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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO _________
COMMISSION FILE NUMBER 000-24677
BINDVIEW DEVELOPMENT CORPORATION
(Exact name of registrant as specified in its charter)
TEXAS 76-0306721
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5151 SAN FELIPE, 22nd FLOOR, HOUSTON, TX 77056
(Address of principal executive offices) (Zip code)
(713) 561-4000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares of the registrant's Common Stock, no par value, outstanding
as of September 30, 1999, was 23,126,603.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BINDVIEW DEVELOPMENT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT PAR VALUE)
<TABLE>
<CAPTION>
ASSETS SEPTEMBER 30, DECEMBER 31,
1999 (UNAUDITED) 1998
---------------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 41,239 $ 48,010
Short-term investments 14,627 10,187
Accounts receivable, net 11,205 5,711
Deferred tax asset 4,555 3,245
Other current assets 766 1,676
---------- ----------
Total current assets 72,392 68,829
Property and equipment, net 7,397 5,342
Purchased software and related assets, net 1,226 1,374
Long-term investments 7,303 --
Other assets 467 492
---------- ----------
Total assets $ 88,785 $ 76,037
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,500 $ 1,954
Accrued liabilities 1,854 1,903
Accrued compensation 1,766 984
Deferred revenue 6,744 4,994
---------- ----------
Total current liabilities 11,864 9,835
---------- ----------
Long-term liabilities:
Convertible debentures -- 7,572
Other long-term liabilities -- 94
---------- ----------
Total long-term liabilities -- 7,666
---------- ----------
Shareholders' equity:
Convertible preferred stock, $0.025 par value, 520 shares
authorized, 0 and 7 shares issued and outstanding,
respectively -- --
Common stock, no par value, 100,000 shares authorized,
23,127 and 21,103 shares issued and outstanding,
respectively 1 1
Additional paid-in capital 84,204 65,675
Common stock to be issued, 175 shares -- 3,352
Accumulated deficit (7,263) (10,532)
Cumulative other comprehensive income (21) 40
---------- ----------
Total shareholders' equity 76,921 58,536
---------- ----------
Total liabilities and shareholders' equity $ 88,785 $ 76,037
========== ==========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
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BINDVIEW DEVELOPMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
QUARTER NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------- --------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Licenses $ 13,353 $ 7,984 $ 32,443 $ 18,587
Services 4,856 2,136 12,670 5,366
---------- ---------- ---------- ----------
Total revenues 18,209 10,120 45,113 23,953
---------- ---------- ---------- ----------
Cost of revenues:
Cost of licenses 406 329 994 791
Cost of services 573 281 1,528 722
---------- ---------- ---------- ----------
Total cost of revenues 979 610 2,522 1,513
---------- ---------- ---------- ----------
Gross profit 17,230 9,510 42,591 22,440
---------- ---------- ---------- ----------
Costs and expenses:
Sales and Marketing 7,321 4,994 18,885 12,300
Research and Development 4,517 2,658 11,917 7,333
General and Administrative 1,589 1,079 4,352 2,914
Transaction and Restructuring -- -- 2,524 --
---------- ---------- ---------- ----------
Operating income (loss) 3,803 779 4,913 (107)
Other income, net 825 202 2,170 330
---------- ---------- ---------- ----------
Income before income tax provision 4,628 981 7,083 223
Provision for income tax 1,720 822 3,814 1,276
---------- ---------- ---------- ----------
Net income (loss) 2,908 159 3,269 (1,053)
Other comprehensive income, net of tax:
Income/(loss) from foreign currency
translation 23 3 (61) (137)
---------- ---------- ---------- ----------
Comprehensive income (loss) $ 2,931 $ 162 $ 3,208 $ (1,190)
========== ========== ========== ==========
Earnings (loss) per common share:
Basic $ 0.13 $ 0.01 $ 0.15 $ (0.09)
Diluted $ 0.12 $ 0.01 $ 0.13 $ (0.09)
Shares used in computing earnings
per common share:
Basic 23,089 18,372 22,442 12,051
Diluted 25,225 23,422 24,881 12,051
</TABLE>
See notes to unaudited condensed consolidated financial statements.
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BINDVIEW DEVELOPMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1999 1998
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 3,269 $ (1,053)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization expense 2,076 750
Loss on disposition of property and equipment 197 --
Increase in provision for bad debts 370 --
Deferred income taxes 3,867 (789)
Changes in assets and liabilities:
Decrease (increase) in accounts receivable (5,864) 1,112
Decrease (increase) in other assets 910 (660)
Increase (decrease) in accounts payable (454) 951
Increase in accrued liabilities 819 341
Increase in deferred revenues 1,750 2,328
---------- ----------
Net cash provided by operating activities 6,940 2,980
---------- ----------
Cash flows from investing activities:
Purchase of property and equipment (4,180) (3,200)
Purchase of investments (61,822) --
Proceeds from investment maturities 50,079 --
Other (94) 63
---------- ----------
Net cash used by investing activities (16,017) (3,137)
---------- ----------
Cash flows from financing activities:
Proceeds from issuance of convertible debentures -- 3,923
and long-term debt
Proceeds from initial public offering -- 30,025
Interest accrued on convertible debentures -- 467
Proceeds from exercise of stock options and warrants 2,342 7,933
---------- ----------
Net cash provided by financing activities 2,342 42,348
Effect of exchange rate changes on cash (36) (70)
---------- ----------
Net increase (decrease) in cash and cash equivalents (6,771) 42,121
Cash and cash equivalents at beginning of period 48,010 9,113
---------- ----------
Cash and cash equivalents at end of period $ 41,239 $ 51,234
========== ==========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
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BINDVIEW DEVELOPMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
CUMULATIVE
COMMON STOCK ADDITIONAL COMMON OTHER TOTAL
-------------------- PAID-IN STOCK TO ACCUMULATED COMPREHENSIVE SHAREHOLDERS'
SHARES AMOUNT CAPITAL BE ISSUED DEFICIT INCOME (LOSS) EQUITY
-------- -------- ---------- --------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 21,103 $ 1 $ 65,675 $ 3,352 $(10,532) $ 40 $ 58,536
Exercise of stock options 1,250 -- 2,342 -- -- -- 2,342
Tax benefit related to exercise
of employee stock options -- -- 5,177 -- -- -- 5,177
Issuance pursuant to business acquired 175 -- 3,352 (3,352) -- -- --
Conversion of convertible debentures and
preferred stock into common stock 599 -- 7,658 -- -- -- 7,658
Foreign currency translation adjustment -- -- -- -- -- (61) (61)
Net income for the nine months ended
September 30, 1999 -- -- -- -- 3,269 -- 3,269
-------- -------- -------- -------- -------- -------- --------
Balance at September 30, 1999 23,127 $ 1 $ 84,204 $ -- $ (7,263) $ (21) $ 76,921
======== ======== ======== ======== ======== ======== ========
</TABLE>
See notes to unaudited condensed consolidated financial statements
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BINDVIEW DEVELOPMENT CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
BindView Development Corporation, a Texas corporation (the "Company" or
"BindView"), reflect all adjustments (consisting of normal recurring accruals)
which, in the opinion of management, are necessary for a fair presentation of
the results for the interim periods presented. These financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
These financial statements should be read in conjunction with Item 5 of this
report and the Company's annual audited financial statements and the
supplemental financial statements for the year ended December 31, 1998, which
are included in the Annual Report on Form 10-K and Amendment No. 1 to the
Company's Form 8-K.
Operating results for the three month period and nine month period ended
September 30, 1999 are not necessarily indicative of the results that may be
expected for the full year ending December 31, 1999 or for other periods.
NOTE 2 - DESCRIPTION OF BUSINESS
The Company was incorporated in May 1990. Prior to 1995, the Company was known
as The LAN Support Group, Inc. The Company develops, markets and supports a
suite of systems and security management software products that manage the
security and integrity of complex, distributed client/server networks operating
on Microsoft Windows NT and Novell NetWare environments.
NOTE 3 - EARNINGS PER SHARE
Basic earnings per common share is computed using the weighted average number of
shares outstanding. Diluted earnings per common share is computed using the
weighted average number of shares outstanding, adjusted for the incremental
shares attributed to outstanding shares of convertible preferred stock,
convertible debentures and outstanding stock options and warrants to purchase
common stock unless such inclusion would be anti-dilutive. Incremental shares of
5,050 and 2,136 in the third quarter of 1998 and 1999, respectively, and
incremental shares of 2,439 in the nine months ended September 30, 1999 were
used in the calculation of diluted earnings per common share. In the third
quarter of 1998 and 1999, options to acquire 200 and 251 shares of common stock
at a weighted average exercise price of $25.11 and $24.87, respectively, were
not included in the computation of earnings per share as the options' exercise
price is greater than the average market price of the common shares for the
period. For the nine months ended September 30, 1998 and 1999, options to
acquire 1 and 159 shares of common stock at a weighted average exercise price of
$15.61 and $25.11, respectively, were not included in the computation of
earnings per share as the options' exercise price is greater than the average
market price of the common shares for the period.
NOTE 4 - SHORT-TERM AND LONG-TERM INVESTMENTS
Short-term investments have original maturities of more than three months and a
remaining maturity of less than one year. Long-term investments have original
maturities of more than twelve months. These investments are stated at cost,
which approximates market, as it is the intent of the Company to hold these
securities until maturity.
NOTE 5 - RECENT ACQUISITIONS/TRANSACTION AND RESTRUCTURING EXPENSES
In December of 1998, the Company committed to deliver 175 shares of its common
stock in exchange for all of the outstanding equity interests of Curasoft, Inc.
in a transaction accounted for as a purchase. In February of 1999, the
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Company issued 175 shares of common stock to satisfy this obligation.
On March 1, 1999, the Company merged with Netect, Ltd. ("Netect") in a
stock-for-stock transaction accounted for as a pooling of interests. Netect
develops and markets corporate security solutions for Internet/Intranet
networks. In connection with the merger, the Company issued 1,161 shares of
common stock, based upon an exchange ratio of 0.400022101 shares of BindView
common stock for each share of Netect common stock. As a result of this merger,
all of the outstanding convertible preferred stock and convertible debentures of
Netect were exchanged for the Company's common stock. Transaction costs of
$1,533 and restructuring cost of $991 were incurred as a result of this merger.
Accrued but unpaid transaction and restructuring expenses totaled $98 on
September 30, 1999.
At the time of the merger, management approved restructuring plans to eliminate
duplicate senior management positions and to close the Israeli operations of
Netect. The restructuring plans were based on management's best estimate of
those costs based on the information available at that time. The restructuring
expenses related to this plan include involuntary employee separation expenses
for approximately 15 former Netect employees, the costs to close Netect's
Israeli operations and other miscellaneous restructuring expenses. The
restructuring expense adjustment relates to additional costs to close Netect's
Israeli operations that exceeded management's initial estimate. The transaction
costs related to the acquisition include investment banking fees of $590,
accounting and legal expenses of $565, transfer fees of $138, and other
miscellaneous transaction expenses of $240. At September 30, 1999 there were no
remaining unpaid transaction costs on the Company's Balance Sheet. The Company
has completed most of the actions related to the restructuring plans. The
Company believes the remaining reserve is sufficient to complete the remaining
actions under the plan.
The accrued restructuring expenses and amounts charged against the provision as
of September 30, 1999, were as follows:
<TABLE>
<CAPTION>
(in thousands) Beginning Cash Accrued Expenses at
Accrual Expenditures Adjustment September 30, 1999
------------ ------------ ---------- -------------------
<S> <C> <C> <C> <C>
Restructuring Expenses
Employee severance and
Related costs 575 (477) -- 98
Israeli office closing 119 (357) 238 --
Other restructuring costs 59 (59) -- --
------------ ------------ ------------ -------------------
TOTAL $ 753 $ (893) $ 238 $ 98
============ ============ ============ ===================
</TABLE>
The historical financial data included herein has been restated to reflect the
merger with Netect by combining the historical results for the Company and
Netect for all periods presented. There were no material transactions between
BindView and Netect during the periods prior to the merger.
NOTE 6 - INCOME TAX
For the third quarter of 1999, the Company recorded a tax provision on the
income from operations. The effective tax rate increased in the third quarter
from the second quarter due to the expiration of a research and development
credit that the Company had been generating. As the U.S. Congress did not extent
this credit, it expired on June 30, 1999. The amounts previously reported by the
Company for the three months ended September 30, 1999 in its earnings release on
October 21, 1999 and as disclosed in this Form 10-Q are based on current tax
laws and exclude any benefit of this tax credit. If Congress retroactively
reinstates this credit from July 1, 1999, the Company will include the effect of
this retroactive change in its annual and fourth quarter 1999 income statement.
If the research and development tax credit is not retroactively reinstated, the
effective tax rate of the Company for future periods will increase.
As of September 30, 1999, the Company's remaining net operating loss
carryforwards for tax purposes approximate
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$8,800 in Israel and $3,050 for other foreign subsidiaries, which may be
utilized to reduce future taxable income. These tax loss carryforwards will
generally expire between 2003 and 2014. The Company's ability to utilize the net
operating loss carryforwards related to its acquisitions may be subject to
certain limitations. The valuation allowance for the related deferred tax asset
approximates $3,800 and is primarily composed of Netect pre-acquisition tax loss
carryforwards which management has determined are more likely than not to expire
unused.
NOTE 7 - SEGMENT REPORTING
During 1999, the Company adopted Statement of Financial Accounting Standard No.
131 "Disclosures About Segments of an Enterprise and Related Information". The
Company currently operates in one segment as defined by this standard. The
adoption of this standard did not have a material impact on disclosures with
respect to the Company's financial condition or results of operations.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include those discussed in the "Risk Factors" set forth in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998 and
those discussed herein under the heading "Cautionary Statements". The following
discussion should be read in conjunction with the unaudited condensed
consolidated financial statements and the accompanying notes.
The merger with Netect on March 1, 1999, has been accounted for as a pooling of
interests. The historical financial data included herein has been restated to
reflect this merger.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage of
selected items in the Condensed Consolidated Statement of Operations and
Comprehensive Income (Loss) to total revenues:
<TABLE>
<CAPTION>
QUARTER NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
-------------------- --------------------
1999 1998 1999 1998
-------- -------- -------- --------
(PERCENT OF TOTAL NET REVENUES)
<S> <C> <C> <C> <C>
Revenues:
Licenses 73.3 78.9 71.9 77.6
Services 26.7 21.1 28.1 22.4
-------- -------- -------- --------
Total revenues 100.0 100.0 100.0 100.0
-------- -------- -------- --------
Cost of revenues:
Cost of licenses 2.2 3.2 2.2 3.3
Cost of services 3.2 2.8 3.4 3.0
-------- -------- -------- --------
Total cost of revenues 5.4 6.0 5.6 6.3
-------- -------- -------- --------
Gross profit 94.6 94.0 94.4 93.7
-------- -------- -------- --------
Costs and expenses:
Sales and Marketing 40.2 49.3 41.9 51.4
Research and Development 24.8 26.3 26.4 30.5
General and Administrative 8.7 10.7 9.6 12.2
Transaction and Restructuring (1) -- -- 5.6 --
-------- -------- -------- --------
Operating income (loss) 20.9 7.7 10.9 (0.4)
Other income, net 4.5 2.0 4.8 1.3
-------- -------- -------- --------
Income before income tax provision 25.4 9.7 15.7 0.9
Provision for income tax 9.4 8.1 8.5 5.3
-------- -------- -------- --------
Net income (loss) 16.0 1.6 7.2 (4.4)
======== ======== ======== ========
</TABLE>
(1) Represents a $2,524 non-recurring, non-tax deductible charge related to
costs associated with the Netect merger and restructuring for the nine months
ended September 30, 1999.
REVENUES
The Company's revenues are derived from the sale of software products and
related services including subscription contracts. The Company's revenues
increased $8.1 million or 80% in the third quarter of 1999 over the comparable
quarter of the prior year and $21.2 million or 88% over the comparable nine
months of the prior year.
The Company's license revenues increased $5.4 million or 67% in the third
quarter of 1999 over the comparable quarter of the prior year and $13.9 million
or 75% over the comparable nine months of the prior year. The increase in the
Company's license revenues over these periods is a result of continued market
acceptance of the BindView EMS product family and revenues generated from new
product introductions. The results of the quarter may not be indicative of
results for the full year. No assurances can be made that revenues will continue
to increase at the rates reflected in quarter-to-quarter and year-to-year
comparisons.
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The Company's service revenues increased $2.7 million or 127% in the third
quarter of 1999 over the comparable quarter of the prior year and $7.3 million
or 136% over the comparable nine months of the prior year. The increase in the
Company's service revenues over these periods is a result of an increase in
purchases and renewals of subscription contracts by the Company's growing
installed customer base. Because revenues from subscription contracts are
recognized ratably over the contract term, this increase in these revenues as a
percentage of total revenues results in greater deferred revenue recognition.
The costs associated with these services, are recognized as they are incurred.
This may negatively impact the Company's operating margins during periods in
which the Company incurs infrastructure ramp-up costs in response to increases
in purchases and renewals of subscription contacts.
COST OF REVENUES
Cost of licenses includes product manuals, packaging, distribution and media
costs for the Company's software products. The Company's cost of licenses
increased $77,000 or 23% in the third quarter of 1999 over the comparable
quarter of the prior year and $203,000 or 26% over the comparable nine months of
the prior year. The cost of licenses has increased primarily due to increases in
product shipments. The Company believes these costs will remain relatively
constant as a percentage of total revenue, although there will continue to be
quarterly fluctuations due to the timing of certain expenses.
Cost of services includes personnel and other costs related to technical support
and professional services. The Company's cost of services increased $292,000 or
104% in the third quarter of 1999 over the comparable quarter of the prior year
and $806,000 or 112% over the comparable nine months of the prior year. The cost
of services has increased primarily due to increases in the cost of technical
support staff providing support to the Company's growing customer base and
increases in the cost of professional services staff providing customer training
and implementation services.
COSTS AND EXPENSES
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. The Company's sales and marketing
expenses increased $2.3 million or 47% in the third quarter of 1999 over the
comparable quarter of the prior year and $6.6 million or 54% over the comparable
nine months of the prior year. The increase in the sales and marketing expenses
is related to the hiring of additional personnel in connection with the building
of the Company's sales force and the additional facilities and computer systems
required by these additional personnel. Sales and marketing expenses decreased
to 40.2% of revenues in the third quarter of 1999 compared to 49.3% of revenue
in the corresponding period of 1998 and decreased to 41.9% of revenues from
51.4% of revenues for the nine months ended September 30, 1999 and 1998,
respectively. The decrease in sales and marketing expenses as a percentage of
revenues is related to the reduction of duplicative marketing efforts associated
with Netect over these periods, the start-up costs incurred with the launch of
the Company's direct telesales organization in Germany and France in 1998
and the ongoing efforts of the Company to manage operating expenses. Due to the
seasonal nature of revenues, the Company anticipates that for the fourth quarter
of 1999, sales and marketing expenses will increase in absolute dollars as the
Company continues to invest in marketing campaigns to drive sales growth and
increase its expansion of domestic and international sales efforts.
Research and development expenses consist primarily of salaries and benefits for
product development, product management and quality assurance personnel,
payments to contract programmers and expendable equipment purchases. The
Company's research and development expenses increased $1.9 million or 70% in the
third quarter of 1999 over the comparable quarter of the prior year and $4.6
million or 63% over the comparable nine months of the prior year. The increase
in the research and development expenses is related to increased personnel,
additional facilities and an increase in the computer systems and software
development tools required by the additional personnel. Research and development
expenses decreased to 24.8% of revenues in the third quarter of 1999 compared to
26.3% in the corresponding period of 1998 and decreased to 26.4% of revenues
from 30.5% of revenues for the nine months ended September 30, 1999 and 1998,
respectively. This decline in research and development expenses as a percentage
of revenue is a result of certain product lines reaching a stage in their
product
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life cycle requiring less research and development effort relative to the
respective license revenue generated by these products and the Company's ongoing
efforts to manage operating expenses. However, the Company believes that a
significant research and development investment is essential for it to maintain
and grow its market position and continue to expand its product line.
Accordingly, the Company anticipates it will continue to devote substantial
resources to product research and development for the foreseeable future, and
that research and development expenses will increase in absolute dollars for the
fourth quarter of 1999.
General and administrative expenses consist primarily of salaries, personnel and
related costs for the Company's executive, administrative, finance and
information services staff. The Company's general and administrative expenses
increased $510,000 or 47% in the third quarter of 1999 over the comparable
quarter of the prior year and $1.4 million or 49% over the comparable nine
months of the prior year. The increase in the general and administrative
expenses is related to the increase in the allowance for doubtful accounts over
this period and increased staffing, facilities costs and associated expenses
necessary to manage and support the Company's increased scale of operations.
General and administrative expenses declined to 8.7% of revenues in the third
quarter of 1999 compared to 10.7% in the corresponding period of 1998 and
declined to 9.6% of revenues from 12.2% of revenues for the nine months ended
September 30, 1999 and 1998, respectively. This decline in general and
administrative expenses as a percentage of revenue is a result of the reduction
of duplicative staff associated with the Netect acquisition and the Company's
ongoing efforts to manage operating expenses combined with the Company's revenue
growth. The Company expects that for the fourth quarter of 1999 general and
administrative expenses will decline as a percentage of total revenue, but
increase in absolute dollars.
TRANSACTION AND RESTRUCTURING EXPENSES
On March 1, 1999, the Company merged with Netect, Ltd. ("Netect") in a
stock-for-stock transaction accounted for as a pooling of interests.
At the time of the merger, management approved restructuring plans to eliminate
duplicate senior management positions and to close the Israeli operations of
Netect. The restructuring plans were based on management's best estimate of
those costs based on the information available at that time. The restructuring
expenses related to this plan include involuntary employee separation expenses
for approximately 15 former Netect employees, the costs to close Netect's
Israeli operations and other miscellaneous restructuring expenses. The
restructuring expense adjustment relates to additional costs to close Netect's
Israeli operations that exceeded management's initial estimate. The transaction
costs related to the acquisition include investment banking fees of $590,000,
accounting and legal expenses of $565,000, transfer fees of $138,000, and other
miscellaneous transaction expenses of $240,000. At September 30, 1999 there
were no remaining unpaid transaction costs on the Company's Balance Sheet. The
Company has completed most of the actions related to the restructuring plans.
The Company believes the remaining reserve is sufficient to complete the
remaining actions under the plan.
The accrued restructuring expenses and amounts charged against the provision
as of September 30, 1999, were as follows:
<TABLE>
<CAPTION>
(in thousands) Beginning Cash Accrued Expenses at
Accrual Expenditures Adjustment September 30, 1999
------------ ------------ ---------- -------------------
<S> <C> <C> <C> <C>
Restructuring Expenses
Employee severance and
Related costs 575 (477) -- 98
Israeli office closing 119 (357) 238 --
Other restructuring costs 59 (59) -- --
------------ ------------ ------------ -------------------
TOTAL $ 753 $ (893) $ 238 $ 98
============ ============ ============ ===================
</TABLE>
The historical financial data included herein has been restated to reflect the
merger with Netect by combining the historical results for the Company and
Netect for all periods presented. There were no material transactions between
BindView and Netect during the periods prior to the merger.
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OTHER INCOME, NET
The Company had other income of $825,000 in the third quarter of 1999 compared
to $202,000 in the corresponding period of 1998. This increase is primarily due
to an increase in interest income related to higher cash, cash equivalents and
investment balances as a result of the proceeds from Company's initial public
offering in July 1998, secondary offering in December 1998 and positive cash
flow from operating activities.
PROVISION FOR INCOME TAXES
The research and development credit for federal income tax purposes that the
Company was previously generating expired on June 30, 1999. As a result of the
expiration of this credit, the Company's effective tax rate for the third
quarter of 1999 increased to 37%.
During the first quarter of 1999, the Company did not recognize a tax benefit
for certain losses generated by Netect because the Company's ability to realize
such benefits was limited by the former structure of Netect and by the Company's
plans for Netect's future operations. Also, the U.S. Congress allowed a certain
research and development federal income tax credit provision to expire on June
30, 1999, which the Company otherwise would have been able to use. These
factors, along with the non-deductibility nature of the transaction expenses
incurred in connection with the company's merger with Netect, have resulted in
the Company's effective tax rate exceeding 37% for the first quarter and the
nine months ended September 30, 1999. Although there can be no assurance that
Congress will retroactively reinstate this credit, if congress retroactively
reinstates the research and development credit, the Company expects that its
effective tax rate should stabilize near 37% for the remainder of 1999 and for
the fiscal quarters of 2000. If this credit is not retroactively reinstated, or
if the Company is unable to receive this credit in subsequent quarters, the
effective tax rate could rise beyond 39%.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital increased to $60.5 million at September 30, 1999
from $59.0 million at December 31, 1998. The Company's cash, cash equivalent,
short-term and long-term investments balance increased to $63.2 million at
September 30, 1999 from $58.2 million at December 31, 1998 due primarily to
positive cash flow operating activities and proceeds from the exercise of stock
options partially offset by the purchases of property and equipment.
The Company believes that the net proceeds of its initial and secondary
offerings completed in 1998, together with existing cash, cash equivalents,
short-term investments and cash flow from operations will be sufficient to meet
its normal working capital requirements for at least the next 12 months.
Thereafter, the Company may require additional funds to support its working
capital requirements or for other purposes and may seek to raise such additional
funds through public or private equity financing or from other sources. There
can be no assurance that additional financing will be available at all or that,
if available, such financing will be obtainable on terms favorable to the
Company or that any additional financing would not be dilutive.
The Company currently intends to use the net proceeds of its initial and
secondary public offerings for working capital and general corporate purposes,
including financing accounts receivable and capital expenditures made in the
ordinary course of business, as well as for possible acquisitions of businesses,
products and technologies that are complementary to those of the Company. There
can be no assurance that the Company will be able to identify any acquisitions
of businesses, products or technology that are complimentary to those of the
Company or are on terms that are acceptable to the Company. Possible
acquisitions of businesses, products and technologies could require the use of
substantial amounts of capital, some of which might require the issuance of
additional equity or debt securities. Pending such uses, the net proceeds will
continue to be invested in government securities and other short-term,
investment-grade, interest-bearing instruments.
YEAR 2000 ISSUES
Background. Some computers, software and other equipment include programming
code in which calendar year data is abbreviated to only two digits. As a result
of this design decision, some of these systems could fail to operate or
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<PAGE> 13
fail to produce correct results if "00" is interpreted to mean 1900 or some
other default condition, rather than 2000. These problems are widely expected to
increase in frequency and severity as the year 2000 approaches and are commonly
referred to as the "Millennium Bug" or "Year 2000 Problem".
Assessment. The Year 2000 Problem could affect computers, software and other
equipment that we and our customers and suppliers use. Accordingly, we have
reviewed our internal computer programs and systems to ensure that they will be
Year 2000 compliant. We presently believe that our computer systems are Year
2000 compliant or will compliant in the fourth quarter of 1999. However, while
the estimated cost of these efforts is not expected to be material to our
financial position or any year's results of operations, there can be no
assurance to this effect.
Customers. Although the latest versions of BindView EMS/NOSadmin software are
designed to be Year 2000 compliant, releases of this software before version
5.2a have not been tested for Year 2000 compliance and/or are not Year 2000
compliant. Customers of BindView EMS/NOSadmin software before version 5.2a under
subscription contracts have been provided upgrades to versions of this software
that are designed to be Year 2000 compliant. Customers that have not upgraded to
Year 2000 compliant versions of BindView EMS/NOSadmin software will have to
either i) enter into a subscription agreement with the Company and upgrade to a
compliant version or ii) purchase the latest Year 2000 compliant version of
BindView EMS/NOSadmin software. We believe that it is not possible to determine
with complete accuracy that all Year 2000 Problems affecting our software
products have been identified or corrected due to the complexity of our products
and the fact that these products interact with other third party vendor products
and operate on computer systems that are not under our control. Because of the
Year 2000 Problem, we have and may continue to encounter potential customer
sites that are unwilling to purchase any additional software for their computing
environments until after the millennium. If a significant amount of our
customers lock down their computing environments because of the Year 2000
Problem, this may have an adverse effect on the Company's revenues and operating
results.
Internal Infrastructure. We believe that we have identified substantially all of
the major computers, software applications and related equipment used in
connection with our internal operations that must be modified, upgraded or
replaced to minimize the possibility of a material disruption to our business.
We commenced the process of modifying, upgrading and replacing the systems that
have been identified as potentially being adversely affected and completed this
process during the first quarter of 1999. The costs associated with upgrading
and replacing these systems did not exceed $1.0 million and substantially all of
these costs have been capitalized.
Systems Other Than Information Technology Systems. In addition to computers and
related systems, the operation of office and facilities equipment, such as fax
machines, photocopiers, telephone switches, security systems, elevators and
other common devices may be affected by the Year 2000 Problem. We have recently
replaced our primary telephone switch with equipment that provides additional
capacity to meet the Company's growth needs and is believed to be Year 2000
compliant. We believe non-information technology equipment failures that could
occur because of the Year 2000 Problem are not likely to have a material adverse
effect on our business.
We estimate that our total cost of completing any required modifications,
upgrades or replacements of these internal systems will not have a material
effect on our business, financial condition or results of operations.
Suppliers. We have been gathering information from vendor web sites and
available compliance statements and have initiated communications with
third-party suppliers of our major computers, software and other equipment used,
operated or maintained by us to identify and, to the extent possible, resolve
issues involving the Year 2000 Problem. However, we have limited or no control
over the actions of such third-party suppliers. Thus, while we expect that we
will be able to resolve any significant Year 2000 Problems with such systems,
there can be no assurance that our suppliers will resolve any or all Year 2000
Problems with such systems before the occurrence of a material disruption to our
business or any of our suppliers. Any failure of these third-parties to resolve
Year 2000 problems with their systems in a timely manner could have a material
adverse effect on our business, financial condition or results of operation.
Most Likely Consequences of Year 2000 Problems. We expect to identify and
resolve all Year 2000 Problems that could materially adversely affect our
business, financial condition or results of operations. However, we believe that
it is not possible to determine with complete certainty that all Year 2000
Problems affecting us have been identified
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<PAGE> 14
or corrected. The number of devices that could be affected and the interactions
among these devices are simply too numerous. In addition, we cannot accurately
predict how many failures related to the Year 2000 Problem will occur or the
severity, duration or financial consequences of such failures. As a result, we
expect that we could possibly suffer the following consequences:
- - a significant number of operational inconveniences and inefficiencies for us
and our customers that may divert our time and attention and financial and
human resources from our ordinary business activities; and
- - a lesser number of serious system failures that may require significant
efforts by us or our customers to prevent or alleviate material business
disruptions.
Should these possibilities actually occur, we could experience operating expense
levels higher than currently budgeted or reductions in our expected growth
rates.
Contingency Plans. We have developed contingency plans as part of our efforts to
identify and correct Year 2000 Problems affecting our internal systems. These
plans include (i) accelerated replacement of affected equipment or software,
(ii) short to medium-term use of backup equipment and software, (iii) increased
work hours for our personnel or use of contract personnel to correct on an
accelerated schedule any Year 2000 Problems which arise or to provide manual
workarounds for information systems (iv) divert attention from other critical
ongoing business initiatives and (v) and other similar approaches. If we are
required to implement any of these contingency plans, such plans could have a
material adverse effect on our business, financial condition or results of
operations. However, based on the activities described above, the Company does
not believe that the Year 2000 Problem will have a material adverse effect on
the Company's business, financial condition or results of operations.
The discussion of the Company's efforts and expectations relating to Year 2000
compliance are forward-looking statements. The Company's ability to achieve Year
2000 compliance and the level of incremental costs associated therewith, could
be adversely impacted by, among other things, the availability and cost of
programming and testing resources, vendors' ability to modify proprietary
software and unanticipated problems identified in the Company's ongoing
compliance review.
The foregoing statements are intended to be and are hereby designated "Year 2000
Readiness Disclosure" within the meaning of the Year 2000 Information and
Readiness Act.
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<PAGE> 15
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. All statements
other than statements of historical facts included in this Report, including
without limitation, statements regarding the Company's financial position,
business strategy, products, products under development, markets, budgets and
plans and objectives of management for future operations, are forward-looking
statements. Although the Company believes that the expectations reflected in
such forward-looking statements are reasonable, it can give no assurance that
such expectations will prove to have been correct. Important factors that could
cause actual results to differ materially from the Company's expectations are
disclosed in statements set forth under "Cautionary Statements" and elsewhere in
this Report, including, without limitation, in conjunction with the
forward-looking statements included in this Report. All subsequent written and
oral forward-looking statements attributable to the Company, or persons on its
behalf, are expressly qualified in their entirety by the Cautionary Statements
and such other statements. For purposes of this Item 5, references to the
"Company", "BindView", "we", "us" and "our" refer to BindView Development
Corporation and its subsidiaries.
CAUTIONARY STATEMENTS
OUR QUARTERLY REVENUES, EXPENSES AND OPERATING RESULTS MAY FLUCTUATE
SIGNIFICANTLY. These fluctuations may be due to a number of factors, including:
- demand for our products;
- size and timing of significant orders and their fulfillment;
- our ability to develop and upgrade our technology;
- changes in our level of operating expenses;
- our ability to compete in a highly competitive market;
- undetected software errors and other product quality problems;
- changes in our sales incentive plans and staffing of sales
territories; and
- changes in the mix of domestic and international revenues and the
level of international expansion.
Generally, we do not operate with a backlog because we ship our products and
recognize revenue shortly after orders are received. At the time we ship our
products we have satisfied all of the criteria of Statement of Position No. 97-2
"Software Revenue Recognition," and therefore we recognize the related license
revenue. As a result, orders booked throughout a quarter substantially impact
product revenues in that quarter. Our sales also fluctuate throughout the
quarter as a result of customer buying patterns. We base our expenses to a
significant extent on our expectations of future revenues. Most of our expenses
are fixed in the short term and we may not be able to quickly reduce spending if
our revenues are lower than we had projected. If our revenue levels do not meet
our projections, we expect our operating results to be adversely and
disproportionately affected.
Our quarterly operating results also are subject to certain seasonal
fluctuations. Year-end customer buying patterns and compensation policies based
on annual revenue quotas have caused our revenues to be strongest in the fourth
quarter of the year and to decrease in the first quarter of the following year.
In future periods, we expect that these seasonal trends may cause first quarter
revenues to be significantly lower than the level achieved in the preceding
fourth quarter.
Prior to January 1, 1998, we provided telephone support free of charge and sold
product upgrades separately or through subscription contracts. We now require
our customers to purchase a subscription policy in order to receive product
upgrades and technical support. Unlike software license revenues that we
generally recognize upon shipment of the product, we recognize subscription
contract revenues ratably over the life of the contract term. As a result, if we
derive a larger percentage of our revenues from subscription contracts, we will
experience an increase in deferred revenue that is likely to decrease our
operating margins. Decreased operating margins may materially adversely
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<PAGE> 16
affect our business, operating results and financial condition.
As a result, we believe quarter-to-quarter comparisons of our revenues, expenses
and results of operations are not necessarily meaningful. You should not rely on
our quarterly revenues, expenses and results of operations to predict our future
performance.
WE HAVE A LIMITED OPERATING HISTORY. Although BindView was founded in 1990, we
have derived substantially all of our revenues since 1995 from sales of BindView
NCS software, replaced in 1996 by BindView EMS/NOSadmin software. We therefore
have a limited operating history based on our primary products. An investor in
our Company must consider the risks and uncertainties frequently encountered by
software companies in the early stages of development, particularly those faced
by companies in the highly competitive and rapidly evolving systems management
software market. To compete in this market, we believe that we must devote
substantial resources to expanding our sales and marketing organization and to
continue product development. As a result, we will need to recognize significant
quarterly revenues to remain profitable. Our revenues have increased in recent
years, and revenues for recent quarters have exceeded revenues for the same
quarter for the prior year. However, we cannot be certain that we can sustain
these growth rates or that we will remain profitable on a quarterly or annual
basis in the future.
OUR MARKETS ARE HIGHLY COMPETITIVE. We face competition from different sources.
Currently, our products compete with products from the following organizations:
- providers of security analysis and audit products, such as Axent
Technologies, Inc. Security Dynamics Technologies, Inc., ISS Group,
Inc. and Network Associates Inc.;
- providers of stand-alone inventory and asset management products, such
as Tally Systems Corp.;
- providers of LAN desktop management suites, such as Intel Corporation,
Hewlett-Packard Company and Microsoft Corporation;
- providers of Year 2000 assessment products, such as Greenwich Mean
Time--UTA, L.C.;
- providers of event notification and response technology, such as
Attention Software, Inc.; and
- providers of Windows NT management and migration tools, such as
Mission Critical Software, Entevo Corp. and FastLane Technologies Inc.
- In addition, certain management features included in our products
compete with the native tools from Novell, Inc. and third-party tools
from certain vendors, such as Computer Associates, Inc. and other
companies.
- providers of enterprise resource planning application add-ons for SAP
security administration and vulnerability assessment, such as BMC
Software, Insite Objects, Inc. and Envive Corp.
- providers of network security scanning technology, such as Network
Associates, ISS Group, Inc. and Axent Technologies.
We expect competition in the network management software market to increase
significantly as new companies enter the market and current competitors expand
their product lines and services. Many of these potential competitors are likely
to enjoy substantial competitive advantages, including:
- greater resources that can be devoted to the development, promotion
and sale of their products;
- more established sales channels;
- greater software development experience; and
- greater name recognition.
We also believe that operating system software vendors, particularly Microsoft
and Novell, could enhance their products to include functionality that we
currently provide in our products. If these vendors include our software
functionality as standard features of their operating system software, our
products could become obsolete. Even if the functionality of the standard
software features of these vendors is more limited than ours, there is a
substantial risk that a significant number of customers would elect to keep this
limited functionality rather than purchase additional software.
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To be competitive, we must respond promptly and effectively to the challenges of
technological change, evolving standards and our competitors' innovations by
continuing to enhance our products, services and sales channels. In addition, we
have and may continue to bundled and offer discounts to our customers. Bundling
or discounting our products may result in reduced operating margins, reduced
profitability and increase the complexity of revenue recognition. Any pricing
pressures, reduced margins or loss of market share resulting from our failure to
compete effectively could materially adversely affect our business.
OUR PRODUCTS ARE SUBJECT TO RAPID TECHNOLOGICAL CHANGE. The market for our
products is characterized by rapid technological change, frequent new product
introductions and enhancements, uncertain product life cycles, changes in
customer demands and evolving industry standards. Our products could be rendered
obsolete if new products based on new technologies are introduced or new
industry standards emerge. We rely heavily on our relationships with Microsoft
and Novell and attempt to coordinate our product offerings with the future
releases of their operating systems. These companies may not notify us of
feature enhancements prior to new releases of their operating systems in the
future. In that case, we may not be able to introduce products on a timely basis
that capitalize on new operating system releases and feature enhancements.
CLIENT/SERVER COMPUTING ENVIRONMENTS ARE INHERENTLY COMPLEX. As a result, we
cannot accurately estimate our software product life cycles. New products and
product enhancements can require long development and testing periods, which
depend significantly on our ability to hire and retain increasingly scarce and
technically competent personnel. Significant delays in new product releases or
significant problems in installing or implementing new product releases could
seriously damage our business. We have, on occasion, experienced delays in the
scheduled introduction of new and enhanced products and cannot be certain that
such delays will not occur again.
Our future success will depend, in part, upon our ability to enhance existing
products, develop and introduce new products, satisfy customer requirements and
achieve market acceptance. We cannot be certain that we will successfully
identify new product opportunities and develop and bring new products to market
in a timely and cost-effective manner. Further, the products, capabilities or
technologies developed by others may render our products or technologies
obsolete or shorten their life cycles.
WE ARE DEPENDENT UPON CONTINUED GROWTH OF THE MARKET FOR WINDOWS NT AND NOVELL
NETWARE OPERATING SYSTEMS. We depend upon the success of Microsoft's Windows NT
and Novell's NetWare operating systems. In particular, market acceptance of our
products depends on the increasing complexity of these operating systems and the
lack of effective tools to simplify system administration and security
management for these environments. Although demand for Windows NT and NetWare
operating systems has grown in recent years, we cannot be certain that it will
continue to grow. If the market does continue to grow, we cannot be certain that
the market for our products will continue to develop or that our products will
be widely accepted. If the markets for our products fail to develop or develop
more slowly than we anticipate, our business could be materially adversely
affected.
The percentages of our revenues attributable to software licenses for particular
operating system platforms can change from time to time. A number of factors
outside our control can cause these changes, including changing market
acceptance and penetration of the various operating system platforms which we
support and the relative mix of development and installation by value-added
resellers ("VARs") of application software operating on such platforms.
PRODUCT CONCENTRATION. Majority of our revenues are from the sale of our
NOSadmin and NETinventory products. We anticipate that these products along with
products additions as a result of the Curasoft and Netect acquisitions will
account for majority all of our revenues for the foreseeable future. Our future
operating results will depend on continued market acceptance of NOSadmin and
NETinventory, introduction of new products from the Curasoft and Netect
acquisitions, enhancements to these products and the continued development of
additional snap-in modules for our Enterprise Console product. Competition,
technological change or other factors could reduce demand for, or market
acceptance of any or all of our products and could substantially damage our
business. Although we currently plan to broaden our product line, we cannot be
certain that we will be able to reduce our product concentration or that we will
be able to generate material revenues from products acquired as a result of the
Curasoft and Netect acquisitions.
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RISKS ASSOCIATED WITH LENGTH OF SALES CYCLE. We have sold our products to
customer workgroups and corporate divisions. As a result, our sales cycle has
ranged from three to six months. Recently, we have focused more of our selling
effort on products for the customer's entire enterprise and have found that our
sales cycle to enterprises has ranged from six to twelve months. The sales cycle
to enterprises is typically longer for a number of reasons, including:
- the significant resources committed to an evaluation of network
management software by an enterprise require us to expend substantial
time, effort and money educating them on the value of our products and
services; and
- decisions to license and deploy enterprise-wide software generally
involve an evaluation of our software by a significant number of
personnel of the enterprise in various functional and geographic
areas, each often having specific and conflicting requirements.
As a result, we cannot predict the timing and amount of specific sales. Our
inability to complete one or more enterprise-wide sales in a particular quarter
or calendar year could materially adversely affect our business and could cause
our operating results to vary significantly from quarter to quarter. For more
information, see "--Our Quarterly Financial Results are Subject to Significant
Fluctuations".
NEED TO MANAGE CHANGING OPERATIONS. We have expanded our operations rapidly in
recent years. We intend to continue to expand in the foreseeable future to
pursue existing and potential market opportunities. This rapid growth places a
significant demand on management and operational resources. In order to manage
growth effectively, we must implement and improve our operational systems,
procedures and controls on a timely basis. If we fail to implement and improve
these systems, our business, operating results and financial condition will be
materially adversely affected.
DEPENDENCE ON KEY PERSONNEL. Our success depends largely on the efforts of our
executive officers, particularly Eric J. Pulaski, the President and Chief
Executive Officer of BindView. We do not have an employment contract requiring
Mr. Pulaski to continue his employment for any period of time. We do not
maintain key man life insurance policies on any of our executive officers.
We believe that our future success will depend in large part upon our ability to
attract and retain highly skilled research and development, technical support
and sales and marketing personnel. We face intense competition for qualified
personnel, and we cannot be certain that we will successfully attract and retain
additional qualified personnel in the future. The loss of the services of one or
more of our key individuals or the failure to attract and retain additional
qualified personnel could substantially damage our business.
RISKS ASSOCIATED WITH INTERNATIONAL SALES AND OPERATIONS. During 1998, 1997 and
1996, we derived approximately 10%, 13% and 10% of our revenues, respectively,
from sales outside North America. We only recently opened direct telesales
offices outside the United States. We have historically generated revenues
outside North America through indirect channels, including VARs and other
distributors. We are in the early stages of developing our indirect distribution
channels in certain markets outside the United States. We cannot be certain that
we will be able to attract third parties that will be able to market our
products effectively or to provide timely and cost-effective customer support
and service. Our reseller arrangements generally provide that resellers may
carry competing product offerings. We cannot be certain that any distributor or
reseller will continue to represent our products. The inability to recruit, or
the loss of, important sales personnel, distributors or resellers could
materially and adversely affect our business.
As we expand our sales and support operations internationally, we anticipate
that international revenues will grow as a percentage of our total revenues. To
successfully expand international sales, we must:
- establish additional international direct telesales offices;
- expand the management and support organizations for our international
sales channel;
- hire additional personnel;
- customize our products for local markets;
- recruit additional international resellers where appropriate; and
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- expand the use of our direct telesales model.
If we are unable to generate increased sales through a direct telesales model,
we will incur higher personnel costs without corresponding increases in revenue,
resulting in lower operating margins for our international operations. In
addition, employment policies vary among countries outside the United States,
which may reduce our flexibility in managing headcount and, in turn, managing
personnel-related expenses. If we do not address the risks associated with
international sales in a cost-effective and timely manner, our international
sales growth will be limited, operating margins could be reduced and our
business could be materially adversely affected. However, even if we are able to
successfully expand our international operations, we cannot be certain that we
will be able to maintain or increase international market demand for our
products.
LIMITED PROTECTION OF PROPRIETARY TECHNOLOGY; RISKS OF INFRINGEMENT. Our success
depends to a significant degree upon our software and other proprietary
technology. The software industry has experienced widespread unauthorized
reproduction of software products. We rely on a combination of trademark, trade
secret, and copyright law and contractual restrictions to protect our
technology. These legal protections provide only limited protection. The steps
we have taken may deter competitors from misappropriating our proprietary
information. However, we may not be able to detect unauthorized use or take
appropriate steps to enforce our intellectual property rights. If we litigated
to enforce our rights, litigation would be expensive, would divert management
resources and may not be adequate to protect our business. We also could be
subject to claims alleging infringement of third-party intellectual property
rights. In addition, we may be required to indemnify our distribution partners
and end-users for similar claims made against them. Any claims against us could
require us to spend significant time and money in litigation, pay damages,
develop non-infringing intellectual property or acquire licenses to intellectual
property that is the subject of the infringement claims. As a result, claims
against us could materially adversely affect our business.
RISKS ASSOCIATED WITH COMPLETED AND POTENTIAL ACQUISITIONS. We have made and may
continue to make investments in complementary companies, technologies, services
or products if we find appropriate opportunities. If we buy a company, we could
have difficulty assimilating the personnel and operations of the acquired
company. If we make other types of acquisitions, assimilating the technology,
services or products into our operations could be difficult. Acquisitions can
disrupt our ongoing business, distract management and other resources and make
it difficult to maintain our standards, controls and procedures. We may not
succeed in overcoming these risks or in any other problems we might encounter in
connection with any future acquisitions. We may be required to incur debt or
issue equity securities to pay for any future acquisitions. In addition, there
can be no assurance that we will be able to successfully integrate our recent
acquisitions of Curasoft and Netect or we will be able to integrate the products
and technology we acquired into our sales model or product offerings.
RISKS OF UNDETECTED SOFTWARE ERRORS. Our software products are complex and may
contain certain undetected errors, particularly when first introduced or when
new versions or enhancements are released. We have previously discovered
software errors in certain of our new products after their introduction. We
cannot be certain that, despite our testing, such errors will not be found in
current versions, new versions or enhancements of our products after
commencement of commercial shipments. Such undetected errors could result in
adverse publicity, loss of revenues, delay in market acceptance or claims
against us by customers, all of which could materially adversely affect our
business.
YEAR 2000 RISKS. Background. Some computers, software and other equipment
include programming code in which calendar year data is abbreviated to only two
digits. As a result of this design decision, some of these systems could fail to
operate or fail to produce correct results if "00" is interpreted to mean 1900
or some other default condition, rather than 2000. These problems are widely
expected to increase in frequency and severity as the year 2000 approaches and
are commonly referred to as the "Millennium Bug" or "Year 2000 Problem". See
Management's Discussion and Analysis of Results of Operations and Financial
Condition.
RISK OF PRODUCT LIABILITY CLAIMS. Because our product design provides important
network management services, we may receive significant liability claims. Our
agreements with customers typically contain provisions intended to limit our
exposure to liability claims. These limitations may not, however, preclude all
potential claims. Liability claims could require us to spend significant time
and money in litigation or to pay significant damages. As a result, any such
claims, whether or not successful, could seriously damage our reputation and our
business.
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ANTI-TAKEOVER PROVISIONS. Incumbent management and our Board of Directors could
use certain provisions of our certificate of incorporation to make it more
difficult for a third party to acquire control of our company, even if the
change in control might be beneficial to our stockholders. This could discourage
potential takeover attempts and could adversely affect the market price of our
common stock.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
The following exhibits are filed with this Quarterly Report.
10.1 - BindView Development Corporation Omnibus Incentive Plan
11 - Statement Regarding Computation of Loss Per Common Share
27 - Financial Data Schedule
(b) Reports on Form 8-K:
The Company did not file any Current Reports on Form 8-K during the
quarterly period covered by this report.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BINDVIEW DEVELOPMENT CORPORATION
By: /s/ ERIC J. PULASKI
-------------------------------------
Eric J. Pulaski
President and Chief Executive Officer
November 12, 1999
By: /s/ SCOTT R. PLANTOWSKY
-------------------------------------
Scott R. Plantowsky
Vice-President and Chief
Financial Officer
November 12, 1999
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C>
10.1 -- BindView Development Corporation Omnibus Incentive Plan
11 -- Statement Regarding Computation of Earnings (Loss) Per Common Share
27 -- Financial Data Schedule
</TABLE>
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<PAGE> 1
EXHIBIT 10.1
BINDVIEW DEVELOPMENT CORPORATION
OMNIBUS INCENTIVE PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section
-------
<S> <C>
ARTICLE I - PLAN
Purpose.......................................................................................1.1
Effective Date of Plan........................................................................1.2
ARTICLE II - DEFINITIONS
Affiliate.....................................................................................2.1
Board of Directors or Board...................................................................2.2
Change of Control.............................................................................2.3
Code..........................................................................................2.4
Commission....................................................................................2.5
Company.......................................................................................2.6
Corporate Plan................................................................................2.7
Corporate Plan Options........................................................................2.8
Employee......................................................................................2.9
Exchange Act.................................................................................2.10
Fair Market Value............................................................................2.11
Incentive Option.............................................................................2.12
1996 ISO Plan................................................................................2.13
1996 ISO Plan Options........................................................................2.14
1997 Incentive Plan..........................................................................2.16
1997 Incentive Plan Options..................................................................2.16
1998 Incentive Plan Options..................................................................2.17
Nonqualified Option..........................................................................2.18
Option.......................................................................................2.19
Option Agreement.............................................................................2.20
Plan.........................................................................................2.21
Plan Year....................................................................................2.22
Reload Option................................................................................2.23
Restricted Stock.............................................................................2.24
Restricted Stock Agreement...................................................................2.25
Restricted Stock Purchase Price..............................................................2.26
Stock........................................................................................2.27
Stock Award..................................................................................2.28
10% Stockholder..............................................................................2.29
Voting Stock.................................................................................2.30
</TABLE>
<PAGE> 2
<TABLE>
<S> <C>
ARTICLE III - ELIGIBILITY
ARTICLE IV - GENERAL PROVISIONS RELATING TO OPTIONS AND STOCK AWARDS
Authority to Grant Options and Stock Awards...................................................4.1
Dedicated Shares..............................................................................4.2
Non-Transferability...........................................................................4.3
Requirements of Law...........................................................................4.4
Changes in the Company's Capital Structure....................................................4.5
Election Under Section 83(b) of the Code......................................................4.6
ARTICLE V - OPTIONS
Type of Option................................................................................5.1
Option Price..................................................................................5.2
Duration of Options...........................................................................5.3
Amount Exercisable--Incentive Options.........................................................5.4
Exercise of Options...........................................................................5.5
Exercise on Termination of Employment.........................................................5.6
Exercise of Options Under the Corporate Plan,
the 1996 ISO Plan and the 1997 Incentive Plan...............................................5.7
Reload Options................................................................................5.8
Substitution Options..........................................................................5.9
No Rights as Stockholder.....................................................................5.10
ARTICLE VI - STOCK AWARDS
Stock Awards..................................................................................6.1
Restrictions..................................................................................6.2
Stock Certificate.............................................................................6.3
Rights as Stockholder.........................................................................6.4
Lapse of Restrictions.........................................................................6.5
Restriction Period............................................................................6.6
ARTICLE VII - ADMINISTRATION
ARTICLE VIII - AMENDMENT OR TERMINATION OF PLAN
ARTICLE IX - MISCELLANEOUS
No Establishment of a Trust Fund..............................................................9.1
No Employment Obligation......................................................................9.2
Forfeiture ...................................................................................9.3
Tax Withholding...............................................................................9.4
Written Agreement.............................................................................9.5
</TABLE>
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<TABLE>
<S> <C>
Indemnification of the Board and the
Board of Directors...................................................................9.6
Gender........................................................................................9.7
Headings......................................................................................9.8
Other Compensation Plans......................................................................9.9
Other Options or Awards......................................................................9.10
Governing Law................................................................................9.11
No Modification, Extension, or Renewal of Corporate
Plan Options, 1996 ISO Plan Options, and
1997 Incentive Plan Options..............................................................9.12
</TABLE>
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<PAGE> 4
ARTICLE I
PLAN
1.1 PURPOSE. This Plan is a plan for key employees (including officers
and employee directors) of the Company and its Affiliates and is intended to
advance the best interests of the Company, its Affiliates, and its stockholders
by providing those persons who have substantial responsibility for the
management and growth of the Company and its Affiliates with additional
incentives and an opportunity to obtain or increase their proprietary interest
in the Company, thereby encouraging them to continue in the employ of the
Company or any of its Affiliates. For administrative purposes, and subject to
Section 9.12 hereof, this Plan incorporates the BindView Development Corporation
Stock Option Plan (the "Corporate Plan"), the BindView Development Corporation
Incentive Stock Option Plan (the "1996 ISO Plan and the BindView Development
Corporation 1997 Incentive Plan (the "1997 Incentive Plan").
1.2 EFFECTIVE DATE OF PLAN. The Plan is effective January 1, 1998, if
within one year of that date it shall have been approved by at least a majority
vote of stockholders voting in person or by proxy at a duly held stockholders'
meeting, or if the provisions of the corporate charter, by-laws or applicable
state law prescribes a greater degree of stockholder approval for this action,
the approval by the holders of that percentage, at a duly held meeting of
stockholders. No Incentive Option, Nonqualified Option, Reload Option or Stock
Award shall be granted pursuant to the Plan after December 31, 2007.
ARTICLE II
DEFINITIONS
The words and phrases defined in this Article shall have the meaning
set out in these definitions throughout this Plan, unless the context in which
any such word or phrase appears reasonably requires a broader, narrower, or
different meaning.
2.1 "AFFILIATE" means any parent corporation and any subsidiary
corporation. The term "parent corporation" means any corporation (other than the
Company) in an unbroken chain of corporations ending with the Company if, at the
time of the action or transaction, each of the corporations other than the
Company owns stock possessing 50% or more of the total combined voting power of
all classes of stock in one of the other corporations in the chain. The term
"subsidiary corporation" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if, at the time of the
action or transaction, each of the corporations other than the last corporation
in the unbroken chain owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in the
chain.
2.2 "BOARD OF DIRECTORS" or "BOARD" means the board of directors of the
Company.
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2.3 "CHANGE OF CONTROL." A "Change in Control" shall have occurred if,
after the Effective Date of the Plan:
(i) a report on Schedule 13D or Schedule 14D-1 (or any
successor schedule, form or report) shall be filed with the Commission
pursuant to the Exchange Act and that report discloses that any person
(within the meaning of Section 13(d) or Section 14(d)(2) of the
Exchange Act), other than the Company (or one of its subsidiaries) or
any employee benefit plan sponsored by the Company (or one of its
subsidiaries), is the beneficial owner (as that term is defined in Rule
13d-3 or any successor rule or regulation promulgated under the
Exchange Act), directly or indirectly, of 20 percent or more of the
outstanding Voting Stock;
(ii) any person (within the meaning of Section 13(d) or
Section 14(d)(2) of the Exchange Act), other than the Company (or one
of its subsidiaries) or any employee benefit plan sponsored by the
Company (or one of its subsidiaries), shall purchase securities
pursuant to a tender offer or exchange offer to acquire any Voting
Stock (or any securities convertible into Voting Stock) and,
immediately after consummation of that purchase, that person is the
beneficial owner (as that term is defined in Rule 13d-3 or any
successor rule or regulation promulgated under the Exchange Act),
directly or indirectly, of 20 percent or more of the outstanding Voting
Stock (such person's beneficial ownership to be determined, in the case
of rights to acquire Voting Stock, pursuant to paragraph (d) of Rule
13d-3 or any successor rule or regulation promulgated under the
Exchange Act);
(iii) the consummation of:
(x) a merger, consolidation or
reorganization of the Company with or into any other
person if a) the Company is not the surviving entity
or b) as a result of such merger, consolidation
or reorganization, 50 percent or less of the combined
voting power of the then-outstanding securities of
such other person immediately after such merger,
consolidation or reorganization are held in the
aggregate by the holders of Voting Stock immediately
prior to such merger, consolidation or
reorganization;
(y) any sale, lease, exchange or other
transfer of all or substantially all the assets of
the Company and its consolidated subsidiaries to any
other person if as a result of such sale, lease,
exchange or other transfer, 50 percent or less of the
combined voting power of the then-outstanding
securities of such other person immediately after
such sale, lease, exchange or other transfer are held
in the aggregate by the holders of Voting Stock
immediately prior to such sale, lease, exchange or
other transfer; or
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(z) a transaction immediately after the
consummation of which any person (within the meaning
of Section 13(d) or Section 14(d)(2) of the Exchange
Act) would be the beneficial owner (as that term is
defined in Rule 13d-3 or any successor rule or
regulation promulgated under the Exchange Act),
directly or indirectly, of more than 50 percent of
the outstanding Voting Stock;
(iv) the stockholders of the Company approve the dissolution
of the Company; or
(v) during any period of 12 consecutive months, the
individuals who at the beginning of that period constituted the Board
of Directors shall cease to constitute a majority of the Board of
Directors, unless the election, or the nomination for election by the
Company's stockholders, of each director of the Company first elected
during such period was approved by a vote of at least a two-thirds of
the directors of the Company then still in office who were directors of
the Company at the beginning of any such period.
2.4 "CODE" means the Internal Revenue Code of 1986, as amended.
2.5 "COMMISSION" means the United States Securities and Exchange
Commission or any successor agency.
2.6 "COMPANY" means BindView Development Corporation.
2.7 "CORPORATE PLAN" means the BindView Development Corporation Stock
Option Plan.
2.8 "CORPORATE PLAN OPTIONS" means options granted under the Corporate
Plan to purchase stock.
2.9 "EMPLOYEE" means a person employed by the Company or any Affiliate
to whom an Option or a Stock Award is granted.
2.10 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended from time.
2.11 "FAIR MARKET VALUE" of the Stock as of any date means (a) the
average of the high and low sale prices of the Stock on that date on the
principal securities exchange on which the Stock is listed; or (b) if the Stock
is not listed on a securities exchange, the average of the high and low sale
prices of the Stock on that date as reported on the NASDAQ National Market
System; or (c) if the Stock is not listed on the NASDAQ National Market System,
the average of the high and low bid quotations for the Stock on that date as
reported by the National Quotation Bureau Incorporated; or (d) if none of the
foregoing is applicable, an amount at the election of the Board equal to (x),
the average between the closing bid and ask prices per share of stock on the
last preceding date on which those prices were reported or (y) that amount as
determined by the Board.
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2.12 "INCENTIVE OPTION" means an option granted under this Plan which is
designated as an "Incentive Option" and satisfies the requirements of Section
422 of the Code.
2.13 "1996 ISO PLAN" means the BindView Development Corporation
Incentive Stock Option Plan.
2.14 "1996 ISO PLAN OPTIONS" mean Options granted under the 1996 ISO
Plan.
2.15 "1997 INCENTIVE PLAN" means the BindView Development Corporation
1997 Incentive Plan.
2.16 "1997 INCENTIVE PLAN OPTIONS" mean Options granted under the 1997
Incentive Plan.
2.17 "1998 INCENTIVE PLAN OPTIONS" mean Options granted pursuant to
Section 4.2 of the Plan.
2.18 "NONQUALIFIED OPTION" means an option granted under this Plan other
than an Incentive Option.
2.19 "OPTION" means an Incentive Option, Nonqualified Option and/or
Reload Option granted under this Plan to purchase shares of Stock. Option shall
also include a reference to each Corporate Plan Option, 1996 ISO Plan Option,
1997 Incentive Plan Option and 1998 Plan Option, except to the extent otherwise
indicated or to the extent set forth in Section 9.12 of the Plan.
2.20 "OPTION AGREEMENT" means the written agreement which sets out the
terms of an Option, as amended from time to time.
2.21 "PLAN" means the BindView Development Corporation Omnibus Incentive
Plan, as set out in this document and as it may be amended from time to time.
2.22 "PLAN YEAR" means the Company's fiscal year.
2.23 "RELOAD OPTION" shall mean a 1998 Incentive Plan Option or a 1997
Incentive Plan Option which the Board may, in its sole discretion, grant in
connection with the issuing of a 1998 Incentive Plan Option or a 1997 Incentive
Plan Option if the exercise price of the 1998 Incentive Plan Option or the 1997
Incentive Plan Option is paid in whole or in part, by exchanging Stock owned by
the Employee. A Reload Option shall be an Incentive Option or Nonqualified
Option depending on the type of 1998 Incentive Plan Option or 1997 Incentive
Plan Option exercised under the Option Agreement containing the Reload Option
feature. The Reload Options will be subject to the same restrictions and
provisions of the Plan as the original 1998 Incentive Plan Option or 1997
Incentive Plan Option, except when specific changes are set out in the Option
Agreement.
2.24 "RESTRICTED STOCK" means Stock awarded or purchased under a
Restricted Stock Agreement entered into pursuant to this Plan, together with (i)
all rights, warranties or similar items
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<PAGE> 8
attached or accruing thereto or represented by the certificate representing the
Stock and (ii) any stock or securities into which or for which the Stock is
thereafter converted or exchanged. The terms and conditions of the Restricted
Stock Agreement shall be determined by the Board consistent with the terms of
the Plan.
2.25 "RESTRICTED STOCK AGREEMENT" means an agreement between the Company
or any Affiliate and the Employee pursuant to which the Employee receives a
Stock Award subject to Article VI.
2.26 "RESTRICTED STOCK PURCHASE PRICE" means the purchase price, if any,
per share of Restricted Stock subject to an Award. The Restricted Stock Purchase
Price shall be determined by the Board. It may be greater than or less than the
Fair Market Value of the Stock on the date of the Stock Award.
2.27 "STOCK" means the common stock of the Company, no par value or, in
the event that the outstanding shares of common stock are later changed into or
exchanged for a different class of stock or securities of the Company or another
corporation, that other stock or security.
2.28 "STOCK AWARD" means an award of Restricted Stock.
2.29 "10% STOCKHOLDER" means an individual who, at the time the Option
is granted, owns stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company or of any Affiliate. An individual
shall be considered as owning the stock owned, directly or indirectly, by or for
his brothers and sisters (whether by the whole or half blood), spouse,
ancestors, and lineal descendants; and stock owned, directly or indirectly, by
or for a corporation, partnership, estate, or trust, shall be considered as
being owned proportionately by or for its stockholders, partners, or
beneficiaries.
2.30 "VOTING STOCK" means shares of the capital stock of the Company the
holders of which are entitled to vote for the election of directors, but
excluding shares entitled to so vote only upon the occurrence of a contingency
unless that contingency shall have occurred.
ARTICLE III
ELIGIBILITY
The individuals who shall be eligible to receive Incentive Options,
Nonqualified Options, and Stock Awards shall be those key employees of the
Company or any of its Affiliates as the Board shall determine from time to time.
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ARTICLE IV
GENERAL PROVISIONS RELATING TO OPTIONS AND STOCK AWARDS
4.1 AUTHORITY TO GRANT OPTIONS AND STOCK AWARDS. The Board may grant to
those key Employees of the Company or any of its Affiliates, as it shall from
time to time determine, Options or Stock Awards under the terms and conditions
of this Plan. Subject only to any applicable limitations set out in this Plan,
the number of shares of Stock to be covered by any Option or Stock Award to be
granted to an Employee shall be as determined by the Board.
4.2 DEDICATED SHARES. The total number of shares of Stock with respect
to which 1998 Incentive Plan Options and Stock Awards may be granted under the
Plan shall be 700,000 shares. The shares may be treasury shares or authorized
but unissued shares. The number of shares stated in this Section 4.2 shall be
subject to adjustment in accordance with the provisions of Section 4.5.
In the event that any outstanding Option or Stock Award shall
expire or terminate for any reason or any Option or Stock Award is surrendered,
the shares of Stock allocable to the unexercised portion of that Option or Stock
Award may again be subject to an Option or Stock Award under the Plan. If Stock
is used by the Employee pursuant to Section 5.6 of this Plan to pay the exercise
price of an Option, only the net number of shares of Stock issued by the Company
shall be considered utilized under this Plan. If shares of Stock are withheld by
the Company to pay tax withholding due from the Employee, the number of such
shares withheld shall not be considered utilized under this Plan.
4.3 NON-TRANSFERABILITY. Options shall not be transferable by the
Employee otherwise than by will or under the laws of descent and distribution,
and shall be exercisable, during the Employee's lifetime, only by him.
Restricted Stock shall be purchased by and/or become vested under a Restricted
Stock Agreement during the Employee's lifetime, only by him. Any attempt to
transfer a Stock Award other than under the terms of the Plan and the Restricted
Stock Agreement shall terminate the Stock Award and all rights of the Employee
to that Restricted Stock. Notwithstanding any provision in this Plan to the
contrary, an Employee may transfer any Nonqualified Option to an Immediate
Family Member or an entity controlled by the Employee or an Immediate Family
Member, provided, however, no further transfer shall be made except for a
transfer back to such Employee or such other transfer which may be approved by
the President of the Company. For this purpose "Immediate Family Member" means
an Employee's children, grandchildren or spouse, or a trust for the benefit of
such Immediate Family Members.
4.4 REQUIREMENTS OF LAW. The Company shall not be required to sell or
issue any Stock under any Option or Stock Award if issuing that Stock would
constitute or result in a violation by the Employee or the Company of any
provision of any law, statute, or regulation of any governmental authority.
Specifically, in connection with any applicable statute or regulation relating
to the registration of securities, upon exercise of any Option or pursuant to
any Stock Award, the Company shall not be required to issue any Stock unless the
Board has received evidence satisfactory to it to the effect that the holder of
that Option or Stock Award will not transfer the Stock except in accordance with
applicable law, including receipt of an opinion of counsel satisfactory to the
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<PAGE> 10
Company to the effect that any proposed transfer complies with applicable law.
The determination by the Board on this matter shall be final, binding and
conclusive. The Company may, but shall in no event be obligated to, register any
Stock covered by this Plan pursuant to applicable securities laws of any country
or any political subdivision. In the event the Stock issuable on exercise of an
Option or pursuant to a Stock Award is not registered, the Company may imprint
on the certificate evidencing the Stock any legend that counsel for the Company
considers necessary or advisable to comply with applicable law. The Company
shall not be obligated to take any other affirmative action in order to cause
the exercise of an Option or vesting under a Stock Award, or the issuance of
shares under either of them, to comply with any law or regulation of any
governmental authority.
4.5 CHANGES IN THE COMPANY'S CAPITAL STRUCTURE. The existence of
outstanding Options or Stock Awards shall not affect in any way the right or
power of the Company or its stockholders to make or authorize any or all
adjustments, recapitalizations, reorganizations or other changes in the
Company's capital structure or its business, or any merger or consolidation of
the Company, or any issue of bonds, debentures, preferred or prior preference
stock ahead of or affecting the Stock or its rights, or the dissolution or
liquidation of the Company, or any sale or transfer of all or any part of its
assets or business, or any other corporate act or proceeding, whether of a
similar character or otherwise.
If the Company shall effect a subdivision or consolidation of
shares or other capital readjustment, the payment of a stock dividend, or other
increase or reduction of the number of shares of the Stock outstanding, without
receiving compensation for it in money, services or property, then (a) the
number, class, and per share price of shares of Stock subject to outstanding
Options under this Plan shall be appropriately adjusted in such a manner as to
entitle an Employee to receive upon exercise of an Option, for the same
aggregate cash consideration, the equivalent total number and class of shares he
would have received had he exercised his Option in full immediately prior to the
event requiring the adjustment; and (b) the number and class of shares of Stock
then reserved to be issued under the Plan shall be adjusted by substituting for
the total number and class of shares of Stock then reserved, that number and
class of shares of Stock that would have been received by the owner of an equal
number of outstanding shares of each class of Stock as the result of the event
requiring the adjustment.
If while unexercised Options remain outstanding under the Plan
(i) the Company shall not be the surviving entity in any merger, consolidation
or other reorganization (or survives only as a subsidiary of an entity other
than an entity that was wholly-owned by the Company immediately prior to such
merger, consolidation or other reorganization), (ii) the Company sells, leases
or exchanges or agrees to sell, lease or exchange all or substantially all of
its assets to any other person or entity (other than an entity wholly-owned by
the Company), (iii) the Company is to be dissolved, or (iv) the Company is a
party to any other corporate transaction (as defined under Section 424(a) of the
Code and applicable Treasury Regulations) that is not described in clauses (i),
(ii) or (iii) of this sentence (each such event is referred to herein as a
"Corporate Change"), then (x) except as otherwise provided in an Option
Agreement or as a result of the Board's effectuation of one or more of the
alternatives described below, there shall be no acceleration of the time at
which any Option then outstanding may be exercised, and (y) no later than ten
(10) days after the approval by the stockholders of the Company of such
Corporate Change, the Board, acting in its sole and absolute
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<PAGE> 11
discretion without the consent or approval of any Optionee, shall act to effect
one or more of the following alternatives, which may vary among individual
Optionees and which may vary among Options held by any individual Optionee:
(1) accelerate the time at which some or all of the Options
then outstanding may be exercised so that such Options may be exercised
in full for a limited period of time on or before a specified date
(before or after such Corporate Change) fixed by the Board, after which
specified date all such Options that remain unexercised and all rights
of Optionees thereunder shall terminate,
(2) require the mandatory surrender to the Company by all or
selected Optionees of some or all of the then outstanding Options held
by such Optionees (irrespective of whether such Options are then
exercisable under the provisions of this Plan or the Option Agreements
evidencing such Options) as of a date, before or after such Corporate
Change, specified by the Board, in which event the Board shall
thereupon cancel such Options and the Company shall pay to each such
Optionee an amount of cash per share equal to the excess, if any, of
the per share price offered to stockholders of the Company in
connection with such Corporate Change over the exercise price(s) under
such Options for such shares,
(3) with respect to all or selected Optionees, have some or
all of their then outstanding Options (whether vested or unvested)
assumed or have a new Option substituted for some or all of their then
outstanding Options (whether vested or unvested) by an entity which is
a party to the transaction resulting in such Corporate Change and which
is then employing him, or a parent or subsidiary of such entity,
provided that (A) such assumption or substitution is on a basis where
the excess of the aggregate fair market value of the shares subject to
the Option immediately after the assumption or substitution over the
aggregate exercise price of such shares is equal to the excess of the
aggregate fair market value of all shares subject to the Option
immediately before such assumption or substitution over the aggregate
exercise price of such shares, and (B) the assumed rights under such
existing Option or the substituted rights under such new Option as the
case may be will have the same terms and conditions as the rights under
the existing Option assumed or substituted for, as the case may be,
(4) provide that the number and class of shares of Stock
covered by an Option (whether vested or unvested) theretofore granted
shall be adjusted so that such Option when exercised shall thereafter
cover the number and class of shares of stock or other securities or
property (including, without limitation, cash) to which the Optionee
would have been entitled pursuant to the terms of the agreement and/or
plan relating to such Corporate Change if, immediately prior to such
Corporate Change, the Optionee had been the holder of record of the
number of shares of Stock then covered by such Option, or
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(5) make such adjustments to Options then outstanding as the
Board deems appropriate to reflect such Corporate Change (provided,
however, that the Board may determine in its sole and absolute
discretion that no such adjustment is necessary)."
In effecting one or more of alternatives (3), (4) or (5)
above, and except as otherwise may be provided in an Option Agreement,
the Board, in its sole and absolute discretion and without the consent
or approval of any Optionee, may accelerate the time at which some or
all Options then outstanding may be exercised.
In the event of changes in the outstanding Stock by reason of
recapitalizations, reorganizations, mergers, consolidations, combinations,
exchanges or other relevant changes in capitalization occurring after the date
of the grant of any Option and not otherwise provided for by this Section 4.5,
any outstanding Options and any agreements evidencing such Options shall be
subject to adjustment by the Board in its sole and absolute discretion as to the
number and price of shares of stock or other consideration subject to such
Options. In the event of any such change in the outstanding Stock, the aggregate
number of shares available under this Plan may be appropriately adjusted by the
Board, whose determination shall be conclusive.
After a merger of one or more corporations into the Company or
after a consolidation of the Company and one or more corporations in which the
Company shall be the surviving corporation, each Employee shall be entitled to
have his Restricted Stock appropriately adjusted based on the manner the Stock
was adjusted under the terms of the agreement of merger or consolidation.
The issue by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, for cash or property,
or for labor or services either upon direct sale or upon the exercise of rights
or warrants to subscribe for them, or upon conversion of shares or obligations
of the Company convertible into shares or other securities, shall not affect,
and no adjustment by reason of such issuance shall be made with respect to, the
number, class, or price of shares of Stock then subject to outstanding Options
or Stock Awards.
4.6 ELECTION UNDER SECTION 83(b) OF THE CODE. No Employee shall
exercise the election permitted under Section 83(b) of the Code under this Plan
without written approval of the Board.
ARTICLE V
OPTIONS
5.1 TYPE OF OPTION. The Board shall specify whether a given option
shall constitute an Incentive Option or a Nonqualified Option. Options
previously granted under the Corporate Plan, the 1996 ISO Plan and the 1997
Incentive Plan shall retain the designation as either an incentive
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stock option that satisfies the requirements of Section 422 of the Code or as a
nonqualified stock option that does not satisfy the requirements of Section 422
of the Code.
5.2 OPTION PRICE. The price at which Stock may be purchased under an
Incentive Option shall not be less than the greater of: (a) 100% of the Fair
Market Value of the shares of Stock on the date the Option is granted or (b) the
aggregate par value of the shares of Stock on the date the Option is granted.
The Board in its discretion may provide that the price at which shares of Stock
may be purchased under an Incentive Option shall be more than 100% of Fair
Market Value. In the case of any 10% Stockholder, the price at which shares of
Stock may be purchased under an Incentive Option shall not be less than 110% of
the Fair Market Value of the Stock on the date the Incentive Option is granted.
The price at which shares of Stock may be purchased under a
Nonqualified Option may be less than the Fair Market Value of the shares of
Stock on the date the Option is granted. The Board in its discretion may provide
that the price at which shares of Stock may be purchased under a Nonqualified
Option shall be more than 100% of Fair Market Value.
5.3 DURATION OF OPTIONS. No Option shall be exercisable after the
expiration of 10 years from the date the Option is granted. A Reload Option
shall have a term which is no longer than the original term of the underlying
Option unless it is expressly provided otherwise in the Option Agreement. In the
case of a 10% Stockholder, no Incentive Option shall be exercisable after the
expiration of five years from the date the Incentive Option is granted.
5.4 AMOUNT EXERCISABLE. Each Option is exercisable, in whole or in
part, in the manner and subject to the conditions the Board of Directors, in its
sole discretion, may provide in the Option Agreement, as long as the Option is
valid and outstanding.
To the extent that the aggregate Fair Market Value (determined
as of the time an Incentive Option is granted) of the Stock with respect to
which Incentive Options first become exercisable by the Employee during any
calendar year (under this Plan and any other incentive stock option plan(s) of
the Company or any Affiliate) exceeds $100,000, the Incentive Options shall be
treated as Nonqualified Options. In making this determination, Incentive Options
shall be taken into account in the order in which they were granted. If an
Incentive Option is not exercised within specified time limits prescribed by the
Code, it shall become a Nonqualified Option by operation of law.
Solely with respect to the 1997 Incentive Plan Options, unless
otherwise provided by the Board in a 1997 Incentive Plan Option Agreement, all
conditions and restrictions relating to a 1997 Incentive Plan Option, including
limitations on exercisability, risks of forfeiture and conditions and
restrictions requiring the continued performance of services or the achievement
of performance objectives with respect to the exercisability or settlement of
such 1997 Incentive Plan Option, shall immediately lapse upon a Change of
Control. Solely with respect to 1997 Incentive Plan Options, a Change of Control
shall be deemed to have occurred if any person, other than the Company or an
employee benefit plan of the Company, acquires directly or indirectly, the
beneficial ownership, as defined in Section 13(d) of the Exchange Act, of any
voting security of the Company and
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immediately after such acquisition, such person is directly or directly the
beneficial owner of voting securities representing 50% or more of the total
voting power of all of the then-outstanding voting securities of the Company. In
addition, all shares of Stock granted pursuant to the exercise of the 1997
Incentive Plan Option shall be subject to the terms of any shareholder's
agreement entered into by the Company concurrent with, or prior to the grant of
any 1997 Incentive Plan Option. Furthermore, no fractional shares of stock shall
be issued or delivered pursuant to any 1997 Incentive Plan Option. The Board
shall determine whether cash or other Options or other property shall be issued
or paid in lieu of such fractional shares or whether such fractional or any
rights thereto shall be forfeited or otherwise eliminated.
5.5 EXERCISE OF OPTIONS. Each Option shall be exercised by the delivery
of written notice to the Board setting forth the number of shares of Stock with
respect to which the Option is to be exercised, together with: (a) cash,
certified check, bank draft, or postal or express money order payable to the
order of the Company for an amount equal to the option price of the shares, (b)
Stock at its Fair Market Value on the date of exercise, (c) an election to have
shares of Stock, which otherwise would be issued on exercise, withheld in
payment of the exercise price and/or to satisfy any income tax withholding
obligation, (d) any combination of (a), (b), or (c), and/or (e) any other form
of payment which is acceptable to the Board of Directors, and specifying the
address to which the certificates for the shares are to be mailed.
With respect to the exercise of Corporate Plan Options and
1996 ISO Plan Options, the Employee must pay the option price solely with cash.
With respect to 1997 Incentive Plan Options, the Board shall determine the time
or times at which a 1997 Incentive Plan Option may be exercised in whole or in
part, the methods by which such exercise price may be paid or deemed to be paid,
the form of such payment, including, without limitation, cash, Stock, other
options or awards granted under other Company plans or other property, including
notes or other contractual obligations of employees to make payment on a
deferred basis, such as through "cashless exercise" arrangements, to the extent
permitted by applicable law, and the methods by which Stock will be delivered or
deemed to be delivered to employees.
As promptly as practicable after receipt of written
notification and payment, the Company shall deliver to the Employee certificates
for the number of shares with respect to which the Option has been exercised,
issued in the Employee's name. If shares of Stock are used in payment, the
aggregate Fair Market Value of the shares of Stock tendered must be equal to or
less than the aggregate exercise price of the shares being purchased upon
exercise of the Option, and any difference must be paid by cash, certified
check, bank draft, or postal or express money order payable to the order of the
Company. Delivery of the shares shall be deemed effected for all purposes when a
stock transfer agent of the Company shall have deposited the certificates in the
United States mail, addressed to the Employee, at the address specified by the
Employee.
Whenever an Option is exercised by exchanging shares of Stock
owned by the Employee, the Employee shall deliver to the Company certificates
registered in the name of the Employee representing a number of shares of Stock
legally and beneficially owned by the Employee, free of all liens, claims, and
encumbrances of every kind, accompanied by stock powers duly endorsed in blank
by the record holder of the shares represented by the certificates (with
signature
-11-
<PAGE> 15
guaranteed by a commercial bank or trust company or by a brokerage firm having a
membership on a registered national stock exchange). The delivery of
certificates upon the exercise of Options is subject to the condition that the
person exercising the Option provide the Company with the information the
Company might reasonably request pertaining to exercise, sale or other
disposition. The Board may provide that a legend or restriction be printed on
the certificate as the Board determines is necessary, in its discretion, to
comply with applicable laws.
5.6 EXERCISE ON TERMINATION OF EMPLOYMENT. Unless it is expressly
provided otherwise in the Option Agreement, Options shall terminate one day less
than three months after severance of employment of the Employee from the Company
and all Affiliates for any reason, with or without cause, other than death,
retirement under the then established rules of the Company, or severance for
disability. Whether authorized leave of absence or absence on military or
government service shall constitute severance of the employment of the Employee
shall be determined by the Board at that time.
In determining the employment relationship between the Company
and the Employee, employment by any Affiliate shall be considered employment by
the Company, as shall employment by a corporation issuing or assuming a stock
option in a transaction to which Section 424(a) of the Code applies, or by a
parent corporation or subsidiary corporation of the corporation issuing or
assuming a stock option (and for this purpose, the phrase "corporation issuing
or assuming a stock option" shall be substituted for the word "Company" in the
definitions of parent corporation and subsidiary corporation in Section 2.1, and
the parent-subsidiary relationship shall be determined at the time of the
corporate action described in Section 424(a) of the Code).
DEATH. If, before the expiration of an Option, the Employee,
whether in the employ of the Company or after he has retired or was severed for
disability, dies, the Option shall become fully vested and shall continue until
the earlier of the Option's expiration date or one year following the date of
his death, unless it is expressly provided otherwise in the Option Agreement.
After the death of the Employee, his executors, administrators or any persons to
whom his Option may be transferred by will or by the laws of descent and
distribution shall have the right, at any time prior to the Option's expiration
or termination, whichever is earlier, to exercise the Option in full unless it
is expressly provided otherwise in the Option Agreement.
RETIREMENT. Unless it is expressly provided otherwise in the
Option Agreement, before the expiration of an Incentive Option, the Employee
shall be retired in good standing from the employ of the Company under the then
established rules of the Company, the Incentive Option shall terminate on the
earlier of the Option's expiration date or one year after his retirement;
provided, if an Incentive Option is not exercised within specified time limits
prescribed by the Code, it shall become a Nonqualified Option by operation of
law.
Unless it is expressly provided otherwise in the Option
Agreement, if before the expiration of a Nonqualified Option, the Employee shall
be retired in good standing from the employ of the Company under the then
established rules of the Company, the Nonqualified Option shall terminate on the
earlier of the Nonqualified Option's expiration date or one year after his
retirement.
-12-
<PAGE> 16
In the event of retirement, the Employee shall have the right
prior to the termination of the Option to exercise the Option, to the extent to
which he was entitled to exercise it immediately prior to his retirement, unless
it is expressly provided otherwise in the Option Agreement.
DISABILITY. If, before the expiration of an Option, the
Employee shall be severed from the employ of the Company for disability, the
Option shall terminate on the earlier of the Option's expiration date or one
year after the date he was severed because of disability, unless it is expressly
provided otherwise in the Option Agreement. In the event that the Employee shall
be severed from the employ of the Company for disability, the Employee shall
become fully vested in his Option and have the right prior to the termination of
the Option to exercise the Option in full unless it is expressly provided
otherwise in the Option Agreement. If an Incentive Option is not exercised
within specified time limits prescribed by the Code, it shall become a
Nonqualified Option by operation of law.
Notwithstanding the above, an Option may be amended by the
Board, with the consent of the Employee, to extend the termination date of the
Option, provided such extension shall not exceed a period of 10 years from the
date of the initial grant of the Option.
5.7 EXERCISE OF OPTIONS UNDER THE CORPORATE PLAN, THE 1996 ISO PLAN AND
THE 1997 INCENTIVE PLAN.
(a) CORPORATE PLAN OPTION PROVISIONS. Notwithstanding any
other provision in this Plan, solely with respect to Corporate Plan
Options, upon the death of the optionee, while still employed by
Company, or upon the termination of the Optionee's employment with
Company, any Option exercisable on the date of death or termination may
be exercised by the Optionee or the Optionee's estate, as the case may
be, provided that such exercise occurs within both the remaining option
term of the Option and no later than 24 months after the date of the
Optionee's death, or the date of Optionee's termination of employment
with the Company, whichever occurs first.
(b) 1996 ISO PLAN. Solely with respect to Options exercisable
under the 1996 ISO Plan, upon the Employee's death while still employed
by the Company, any 1996 ISO Plan Option exercisable on the date of
death may be exercised by the Optionee's estate or by a person who
acquires the right to exercise such 1996 ISO by bequest or inheritance
by reason of the death of the Optionee, provided that such exercise
occurs within both the remaining option term of the 1996 ISO Plan
Option and six months after the Optionee's death. Except as provided in
the immediately preceding sentence, all 1996 ISO Plan Options shall
immediately terminate on the date of termination of the Employee's
employment with the Company.
(c) 1997 INCENTIVE PLAN. See Section 5.5 of the Plan.
5.8 RELOAD OPTIONS. From time to time, the Board may grant Reload
Options to Employees. The time of grant of a Reload Option shall be the time the
Employee surrenders the
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<PAGE> 17
shares of Stock with respect to which the Reload Option is granted. The Reload
Option shall be for the number of shares of Stock surrendered by the Employee as
payment upon the exercise of the previously granted Option. The Reload Option
shall be subject to the following restrictions: (a) the Reload Option shall be
subject to the same restrictions on exercise and other Plan rules that are
imposed on the underlying Option which contained the Reload Option feature; and
(b) the Reload Option shall not be exercisable until the expiration of any
retention holding period imposed on the disposition of any shares of Stock
covered by the underlying Option which contained the Reload Option Feature
unless it is expressly provided otherwise in the Option Agreement.
5.9 SUBSTITUTION OPTIONS. Options may be granted under this Plan from
time to time in substitution for stock options held by employees of other
corporations who are about to become employees of or affiliated with the Company
or any Affiliate as the result of a merger or consolidation of the employing
corporation with the Company or any Affiliate, or the acquisition by the Company
or any Affiliate of the assets of the employing corporation, or the acquisition
by the Company or any Affiliate of stock of the employing corporation as the
result of which it becomes an Affiliate of the Company. The terms and conditions
of the substitute Options granted may vary from the terms and conditions set out
in this Plan to the extent the Board, at the time of grant, may deem appropriate
to conform, in whole or in part, to the provisions of the stock options in
substitution for which they are granted.
5.10 NO RIGHTS AS STOCKHOLDER. No Employee shall have any rights as a
stockholder with respect to Stock covered by his Option until the date a stock
certificate is issued for the Stock.
ARTICLE VI
STOCK AWARDS
6.1 STOCK AWARDS. The Board may issue shares of Restricted Stock to an
eligible employee subject to the terms of a Restricted Stock Agreement. The
Restricted Stock may be issued for no payment by the Employee or for a payment
below the Fair Market Value on the date of grant. Restricted Stock shall be
subject to restrictions as to sale, transfer, alienation, pledge or other
encumbrance and generally will be subject to vesting over a period of time
specified in the Restricted Stock Agreement. The Board shall determine the
period of vesting, the number of shares, the price, if any, of Stock included in
a Stock Award, and the other terms and provisions which are included in a
Restricted Stock Agreement. In the discretion of the Board, a Restricted Stock
Award may be made as a grant of Restricted Stock or as a right to receive stock
(or their cash equivalent or a combination of both) in the future.
6.2 RESTRICTIONS. Restricted Stock shall be subject to the terms and
conditions as determined by the Board, including without limitation any or all
of the following:
(a) a prohibition against the sale, transfer, alienation,
pledge or other encumbrance of the shares of Restricted Stock, such prohibition
to lapse at such time or times as the
-14-
<PAGE> 18
Board shall determine (whether in annual or more frequent installments, at the
time of the death, disability or retirement of the holder of such shares, or
otherwise);
(b) a requirement that the holder of shares of Restricted
Stock forfeit, or in the case of shares sold to an Employee, resell back to the
Company at his cost, all or a part of such shares in the event of termination of
the holder's employment during any period in which the shares remain subject to
restrictions;
(c) a prohibition against employment of the holder of
Restricted Stock by any competitor of the Company or its Affiliates, or against
such holder's dissemination of any secret or confidential information belonging
to the Company or an Affiliate;
(d) unless stated otherwise in the Restricted Stock Agreement,
(i) if restrictions remain at the time of severance of employment with the
Company and all Affiliates, other than for reason of disability or death, the
Restricted Stock shall be forfeited; and (ii) if severance of employment is by
reason of disability or death, the restrictions on the shares shall lapse and
the Employee or his heirs or estate shall be 100% vested in the shares subject
to the Restricted Stock Agreement.
Notwithstanding (a) above, an Employee may transfer Restricted Stock to
an Immediate Family Member (as defined in Section 4.3) or an entity controlled
by the Employee or an Immediate Family Member provided, however, no further
transfer shall be made except for a transfer back to such Employee or such other
transfer which may be approved by the President of the Company. For this
purpose, "Immediate Family Member" means an Employee's children, grandchildren
or spouse, or a trust for the benefit of such Immediate Family Member.
6.3 STOCK CERTIFICATE. Shares of Restricted Stock shall be registered
in the name of the Employee receiving the Stock Award and deposited, together
with a stock power endorsed in blank, with the Company. Each such certificate
shall bear a legend in substantially the following form:
The transferability of this certificate and the shares of Stock
represented by it is restricted by and subject to the terms and
conditions (including conditions of forfeiture) contained in the
BindView Development Corporation Omnibus Incentive Plan, and an
agreement entered into between the registered owner and the Company,
including any shareholders agreement. A copy of the Plan and agreement
is on file in the office of the Secretary of the Company.
6.4 RIGHTS AS STOCKHOLDER. Subject to the terms and conditions of the
Plan, each Employee receiving a certificate for Restricted Stock shall have all
the rights of a stockholder with respect to the shares of Stock included in the
Stock Award during any period in which such shares are subject to forfeiture and
restrictions on transfer, including without limitation, the right to vote such
shares. Dividends paid with respect to shares of Restricted Stock in cash or
property other than stock in the Company or rights to acquire stock in the
Company shall be paid to the Employee currently. Dividends paid in stock in the
Company or rights to acquire stock in the Company shall be added to and become a
part of the Restricted Stock.
-15-
<PAGE> 19
6.5 LAPSE OF RESTRICTIONS. At the end of the time period during which
any shares of Restricted Stock are subject to forfeiture and restrictions on
sale, transfer, alienation, pledge, or other encumbrance, such shares shall vest
and will be delivered in a certificate, free of all restrictions, to the
Employee or to the Employee's legal representative, beneficiary or heir;
provided the certificate shall bear such legend, if any, as the Board determines
is reasonably required by applicable law. By accepting a Stock Award and
executing a Restricted Stock Agreement, the Employee agrees to remit when due
any federal and state income and employment taxes required to be withheld.
6.6 RESTRICTION PERIOD. No Stock Award may provide for restrictions
continuing beyond 10 years from the date of the Stock Award.
ARTICLE VII
ADMINISTRATION
This Plan shall be administered by the Board. All questions of
interpretation and application of the Plan, Options or Stock Awards shall be
subject to the determination of the Board. A majority of the members of the
Board shall constitute a quorum. All determinations of the Board shall be made
by a majority of its members. Any decision or determination reduced to writing
and signed by a majority of the members shall be as effective as if it had been
made by a majority vote at a meeting properly called and held. This Plan shall
be administered in such a manner as to permit the Options granted under it which
are designated to be Incentive Options to qualify as Incentive Options. In
carrying out its authority under this Plan, the Board shall have full and final
authority and discretion, including but not limited to the following rights,
powers and authorities, to:
(a) determine the Employees to whom and the time or times at which
Options or Stock Awards will be made,
(b) determine the number of shares and the purchase price of Stock
covered in each Option or Stock Award, subject to the terms of the Plan,
(c) determine the terms, provisions and conditions of each Option
and Stock Award, which need not be identical,
(d) accelerate the time at which any outstanding Option may be
exercised,
(e) define the effect, if any, on an Option or Stock Award of the
death, disability, retirement, or termination of employment of the Employee,
(f) prescribe, amend and rescind rules and regulations relating to
administration of the Plan, and
(g) make all other determinations and take all other actions deemed
necessary, appropriate, or advisable for the proper administration of this Plan.
-16-
<PAGE> 20
The actions of the Board in exercising all of the rights, powers, and
authorities set out in this Article and all other Articles of this Plan, when
performed in good faith and in its sole judgment, shall be final, conclusive and
binding on all parties.
ARTICLE VIII
AMENDMENT OR TERMINATION OF PLAN
The Board of Directors of the Company may amend, terminate or
suspend this Plan at any time, in its sole and absolute discretion; provided,
however, that to the extent required to qualify this Plan under Rule 16b-3
promulgated under Section 16 of the Exchange Act, no amendment that would (a)
materially increase the number of shares of Stock that may be issued under this
Plan, (b) materially modify the requirements as to eligibility for participation
in this Plan, or (c) otherwise materially increase the benefits accruing to
participants under this Plan, shall be made without the approval of the
Company's stockholders; provided further, however, that to the extent required
to maintain the status of any Incentive Option under the Code, no amendment that
would (a) change the aggregate number of shares of Stock which may be issued
under Incentive Options, (b) change the class of employees eligible to receive
Incentive Options, or (c) decrease the Option price for Incentive Options below
the Fair Market Value of the Stock at the time it is granted, shall be made
without the approval of the Company's stockholders. Subject to the preceding
sentence, the Board shall have the power to make any changes in the Plan and in
the regulations and administrative provisions under it or in any outstanding
Incentive Option as in the opinion of counsel for the Company may be necessary
or appropriate from time to time to enable any Incentive Option granted under
this Plan to continue to qualify as an incentive stock option or such other
stock option as may be defined under the Code so as to receive preferential
federal income tax treatment.
ARTICLE IX
MISCELLANEOUS
9.1 NO ESTABLISHMENT OF A TRUST FUND. No property shall be set aside
nor shall a trust fund of any kind be established to secure the rights of any
Employee under this Plan. All Employees shall at all times rely solely upon the
general credit of the Company for the payment of any benefit which becomes
payable under this Plan.
9.2 NO EMPLOYMENT OBLIGATION. The granting of any Option or Stock Award
shall not constitute an employment contract, express or implied, nor impose upon
the Company or any Affiliate any obligation to employ or continue to employ any
Employee. The right of the Company or any Affiliate to terminate the employment
of any person shall not be diminished or affected by reason of the fact that an
Option or Stock Award has been granted to him.
-17-
<PAGE> 21
9.3 FORFEITURE. Notwithstanding any other provisions of this Plan, if
the Board finds by a majority vote after full consideration of the facts that
the Employee, before or after termination of his employment with the Company or
an Affiliate for any reason (a) committed or engaged in fraud, embezzlement,
theft, commission of a felony, or proven dishonesty in the course of his
employment by the Company or an Affiliate, which conduct damaged the Company or
Affiliate, or disclosed trade secrets of the Company or an Affiliate, or (b)
participated, engaged in or had a material, financial or other interest, whether
as an employee, officer, director, consultant, contractor, stockholder, owner,
or otherwise, in any commercial endeavor which is competitive with the business
of the Company or an Affiliate without the written consent of the Company or
Affiliate, the Employee shall forfeit all outstanding Options and all
outstanding Restricted Stock, and including all exercised Options and other
situations pursuant to which the Company has not yet delivered a stock
certificate. Clause (b) shall not be deemed to have been violated solely by
reason of the Employee's ownership of stock or securities of any publicly owned
corporation, if that ownership does not result in effective control of the
corporation.
The decision of the Board as to the cause of the Employee's
discharge, the damage done to the Company or an Affiliate, and the extent of the
Employee's competitive activity shall be final. No decision of the Board,
however, shall affect the finality of the discharge of the Employee by the
Company or an Affiliate in any manner.
9.4 TAX WITHHOLDING. The Company or any Affiliate shall be entitled to
deduct from other compensation payable to each Employee any sums required by
federal, state, or local tax law to be withheld with respect to the grant or
exercise of an Option or lapse of restrictions on Restricted Stock. In the
alternative, the Company may require the Employee (or other person exercising
the Option or receiving the Restricted Stock) to pay the sum directly to the
employer corporation. If the Employee (or other person exercising the Option or
receiving the Restricted Stock) is required to pay the sum directly, payment in
cash or by check of such sums for taxes shall be delivered within 10 days after
the date of exercise or lapse of restrictions. The Company shall have no
obligation upon exercise of any Option or lapse of restrictions on Restricted
Stock until payment has been received, unless withholding (or offset against a
cash payment) as of or prior to the date of exercise or lapse of restrictions is
sufficient to cover all sums due with respect to that exercise. The Company and
its Affiliates shall not be obligated to advise an Employee of the existence of
the tax or the amount which the employer corporation will be required to
withhold.
9.5 WRITTEN AGREEMENT. Each Option and Stock Award shall be embodied in
a written Option Agreement or Restricted Stock Agreement which shall be subject
to the terms and conditions of this Plan and shall be signed by the Employee and
by a member of the Board on behalf of the Board and the Company or an executive
officer of the Company other than the Employee on behalf of the Company. The
Option Agreement or Restricted Stock Agreement may contain any other provisions
that the Board in its discretion shall deem advisable which are not inconsistent
with the terms of this Plan. This Plan and all shares of stock or stock
equivalents granted pursuant hereto shall be subject to the terms of any
shareholders agreement entered into by the Company concurrent, or prior to, the
grant of any Option hereunder.
-18-
<PAGE> 22
9.6 INDEMNIFICATION OF THE BOARD AND THE BOARD OF DIRECTORS. With
respect to administration of this Plan, the Company shall indemnify each present
and future member of the Board and the Board of Directors against, and each
member of the Board and the Board of Directors shall be entitled without further
act on his part to indemnity from the Company for, all expenses (including
attorney's fees, the amount of judgments and the amount of approved settlements
made with a view to the curtailment of costs of litigation, other than amounts
paid to the Company itself) reasonably incurred by him in connection with or
arising out of any action, suit, or proceeding in which he may be involved by
reason of his being or having been a member of the Board and/or the Board of
Directors, whether or not he continues to be a member of the Board and/or the
Board of Directors at the time of incurring the expenses -- including, without
limitation, matters as to which he shall be finally adjudged in any action, suit
or proceeding to have been found to have been negligent in the performance of
his duty as a member of the Board or the Board of Directors. However, this
indemnity shall not include any expenses incurred by any member of the Board
and/or the Board of Directors in respect of matters as to which he shall be
finally adjudged in any action, suit or proceeding to have been guilty of gross
negligence or willful misconduct in the performance of his duty as a member of
the Board and the Board of Directors. In addition, no right of indemnification
under this Plan shall be available to or enforceable by any member of the Board
and the Board of Directors unless, within 60 days after institution of any
action, suit or proceeding, he shall have offered the Company, in writing, the
opportunity to handle and defend same at its own expense. This right of
indemnification shall inure to the benefit of the heirs, executors or
administrators of each member of the Board and the Board of Directors and shall
be in addition to all other rights to which a member of the Board and the Board
of Directors may be entitled as a matter of law, contract, or otherwise.
9.7 GENDER. If the context requires, words of one gender when used in
this Plan shall include the others and words used in the singular or plural
shall include the other.
9.8 HEADINGS. Headings of Articles and Sections are included for
convenience of reference only and do not constitute part of the Plan and shall
not be used in construing the terms of the Plan.
9.9 OTHER COMPENSATION PLANS. The adoption of this Plan shall not
affect any other stock option, incentive or other compensation or benefit plans
in effect for the Company or any Affiliate, nor shall the Plan preclude the
Company from establishing any other forms of incentive or other compensation for
employees of the Company or any Affiliate.
9.10 OTHER OPTIONS OR AWARDS. The grant of an Option or Stock Award
shall not confer upon the Employee the right to receive any future or other
Options or Stock Awards under this Plan, whether or not Options or Stock Awards
may be granted to similarly situated Employees, or the right to receive future
Options or Stock Awards upon the same terms or conditions as previously granted.
9.11 GOVERNING LAW. The provisions of this Plan shall be construed,
administered, and governed under the laws of the State of Texas.
-19-
<PAGE> 23
9.12 NO MODIFICATION, EXTENSION, OR RENEWAL OF CORPORATE PLAN OPTIONS,
1996 ISO PLAN OPTIONS, AND 1997 INCENTIVE PLAN OPTIONS. Notwithstanding any
provision in this Plan to the contrary, no provision of this Plan is intended to
modify, extend or renew any Corporate Plan Option, 1996 ISO Plan Option and 1997
Incentive Plan Option. Any provision in this Plan that is contrary to a
provision in the Corporate Plan Option, 1996 ISO Plan Option and 1997 Incentive
Plan Option that would create a modification, extension or renewal of such
option is hereby incorporated into this Plan. All terms, conditions and
limitations, if any, that are set forth in any previously granted option
agreement shall remain in full force and effect under the terms of the Plan
pursuant to which it was issued.
9.13 CONFORMING AMENDMENTS TO OPTIONS ISSUED UNDER THE CORPORATE PLAN,
1996 ISO PLAN AND 1997 INCENTIVE PLAN ON AND AFTER THE EFFECTIVE DATE OF THIS
SECTION 9.13. Notwithstanding any provision in this Plan to the contrary, all
options issued under the Corporate Plan, the 1996 ISO Plan and the 1997
Incentive Plan on and after the effective date of this Section 9.13 shall be
subject to the same terms and conditions to those options that are issued under
Section 4.2 of the Plan.
-20-
<PAGE> 1
EXHIBIT 11
BINDVIEW DEVELOPMENT CORPORATION
STATEMENT REGARDING COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
QUARTER NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------ ------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income (loss) $ 2,908 $ 159 $ 3,269 $ (1,053)
========== ========== ========== ==========
Shares used in basis calculation
Total basic shares 23,089 18,372 22,442 12,051
Additional shares for diluted computation:
Effect of stock options 2,118 3,360 2,425 2,975
Effect of warrants 18 183 14 640
Effect of convertible preferred stock and debentures -- 1,507 -- 4,864
Exclusion of share equivalents that are anti-dilutive
because a loss was incurred -- -- -- (8,479)
---------- ---------- ---------- ----------
Total diluted shares 25,225 23,422 24,881 12,051
========== ========== ========== ==========
Earnings (loss) per common share
Basic $ 0.13 $ 0.01 $ 0.15 $ (0.09)
Diluted $ 0.12 $ 0.01 $ 0.13 $ (0.09)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 41,239
<SECURITIES> 14,627
<RECEIVABLES> 11,762
<ALLOWANCES> 557
<INVENTORY> 0
<CURRENT-ASSETS> 72,392
<PP&E> 11,687
<DEPRECIATION> 4,290
<TOTAL-ASSETS> 88,785
<CURRENT-LIABILITIES> 11,864
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 76,920
<TOTAL-LIABILITY-AND-EQUITY> 88,785
<SALES> 18,209
<TOTAL-REVENUES> 18,209
<CGS> 979
<TOTAL-COSTS> 13,427
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,628
<INCOME-TAX> 1,720
<INCOME-CONTINUING> 2,908
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,908
<EPS-BASIC> 0.13
<EPS-DILUTED> 0.12
</TABLE>
