90) days after the effective
date of any other Registration Statement of the Company. Each request for a
Demand Registration by the Initiating Holder(s) shall state the amount of the
Registrable Securities proposed to be sold and the intended method of
disposition thereof. Upon a request for a Demand Registration, the Company shall
promptly take such steps as are necessary or appropriate to prepare for the
registration of the Registrable Securities to be registered.
(b) Incidental or "Piggy-Back" Rights with Respect to a Demand
Registration. Each of the Designated Holders (other than the Initiating Holders)
may offer its or his Registrable Securities under any Demand Registration
pursuant to this Section 3. Within ten (10) days after the receipt from an
Initiating Holder of a request for a Demand Registration, the Company shall (i)
give written notice thereof to all of the Designated Holders (other than the
Initiating Holder) and (ii) subject to Section 3(e), include in such
registration all of the Registrable Securities held by such Designated Holders
from whom the Company has received a written request for inclusion therein
within ten (10) days of the receipt by such Designated Holders of such written
notice referred to clause (i) above. Each such request by such Designated
Holders shall specify the number of Registrable Securities proposed to be
registered and the intended method of disposition thereof. The failure of any
Designated Holder to respond within such 10-day period referred to in clause
(ii) above shall be deemed to be a waiver of such Designated Holder's rights
under this Section 3, provided that any Designated Holder may waive its rights
under this Section 3 prior to the expiration of such 10-day period by giving
written notice to the Company, with a copy to the Initiating Holder.
(c) Effective Demand Registration. The Company shall use its
reasonable efforts to cause any such Demand Registration to become and remain
effective as soon as practicable, but in any event not later than 120 days after
it receives a request under Section 3(a) hereof. A registration shall not
constitute a Demand Registration until it has become effective and remains
continuously effective for the lesser of (i) the period during which all
Registrable Securities registered in the Demand Registration are sold and (ii)
120 days; provided, however, that a registration shall not constitute a Demand
Registration if (x) after such Demand Registration has become effective, such
registration or the related offer, sale or distribution of Registrable
Securities thereunder is interfered with by any stop order, injunction or other
order or requirement of the SEC or other governmental agency or court for any
reason not attributable to the Initiating Holders and such interference is not
thereafter eliminated, (y) the conditions to closing specified in the
underwriting agreement, if any, entered into in connection with such Demand
Registration are not satisfied or waived, other than by reason of a failure by
the Initiating Holders or (z) if the request for such Demand Registration is
withdrawn by the Initiating Holder and such Initiating Holder reimburses the
Company for any expenses incurred in relation thereto.
(d) Expenses. In any registration initiated as a Demand Registration,
the Company shall pay all Registration Expenses (other than underwriting
discounts and commissions) in connection therewith, whether or not such Demand
Registration becomes effective.
(e) Underwriting Procedures. If the initiating Holders holding a
majority of the Registrable Securities held by all of the Initiating Holders to
which the requested Demand Registration relates so elect, the offering of such
Registrable Securities pursuant to such Demand Registration shall be in the form
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of a firm commitment underwritten offering and the managing underwriter or
underwriters selected for such offering shall be the Approved Underwriter (as
hereinafter defined) selected in accordance with Section 3(f). In connection
with any Demand Registration under this Section 3 involving an underwriting,
none of the Registrable Securities held by any Designated Holder making a
request for inclusion of such Registrable Securities pursuant to Section 3(b)
hereof shall be included in such underwriting unless such Designated Holder
accepts the terms of the underwriting as agreed upon by the Company, the
Initiating Holders and the Approved Underwriter, and then only in such quantity
as will not, in the opinion of the Approved Underwriter, jeopardize the success
of such offering by the Initiating Holders. If the Approved Underwriter advises
the Company in writing that in its opinion the aggregate amount of such
Registrable Securities requested to be included in such offering is sufficiently
large to have a material adverse effect on the success of such offering, then
the Company shall include in such registration only the aggregate amount of
Registrable Securities that in the opinion of the Approved Underwriter may be
sold without any such material adverse effect and shall reduce, first, as to the
Designated Holders (who are not Initiating Holders and who requested to
participate in such registration pursuant to Section 3(b) hereof) as a group, if
any; and second, as to the Initiating Holders as a group, pro rata within each
group based on the number of Registrable Securities included in the request for
Demand Registration, the amount of Registrable Securities to be included in such
registration; provided, however, that if the number of Registrable Securities to
be included in a Demand Registration by an Initiating Holder is reduced by the
Approved Underwriter, then such Initiating Holder shall be entitled to retain a
Demand Registration with respect to such number of Registrable Securities
excluded by the Approved Underwriter; provided that such Initiating Holder may
not initiate such Demand Registration within nine months of the effective date
of the Registration Statement with respect to the Demand Registration in which
the Approved Underwriter excluded such initiating Holder's Registrable
Securities.
(f) Selection of Underwriters. If any Demand Registration of
Registrable Securities is in the form of an underwritten offering, the Company
shall select and obtain an investment banking firm of national reputation to act
as the managing underwriter of the offering (the "Approved Underwriter");
provided, however, that the Approved Underwriter shall, in any case, be
reasonably acceptable to the Initiating Holders holding a majority of the
Registrable Securities to be included in such registration.
4. Incidental or "Piggy-Back" Registration.
(a) Request for Incidental Registration. At any time after the IPO
Effectiveness Date, if the Company proposes to file a Registration Statement
under the Securities Act with respect to an offering by the Company for its own
account (other than a registration statement on Form S-4 or S-8 or any successor
thereto), then the Company shall give written notice of such proposed filing to
each of the Designated Holders of Registrable Securities at least thirty (30)
days before the anticipated filing date, and such notice shall describe the
proposed registration and distribution and offer such Designated Holders the
opportunity to register the number of Registrable Securities as each such holder
may request (an "Incidental Registration"). The Company shall, and shall use its
reasonable efforts (within ten (10) days of the notice provided for in the
preceding sentence) to cause the managing underwriter or underwriters of a
proposed underwritten offering (the "Company Underwriter") to permit each of the
Designated Holders who have requested in writing to participate in the
Incidental Registration to include its or his Registrable Securities in such
offering on the same terms and conditions as the securities of the Company
included therein. In connection with any Incidental Registration under this
Section 4(a) involving an underwriting, the Company shall not be required to
include any Registrable Securities in such underwriting unless the holders
thereof accept the terms of the underwriting as reasonably agreed upon between
the Company and the Company Underwriter, and then only in such quantity as will
not, in the opinion of the Company Underwriter, jeopardize the success of the
offering by the Company. If in the
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written opinion of the Company Underwriter the registration of all or part of
the Registrable Securities which the Designated Holders have requested to be
included would materially adversely affect such offering, then the Company shall
be required to include in such Incidental Registration, to the extent of the
amount that the Company Underwriter believes may be sold without causing such
adverse effect, first, all of the securities to be offered for the account of
the Company; second, the Registrable Securities to be offered for the account of
the Designated Holders pursuant to this Section 4, pro rata based on the amount
recommended by the Company Underwriter; and third, any other securities
requested to be included in such underwriting.
(b) Expenses. The Company shall bear all Registration Expenses (other
than underwriting discounts and commissions) in connection with any Incidental
Registration pursuant to this Section 4, whether or not such Incidental
Registration becomes effective.
5. Form S-3 Registration.
(a) Request for a Form S-3 Registration. In the event that the
Company shall receive from any Designated Holder (the "S-3 Initiating Holder") a
written request that the Company register, under the Securities Act and the
securities and "blue sky" laws of any jurisdiction reasonably designated by such
Designated Holder, on Form S-3 (or any successor form then in effect), all or a
portion of the Registrable Securities owned by such S-3 Initiating Holder, the
Company shall give written notice of such request to each of the other
Designated Holders at least 30 days before the anticipated filing date of such
Form S-3, and such notice shall describe the proposed registration and offer
such other Designated Holders the opportunity to register the number of
Registrable Securities as each such Designated Holder may request in writing to
the Company, given within 15 days after their receipt from the Company of the
written notice of such registration. The Company shall (i) take such steps as
are necessary or appropriate to prepare for the registration of the Registrable
Securities to be registered and (ii) use its reasonable best efforts to (x)
cause such registration pursuant to this Section 5(a) to become and remain
effective as soon as practicable, but in any event not later than three months
after it receives a request therefor and (y) cause the Company Underwriter to
permit the Designated Holders who have requested in writing to participate in
such registration to include their Registrable Securities in such offering on
the same terms and conditions as the Registrable Securities of the S-3
Initiating Holder included therein.
(b) Form S-3 Underwriting Procedures. If the S-3 Initiating Holder so
elects, the Company shall use its reasonable efforts to cause the offering on
Form S-3 pursuant to this Section 5 to be in the form of a firm commitment
underwritten offering and the Company shall select an investment banking firm of
national reputation to act as the managing underwriter of such offering;
provided, however, that such underwriter shall, in any case, be acceptable to
the S-3 Initiating Holder in its reasonable judgment. In connection with any
offering under Section 5(a) involving an underwriting, the Company shall not be
required to include any Registrable Securities in such underwriting unless the
Designated Holders thereof accept the terms of the underwriting as agreed upon
between the Company, such selected underwriter and the S-3 Initiating Holder,
and then only in such quantity as will not, in the opinion of such underwriter,
jeopardize the success of the offering by the S-3 Initiating Holder. If in the
written opinion of such underwriter the registration of all or part of the
Registrable Securities which the S-3 Initiating Holder and the other Designated
Holders have requested to be included would materially adversely affect such
public offering, then the Company shall be required to include in the
underwriting, to the extent of the amount that such underwriter believes may be
sold without causing such adverse effect, first, all of the Registrable
Securities to be offered for the account of the S-3 Initiating Holder; second,
the Registrable Securities to be offered for the account of the other Designated
Holders who requested inclusion of their Registrable Securities pursuant to
Section 5(a),
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pro rata based on the number of Registrable Securities proposed to be offered
for the account of such Designated Holders; and third, any other securities
requested to be included in such underwriting.
(c) Limitations on Form S-3 Registrations. If at the time of any
request to register Registrable Securities pursuant to Section 5(a), the Company
is engaged in, or has fixed plans to engage in within three months (3) of the
time of such request, a registered public offering or is engaged in any other
activity which, in the good faith determination of the Board of Directors of the
Company, would be adversely affected by the requested registration on Form S-3
(or any successor form then in effect) to the material detriment of the Company,
then the Company may at its option direct that such request be delayed for a
reasonable period not in excess of three (3) months from the effective date of
such offering or the date of completion of such other material activity, as the
case may be, such right to delay a request to be exercised by the Company not
more than once in any one-year period. In addition, the Company shall not be
required to effect any registration pursuant to Section 5(a), (i) within three
months after the effective date of any other Registration Statement of the
Company, (ii) if within the 12-month period preceding the date of such request,
the S-3 Initiating Holder has included its Registrable Securities in an offering
on Form S-3, (iii) if Form S-3 is not available for such offering by the
Initiating S-3 Holder, (iv) if the S-3 Initiating Holder has already requested
one registration on Form S-3 and all of the Registrable Securities requested to
be included in such registration were so included or (v) if the S-3 Initiating
Holder, together with the Designated Holders (other than the S-3 Initiating
Holder) registering Registrable Securities in such registration, propose to sell
their Registrable Securities at an aggregate price (calculated based upon the
Market Price of the Registrable Securities on the date of filing of the Form S-3
with respect to such Registrable Securities) to the public of less than
$15,000,000. The parties acknowledge and agree that the limitation in subsection
(iv) of the preceding sentence is for the purpose of limiting the Shareholders
(acting as a group through Plantowsky) to one registration each on Form S-3,
regardless of the number of Designated Holders in each group.
(d) Expenses. In connection with any registration pursuant to this
Section 5, the Company shall pay all Registration Expenses (other than
underwriting discounts and commissions), whether or not such registration
becomes effective.
(e) No Demand Registration. No registration requested by any
Designated Holder pursuant to this Section 5 shall be deemed a Demand
Registration pursuant to Section 3.
6. Holdback Agreements.
(a) Restrictions on Public Sale by Designated Holders. Each of the
Designated Holders agrees not to effect any public sale or distribution of any
Registrable Securities being registered or of any securities convertible into or
exchangeable or exercisable for such Registrable Securities, including a sale
pursuant to Rule 144 under the Securities Act, during the 90-day period
beginning on the effective date of such registration statement (except as part
of such registration), (i) in the case of a non-underwritten public offering, if
and to the extent requested by the Initiating Holders (in the event of a Demand
Registration pursuant to Section 3) or the Company (in the event of an
Incidental Registration pursuant to Section 4(a)), as the case may be, or (ii)
in the case of an underwritten public offering, if and to the extent requested
by the Approved Underwriter (in the event of a Demand Registration pursuant to
Section 3) or the Company Underwriter (in the event of an Incidental
Registration pursuant to Section 4(a)), as the case may be.
(b) Restrictions on Public Sale by the Company. The Company agrees
not to effect any public sale or distribution of any of its securities, or any
securities convertible into or exchangeable or
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exercisable for such securities (except pursuant to registrations on Form S-4 or
S-8 or any successor thereto), during the period beginning on the effective date
of any registration statement in which the Designated Holders of Registrable
Securities are participating and ending on the earlier of (i) the date on which
all Registrable Securities registered on such registration statement are sold
and (ii) 180 days after the effective date of such registration statement.
7. Registration Procedures.
(a) Obligations of the Company. Whenever registration of Registrable
Securities has been requested pursuant to Section 3, Section 4 or Section 5 of
this Agreement, the Company shall use its reasonable efforts to effect the
registration and sale of such Registrable Securities in accordance with the
intended method of distribution thereof as quickly as practicable, and in
connection with any such request, the Company shall, as expeditiously as
reasonably possible:
(i) use its reasonable efforts to prepare and file with the SEC a
registration statement on any form for which the Company then
qualifies or which counsel for the Company shall deem appropriate and
which form shall be available for the sale of such Registrable
Securities in accordance with the intended method of distribution
thereof, and use its best efforts to cause such registration
statement to become effective; provided, however, that (x) before
filing a registration statement or prospectus or any amendments or
supplements thereto, the Company shall provide counsel selected by
the Designated Holders holding a majority of the Registrable
Securities being registered in such registration ("Holders' Counsel")
and any other Inspector (as hereinafter defined) with an adequate and
appropriate opportunity to participate in the preparation of such
registration statement and each prospectus included therein (and each
amendment or supplement thereto) to be filed with the SEC, which
documents shall be subject to the review of Holders' Counsel, and (y)
the Company shall notify the Holders' Counsel and each seller of
Registrable Securities of any stop order issued or threatened by the
SEC and take all reasonable action required to prevent the entry of
such stop order or to remove it if entered;
(ii) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for the lesser of (x) 180 days and (y) such
shorter period which will terminate when all Registrable Securities
covered by such registration statement have been sold, and comply
with the provisions of the Securities Act with respect to the
disposition of all securities covered by such registration statement
during such period in accordance with the intended methods of
disposition by the sellers thereof set forth in such registration
statement;
(iii) as soon as reasonably possible, furnish to each seller of
Registrable Securities, prior to filing a registration statement,
copies of such registration statement as is proposed to be filed, and
thereafter such number of copies of such registration statement, each
amendment and supplement thereto (in each case including all exhibits
thereto), the prospectus included in such registration statement
(including each preliminary prospectus) and such other documents as
each such seller may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by such seller;
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(iv) use its reasonable efforts to register or qualify such
Registrable Securities under such other securities or "blue sky" laws
of such jurisdictions as any seller of Registrable Securities may
reasonably request, and to continue such qualification in effect in
such jurisdiction for 180 days or for as long as any such seller
requests or until all of such Registrable Securities are sold,
whichever is shortest, and do any and all other acts and things which
may be reasonably necessary or advisable to enable any such seller to
consummate the disposition in such jurisdictions of the Registrable
Securities owned by such seller; provided, however, that the Company
shall not be required to (x) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but
for this Section 7(a)(iv), (y) subject itself to taxation in any such
jurisdiction or (z) consent to general service of process in any such
jurisdiction;
(v) use its reasonable efforts to cause the Registrable
Securities covered by such registration statement to be registered
with or approved by such other governmental agencies or authorities
as may be necessary by virtue of the business and operations of the
Company to enable the seller or sellers of Registrable Securities to
consummate the disposition of such Registrable Securities;
(vi) notify each seller of Registrable Securities at any time
when a prospectus relating thereto is required to be delivered under
the Securities Act, upon discovery that, or upon the happening of any
event as a result of which, the prospectus included in such
registration statement contains an untrue statement of a material
fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading in
light of the circumstances under which they were made, and the
Company shall promptly prepare a supplement or amendment to such
prospectus and furnish to each seller a reasonable number of copies
of a supplement to or an amendment of such prospectus as may be
necessary so that, after delivery to the purchasers of such
Registrable Securities, such prospectus shall not contain an untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances under which they
were made;
(vii) enter into and perform customary agreements (including an
underwriting agreement in customary form with the Approved
Underwriter or Company Underwriter, if any, selected as provided in
Section 3, Section 4 or Section 5, as the case may be) and take such
other actions as are prudent and reasonably required in order to
expedite or facilitate the disposition of such Registrable
Securities;
(viii) make available for inspection by any seller of Registrable
Securities, any managing underwriter participating in any disposition
pursuant to such registration statement, Holders' Counsel and any
attorney, accountant or other agent retained by any such seller or
any managing underwriter (each, an "Inspector" and collectively, the
"Inspectors"), all financial and other records, pertinent corporate
documents and properties of the Company and its subsidiaries
(collectively, the "Records") as shall be reasonably necessary to
enable them to exercise their due diligence responsibility, and cause
the Company's and its subsidiaries' officers, directors and
employees, and the independent public accountants of the Company, to
supply all information reasonably requested by any such Inspector in
connection with such registration statement. Records that the Company
determines, in good faith, to be confidential
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and which it notifies the Inspectors are confidential shall not be
disclosed by the Inspectors unless (x) the disclosure of such Records
is necessary to avoid or correct a misstatement or omission in the
registration statement, (y) the release of such Records is ordered
pursuant to a subpoena or other order from a court of competent
jurisdiction or (z) the information in such Records was known to the
Inspectors on a non-confidential basis prior to its disclosure by the
Company or has been made generally available to the public. Each
seller of Registrable Securities agrees that it shall, upon learning
that disclosure of such Records is sought in a court of competent
jurisdiction, give notice to the Company and allow the Company, at
the Company's expense, to undertake appropriate action to prevent
disclosure of the Records deemed confidential;
(ix) if such sale is pursuant to an underwritten offering, use
its best efforts to obtain a "cold comfort" letter from the Company's
independent public accountants in customary form and covering such
matters of the type customarily covered by "cold comfort" letters as
Holders' Counsel or the managing underwriter reasonably request;
(x) use its reasonable efforts to furnish, at the request of any
seller of Registrable Securities on the date such securities are
delivered to the underwriters for sale pursuant to such registration
or, if such securities are not being sold through underwriters, on
the date the registration statement with respect to such securities
becomes effective, an opinion, dated such date, of counsel
representing the Company for the purposes of such registration,
addressed to the underwriters, if any, and to the seller making such
request, covering such legal matters with respect to the registration
in respect of which such opinion is being given as such seller may
reasonably request and are customarily included in such opinions and
are reasonably acceptable to counsel representing the Company;
(xi) otherwise use its reasonable efforts to comply with all
applicable rules and regulations of the SEC, and make available to
its security holders, as soon as reasonably practicable but no later
than fifteen (15) months after the effective date of the registration
statement, an earnings statement covering a period of twelve (12)
months beginning after the effective date of the registration
statement, in a manner which satisfies the provisions of Section
11(a) of the Securities Act and Rule 158 thereunder;
(xii) cause all such Registrable Securities to be listed on each
securities exchange on which similar securities issued by the Company
are then listed, provided that the applicable listing requirements
are able to be satisfied;
(xiii) keep Holders' Counsel advised in writing as to the
initiation and progress of any registration under Section 3 or
Section 4 hereunder;
(xiv) cooperate with each seller of Registrable Securities and
each underwriter participating in the disposition of such Registrable
Securities and their respective counsel in connection with any
filings required to be made with the National Association of
Securities Dealers, Inc. (the "NASD"); and
(xv) use reasonable efforts to take all other steps necessary to
effect the registration of the Registrable Securities contemplated
hereby.
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(b) Seller information. The Company may require each seller of
Registrable Securities as to which any registration is being effected to furnish
to the Company such information regarding the distribution of such securities as
the Company may from time to time reasonably request in writing. Failure of any
seller of Registrable Securities to provide any requested information in a
reasonably timely manner shall be grounds for removal of the Registrable
Securities of such seller from the offering.
(c) Notice to Discontinue. Each Designated Holder of Registrable
agrees that, upon receipt of any notice from the Company of the happening of any
event of the kind described in Section 7(a)(vi), such Designated Holder shall
forthwith discontinue disposition of Registrable Securities pursuant to the
registration statement covering such Registrable Securities until such
Designated Holder's receipt of the copies of the supplemented or amended
prospectus contemplated by Section 7(a) (vi) and, if so directed by the Company,
such Designated Holder shall deliver to the Company (at the Company's expense)
all copies, other than permanent file copies then in such Designated Holder's
possession, of the prospectus covering such Registrable Securities which is
current at the time of receipt of such notice. If the Company shall give any
such notice, the Company shall extend the period during which such registration
statement shall be maintained effective pursuant to this Agreement (including,
without limitation, the period referred to in Section 7(a) (ii)) by the number
of days during the period from and including the date of the giving of such
notice pursuant to Section 7(a) (vi) to and including the date when the
Designated Holder shall have received the copies of the supplemented or amended
prospectus contemplated by and meeting the requirements of Section 7(a) (vi).
(d) Registration Expenses. The Company shall pay all expenses (other
than as set forth in Sections 3(d), 4(b) and 5(d)) arising from or incident to
the performance of, or compliance with, this Agreement, including, without
limitation, (i) SEC, stock exchange and NASD registration and filing fees, (ii)
all fees and expenses incurred in complying with securities or "blue sky" laws
(including reasonable fees, charges and disbursements of counsel in connection
with "blue sky" qualifications of the Registrable Securities), (iii) all
printing, messenger and delivery expenses, (iv) the fees, charges and expenses
of counsel to the Company and of its independent public accountants and any
other accounting fees, charges and expenses incurred by the Company (including,
without limitation, any expenses arising from any "cold comfort" letters and any
special audits incident to or required by any registration or qualification) and
the reasonable legal fees, charges and expenses of one counsel engaged by the
Initiating Holders to represent their interests in connection with a Demand
Registration and (v) any liability insurance or other premiums for insurance
obtained by the Company in connection with any Demand Registration, Incidental
Registration or registration on Form S-3 pursuant to the terms of this
Agreement, regardless of whether such registration statement is declared
effective. All of the expenses described in this Section 7(d) are referred to
herein as "Registration Expenses".
8. Indemnification: Contribution.
(a) Indemnification by the Company. The Company agrees to indemnify
and hold harmless, to the fullest extent permitted by law, each Designated
Holder, its officers, directors, trustees, partners, employees, advisors and
agents and each Person who controls (within the meaning of the Securities Act or
the Exchange Act) such Designated Holder from and against any and all losses,
claims, damages, liabilities and expenses (including reasonable costs of
investigation) arising out of or based upon any untrue, or allegedly untrue,
statement of a material fact contained in any registration statement, prospectus
or preliminary prospectus or notification or offering circular (as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto) or arising out of or based upon any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, except insofar as the same are caused by
or contained in any information concerning such
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<PAGE> 15
Designated Holder furnished in writing to the Company by such Designated Holder
expressly for use therein. The Company shall also provide customary indemnities
to any underwriters of the Registrable Securities, their officers, directors and
employees and each Person who controls such underwriters (within the meaning of
the Securities Act and the Exchange Act) to the same extent as provided above
with respect to the indemnification of the Designated Holders of Registrable
Securities.
(b) Indemnification by Designated Holders. In connection with any
registration statement in which a Designated Holder is participating pursuant to
Section 3, Section 4 or Section 5 hereof, each such Designated Holder shall
furnish to the Company in writing such information with respect to such
Designated Holder as the Company may reasonably request or as may be required by
law for use in connection with any such registration statement or prospectus and
each Designated Holder agrees to indemnify and hold harmless, to the fullest
extent permitted by law, the Company, any underwriter retained by the Company
and their respective directors, officers, employees, advisors and agents and
each Person who controls the Company or such underwriter (within the meaning of
the Securities Act and the Exchange Act) to the same extent as the foregoing
indemnity from the Company to the Designated Holders, but only with respect to
any such information with respect to such Designated Holder furnished in writing
to the Company by such Designated Holder expressly for use therein; provided,
however, that the total amount to be indemnified by such Designated Holder
pursuant to this Section 8(b) shall be limited to the net proceeds received by
such Designated Holder in the offering to which the registration statement or
prospectus relates.
(c) Conduct of Indemnification Proceedings. Any Person entitled to
indemnification hereunder (the "Indemnified Party") agrees to give prompt
written notice to the indemnifying party (the "Indemnifying Party") after the
receipt by the Indemnified Party of any written notice of the commencement of
any action, suit, proceeding or investigation or threat thereof made in writing
for which the Indemnified Party intends to claim indemnification or contribution
pursuant to this Agreement; provided, however, that the failure so to notify the
Indemnifying Party shall not relieve the Indemnifying Party of any liability
that it may have to the Indemnified Party hereunder. If notice of commencement
of any such action is given to the Indemnifying Party as above provided, the
Indemnifying Party shall be entitled to participate in and, to the extent it may
wish, jointly with any other Indemnifying Party similarly notified, to assume
the defense of such action at its own expense, with counsel chosen by it and
reasonably satisfactory to such Indemnified Party. The Indemnified Party shall
have the right to employ separate counsel in any such action and participate in
the defense thereof, but the fees and expenses of such counsel (other than
reasonable costs of investigation) shall be paid by the Indemnified Party unless
(i) the Indemnifying Party agrees to pay the same, (ii) the Indemnifying Party
fails to assume the defense of such action with counsel reasonably satisfactory
to the Indemnified Party in its reasonable judgment or (iii) the named parties
to any such action (including any impleaded parties) have been advised by such
counsel that either (x) representation of such Indemnified Party and the
Indemnifying Party by the same counsel would be inappropriate under applicable
standards of professional conduct or (y) there may be one or more legal defenses
available to it which are different from or additional to those available to the
Indemnifying Party. In either of such cases, the Indemnifying Party shall not
have the right to assume the defense of such action on behalf of such
Indemnified Party. No Indemnifying Party shall be liable for any settlement
entered into without its written consent, which consent shall not be
unreasonably withheld.
(d) Contribution. If the indemnification provided for in this Section
8 from the Indemnifying Party is unavailable to an Indemnified Party hereunder
in respect of any losses, claims, damages, liabilities or expenses referred to
therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified
Party, shall contribute to the amount paid or payable by such Indemnified Party
as a result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative fault of the
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<PAGE> 16
Indemnifying Party and Indemnified Party in connection with the actions which
resulted in such losses, claims, damages, liabilities or expenses, as well as
any other relevant equitable considerations. The relative faults of such
Indemnifying Party and Indemnified party shall be determined by reference to,
among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact, has been made by, or relates to information supplied by,
such Indemnifying Party or Indemnified party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action. The amount paid or payable by a party as a result of the losses, claims,
damages, liabilities and expenses referred to above shall be deemed to include,
subject to the limitations set forth in Sections 8(a), 8(b) and 8(c), any legal
or other fees, charges or expenses reasonably incurred by such party in
connection with any investigation or proceeding; provided that the total amount
to be contributed by such Designated Holder shall be limited to the net proceeds
received by such Designated Holder in the offering.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 8(d) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
No person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person.
9. Rule 144. The Company hereby covenants that after it has filed
(and such Registration Statement has become effective) a Registration Statement
pursuant to Section 12 of the Exchange Act or a Registration Statement pursuant
to the Securities Act in respect of any Shares it shall file (a) any reports
required to be filed by it under the Exchange Act and (b) take such further
action as each Designated Holder of Registrable Securities may reasonably
request (including providing any information necessary to comply with Rules 144
under the Securities Act), all to the extent required from time to time to
enable such Designated Holder to sell Registrable Securities without
registration under the Securities Act within the limitation of the exemptions
provided by (i) Rule 144 under the Securities Act, as such rule may be amended
from time to time, or (ii) any similar rules or regulations hereafter adopted by
the SEC. The Company shall, upon the request of any Designated Holder of
Registrable Securities, deliver to such Designated Holder a written statement as
to whether it has complied with such requirements.
10. Miscellaneous.
(a) Recapitalizations, Exchanges, etc. The provisions of this
Agreement shall apply, to the full extent set forth herein with respect to (i)
the shares of Common Stock and (ii) any and all equity securities of the Company
or any successor or assign of the Company (whether by merger, consolidation,
sale of assets or otherwise) which may be issued in respect of, in conversion
of, in exchange for or in substitution of, the shares of Common Stock and shall
be appropriately adjusted for any stock dividends, splits, reverse splits,
combinations, recapitalizations and the like occurring after the date hereof.
The Company shall cause any successor or assign (whether by merger,
consolidation or otherwise) to enter into a new registration rights agreement
with the Designated Holders on terms substantially similar to this Agreement as
a condition of any such transaction.
(b) No Inconsistent Agreements. The Company represents and warrants
that it has not granted to any Person the right to request or require the
Company to register any securities issued by the Company, other than the rights
granted to the Designated Holders herein. The Company shall not enter into any
agreement with respect to its securities that is inconsistent with the rights
granted to the Designated Holders
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<PAGE> 17
in this Agreement or grant any additional registration rights to any Person or
with respect to any securities which are not Registrable Securities which are
prior in right to or inconsistent with the rights granted in this Agreement.
(c) Remedies. The Designated Holders, in addition to being entitled
to exercise all rights granted by law, including recovery of damages, shall be
entitled to specific performance of their rights under this Agreement. The
Company agrees that monetary damages would not be adequate compensation for any
loss incurred by reason of a breach by it of the provisions of this Agreement
and hereby agrees to waive in any action for specific performance the defense
that a remedy at law would be adequate.
(d) Amendments and Waivers. Except as otherwise provided herein, the
provisions of this Agreement may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given
unless consented to in writing by (i) the Company and (ii) the Designated
Holders holding Registrable Securities representing (after giving effect to any
adjustments) at least 85 % of the aggregate number of Registrable Securities
owned by all of the Designated Holders; provided, however, that any such
amendment, modification, supplement, waiver or consent shall not be effective to
withdraw, deny or adversely affect the rights of any Designated Holder who has
not consented in writing thereto. Subject to the proviso in the preceding
sentence, any such written consent shall be binding upon the Company and all of
the Designated Holders.
(e) Notices. All notices, demands and other communications provided
for or permitted hereunder shall be made in writing and shall be made by
registered or certified first-class mail, return receipt requested, telecopier,
courier service, overnight mail or personal delivery:
(i) if to the Company:
BindView Development Corporation
3355 West Alabama, Suite 1200
Houston, Texas 77098-1718
Telecopy: (713) 881-9200
Attention: Eric J. Pulaski, Chief Executive Officer
(ii) if to the Plantowsky Shareholders:
BindView Development Corporation
3355 West Alabama, Suite 1200
Houston, Texas 77098-1718
Telecopy: (713) 881-9212
Attention: Scott R. Plantowsky, Chief Financial Officer
(iii) if to any other Designated Holder, at its address as
it appears on the record books of the Company.
All such notices and communications shall be deemed to have been duly
given when delivered by hand, if personally delivered; when delivered by courier
or overnight mail, if delivered by commercial courier service or overnight mail;
five (5) Business Days after being deposited in the mail, postage prepaid, if
mailed; and when receipt is mechanically acknowledged, if telecopied.
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<PAGE> 18
(f) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors and permitted assigns of each of the
parties hereto. The Demand Registration rights of the General Atlantic
Shareholders, the JMI Shareholders and the Plantowsky Shareholders contained in
Section 3 hereof and the other rights of each of the General Atlantic
Shareholders, JMI Shareholders and the Plantowsky Shareholders with respect
thereto shall be, with respect to any Registrable Security, (i) automatically
transferred among the General Atlantic Shareholders, (ii) automatically
transferred among the JMI Shareholders, (iii) automatically transferred among
the Plantowsky Shareholders and (iv) in all other cases, transferred only with
the consent of the Company. The incidental or "piggy-back" registration rights
of the Designated Holders contained in Sections 3(b) and 4 hereof, the Form S-3
registration rights contained in Section 5 hereof and the other rights of each
of the Designated Holders with respect thereto shall be, with respect to any
Registrable Security, automatically transferred by such Designated Holder to any
Person who is the transferee of such Registrable Security. All of the
obligations of the Company hereunder shall survive any such transfer; provided,
however, that the "piggyback" registration rights of the Other Shareholders (as
set forth in subsection (g) below) may be transferred only with the consent of
the Company.
(g) Third Party Beneficiaries. The parties to this Agreement agree
that the shareholders of the Company listed on Schedule 1 (the "Other
Shareholders") shall be entitled to certain "piggy-back" registration rights
under Sections 3(b), 4(a) and 5(a) of this Agreement. The rights granted
pursuant to the preceding sentence are expressly conditioned on the agreement of
each such Other Shareholder to abide by the obligations set forth herein as if
such Other Shareholder was an original signatory to this Agreement including,
without limitation, the obligations set forth in Sections 3(b), 4(a), 5(b), 6(a)
7(a) and 8(b). The Company shall provide notice to the Other Shareholders of an
event that triggers the Other Shareholders' "piggy-back" registration rights.
The number of Registrable Securities of the Other Shareholders requested to be
included in any such registration shall be included in the Registrable
Securities of the Plantowsky Shareholders for purposes of any calculation the
number of Registrable Securities that may be included in such registration.
Other than as set forth in this Section 10(g) and Sections 8(a) and 8(b), no
Person other than the parties hereto and their successors and permitted assigns
is intended to be a beneficiary of any of the rights granted hereunder.
(h) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(i) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(j) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICTS OF LAW THEREOF.
(k) Severability. If any one or more of the provisions contained
herein, or the application thereof in any circumstances, is held invalid,
illegal or unenforceable in any respect for any reason, the validity, legality
and enforceability of any such provision in every other respect and of the
remaining provisions hereof shall not be in any way impaired, it being intended
that all of the rights and privileges of the Designated Holders shall be
enforceable to the fullest extent permitted by law.
(l) Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of
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<PAGE> 19
the parties hereto in respect of the subject matter contained herein. There are
no restrictions, promises, warranties or undertakings, other than those set
forth or referred to herein and in the Stock Purchase Agreement. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
(m) Further Assurances. Each of the parties shall execute such
documents and perform such further acts as may be reasonably required or
desirable to carry out or to perform the provisions of this Agreement.
IN WITNESS WHEREOF, the undersigned have executed, or have caused to
be executed, this Agreement on the date first written above.
BINDVIEW DEVELOPMENT CORPORATION
By:
--------------------------------------
Name: Eric J. Pulaski
Title: President and Chief Executive Officer
-------------------------------------------
Scott R. Plantowsky
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<PAGE> 1
EXHIBIT 10.16
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT is effective as of July ____, 1998,
between BindView Development Company, a Texas corporation ("BindView"), and
______________ ("Indemnitee").
WHEREAS, it is essential to BindView to retain and attract as
directors and officers the most capable persons available;
WHEREAS, Indemnitee is a director or officer of BindView;
WHEREAS, both BindView and Indemnitee recognize the increased risk of
litigation and other claims being asserted against directors and officers;
WHEREAS, it is crucial to secure the continued service of competent
and experienced people in senior corporate positions and to assure that they
will be able to exercise judgment without fear of personal liability so long as
they fulfill the basic duties of honesty, care and good faith; and
WHEREAS, in order to enhance Indemnitee's continued service to
BindView in an effective manner, and due to the potential inadequacy of
BindView's directors' and officers' liability insurance coverage, BindView
wishes to provide in this Agreement for the indemnification of, and the
advancing of expenses to, Indemnitee to the fullest extent, whether partial or
complete, permitted by law and as set forth in this Agreement, and to the
extent insurance is maintained, for the continued coverage of Indemnitee under
BindView's directors' and officers' liability insurance policies;
NOW, THEREFORE, in consideration of the premises and of Indemnitee
continuing to serve BindView directly or, at its request, with another
enterprise, and intending to be legally bound thereby, the parties hereto agree
as follows:
1. Certain Definitions.
(a) "Approved Law Firm" shall mean any law firm (i)
located in Houston, Texas and (ii) rated "av" by the
Martindale-Hubbell Law Directory; provided, however, that such law
firm shall not, for a five year period prior to the Indemnifiable
Event (as hereinafter defined), have been engaged by BindView, an
Acquiring Person (as hereinafter defined) or Indemnitee.
(b) "Board of Directors" shall mean the Board of
Directors of BindView.
(c) "Change in Control" shall be deemed to have occurred
if (i) any "person" (as such term is used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")), other than a trustee or other fiduciary holding securities
under an employee benefit plan of BindView in substantially the same
proportions as their ownership of stock of BindView, is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly of securities of BindView representing 15% or
more of the total
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voting power represented by BindView's then outstanding Voting
Securities (as hereinafter defined) (such person being herein referred
to as an "Acquiring Person"), (ii) during any consecutive 24-month
period, individuals who at the beginning of such period constitute the
Board of Directors of BindView and any new director whose election by
the Board of Directors or nomination for election by BindView's
shareholders was approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the
beginning of the period or whose election or nomination for election
was previously so approved cease for any reason to constitute a
majority thereof, (iii) the shareholders of BindView approve a merger
or consolidation of BindView with any other entity, other than a
merger or consolidation which would result in the Voting Securities of
BindView outstanding immediately prior thereto continuing to
represent, either by remaining outstanding or by being converted into
Voting Securities of the surviving entity, at least 80% of the total
voting power represented by the Voting Securities of BindView or such
surviving entity outstanding immediately after such merger or
consolidation or (iv) the shareholders of BindView approve a plan of
complete liquidation of BindView or an agreement for the sale or
disposition by BindView of all or substantially all BindView's assets.
(d) "Claim" shall mean any threatened, pending or
completed action, suit or proceeding, or any inquiry or investigation,
either at trial or on appeal, whether conducted by BindView or any
other party, that Indemnitee reasonably believes might lead to the
institution of any such action, suit or proceeding, whether civil,
criminal, administrative, investigative or otherwise.
(e) "Expenses" shall include attorneys' fees and all
other costs, expenses and obligations paid or incurred in connection
with investigating, defending, being a witness in or participating in,
or preparing to defend, be a witness in or participate in, any Claim
relating to any Indemnifiable Event, together with interest, computed
at BindView's average cost of funds for short-term borrowings, accrued
from the date of incurrence of such expense to that date Indemnitee
receives reimbursement therefor.
(f) "Indemnifiable Event" shall mean any event or
occurrence related to the fact that Indemnitee is or was a director,
officer, employee, agent or fiduciary of BindView, or is or was
serving at the request of BindView as a director, officer, employee,
trustee, agent or fiduciary of another corporation of any type or
kind, foreign or domestic, partnership, joint venture, trust, employee
benefit plan or other enterprise, or by reason of anything done or not
done by Indemnitee in such capacity. Without limiting any
indemnification provided hereunder, an Indemnitee serving (i) another
corporation, partnership, joint venture or trust of which 20% or more
of the voting power or residual economic interest is held, directly or
indirectly, by BindView or (ii) any employee benefit plan of BindView
or any entity referred to in clause (i) above, in any capacity shall
be deemed to be doing so at the request of BindView.
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(g) "Reviewing Party" shall be (i) the Board of Directors
acting by quorum consisting of directors who are not parties to the
particular Claim with respect to which Indemnitee is seeking
indemnification or (ii) if such a quorum is not obtainable or, even if
obtainable, if a quorum of disinterested directors so directs, (A) the
Board of Directors upon the opinion in writing of independent legal
counsel that indemnification is proper in the circumstances because
the applicable standard of conduct set forth in Section 2 of this
Agreement and in Article 2.02-1 of the Texas Business Corporation Act
(the "TBCA") has been met by the Indemnitee or (B) the shareholders
upon a finding that the Indemnitee has met the applicable standard of
conduct referred to in clause (ii)(A) of this definition.
(h) "Voting Securities" shall mean any securities of
BindView which vote generally in the election of directors.
2. Basic Indemnification Agreement. If Indemnitee was, is or
becomes at any time a party to, or witness or other participant in, or is
threatened to be made a party to, or witness or other participant in, a Claim
by reason of, or arising in part out of, an Indemnifiable Event, BindView shall
indemnify Indemnitee to the fullest extent permitted by law as soon as
practicable, but in any event no later than 30 days after written demand is
presented to BindView, against any and all Expenses, judgments, fines
(including excise taxes assessed on an Indemnitee with respect to an employee
benefit plan), penalties and amounts paid in settlement (including all
interest, assessments and other charges paid or payable in connection with, or
in respect of, such Expenses, judgments, fines, penalties or amounts paid in
settlement) of such Claim. If so requested by Indemnitee, BindView shall
advance within ten business days of such request any and all Expenses to
Indemnitee (an "Expense Advance"). Notwithstanding anything in this Agreement
to the contrary, (i) Indemnitee shall not be entitled to indemnification
pursuant to this Agreement if a judgment or other final adjudication adverse to
the Indemnitee establishes that Indemnitee's acts were committed in bad faith
or were the result of active and deliberate dishonesty and, in either case,
were material to the cause of action so adjudicated, or that Indemnitee
personally gained in fact a financial profit or other advantage to which
Indemnitee was not legally entitled and (ii) prior to a Change in Control
Indemnitee shall not be entitled to indemnification pursuant to this Agreement
in connection with any Claim initiated by Indemnitee against BindView or any
director or officer of BindView unless BindView has joined in or consented to
the initiation of such Claim.
3. Payment. Notwithstanding the provisions of Section 2, the
obligations of BindView under Section 2, which shall in no event be deemed to
preclude any right to indemnification to which Indemnitee may be entitled under
Article 2.02-1 of the TBCA, shall be subject to the condition that the
Reviewing Party shall have authorized such indemnification in the specific case
by having determined that Indemnitee is permitted to be indemnified under the
applicable standard of conduct set forth in Section 2 and applicable law.
BindView shall promptly call a meeting of the Board of Directors with respect
to a Claim and agrees to use its best efforts to facilitate a prompt
determination by the Reviewing Party with respect to the Claim. Indemnitee
shall be afforded the opportunity to make submissions to the Reviewing Party
with respect to the Claim. The obligation of BindView to make an Expense
Advance pursuant to Section 2 shall be subject to the condition that, if, when
and to the extent that the Reviewing Party determines that Indemnitee would not
be permitted to be so indemnified under Section 2 and applicable law, BindView
shall be entitled to be reimbursed by
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Indemnitee (who hereby agrees and undertakes to the full extent required by
Section K of Article 2.02-1 of the TBCA to reimburse BindView) for all such
amounts therefore paid; provided, however, that if Indemnitee has commenced
legal proceedings in a court of competent jurisdiction to secure a
determination that Indemnitee should be indemnified under applicable law, any
determination made by the Reviewing Party that Indemnitee would not be
permitted to be indemnified under applicable law shall not be binding and
Indemnitee shall not be required to reimburse BindView for any Expense Advance
until a final judicial determination is made with respect thereto (as to which
all rights of appeal therefrom have been exhausted or lapsed). If there has
been no determination by the Reviewing Party or if the Reviewing Party
determines that Indemnitee substantively would not be permitted to be
indemnified in whole or in part under applicable law, Indemnitee shall have the
right to commence litigation in any court in the State of Texas having subject
matter jurisdiction thereof and in which venue is proper seeking an initial
determination by the court or challenging any such determination by the
Reviewing Party or any aspect thereof, and BindView hereby consents to service
of process and to appear in any such proceeding. Any determination by the
Reviewing Party otherwise shall be conclusive and binding on BindView and
Indemnitee.
4. Change in Control. If there is a Change in Control of
BindView (other than a Change in Control which has been approved by a majority
of the Board of Directors who were directors immediately prior to such Change
in Control) then (i) all determinations by BindView pursuant to the first
sentence of Section 3 hereof and Article 2.02-1 of the TBCA shall be made
pursuant to subparagraph (F)(1) or (F)(2) of such Article 2.02-1 of the TBCA
and (ii) with respect to all matters thereafter arising concerning the rights
of Indemnitee to indemnity payments and Expense Advances under this Agreement
or any other agreement, provision of the Amended and Restated Articles of
Incorporation (the "Articles") or Bylaws (the "Bylaws") of BindView now or
hereinafter in effect relating to Claims for Indemnifiable Events (including,
but not limited to, any opinion to be rendered pursuant to Article 2.02-1 of
the TBCA), BindView (including the Board of Directors) shall seek legal advice
from, and only from, special, independent counsel selected by Indemnitee and
approved by BindView, which approval shall not be unreasonably withheld, and
who has not otherwise performed services for (A) BindView or any subsidiary of
BindView, (B) the Acquiring Person or any affiliate or associate of such
Acquiring Person within the last five years (other than in connection with such
matters) or (C) Indemnitee. Unless Indemnitee has theretofore selected counsel
pursuant to Section 4 and such counsel has been approved by BindView, any
Approved Law Firm shall be deemed to satisfy the requirements set forth above.
Such counsel, among other things, shall render its written opinion to BindView,
the Board of Directors and Indemnitee as to whether and to what extent the
Indemnitee would be permitted to be indemnified under applicable law. BindView
agrees to pay the reasonable fees of the special, independent counsel referred
to above and to fully indemnify such counsel against any and all expenses
(including attorneys' fees), claims, liabilities and damages arising out of or
relating to this Agreement or its engagement pursuant hereto. As used in this
Section 4, the terms "affiliate" and "associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Exchange Act and in effect on the date of this Agreement.
5. Indemnification for Additional Expenses. BindView shall
indemnify Indemnitee against any and all expenses (including attorneys' fees)
that are incurred by Indemnitee in connection with any claim asserted or action
brought by Indemnitee for (i) indemnification or advance payment of Expenses by
BindView under this Agreement or any other agreement, provision of the Articles
or
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the Bylaws of BindView now or hereafter in effect relating to Claims for
Indemnifiable Events or (ii) recovery under any directors' and officers'
liability insurance policies maintained by BindView, but only if Indemnitee
ultimately is determined to be entitled to such indemnification, advance
expenses payment or insurance recovery, as the case may be.
6. Partial Indemnity, Etc. If Indemnitee is entitled under any
provision of this Agreement to indemnification by BindView for some or a
portion of the Expenses, judgments, fines, penalties and amounts paid in
settlement of a Claim but not, however, for all of the total amount thereof,
BindView shall nevertheless indemnify Indemnitee for the portion thereof to
which Indemnitee is entitled. Moreover, notwithstanding any other provision of
this Agreement, to the extent that Indemnitee has been successful on the merits
or otherwise in defense of any or all Claims relating in whole or in part to an
Indemnifiable Event or in defense of any issue or matter therein, including
dismissal without prejudice, Indemnitee shall be indemnified, to the extent
permitted by law, against all Expenses incurred in connection with such
Indemnifiable Event.
7. No Presumption. For purposes of this Agreement, the
termination of any claim, action, suit or proceeding, whether civil or
criminal, by judgment, order, settlement (whether with or without court
approval) or conviction, or upon a plea of nolo contendere or its equivalent,
shall not create a presumption that Indemnitee did not meet any particular
standard of conduct or have any particular belief or that a court has
determined that indemnification is not permitted by applicable law.
8. Nonexclusivity, Etc. The rights of the Indemnitee hereunder
shall be in addition to any other rights Indemnitee may have under the
Articles, the Bylaws, the TBCA or otherwise. To the extent that a change in
the TBCA (whether by statute or judicial decision) permits greater
indemnification by agreement than would be afforded currently under the
Articles or the Bylaws of BindView and this Agreement, it is the intent of the
parties hereto that Indemnitee shall enjoy by this Agreement the greater
benefits so afforded by such change.
9. Insurance. To the extent BindView maintains an insurance
policy or policies providing directors' and officers' liability insurance,
Indemnitee shall be covered by such policy or policies, in accordance with its
or their terms, to the maximum extent of the coverage available for any
director or officer of BindView.
10. Period of Limitations. No legal action shall be brought and
no cause of action shall be asserted by or on behalf of BindView or any
affiliate of BindView against Indemnitee, Indemnitee's spouse, heirs, executors
or personal or legal representatives after the expiration of two years from the
date of accrual of such cause of action, and any claim or cause of action of
BindView or its affiliate shall be extinguished and deemed released unless
asserted by the timely filing of a legal action within such two year period;
provided, however, that if any shorter period of limitations is otherwise
applicable to any such cause of action, such shorter period shall govern.
11. Amendments, Etc. No supplement, modification or amendment of
this Agreement shall be binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provisions hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver.
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12. Subrogation. In the event of payment under this Agreement,
BindView shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all papers required and shall do
everything that may be necessary to secure such rights, including the execution
of such documents necessary to enable BindView effectively to bring suit to
enforce such rights.
13. No Duplication of Payments. BindView shall not be liable
under this Agreement to make any payment in connection with any claim made
against Indemnitee to the extent Indemnitee has otherwise actually received
payment (under any insurance policy, Bylaw or otherwise) of the amounts
otherwise indemnifiable hereunder.
14. Specific Performance. The parties recognize that if any
provision of this Agreement is violated by BindView, Indemnitee may be without
an adequate remedy at law. Accordingly, in the event of any such violation,
the Indemnitee shall be entitled, if Indemnitee so elects, to institute
proceedings, either in law or at equity, to obtain damages, to enforce specific
performance, to enjoin such violation or to obtain any relief or any
combination of the foregoing as Indemnitee may elect to pursue.
15. Binding Effect, Etc. This Agreement shall be binding upon,
inure to the benefit of, and be enforceable by, the parties hereto and their
respective successors (including any direct or indirect successor by purchase,
merger, consolidation or otherwise to all or substantially all of the business
and/or assets of BindView), assigns, spouses, heirs and personal and legal
representatives. This Agreement shall continue in effect regardless of whether
Indemnitee continues to serve as an officer or director of BindView or of any
other enterprise at BindView's request.
16. Severability. The provisions of this Agreement shall be
severable if any of the provisions hereof (including any provision within a
single section, paragraph or sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
17. Governing Law. This Agreement shall be governed by, and be
construed and enforced in accordance with, the laws of the State of Texas
applicable to contracts made and to be performed in such state without giving
effect to the principles of conflicts of laws.
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EXECUTED as of the day first written above.
BINDVIEW DEVELOPMENT CORPORATION
By:
-------------------------------------
Eric J. Pulaski
President and Chief Executive Officer
----------------------------------------
[______________]
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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.
There were no disagreements between the Company and Grant Thornton LLP on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure during the fiscal years ending December 31, 1995 and
1996, or for any interim period subsequent to December 31, 1996.
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 14, 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. 2 to Form S-1 of BindView
Development Corporation dated July 14, 1998, and agree with the statements
contained therein.
Very truly yours,
/s/ GRANT THORNTON LLP
GRANT THORNTON LLP
