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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
COMMISSION FILE NUMBER 000-24677
BINDVIEW DEVELOPMENT CORPORATION
(Exact name of registrant as specified in its charter)
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TEXAS 76-0306721
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5151 SAN FELIPE, 21ST FLOOR, HOUSTON, TX 77056
(Address of principal executive offices) (Zip code)
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(713) 561-3000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, no par value per share NASDAQ National Market
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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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant on February 29, 2000 (assuming all officers and directors are
affiliates and based on the last sale price on the NASDAQ Stock Exchange as of
such date) was approximately $1,250,000,000.
The number of shares of the registrant's common stock, no par value per
share, outstanding as of February 29, 2000 was 51,294,088.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the Registrant's 2000 Annual
Meeting of Stockholders are incorporated by reference into Part III hereof.
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PART I
ITEM 1. BUSINESS
OVERVIEW
BindView develops, markets and supports a suite of IT Risk Management
solutions that manage the safety, integrity and availability of complex networks
operating on Microsoft Windows NT and Novell NetWare environments. BindView
solutions reduce the overall risk and Total Cost of Ownership of an enterprise's
business and e-business infrastructure. Our primary product line, the BindView
EMS software, provides software solutions for systems administration, security
management and enterprise inventory of local area network ("LAN") assets. The
BindView EMS software can be used by network administrators, security auditors
and other information technology ("IT") personnel to proactively identify,
diagnose and, in many cases, fix a wide range of systems management problems,
allowing organizations to reduce the Total Cost of Ownership of enterprise
computing before it negatively impacts the business or e-business
infrastructure. As a result of the acquisition of Entevo Corporation in February
2000, BindView enhances its offering by providing a complete administration
suite for managing multiple Network Operating Systems (NOS) and Enterprise
Directories that form the backbone of the evolving e-business infrastructure.
THE BINDVIEW SOLUTION
BindView EMS can be used proactively to diagnose, and in many cases fix, a
wide range of specific problems occurring in Windows NT and NetWare
environments. In addition, BindView EMS is built to scale with networks as they
grow enterprise-wide. BindView EMS provides customers with products that are
both easy to use and easy to deploy enterprise-wide.
PROACTIVE, QUERY-BASED SYSTEMS MANAGEMENT
We offer a query-based approach to systems management for Windows NT and
NetWare environments. The query-based approach provides systems administrators,
security auditors and other IT professionals with a simple, graphical user
interface ("GUI") for asking questions, or "queries," about the configuration
and security of the network operating system ("NOS") environment. This approach
provides a framework for proactive management of the NOS environment. Rather
than waiting for an event or alarm to occur, the systems administrator can
locate, and in many cases fix, issues with the configuration and security of the
network before they turn into problems. For IT organizations with existing event
management systems, we provide a diagnostic tool to help find the root cause of
a NOS-related problem when an alarm is triggered. The query-based approach can
perform diagnostic and reporting tasks in a matter of minutes that previously
might have taken hours or even days to complete. In addition, the modular
architecture of this query-based technology facilitates the development of new
add-on products. We believe this provides us with a competitive advantage in the
development of future applications. The ease and proactive nature of BindView
solutions are critical for many e-business and e-commerce companies where
security issues are paramount.
COMPREHENSIVE IN SCOPE
BindView EMS addresses a wide range of system administration and security
issues, including file server management, user and group administration, disk
space management and management of directory services. All of the critical
configuration parameters and security settings of Windows NT and NetWare network
operating systems are made available through the simple user interface of
BindView EMS. As a result, BindView EMS empowers a broader group of IT
personnel, rather than just a limited number of IT experts, to solve problems
quickly by providing a way to automate the labor-intensive tasks necessary to
ensure the integrity and security of enterprise servers, applications and users.
ARCHITECTED TO SCALE
BindView EMS has been designed to manage both workgroup LANs as well as
enterprise-wide networks that are frequently geographically dispersed. Customers
often purchase BindView EMS to manage one or two
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workgroups and then over time purchase more products to manage their LANs as
they grow to enterprise-wide, distributed networks. BindView EMS is used
routinely to manage networks ranging from tens to tens of thousands of users. A
Fortune 25 consumer goods company, for example, uses BindView EMS to manage over
70,000 users on its global NetWare-based network.
NATIVE TO EACH ENVIRONMENT
Each of our products for managing Windows NT and NetWare operating systems
has an agent architecture designed to match its particular environment and to
exploit the unique features of each platform. The object-oriented architecture
of our products separates the user interface from the back-end data gathering
modules. This approach allows us to build each of these modules to be native to
the specific platform it supports. Our products are not programmed with a "least
common denominator" approach across heterogeneous platforms. We believe this
enables us to build "best-of-breed" products for managing and exploiting each
operating environment.
EASY TO DEPLOY, MAINTAIN AND USE
Our products are built to be both easy to install and easy to use. In
addition to being easy to install on a single server or workstation, our
products can be rapidly deployed enterprise-wide. Our systems administration and
security products can typically be deployed enterprise-wide in a matter of days,
and our enterprise inventory product can typically be deployed enterprise-wide
in a matter of weeks. Our products are also designed to be easy to upgrade and
maintain on an ongoing basis following initial deployment. As a result,
customers can rapidly implement and utilize our products with minimal training,
thereby reducing their total cost of ownership without overburdening the
customer's IT personnel.
STRATEGY
Our objective is to be the leading provider of IT RISK Management software
for enterprise networks. Key elements of our strategy to achieve these
objectives include:
Enhance Leadership Position in Security Assessment Software. We
believe we are currently a leading vendor for Windows NT and NetWare-based
security assessment software, both in product sales and technology
leadership. We will continue our research and development efforts to
maintain our technology leadership in comprehensive security assessments of
Windows NT and NetWare networks.
Enhance Systems Management Capabilities. We intend to add new
capabilities to our modules for managing Windows NT and NetWare-based
networks. These capabilities include new user interface components and
analysis tools for presenting information to BindView EMS users in more
meaningful ways and new features for managing the performance and
availability of network components. We also intend to continue to make
enhancements allowing customers to proactively fix more problems through
the "ActiveAdmin" features of BindView EMS and additional features specific
to NOSadmin for Windows NT.
Apply Query-Based Management to New Applications. We intend to apply
our query-based management approach to high-growth opportunities and to
introduce high value-added modules for managing a wide variety of critical
applications and services. We are evaluating opportunities to develop new
BindView EMS modules, including those for managing e-mail systems such as
Microsoft Exchange, other operating environments such as UNIX application
servers and other mission-critical, client/server applications such as
electronic commerce servers or SAP R/3.
Expand Direct Telesales Model. We believe our direct telesales
strategy enables us to maintain a low cost sales model and to effectively
track and meet the needs of our customers. We intend to continue to expand
our direct telesales force, both in the United States and internationally.
We also believe we can continue to increase our success rate in achieving
strategic, enterprise-level sales by selling to higher levels of management
of major enterprises.
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Leverage Existing Customer Base. Our products have been sold to over
4,000 customers worldwide, including over 70% of the Fortune 100. Although
we have already sold BindView EMS into some of these companies for
deployment enterprise-wide, many of these organizations have used BindView
EMS only on some of their departmental LANs and have additional networks
which represent sales opportunities for us. We believe we can sell more
deeply within these existing customer sites and sell more products as we
expand our product line.
Strengthen Strategic Relationships. We will continue to strengthen
existing relationships and pursue new relationships with key partners.
Technology partners (including Microsoft, Novell, Computer Associates and
IBM/Tivoli) provide us with product integration and marketing
opportunities. Service providers (including the Big Five accounting firms
and, systems integrators) provide us with distribution opportunities, as
well as implementation and project management leverage.
PRODUCTS AND TECHNOLOGY
Our primary product line is BindView EMS, which is designed to provide a
wide range of IT Risk Management capabilities to our customers for use with
their heterogeneous, distributed networks. BindView EMS employs a Windows-based
console to provide scalable and comprehensive systems management solutions.
BindView EMS utilizes an object-oriented architecture enabling the management of
a wide variety of network operating systems and managed objects to be supported
through snap-in modules. These snap-in modules are sold either separately or as
a "suite". Each snap-in module to the Enterprise Console software increases the
scope of BindView EMS to cover a new set of management issues for a particular
platform. Current snap-in modules for BindView EMS include the NOSadmin series
(for both Windows NT and NetWare) and NETinventory. The Enterprise Console
provides an effective set of tools that work across all snap-in modules.
Central to the BindView EMS architecture is the Universal Data Processing
Engine ("UDPE") which enables the query-processing capabilities of BindView EMS
by utilizing an object-oriented design which separates the common components of
the Enterprise Console from the specific features and platforms of the snap-in
modules. The UDPE provides a querying engine that gathers data from across the
network and presents the query results to the user through the Enterprise
Console. Query results may be displayed in a variety of meaningful ways,
including tabular spreadsheets, printed reports, graphs and charts, or may be
exported to over a dozen popular formats, including those viewable through
e-mail or a web browser. The user can create queries from scratch, or can select
a predefined query from an initial set of over one hundred sample reports
supplied "out-of-the-box" with BindView EMS. Once queries have been created,
they can be saved to build a suite of management reports monitoring the
deployment of "best practices" and IT-mandated policies across the network.
With this architecture, BindView EMS enables the management of
heterogeneous, distributed networks through a common GUI. Customers typically
purchase one Enterprise Console per administrator and one or more snap-in
modules to manage their particular network, often including both NOSadmin for
NetWare and NOSadmin for Windows NT.
All components of BindView EMS have been developed using industry-standard
compilers, development tools and languages, including C, C++, Java and Assembly
for Intel hardware platforms.
Enterprise Console
The Enterprise Console software is the central component and user interface
of BindView EMS. It provides a common tool-set used by security auditors and
network administrators for the analysis, reporting, policy management and
automated administration of enterprise resources and assets. The Enterprise
Console's query-based approach provides the ability to ask questions,
automatically collect the data necessary to answer those questions, present the
answers in meaningful ways and, in some instances (where ActiveAdmin and other
features are available), make necessary corrections while documenting any
required changes. We are working to add and expand ActiveAdmin and other
capabilities to future versions of BindView EMS modules, increasing the user's
ability to both diagnose and fix problems from the Enterprise Console.
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NOSadmin Series
The NOSadmin series of software products provides comprehensive security
assessment and systems management across heterogeneous environments. The
NOSadmin series addresses a complete range of systems administration and
security issues, including file server management, user and group
administration, disk space management and management of directory services. All
of the critical configuration parameters and security settings of Windows NT and
NetWare network operating systems are made available through a simple user
interface, without requiring an agent to be placed on every managed server and
workstation. As a result, the NOSadmin series empowers a broader group of IT
personnel, rather than just a limited number of IT experts, to solve problems
quickly by providing them with a way to automate the labor-intensive tasks
necessary to ensure the integrity and security of enterprise servers,
applications and users.
- NOSadmin for Windows NT enables IT professionals to view and analyze
multi-domain Windows NT networks enterprise-wide from a single
administrative console. The product includes the capability to pinpoint a
variety of potential security risks for Windows NT servers and
workstations. In addition, AddPack for NOSadmin for Windows NT enables
users to make changes to the Windows NT NOS configuration and fix
problems from the Enterprise Console. The current version of AddPack
supports managing Windows NT services. In subsequent AddPack updates, we
plan to include support for managing additional aspects of the NOS,
including Windows NT domain user account information.
- NOSadmin for NetWare 3 and NOSadmin for NetWare 4 and 5 provide
comprehensive security and configuration management of NetWare servers
enterprise-wide from a single administrative console. These include the
capability to make changes to the NOS configuration and fix problems
enterprise-wide through a feature called "ActiveAdmin". In addition,
NOSadmin for NetWare 4 and 5 enables management of Novell Directory
Services ("NDS") for a variety of platforms (including NetWare 4 and 5,
Windows NT and UNIX servers).
All NOSadmin modules "snap in" to the Enterprise Console through a
Windows-based Dynamic Link Library ("DLL") that interfaces the snap-in module to
the UDPE. In addition to this snap-in DLL, each NOSadmin module utilizes a
distributed agent architecture that is particular to the native environment that
it supports. The distributed agents for the NOSadmin for Windows NT run as
Windows NT services in each Windows NT domain. The distributed agents for the
NOSadmin for NetWare products run as NetWare Loadable Modules on one or more
NetWare file servers.
NETinventory
The NETinventory software is a scalable, fast and accurate asset management
and inventory analysis tool for large multi-site networks. It extends the
capabilities of BindView EMS to include comprehensive network inventory and
asset tracking for an entire enterprise. As a result, the user can discover,
document and evaluate PC assets throughout the entire enterprise and make
better-informed strategic technology decisions. NETinventory also reduces help
desk costs and response times by providing immediate access to any end-user's
hardware and software configuration changes.
bv-Web
bv-Web software is a Java-based solution that provides a summary view of
risks to network integrity and assets. bv-Web enables faster escalation of
issues through easily customizable warning-level indicators and a summary format
for network security, asset, and operational data. This product allows system
administrators to quickly and efficiently identify and respond to network
security and operational risks using email and paging -- dramatically reducing
the time needed to escalate and fix risks to business-critical operations. It
also enables executive-level management to quickly see a summary of the health
of the network from their Web browsers through easily customizable warning-level
indicators and a summary format for network security, asset, and operational
data.
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bv-LifeLine
The bv-LifeLine series of products provides event notification and response
software into the company's feature-rich BindView EMS software family of systems
management products. bv-LifeLine products provide fully integrated event
notification and response solutions for scheduling, notification, dispatch,
escalation, and response, giving IT personnel the tools they need to respond to
critical events almost immediately.
bv-Control for SAP
bv-Control for SAP improves the management, administration and return on
investment of large SAP installations. This product automates routine changes
and administrative tasks, documents the business reasons for changes, and
provides improved controls. It is a powerful, non-intrusive, solution for
managing the risks inherent in a complex enterprise resource planning
application system that touches many facets of business and it also helps create
the certainty to make intelligent business decisions by limiting exposures,
reducing complexity, and increasing clarity.
bv-Control for Exchange
bv-Control for Microsoft Exchange provides comprehensive configuration,
security, administrative and availability management through a central Microsoft
Management Console without deploying technology on each desktop. This product
effectively pinpoints and identifies risks to the health and integrity of
Microsoft Exchange environments. Constantly monitoring the health and efficiency
of the Microsoft Exchange environment, bv-Control issues alerts to
administrators before users experience system downtime and performance issues.
Service levels are maintained by allowing administrators to effectively pinpoint
and proactively identify problems before they impact the Exchange environment.
HackerShield
HackerShield is a network vulnerability scanner that examines devices on IP
networks for security holes that hackers could use to break-in. For systems and
network administrators who need to ensure that their company's assets are
protected from hackers, HackerShield finds and closes holes that hackers use to
break into servers, workstations and other network devices. HackerShield
examines all IP devices on a network for security holes. While the HackerShield
console is Windows NT based, its database of security checks cover multiple
operating systems (UNIX, Windows, etc.) and multiple devices (routers,
firewalls, servers, workstations, etc.).
DirectManage
Entevo's DirectManage suite is a scalable, fault tolerant solution that
heightens administrative efficiency and productivity, improves customer service
by ensuring integrity and consistency, increases system security and enhances
the ability to assimilate new technologies. DirectManage allows the user to
deploy, integrate, administer, and maintain enterprise directories from a single
console. DirectManage is also the most comprehensive suite for managing
directories before, during and after Windows 2000.
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The following table describes the BindView EMS family.
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BINDVIEW FEATURES/BENEFITS
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Enterprise - The Desktop Manager allows for the delegation of tasks to
Console individuals filling special roles (for example, security
auditors or help desk personnel) by giving them customized
desktops focused on the tasks they perform
- A Query Builder to ask questions about the state of the
network through an easy-to-use GUI
- Spreadsheet and graphics/charting interfaces to view query
results
- A Report Writer to generate presentation-quality Reports
- An export function to export data to over a dozen popular
file formats
NOSadmin - Comprehensive security assessments
for Windows - Configuration analysis of both servers and workstations,
NT Including services, sessions, shares and device drivers
- Network integrity analysis of domain infrastructure,
users, groups, policies and trust relationships between
domains
- A single report can span multiple Windows NT domains for
enterprise-wide analysis of all Windows NT servers and
Workstations
- Documentation and analysis of the values of any registry
Keys across all servers and workstations enterprise-wide
- File system and disk space management
NOSadmin - Comprehensive security assessments
for NetWare 4 and 5 - Management of file server configuration, NetWare Loadable
Modules and "Set" variables
- User and group administration
- File system and disk space management
- Documentation of organizational policies throughout the
Enterprise
- ActiveAdmin for making global changes to system
Configuration
- Management of NDS and ActiveAdmin for making global
changes to NDS
NOSadmin for NetWare 3 - See features/benefits for NOSadmin for NetWare 4 and 5
above, except that it supports NetWare binding services
instead of NDS
NETinventory - Automated discovery and tracking of hardware assets
- Automated detection of over 4,000 software packages
- A three-tiered architecture providing central
administration and synchronization services, with
fault-tolerant collection and distribution of asset
management information
- Management of database integrity across all segments of
the distributed inventory database enterprise-wide
- Generation of complete reports for all PC hardware and
software assets across the enterprise
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BINDVIEW FEATURES/BENEFITS
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bv-Web - Provides a summary view of risks to network integrity and
assets
- E-mail, paging, and custom response capabilities that
dramatically reduces the time needed to escalate and fix
risks to business-critical operations
- Capability to review a summary on the health of the
network through a Web browser
- Easily customizable warning-level indicators
- Summary format for network security, asset, and
operational data
bv-LifeLine - Complete rule-based engine for event routing
- Robust scheduling engine for resource scheduling,
down-time scheduling and delivery method scheduling
- Filtering capabilities to prioritize critical events
- Automatic event escalation
- Remote response capabilities
- Fault-tolerant, multi-tier architecture
- Follow-the-sun capabilities for global organization that
requires 24x7 support
bv-Control for SAP - Define internal controls to meet your business needs
- Prevent unnecessary risks and reduce complexity
- Automate routine system changes and internal controls
- Manage transports through a single point of administration
- Streamline SAP migration and implementation
- Empower business personnel with change and security
information
- Simplify controls with an easy-to-use Web interface
bv-Control for Exchange - Comprehensively document Microsoft Exchange server
configurations, including verification of the latest
service packs and hot fixes that are loaded
- Effectively identify potential security exposures in an
Exchange organization
- Efficiently analyze and report on mailboxes and public
folders
- Automatically scan the content of mailboxes for potential
violation of corporate policies
- Effortlessly produce reports on Microsoft Exchange traffic
statistics
- Quickly identify Microsoft Exchange errors
- Instantly alert administrators when problems occur via
e-mail, pager, console message or network broadcast
Hackershield - Easy-to-use interface
- Examines devices of all types (i.e. servers, workstations,
routes, hubs, printer, etc.) by IP address
- Creates detailed and in depth reports which summarizes the
security holes by severity
- Can detect changes in key system files to identify
potential intrusions
- Finds and closes holes that hackers use to break into
Company servers, workstations and other network devices.
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BINDVIEW FEATURES/BENEFITS
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DirectManage - Able to manage hundreds of Windows NT domains and multiple
Active Directory trees from a single console
- Create custom roles over Windows NTv4 or Windows
2000/Active Directory to delegate granular administrative
responsibility
- Framework that can host multiple LDAP
directories -- enabling management of Novell NDS, Exchange
Server and Active Directory from a single console
- Automate day-to-day administrative tasks
- A comprehensive solution for domain and server
consolidation
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CUSTOMERS
Our products have been sold to over 4,000 customers worldwide, including
over 70% of the Fortune 100. No customer accounted for more than 5% of revenues
in 1999, 1998 or 1997. Our five largest customers represented less than 10% of
our 1999 revenues.
SALES AND MARKETING
We sell our products primarily through a direct telesales force, and, to a
lesser extent, through value-added resellers ("VARs"), distributors and systems
integrators. In addition, we have strategic marketing relationships with
professional service organizations and software vendors that provide us with
increased visibility as well as sales leads.
Direct Telesales
We sell our products primarily through a direct telesales force. We utilize
a direct telesales model that reduces the number of remote sales offices and
customer site visits and focuses on effective use of the telephone and Internet
communications for product demonstrations and product sales. When necessary, our
sales force will also travel to customer locations. We believe our direct
telesales approach allows us to achieve better control of the sales process and
respond rapidly to customer needs, while maintaining an efficient, low-cost
sales model. Sales cycles typically range between as little as three months for
departmental sales and up to 12 months for enterprise-wide contracts.
As of December 31, 1999, our worldwide direct telesales organization
consisted of 174 employees which is comprised of approximately two-thirds quota
carrying sales personnel and one-third sales support staff. The direct telesales
force for North America is based in Houston and accounts for a majority of our
revenues. We also have direct telesales offices in Frankfurt, Germany and Paris,
France. We have increased the size of our direct telesales organization from 125
to 174 individuals over the last year and expect to continue hiring sales
personnel, both domestically and internationally, over the next 12 months.
VARs and Distributors
In addition to our direct telesales strategy, we have established indirect
distribution channels through VARs and distributors. Outside North America,
where we are in the process of developing our direct telesales presence, we rely
heavily on our reseller channel. We have established a network of VARs and
distributors in Europe, Latin America and the Pacific Rim, with the highest
concentration of such distributors being located in European markets.
Our international VARs and distributors typically perform selected
marketing, sales and technical support functions in their country or region.
Each one might distribute direct to the customer, via other resellers or through
a mixture of both channels. We actively train our international VARs and
distributors in both product and sales methodology.
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Systems Integrators and Service Providers
We also market our products through service organizations that help
customers install, manage and secure large Windows NT and NetWare networks. Such
organizations include large systems integrators, outsourcing companies and
security auditing groups in the Big Five accounting firms. Some of these
companies sell our products directly to their end-users, while others license
the products from us and include these products in their standard toolkits used
at their clients' sites.
Marketing Partnerships and Programs
To support our growing sales organization and channel, we have in the last
year devoted significant resources to building a series of marketing
partnerships and programs. We have developed a partnership with IBM/Tivoli for
marketing BindView EMS as a companion product to Tivoli TME 10, as well as
partnerships with other key vendors, including Microsoft, Novell and Computer
Associates. We are a Microsoft Solution Provider and hold "Microsoft Back
Office" certification for our products. We also partner with many of the Big
Five accounting firms to increase awareness of network security issues. Results
of these partnerships in the past year include a seminar series with Ernst &
Young entitled "Issues in Windows NT Security" given in over 25 cities in the
United States and Europe, and a white paper published by the former Coopers &
Lybrand entitled "Evaluating Novell NetWare 4.X Security Using BindView EMS."
In addition, our marketing efforts have resulted in a number of programs,
such as seminars, industry trade shows, vendor executive briefings, analyst and
press tours, advertising and public relations.
CUSTOMER SUPPORT AND PROFESSIONAL SERVICES
We believe that high quality customer support and professional services are
requirements for continued growth and increased sales of our products. We have
made a significant investment in increasing the size of our support and services
organization in the past and plan to continue to do so in the future. As of
December 31, 1999, our customer support and professional services organization
consisted of 33 employees. Customer support personnel provide technical support
by telephone, e-mail and fax, and maintain our Web site and bulletin boards to
complement these services. Technical support for customers is provided at no
charge for 30 days after the product's sale and on a subscription basis
thereafter. Future versions of our products are provided at no extra charge as
part of the subscription service. International offices and resellers extend
this service for overseas customers.
Our professional services group provides product training, consulting and
implementation services for a fee in order to assist customers in maximizing the
benefits of BindView products. In addition, we periodically offer training to
our channel partners and employees.
PRODUCT DEVELOPMENT
We have been and continue to be an innovator and leader in the development
of systems management tools for the LAN marketplace. We believe that a
technically skilled, quality oriented and highly productive software development
organization is a key to the continued success of new product offerings. The
software development staff is also responsible for enhancing our existing
products and expanding our product line. Our product development staff consisted
of 179 and 90 employees as of December 31, 1999 and 1998, respectively. We
expect that we will continue to invest substantial resources in product
development expenditures.
We are currently developing enhancements to existing products as well as
working to develop new products for managing additional applications and
platforms not currently within the scope of BindView EMS. Potential future
applications include other operating system platforms such as UNIX application
servers.
We are also currently developing the next generation of the BindView EMS
product family which we expect to deliver over the next 24 months. We cannot
assure you that these development efforts will be completed within our
anticipated schedules or that, if completed, they will have the features
necessary to make them successful in the marketplace. Moreover, products as
complex as ours may contain undetected errors when first introduced or as new
versions are released. Such undetected errors in new products may be
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found after commencement of commercial shipments, resulting in loss of or delay
in market acceptance. Future delays in the development or marketing of product
enhancements or new products could result in a material adverse effect on our
business, financial condition and results of operations.
COMPETITION
The market in which we compete is intensely competitive and characterized
by rapidly changing technology and evolving standards. Companies offering
competitive products vary in the scope and breadth of the products and services
offered and include the following among others: (i) providers of security
analysis and audit products, such as Axent Technologies, Inc., ODS Networks,
Inc., ISS Group, Inc. and Network Associates, Inc. (ii) providers of standalone
inventory and asset management products such as Tally Systems Corp.; (iii)
providers of LAN desktop management suites, such as Intel Corporation,
Hewlett-Packard Company and Microsoft Corporation;, (iv) providers of event
notification and response technology such as Attention Software, Inc., (v)
providers of Windows NT management and migration tools, such as Mission Critical
Software, FastLane Technologies Inc., and NetIQ Corporation, (vi) providers of
network security scanning technology, such as Network Associates, ISS Group,
Inc. and Axent Technologies and (vii) 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. In
addition, certain management features included in our products compete with the
native tools from Novell, Inc. and third-party tools from certain vendors, such
as Computer Associates, Inc. and other companies. We have experienced, and
expect to continue to experience, increased competition from current and
potential competitors, many of whom have greater name recognition, a larger
installed customer base and significantly greater financial, technical,
marketing, and other resources than us. Such competitors may be able to respond
more quickly to new or emerging technologies and changes in customer
requirements or devote greater resources to the development, promotion and sale
of their products than us. We expect additional competition as other established
and emerging companies enter into the systems management software market and new
products and technologies are introduced. Increased competition could result in
price reductions, fewer customer orders, reduced gross margins, longer sales
cycles and loss of market share, any of which would materially adversely affect
our business, operating results and financial condition.
In addition, vendors of operating system software, particularly Microsoft
and Novell, may in the future enhance their products to include functionality
that is currently provided by our products. The widespread inclusion of the
functionality of our software as standard features of operating system software
could render our products obsolete and unmarketable, particularly if the quality
of such functionality were comparable to that of our products. Even if the
functionality provided as standard features by operating system software is more
limited than that of our software, we cannot assure you that a significant
number of customers would not elect to accept more limited functionality in lieu
of purchasing additional software.
Current and potential competitors may make strategic acquisitions or
establish cooperative relationships among themselves or with third parties,
thereby increasing their ability to address the needs of our current or
prospective customers. Accordingly, it is possible that new competitors or
alliances among current and new competitors may emerge and rapidly gain
significant market share. Such competition could materially adversely affect our
ability to obtain new licenses or to obtain maintenance and support renewals for
existing licenses on terms favorable to us. We cannot assure you that we will be
able to compete successfully against current and future competitors, and the
failure to do so would materially adversely affect our business, operating
results and financial condition.
We believe that significant competitive factors affecting the markets
described above are depth of product functionality, breadth of platform support,
product quality and performance, conformance to industry standards, product
price and customer support. In addition the ability to rapidly develop and
implement new products and features for these markets is critical.
10
<PAGE> 12
PROPRIETARY RIGHTS
We rely primarily on a combination of copyright, trademark and trade secret
laws, confidentiality procedures and contractual provisions to protect our
proprietary rights. However, we believe that such measures afford only limited
protection. We cannot assure you that others will not develop technologies that
are similar or superior to our technology or design around our copyrights and
trade secrets. We license our software products primarily under "click-through"
licenses agreements (our click-through license agreements are displayed to the
user by the installation program(s) for our software; they require the user to
signify assent to the agreement by taking action such as clicking on an "I
agree" button). Click-through license agreements are not negotiated with or
signed by individual licensees, and take effect upon the user's taking action
required by the installation program. We believe, however, that these measures
afford only limited protection. Despite our efforts to protect our proprietary
rights, unauthorized parties may attempt to copy aspects of our products or to
obtain and use information that we regard as proprietary. Policing unauthorized
use of our products is difficult and we are unable to determine the extent to
which piracy of its software products exists. In addition, the laws of some
foreign countries do not protect our proprietary rights as fully as do the laws
of the United States. We cannot assure you that our means of protecting our
proprietary rights will be adequate or that competition will not independently
develop similar or superior technology.
We are not aware that we are infringing any proprietary rights of third
parties. We cannot assure you, however, that third parties will not claim that
we have infringed on their intellectual property rights. We expect that software
product developers will increasingly be subject to infringement claims as the
number of products and competitors in our industry segment grows and the
functionality of products in different industry segments overlaps. Any such
claims, with or without merit, could be time consuming to defend, result in
costly litigation, divert management's attention and resources, cause product
shipment delays or require us to enter into royalty or licensing agreements.
Such royalty or licensing agreements, if required, may not be available on terms
acceptable to us, if at all. In the event of a successful claim of product
infringement against us and our failure or inability to either license the
infringed or similar technology or develop alternative technology on a timely
basis, our business, operating results and financial condition could be
materially adversely affected.
EMPLOYEES
As of December 31, 1999, we employed 440 full-time employees, including 187
in sales and marketing, 179 in research and development, 33 in technical support
and professional services and 41 in general and administrative. We believe that
our future success will depend in large part upon our continuing ability to
attract and retain highly skilled managerial, sales, marketing, customer support
and research and development personnel. Like other software companies, we face
intense competition for such personnel, and we have at times experienced and
continue to experience difficulty in recruiting and retaining qualified
personnel. We cannot assure you that we will be successful in attracting,
assimilating and retaining other qualified personnel in the future. We are not
subject to any collective bargaining agreement and we believe that our
relationships with our employees are good.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K 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 future financial
position, business strategy, planned products, products under development,
markets, budgets and plans and objectives of management for future operations,
are forward-looking statements. Although we believe that the expectations
reflected in these forward-looking statements are reasonable, we cannot assure
you that those 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 us, or persons acting on our
behalf, are expressly qualified in their entirety by the Cautionary Statements
and such other statements. For
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<PAGE> 13
purposes of this Item 5, references to the "Company", "BindView", "we", "us" and
"our" refer to BindView Development Corporation and its subsidiaries.
CAUTIONARY STATEMENTS
In addition to the other information in this Annual Report on Form 10-K,
the following factors should be considered carefully in evaluating the Company.
Our quarterly and annual 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. The Company recognizes
revenue in accordance with the Statement of Position No. 97-2 "Software Revenue
Recognition" (SOP 97-2) and Statement of Position No. 98-9 "Modification of SOP
97-2, Software Revenue Recognition, with respect to certain transactions" (SOP
98-9), as applicable. As the Company's sales transactions and product mix
becomes more complex, revenue recognition under SOP 97-2 or SOP 98-9 could
require the Company to defer a significant portion of the total contract and
recognize this deferred revenue in future periods.
Orders booked throughout a quarter may 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 reduce spending quickly 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. However, first quarter revenues in any given fiscal year are not
necessarily indicative of, and should not be used as a basis for prediction of,
higher revenues in any future quarter.
Before 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 to receive product upgrades and
technical support. Unlike software license revenues, which we generally
recognize upon shipment of the product, we recognize subscription contract
revenues ratably over the life of the contract term. As a result, if we derive a
larger percentage of our revenues from subscription contracts, we will
experience an increase in deferred revenue that is likely to decrease our
operating margins. Decreased operating margins may materially adversely affect
our, operating results and financial condition.
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<PAGE> 14
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. We 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., ODS Networks, 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 event notification and response technology, such as
Attention Software, Inc.;
- providers of Windows NT management and migration tools, such as Mission
Critical Software, FastLane Technologies Inc., and NetIQ Corporation;
- 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.; and
- 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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<PAGE> 15
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 bundle 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, Netect and Entevo
acquisitions, will account for majority or all of 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, Netect and Entevo 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
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<PAGE> 16
able to generate material revenues from products acquired as a result of the
Curasoft, Netect and Entevo acquisitions.
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
Technology 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 1999, 1998
and 1997, we derived approximately 17%, 10% and 13% 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;
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<PAGE> 17
- hire additional personnel;
- customize our products for local markets;
- recruit additional international resellers where appropriate; and
- expand the use of our direct telesales model.
If we are unable to generate increased sales through a direct telesales
model, we will incur higher personnel costs without corresponding increases in
revenue, resulting in lower operating margins for our international operations.
In addition, employment policies vary among countries outside the United States,
which may reduce our flexibility in managing headcount and, in turn, managing
personnel-related expenses. If we do not address the risks associated with
international sales in a cost-effective and timely manner, our international
sales growth will be limited, operating margins could be reduced and our
business could be materially adversely affected. However, even if we are able to
successfully expand our international operations, we cannot be certain that we
will be able to maintain or increase international market demand for our
products.
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, Netect and Entevo or
that 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.
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
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significant damages. As a result, any such claims, whether or not successful,
could seriously damage our reputation and our business.
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 2. PROPERTIES
Our principal administrative, sales and marketing, support and research and
development facility is located in Houston, Texas. We also currently have office
space for our remote sales offices in Frankfurt, Germany and Paris, France and
our remote development offices in Fremont, California and Framingham,
Massachusetts, and the Entevo offices are in Arlington, Virginia with a
development office in Pune, India. However, anticipated expansions in
international sales may result in us moving to new facilities within the next 12
months. We believe suitable additional or alternative space will be available in
the future on commercially reasonable terms as needed.
ITEM 3. LEGAL PROCEEDINGS
We are not aware of any current or pending litigation or proceedings that
could have a material adverse effect on our results of operations, cash flows or
financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET FOR COMMON STOCK
Our common stock began trading on the Nasdaq National Market on July 24,
1998 under the symbol "BVEW". Before that time, there was no market for our
common stock. The initial public offering price on July 24, 1998 was $5.00 per
share. On December 31, 1999, the 46,695,116 shares of our common stock
outstanding were held by approximately 108 holders of record.
As of February 29, 2000, the last sales price per share of the Company's
common stock, as reported by The Nasdaq Stock Market, was $33.75.
The following table presents the range of high and low closing prices for
our common stock during the year ended December 31, 1999, from the date our
stock began trading on Nasdaq through December 31, 1999, as reported by The
Nasdaq National Market. This information, and all share and per share data
contained in this report, gives effect to a dividend of one share of common
stock paid on each outstanding share of our stock common stock on February 9,
2000 (the "Stock Split").
<TABLE>
<CAPTION>
HIGH LOW
------ -----
<S> <C> <C>
1998
Third Quarter (beginning July 24, 1998)................... $10.07 $4.88
Fourth Quarter............................................ 13.75 7.25
1999
First Quarter............................................. 15.56 9.75
Second Quarter............................................ 14.50 8.94
Third Quarter............................................. 14.38 9.38
Fourth Quarter............................................ 24.84 10.00
</TABLE>
DIVIDEND POLICY
We have not declared or paid any cash dividends on our capital stock in the
two most recent fiscal years and do not expect to do so in the foreseeable
future. We anticipate that all future earnings, if any, generated from
operations will be retained to develop and expand our business. Any future
decision to pay cash dividends will depend upon our growth, profitability,
financial condition and other factors the Board of Directors may deem relevant.
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ITEM 6. SELECTED FINANCIAL DATA
The following income statement and balance sheet data for the years ended
and as of December 31, 1999, 1998 and 1997 are derived from consolidated
financial statements audited by PricewaterhouseCoopers LLP, independent
accountants, appearing elsewhere in this report. This data does not give effect
to the pooling of interests business combination with Entevo Corporation which
was consummated on February 9, 2000. The information set forth below is not
necessarily indicative of the results of future operations and should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and the
Notes thereto appearing elsewhere in this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1999 1998 1997 1996 1995
------- ------- -------- ------- -------
IN THOUSANDS EXCEPT PER SHARE AMOUNTS
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
Revenues:
Licenses............................................ $49,963 $30,209 $ 17,821 $ 9,720 $ 7,005
Services............................................ 17,985 8,275 3,056 1,294 328
------- ------- -------- ------- -------
Total revenues............................... 67,948 38,484 20,877 11,014 7,333
------- ------- -------- ------- -------
Cost of revenues:
Cost of licenses.................................... 1,425 958 644 465 693
Cost of services.................................... 2,045 1,123 637 362 139
------- ------- -------- ------- -------
Total cost of revenues....................... 3,470 2,081 1,281 827 832
------- ------- -------- ------- -------
Gross profit.......................................... 64,478 36,403 19,596 10,187 6,501
------- ------- -------- ------- -------
Costs and expenses:
Sales and marketing................................. 27,965 19,096 10,200 4,267 3,234
Research and development............................ 16,656 10,513 4,320 2,254 1,249
General and administrative.......................... 5,904 4,311 3,421 1,526 1,235
Acquisition related earnout(1)...................... 1,200 -- -- -- --
Merger and restructuring(2)......................... 2,524 -- -- -- --
Purchased in-process research and development(3).... -- 2,488 -- -- --
Stock compensation expense(4)....................... -- -- 15,262 436 --
------- ------- -------- ------- -------
Operating income (loss)(5)............................ 10,229 (5) (13,607) 1,704 783
Other income (expenses), net.......................... 3,079 1,086 79 5 (29)
------- ------- -------- ------- -------
Income (loss) before income tax provision............. 13,308 1,081 (13,528) 1,709 754
Provision (benefit) for income tax.................... 6,299 2,945 (3,150) -- --
------- ------- -------- ------- -------
Net income (loss)..................................... 7,009 (1,864) (10,378) 1,709 754
Pro forma charge (benefit) in lieu of income taxes.... -- -- (765) 697 264
------- ------- -------- ------- -------
Pro forma net income (loss) (6)(7).................... $ 7,009 $(1,864) $ (9,613) $ 1,012 $ 490
======= ======= ======== ======= =======
Earnings (loss) per common share:
Basic(8)............................................ $ 0.15 $ (0.07) $ (0.55) $ 0.06 $ 0.03
======= ======= ======== ======= =======
Diluted(8).......................................... $ 0.14 $ (0.07) $ (0.55) $ 0.05 $ 0.03
======= ======= ======== ======= =======
Shares used in computing earnings (loss) per common
share:
Basic............................................... 45,183 28,196 17,524 16,634 16,456
======= ======= ======== ======= =======
Diluted............................................. 50,482 28,196 17,524 22,270 16,456
======= ======= ======== ======= =======
AS OF DECEMBER 31,
FINANCIAL POSITION
Working capital....................................... $66,526 $58,994 $ 12,391 $ 1,750 $ 671
Total assets.......................................... 99,923 76,037 18,857 4,016 2,747
Long-term debt........................................ -- 7,666 3,274 -- 68
Shareholders' equity.................................. 81,830 58,536 10,742 2,647 1,214
</TABLE>
- ---------------
(1) Represents a $1,200 charge for an earnout bonus payment in connection with
the acquisition of Curasoft, Inc. in December 1998.
19
<PAGE> 21
(2) Represents $1,533 in transaction related charges and $991 in restructuring
related charges in connection with the acquisition of Netect, Ltd. in March
1999.
(3) Represents a $2,488 charge for purchased in-process research and development
in connection with the acquisition of Curasoft, Inc. in December 1998.
(4) Stock compensation expense of $15,262 and $436 in 1997 and 1996,
respectively, was recognized in connection with the Company's terminated
Phantom Stock Plan and a terminated provision of an employment agreement.
(5) Operating income excluding the acquisition related earnout of $1,200 and
transaction and restructuring expenses of $2,524 in 1999 and purchased
in-process research and development of $2,488 in 1998 and stock compensation
expense of $15,262 and $436 in 1997 and 1996, respectively, would have been
$13,953, $2,483, $1,655 and $2,140 in 1999, 1998, 1997 and 1996,
respectively.
(6) Pro forma net income excluding the acquisition related earnout of $1,200 and
transaction and restructuring expenses of $2,524 in 1999 and purchased
in-process research and development of $2,488 in 1998 and stock compensation
expense of $15,262 and $436 in 1997 and 1996, respectively, would have been
$10,971, $624, $305 and $1,296 in 1999, 1998, 1997 and 1996, respectively.
(7) This represents net income (loss), adjusted for a pro forma charge in lieu
of income taxes for the periods the Company was an S Corporation as if
BindView were a C Corporation for all periods.
(8) Basic earnings per common share excluding the acquisition related earnout of
$1,200, transaction and restructuring expenses of $2,524 in 1999, purchased
in-process research and development of $2,488 in 1998 and stock compensation
expense of $15,262 and $436 in 1997 and 1996, respectively, would have been
$0.24, $0.02, $0.02 and $0.08 in 1999, 1998, 1997 and 1996, respectively.
Diluted earnings per share excluding these expenses would have been $0.22,
$0.01, $0.01 and $0.06 in 1999, 1998, 1997 and 1996 respectively.
20
<PAGE> 22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Financial Statements and Notes thereto included elsewhere in this Annual
Report on Form 10-K. Special Note: Certain statements set forth below constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended.
See "Business -- Special Note Regarding Forward-Looking Statements".
RESULTS OF OPERATIONS
The following table presents, as a percentage of total revenue, selected
consolidated financial data for each of the three years most recent years ended
December 31.
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Revenues:
Licenses.................................................. 73.5 78.6 85.4
Services.................................................. 26.5 21.4 14.6
----- ----- -----
Total revenues.................................... 100.0 100.0 100.0
----- ----- -----
Cost of revenue:
Cost of licenses.......................................... 2.1 2.5 3.1
Cost of services.......................................... 3.0 2.9 3.0
----- ----- -----
Total cost of revenues............................ 5.1 5.4 6.1
----- ----- -----
Gross profit................................................ 94.9 94.6 93.9
----- ----- -----
Costs and expenses
Sales and marketing....................................... 41.2 49.6 48.9
Research and development.................................. 24.5 27.3 20.7
General and administrative................................ 8.7 11.2 16.4
Acquisition related earnout(1)............................ 1.8 -- --
Merger and restructuring(2)............................... 3.6 -- --
Purchases in-process research and development(3).......... -- 6.5 --
Stock compensation expense(4)............................. -- -- 73.1
----- ----- -----
Operating income (loss)(5).................................. 15.1 0.0 (65.2)
Other income, net........................................... 4.5 2.8 0.4
----- ----- -----
Income (loss) before income tax provision................... 19.6 2.8 (64.8)
Provision (benefit) for income tax.......................... 9.3 7.6 (15.1)
----- ----- -----
Net income (loss)........................................... 10.3 (4.8) (49.7)
Pro forma charge (benefit) in lieu of income taxes.......... -- -- (3.7)
----- ----- -----
Pro forma net income (loss) (6),(7)......................... 10.3 (4.8) (46.0)
===== ===== =====
</TABLE>
- ---------------
(1) Represents a $1,200 charge for an earnout bonus payment in connection with
the acquisition of Curasoft, Inc. in December 1998.
(2) Represents $1,533 in transaction related charges and $991 in restructuring
related charges in connection with the acquisition of Netect, Ltd. in March
1999.
(3) Represents a $2,488 charge for purchased in-process research and development
in connection with the acquisition of Curasoft, Inc. in 1998.
(4) Stock compensation expense of $15,262 was recognized in connection with the
Company's terminated Phantom Stock Plan and a terminated provision of an
employment agreement in 1997.
(5) Operating income excluding the acquisition related earnout of $1,200 and
transaction and restructuring expenses of $2,524 in 1999 and purchased
in-process research and development of $2,488 in 1998 and
21
<PAGE> 23
stock compensation expense of $15,262 in 1997, would have been $13,953,
$2,483 and $1,655 in 1999, 1998 and 1997, respectively.
(6) Pro forma net income excluding the acquisition related earnout of $1,200 and
transaction and restructuring expenses of $2,524 in 1999 and purchased
in-process research and development of $2,488 in 1998 and stock compensation
expense of $15,262 in 1997, would have been $10,971, $624 and $305 in 1999,
1998 and 1997, respectively.
(7) This represents net income (loss), adjusted for a pro forma charge in lieu
of income taxes for the periods the Company was an S Corporation as if
BindView were a C Corporation for all periods.
REVENUES
The Company's revenues are derived from the sale of software products and
related services including subscription contracts. Total revenues were $67.9
million, $38.5 million and $20.9 million in fiscal 1999, 1998 and 1997,
respectively, representing year-to-year increases of 84% between 1997 and 1998
and 77% between 1998 and 1999. We had no customers that accounted for more than
10% of our revenues in 1999, 1998 or 1997. Revenues recognized from sales to
customers outside North America, primarily in the United Kingdom and Europe,
represented approximately 17%, 10% and 13% in 1999, 1998 and 1997, respectively.
Licenses. License revenues were $50.0 million, $30.2 million and $17.8
million in fiscal 1999, 1998 and 1997, respectively, representing 74%, 79% and
85% of total revenues in the respective periods. 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. No assurances can be made that revenues will continue to increase
at the rates reflected.
Services. Service revenues were $18.0 million, $8.3 million and $3.1
million in fiscal 1999, 1998 and 1997, respectively, representing 26%, 21% and
15% of total revenues in the respective periods. 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. Cost of licenses includes product manuals, packaging,
distribution and media costs for our software products. Cost of licenses were
$1.4 million, $958,000 and $644,000 in fiscal 1999, 1998 and 1997, respectively,
representing 3%, 3% and 4% of license revenues in the respective periods. 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. Cost of services includes personnel and other costs
related to technical support and professional services. Cost of services were
$2.0 million, $1.1 million and $637,000 in fiscal 1999, 1998 and 1997,
respectively, representing 11%, 14% and 21% of service revenues in the
respective periods. The increase in the absolute dollar cost of services is
primarily from increases in the cost of technical support staff providing
support to the Company's growing customer base and increases in the cost of
professional services staff providing customer training and implementation
services. The decrease in cost of services as a percentage of service revenues
over these periods is primarily due to service revenues outpacing technical
support staffing levels as we benefited from greater efficiencies of scale. We
believe services gross margin as a percentage of service revenues in the
foreseeable future will remain relatively consistent with services gross margins
realized in 1999. Professional service revenues generally results in a lower
gross margin than other types of revenues and in the event that professional
service revenues increase as a percentage of total revenues, our overall gross
margin may be adversely affected.
22
<PAGE> 24
COSTS AND EXPENSES
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries, commissions and bonuses earned by sales and marketing personnel,
general office expenses, travel and entertainment and promotional expenses.
Sales and marketing expenses were $28.0 million, $19.1 million and $10.2 million
in fiscal 1999, 1998 and 1997, respectively, representing 41%, 50% and 49% of
total revenues in the respective periods. The increase in the absolute dollar
cost of 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. 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. As we continue
to devote resources to the expansion of our domestic and international sales and
marketing organization, BindView expects that the annual sales and marketing
expenses as a percentage of total revenue to be in the range of 40-50% for the
foreseeable future.
Research and Development. 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. Research and development expenses were $16.7 million, $10.5
million and $4.3 million in fiscal 1999, 1998 and 1997, respectively,
representing 25%, 27% and 21% of total revenues in the respective periods. The
increase in 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. The decline in research
and development expenses as a percentage of revenue is a result of certain
product lines reaching a stage in their product 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.
General and Administrative. General and administrative expenses consist
primarily of salaries, personnel and related costs for the Company's executive,
administrative, finance and information services staff. General and
administrative expenses were $5.9 million, $4.3 million and $3.4 million in
fiscal 1999, 1998 and 1997, respectively, representing 9%, 11% and 16% of total
revenues in the respective periods. The increase in the general and
administrative expenses is related to increased staffing, facilities costs and
associated expenses necessary to manage and support the Company's increased
scale of operations and the increase in the allowance for doubtful accounts over
this period. The 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 2000 general and administrative expenses will remain relatively constant
from 1999 as a percentage of total revenue, but increase in absolute dollars.
ACQUISITION RELATED EARNOUT
At December 31, 1999, the Company was obligated to make an earnout payment
of $1.2 million to certain former owners of Curasoft based on the achievement of
revenue targets related to an existing product, as well as their continued
employment with the Company. The Company is not obligated to any other future
earnout payments related to this acquisition.
MERGER 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. 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 December 31, 1999
there were no remaining unpaid
23
<PAGE> 25
transaction costs on the Company's Balance Sheet. 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 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 December 31, 1999, were as follows:
<TABLE>
<CAPTION>
BEGINNING CASH ACCRUED EXPENSES AT
ACCRUAL ADJUSTMENT EXPENDITURES DECEMBER 31, 1999
-------- ---------- ------------ -------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Employee severance and related
costs............................ $575 $238 $(780) $33
Israeli office closing............. 119 -- (119) --
Other restructuring costs.......... 59 -- (59) --
---- ---- ----- ---
Total.................... $753 $238 $(958) $33
==== ==== ===== ===
</TABLE>
PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT
In December 1998, the Company committed to deliver 350,000 shares of its
common stock in exchange for all of the outstanding equity interests in
Curasoft, Inc. in a transaction accounted for as a purchase. These shares were
issued in the first quarter of 1999.
The purchase price allocation resulted in an immediate write-off of
approximately $2.5 million in 1998 for purchased in-process research and
development costs related to a Curasoft product ("CuraSLAM") undergoing
development at the time of the acquisition. CuraSLAM has been designed as a
stand-alone product by Curasoft and is not related to the Curasoft ENR product
family. This product is currently being designed to enable customers to improve
the service levels of their computing environments and will help customers
better align business processes with their IT functions. This product has been
integrated with BindView products. The Company determined that the purchased
in-process technology had not reached technological feasibility and had no
alternative future use based on the status of design and development activities
at the acquisition date.
To determine the fair value of the purchased in-process research and
development activities, the Company utilized values determined by an independent
valuation firm, which applied the percentage of completion approach. Prior to
the acquisition, Curasoft conducted in-depth market research, designed the
product architecture, substantially completed the coding of the user interface
and began the coding of the other modules. The Company has estimated that the
development effort of this product was 50% complete at the date of acquisition.
The percentage completed of 50% was applied to the estimated fair value of the
completed product to determine the in-process research and development charge
upon acquisition. The estimated fair value of the completed product was
determined using the future revenue streams expected from the product, net of
related expenses, discounted at a rate based upon the specific level of risk
associated with achieving the forecasted revenues.
The Company estimates that in order for this product to be available for
general distribution during the first half of 2000, it will need to invest
between $1.5 and $2.0 million in development costs associated with its
operations in Fremont, California. The Company estimates that future revenues
related to this product will be between $40.0 million and $60.0 million between
2000 and 2006. The management of the Company has conducted due diligence and
performed an assessment of remaining tasks and risks to achieve completion. The
development activities required to complete the acquired in-process technologies
include additional design, coding, quality assurance procedures and customer
beta testing. The challenges facing the Company to
24
<PAGE> 26
complete the development of this product on schedule include 1) the management
of a development office away from its principle offices in Houston, Texas, 2)
the ability to adequately staff this office, 3) the ability to effectively
integrate the product with the Company's existing products and 4) the validation
of the product and its features by potential customers. If the development of
the product is delayed, this could adversely impact its availability date and
time-to-market and therefore, its ability to market the product. If the product
is available for general distribution during the first half of 2000, the Company
anticipates generating material net cash inflows from this product in 2001.
STOCK COMPENSATION EXPENSE
Stock compensation expense was $15.3 million for 1997. $14.7 million of
such expense resulted from the issuance of 9.8 million shares of Common Stock in
connection with the termination of our Phantom Stock Plan and $550,000 of such
expense resulted from the issuance of a warrant to purchase 875,000 shares of
Common Stock to an officer in exchange for extinguishing a bonus provision in
his employment agreement.
OTHER INCOME, NET
The Company had other income of $3.1 million, $1.1 million and $79,000 in
fiscal 1999, 1998 and 1997. 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,
the secondary offering in December 1998 and positive cash flow from operating
activities.
PROVISION FOR INCOME TAXES
Prior to October 16, 1997, Bindview was treated as a Subchapter S
Corporation for federal income tax purposes. Accordingly, no federal income tax
expense was recorded for the period January 1, 1997 to October 16, 1997. The
taxable income generated from results of operations during this period was
reported in the income tax returns of the individual shareholders. A pro forma
charge in lieu of income taxes has been recognized in the Consolidated Statement
of Operations to reflect income taxes as if the Company had been a C Corporation
for all periods.
Historical restated results of the Company related to the acquisition of
Netect in March, 1999 do not recognize a tax benefit for certain net operating
losses generated by Netect because the Company's ability to realize the net
operating losses is limited by the former structure of Netect and by the
Company's plans for Netect's future operations.
The effective tax rate was 47.3% in 1999 and 272.4% in 1998. Valuation
allowances booked on foreign net operating losses adversely impacted both 1999
and 1998's rates. Certain transaction expenses recorded in connection with the
Company's merger with Netect are not deductible for federal income tax purposes
and adversely impacted the 1999 rate. Purchased in-process research and
development expenses recorded in conjunction with the acquisition of Curasoft,
Inc. are not deductible for federal income tax purposes and adversely impacted
the 1998 rate. The Company anticipates an effective tax rate of 37% for 2000.
LIQUIDITY AND CAPITAL RESOURCES
Our working capital increased to $66.5 million at December 31, 1999 from
$59.0 million at December 31, 1998. The Company's cash, cash equivalents,
short-term and long-term investments balance increased to $72.3 million at
December 31, 1999 from $58.2 million at December 31, 1998 due primarily to
positive cash flows from operating activities and proceeds from the exercise of
stock options, partially offset by the purchases of property and equipment.
To provide immediate short-term liquidity, should we need it, we entered
into a $30.0 million line-of-credit arrangement in March, 2000. This facility
expires on September 9, 2000, but we may renew it for up to five years. Any
borrowings against this line will bear an interest rate of LIBOR plus 1.5% (7.6%
as of March 9, 2000). The facility is secured by cash and cash equivalents and
short-term investments. We are not obligated to pay any fees for the unused
portion of this line. To date, we have not borrowed against this line.
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
25
<PAGE> 27
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 complementary 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 fail to produce correct results if "00" is interpreted to mean 1900 or some
other default condition, rather than 2000. These problems and are commonly
referred to as the "Millennium Bug" or "Year 2000 Problem".
The Year 2000 Problem could have affected computers, software and other
equipment that we and our customers and suppliers use. Accordingly, we reviewed
our internal computer programs and systems to ensure that they were Year 2000
compliant.
Our expenditures to address potential Year 2000 problems were not
significant. We have not experienced any Year 2000 related problems to date.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to a variety of risks, including foreign currency
exchange rate fluctuations and changes in the market value of its investments.
FOREIGN CURRENCY EXCHANGE RATES
The Company operates globally and the functional currency for most of its
non-U.S. enterprises is the local currency. For the fiscal years 1999, 1998 and
1997, approximately 17%, 10% and 13% of the Company's consolidated revenues were
derived from customers outside of North America, substantially all of which were
billed and collected in foreign currencies. Similarly, substantially all of the
expenses of operating the Company's foreign subsidiaries are incurred in foreign
currencies. As a result, the Company's U.S. dollar earnings and net cash flows
from international operations may be adversely affected by changes in foreign
currency exchange rates. Based on the Company's foreign currency exchange
instruments outstanding at December 31, 1999, the Company estimates that a
near-term change in foreign currency rates would not materially affect its
financial position, results of operations or net cash flows for the year ended
December 31, 1999. The Company used a value-at-risk (VAR) model to measure
potential fair value losses due to foreign currency exchange rate fluctuations.
The VAR model estimates were made assuming normal market conditions and a 95%
confidence level. The VAR model is a risk estimation tool, and as such, is not
intended to represent actual losses in fair value that will be incurred by the
Company.
INTEREST RATE RISK
The Company adheres to a conservative investment policy, whereby its
principle concern is the preservation of liquid funds while maximizing its yield
on such assets. Cash, cash equivalents, short-term investments and long-term
investments approximated $72.3 million and $58.2 million at December 31, 1999
and 1998, respectively. Such amounts were invested in different types of
investment-grade securities with the
26
<PAGE> 28
intent of holding these securities to maturity. Although the Company's portfolio
is subject to fluctuations in interest rates and market conditions, no gain or
loss on any security would actually be recognized in earnings unless the
instrument was sold. The Company estimates that a near-term change in interest
rates would not materially affect its financial position, results of operations
or net cash flows for the year ended December 31, 1999. The Company used a
value-at-risk ("VAR") model to measure potential market risk on its marketable
securities due to interest rate fluctuations. The VAR model estimates were made
assuming normal market conditions and a 95% confidence level. The VAR model is a
risk estimation tool, and as such, is not intended to represent actual losses in
fair value that will be incurred by the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary financial information required
to be filed under this Item are presented in Item 14 of this Annual Report on
Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
For information concerning this Item, see text under the captions "Election
of Directors", "Executive Officers and Compensation" and "Compliance With
Section 16(a) of the Securities Exchange Act of 1934" in the proxy statement
relating to our 2000 annual meeting of shareholders (the "Proxy Statement") to
be filed subsequent to the filing of this Annual Report on Form 10-K, which
information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
For information concerning this Item, see text under the captions
"Executive Officers and Compensation" in the Proxy Statement, which information
is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
For information concerning this Item, see text under the captions "Security
Ownership of Certain Beneficial Owners and Management" in the Proxy Statement,
which information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information concerning this Item, see text under the caption "Certain
Relationships and Transactions" in the Proxy Statement, which information is
incorporated herein by reference.
27
<PAGE> 29
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents included in this Annual Report on Form 10-K:
<TABLE>
<CAPTION>
(1) FINANCIAL STATEMENTS PAGE
- ------------------------ ----
<S> <C>
Report of PricewaterhouseCoopers LLP........................ 31
Consolidated Balance Sheet at December 31, 1999 and 1998.... 32
Consolidated Statement of Operations and Comprehensive
Income (Loss) for the years ended December 31, 1999, 1998
and 1997.................................................. 33
Consolidated Statement of Shareholders' Equity for each of
the three years in the period ended December 31, 1999..... 34
Consolidated Statement of Cash Flows for the years ended
December 31, 1999, 1998 and 1997.......................... 35
Notes to Consolidated Financial Statements.................. 36
</TABLE>
Other financial schedules under the Act have been omitted because they are
either not required or are not material.
(b) Reports of Form 8-K:
We did not file any current reports on Form 8-K during the fourth
quarter of 1999.
(c) Exhibits:
Exhibits designated by the symbol * are filed with this Annual Report
on Form 10-K. All exhibits not so designated are incorporated by reference
to a prior filing as indicated.
Exhibits designated by the symbol + are management contracts or
compensatory plans or arrangements that are required to be filed with this
report pursuant to this Item 14.
We undertake to furnish to any stockholder so requesting a copy of any
of the following exhibits upon payment to us of the reasonable costs
incurred by us in furnishing any such exhibit.
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<C> <S>
2.1 -- Share Purchase Agreement dated as of January 29, 1999,
among BindView, Netect, Ltd. the holders of all of the
share capital of Netect, Ltd. and rights to acquire share
capital of Netect, Ltd. and Paul E. Blondin, as
Shareholders' Representative (incorporated by reference
to Exhibit 2.1 to BindView's Current Report on form 8-K
(File No. 000-24677), dated March 1, 1999).
3.1 -- Amended and Restated Articles of Incorporation of
BindView (incorporated by reference to Exhibit 3.1 to
Amendment No. 4 to the Registration Statement on Form S-1
of BindView (Reg. No. 333-52883), filed with the
Commission on July 23, 1998 (the "Form S-1")).
3.2 -- Bylaws of BindView (incorporated by reference to Exhibit
3.1 to the Form S-1).
4.1 -- Reference is hereby made to Exhibits 3.1 and 3.2
(incorporated by reference to Exhibit 4.1 to the Form
S-1).
10.1+ -- Incentive Stock Option Plan (incorporated by reference to
Exhibit 10.1 to the Form S-1).
10.2+ -- Stock Option Plan (incorporated by reference to Exhibit
10.2 to the Form S-1).
10.3+ -- 1997 Incentive Plan (incorporated by reference to Exhibit
10.3 to the Form S-1).
10.4*+ -- Omnibus Incentive Plan, as amended.
</TABLE>
28
<PAGE> 30
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<C> <S>
10.5*+ -- 1998 Non-Employee Director Stock Option Plan, as amended.
10.6 -- Agreement to Sublease dated June 25, 1998 between
BindView and Halliburton Energy Services, Inc.
10.7 -- Lease Agreement dated June 20, 1995 between BindView and
School Employees Holding Corp., including all amendments
thereto (incorporated by reference to Exhibit 10.7 to the
Form S-1).
10.8+ -- Amended and Restated Employment Agreement, dated June 24,
1999, between BindView and Marc R. Caminetsky
(incorporated by reference to BindView's Quarterly Report
on Form 10-Q (File No. 000-24677) for the quarter ended
June 30, 1999 (the "6/30/99 10-Q").
10.9+ -- Amended and Restated Employment Agreement, dated June 24,
1999, between BindView and Paul J. Cormier (incorporated
by reference to Exhibit 10.2 to the 6/30/99 10-Q).
10.10 -- Registration Rights Agreement dated October 16, 1997
among BindView, General Atlantic Partners 44 L.P., GAP
Coinvestment Partners, L.P., JMI Equity Fund III, L.P.
and Eric J. Pulaski (incorporated by reference to Exhibit
10.10 to the Form S-1).
10.11 -- Registration Rights Agreement dated November 7, 1997
among BindView and Scott R. Plantowsky (incorporated by
reference to Exhibit 10.11 to the Form S-1).
10.12+ -- Employee Agreement dated September 26, 1996 between the
Registrant and David E. Pulaski (incorporated by
reference to Exhibit 10.14 to the Form S-1).
10.13 -- Form of Indemnification Agreement (incorporated by
reference to Exhibit 10.16 to the Form S-1).
23.1* -- Consent of PricewaterhouseCoopers LLP.
27.1* -- Financial Data Schedule.
</TABLE>
29
<PAGE> 31
BINDVIEW DEVELOPMENT CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of PricewaterhouseCoopers LLP........................ 31
Consolidated Balance Sheet at December 31, 1999 and 1998.... 32
Consolidated Statement of Operations and Comprehensive
Income (Loss) for the years ended December 31, 1999, 1998
and 1997.................................................. 33
Consolidated Statement of Shareholders' Equity for each of
the three years in the period ended December 31, 1999..... 34
Consolidated Statement of Cash Flows for the years ended
December 31, 1999, 1998 and 1997.......................... 35
Notes to Consolidated Financial Statements.................. 36
Supplemental Combined Financial Statements.................. 52
</TABLE>
30
<PAGE> 32
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of BindView Development Corporation
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) on page 28 present fairly, in all material
respects, the financial position of BindView Development Corporation and its
subsidiaries at December 31, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1999 in conformity with accounting principles generally accepted in the
United States. In addition, in our opinion, the financial statement schedule
listed in the index appearing under Item 14(a)(1) on page 28 present fairly, in
all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As described in Note 14, on February 9, 2000, BindView Development
Corporation merged with Entevo Corporation in a transaction accounted for as a
pooling of interests. The accompanying supplementary combined financial
statements give retroactive effect to the merger of BindView Development
Corporation with Entevo Corporation. Accounting principles generally accepted in
the United States proscribe giving effect to a consummated business combination
accounted for by the pooling of interests method in financial statements that do
not include the date of consummation. These financial statements do not extend
through the date of consummation, however, they will become the historical
consolidated financial statements of BindView Development Corporation and its
subsidiaries after financial statements covering the date of consummation of the
business combination are issued.
In our opinion, based upon our audits, the accompanying supplementary
combined balance sheets and the related supplementary combined statements of
operations and comprehensive loss, of shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of BindView
Development Corporation and its subsidiaries at December 31, 1999 and 1998, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
January 26, 2000,
except as to Note 14 which is as of February 9, 2000 and
except as to the pooling of interests with Entevo Corporation
which is as of March 29, 2000
31
<PAGE> 33
BINDVIEW DEVELOPMENT CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT PAR VALUE)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1999 1998
------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $61,329 $ 48,010
Short-term investments.................................... 4,834 10,187
Accounts receivable, net of allowance of $523 and $204,
respectively........................................... 14,487 5,711
Deferred tax assets....................................... 3,069 3,245
Other current assets...................................... 900 1,676
------- --------
Total current assets.............................. 84,619 68,829
Property and equipment, net................................. 7,570 5,342
Capitalized software and related assets, net................ 1,177 1,374
Long-term investments....................................... 6,120 --
Other assets................................................ 437 492
------- --------
Total assets...................................... $99,923 $ 76,037
======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 2,672 $ 1,954
Accrued liabilities....................................... 2,356 1,903
Accrued compensation...................................... 3,386 984
Deferred revenue.......................................... 9,679 4,994
------- --------
Total current liabilities......................... 18,093 9,835
------- --------
Commitments and contingencies (Note 9)
Convertible debentures...................................... -- 7,572
Other long-term liabilities................................. -- 94
------- --------
Total long-term liabilities....................... -- 7,666
------- --------
Total liabilities................................. 18,093 17,501
------- --------
Shareholders' equity:
Convertible preferred stock, $0.01 par value, 20,000
shares authorized, 0 and 2,528 shares issued and
outstanding, respectively.............................. -- --
Convertible preferred stock, $0.025 par value, 520 shares
authorized, 7 and 4 shares issued and outstanding,
respectively........................................... -- --
Common stock, no par value, 100,000 shares authorized,
46,695 and 42,206 shares issued and outstanding,
respectively........................................... 1 1
Additional paid-in capital................................ 85,517 65,675
Common Stock to be issued, 350 shares..................... -- 3,352
Accumulated deficit....................................... (3,523) (10,532)
Accumulated other comprehensive income (loss)............. (165) 40
------- --------
Total shareholders' equity........................ 81,830 58,536
------- --------
Total liabilities and shareholders' equity........ $99,923 $ 76,037
======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
32
<PAGE> 34
BINDVIEW DEVELOPMENT CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1999 1998 1997
------- ------- --------
<S> <C> <C> <C>
Revenues:
Licenses.................................................. $49,963 $30,209 $ 17,821
Services.................................................. 17,985 8,275 3,056
------- ------- --------
Total revenues.................................... 67,948 38,484 20,877
------- ------- --------
Cost of revenues:
Cost of licenses.......................................... 1,425 958 644
Cost of services.......................................... 2,045 1,123 637
------- ------- --------
Total cost of revenues............................ 3,470 2,081 1,281
------- ------- --------
Gross profit................................................ 64,478 36,403 19,596
------- ------- --------
Costs and expenses:
Sales and marketing....................................... 27,965 19,096 10,200
Research and development.................................. 16,656 10,513 4,320
General and administrative................................ 5,904 4,311 3,421
Acquisition related earnout............................... 1,200 -- --
Merger and restructuring.................................. 2,524 -- --
Purchased in-process research and development............. -- 2,488 --
Stock compensation expense................................ -- -- 15,262
------- ------- --------
Operating income (loss)..................................... 10,229 (5) (13,607)
Other income, net........................................... 3,079 1,086 79
------- ------- --------
Income (loss) before income tax provision................... 13,308 1,081 (13,528)
Provision (benefit) for income taxes........................ 6,299 2,945 (3,150)
------- ------- --------
Net income (loss)........................................... 7,009 (1,864) (10,378)
Other comprehensive income, net of tax:
Gain (loss) from foreign currency translation............. (205) 40 --
------- ------- --------
Comprehensive income (loss)............................... $ 6,804 $(1,824) $(10,378)
======= ======= ========
Basic income (loss) per share............................... $ 0.15 $ (0.07)
Diluted income (loss) per share............................. $ 0.14 $ (0.07)
Pro forma information:
Net loss as reported................................... $(10,378)
Pro forma benefit in lieu of income
taxes................................................ (765)
--------
Pro forma net loss..................................... $ (9,613)
========
Pro forma basic net loss per share..................... $ (0.55)
Pro forma diluted net loss per share................... $ (0.55)
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
33
<PAGE> 35
BINDVIEW DEVELOPMENT CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON RETAINED ACCUMULATED
COMMON STOCK STOCK ADDITIONAL COMMON EARNINGS OTHER
--------------- TO BE PAID-IN STOCK (ACCUMULATED COMPREHENSIVE
SHARES AMOUNT DELIVERED CAPITAL WARRANT DEFICIT) INCOME(LOSS)
------ ------ --------- ---------- ------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997................. 16,374 $ 1 -- $ 213 -- $ 2,351 --
Issuance of common stock................. 222 -- -- 902 -- -- --
S Corporation distributions.............. -- -- -- -- -- (1,274) --
Issuance of common stock to satisfy 1993
employment and acquisition liability... 1,006 -- -- 272 -- -- --
Issuance of common stock pursuant to
termination of Phantom Stock Plan...... 9,890 -- -- 14,092 -- -- --
Transfer of S Corporation accumulated
deficit upon conversion to C
Corporation............................ -- -- -- (633) -- 633 --
Issuance of convertible preferred stock
(2,532 shares)......................... -- -- -- 18,024 -- -- --
Issuance of warrant to purchase common
stock (875 shares)..................... -- -- -- -- 550 -- --
Purchase of treasury stock (9,844
shares)................................ -- -- -- -- -- -- --
Exercise of stock options................ 20 -- -- 6 -- -- --
Net loss................................. -- -- -- -- -- (10,378) --
------ --- ------- -------- ----- -------- -----
Balance at December 31, 1997............... 27,512 1 -- 32,876 550 (8,668) --
Exercise of stock options................ 2,182 -- -- 2,076 -- -- --
Exercise of stock warrants............... 2,376 -- -- 4,796 (550) -- --
Issuance of convertible preferred stock
(3 shares)............................. -- -- -- 39 -- -- --
Issuance of common stock................. 8 -- -- 6 -- -- --
Tax benefit related to exercise of
employee stock options................. -- -- -- 3,462 -- -- --
Conversion of preferred stock............ 12,640 -- -- -- -- -- --
Initial public offering.................. 6,642 -- -- 30,025 -- -- --
Secondary offering....................... 690 -- -- 6,412 -- -- --
Shares to be issued to acquire business
(350 shares)........................... -- -- 3,352 -- -- -- --
Retirement of treasury stock............. (9,844) -- -- (14,017) -- -- --
Cumulative translation adjustment........ -- -- -- -- -- -- 40
Net loss................................. -- -- -- -- -- (1,864) --
------ --- ------- -------- ----- -------- -----
Balance at December 31, 1998............... 42,206 1 3,352 65,675 -- (10,532) 40
Exercise of stock options................ 2,941 -- -- 2,656 -- -- --
Tax benefit related to exercise of
employee stock options................. -- -- -- 6,176 -- -- --
Issuance pursuant to business acquired... 350 -- (3,352) 3,352 -- -- --
Conversion of convertible debentures and
preferred stock........................ 1,198 -- -- 7,658 -- -- --
Cumulative translation adjustment........ -- -- -- -- -- -- (205)
Net income............................... -- -- -- -- -- 7,009 --
------ --- ------- -------- ----- -------- -----
Balance at December 31, 1999............... 46,695 $ 1 $ -- $ 85,517 $ -- $ (3,523) $(165)
====== === ======= ======== ===== ======== =====
<CAPTION>
TOTAL
TREASURY SHAREHOLDERS'
STOCK EQUITY
---------- -------------
<S> <C> <C>
Balance at January 1, 1997................. -- $ 2,565
Issuance of common stock................. -- 902
S Corporation distributions.............. -- (1,274)
Issuance of common stock to satisfy 1993
employment and acquisition liability... -- 272
Issuance of common stock pursuant to
termination of Phantom Stock Plan...... -- 14,092
Transfer of S Corporation accumulated
deficit upon conversion to C
Corporation............................ -- --
Issuance of convertible preferred stock
(2,532 shares)......................... -- 18,024
Issuance of warrant to purchase common
stock (875 shares)..................... -- 550
Purchase of treasury stock (9,844
shares)................................ (14,017) (14,017)
Exercise of stock options................ -- 6
Net loss................................. -- (10,378)
-------- --------
Balance at December 31, 1997............... (14,017) 10,742
Exercise of stock options................ -- 2,076
Exercise of stock warrants............... -- 4,246
Issuance of convertible preferred stock
(3 shares)............................. -- 39
Issuance of common stock................. -- 6
Tax benefit related to exercise of
employee stock options................. -- 3,462
Conversion of preferred stock............ -- --
Initial public offering.................. -- 30,025
Secondary offering....................... -- 6,412
Shares to be issued to acquire business
(350 shares)........................... -- 3,352
Retirement of treasury stock............. 14,017 --
Cumulative translation adjustment........ -- 40
Net loss................................. -- (1,864)
-------- --------
Balance at December 31, 1998............... -- 58,536
Exercise of stock options................ -- 2,656
Tax benefit related to exercise of
employee stock options................. -- 6,176
Issuance pursuant to business acquired... -- --
Conversion of convertible debentures and
preferred stock........................ -- 7,658
Cumulative translation adjustment........ -- (205)
Net income............................... -- 7,009
-------- --------
Balance at December 31, 1999............... $ -- $ 81,830
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
34
<PAGE> 36
BINDVIEW DEVELOPMENT CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
--------- ------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ 7,009 $(1,864) $(10,378)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization expense................... 3,003 1,205 846
Loss on disposition of property and equipment........... 147 -- --
Stock compensation expense.............................. -- -- 14,642
Increase in provision for bad debts..................... 370 9 170
Purchased in-process research and development........... -- 2,488 --
Deferred income taxes................................... 6,299 2,945 (3,150)
Interest payable........................................ -- 392 42
Changes in assets and liabilities, net of acquired
business:
(Increase) in accounts receivable..................... (8,975) (1,056) (2,762)
(Increase) decrease in other current assets........... 808 (1,485) 408
Increase in accounts payable.......................... 629 1,043 614
Increase in accrued liabilities....................... 2,838 800 1,464
Increase in deferred revenue.......................... 4,657 2,843 1,459
--------- ------- --------
Net cash provided by operating activities.......... 16,785 7,320 3,355
--------- ------- --------
Cash flows from investing activities:
Purchase of property and equipment........................ (5,181) (5,140) (1,465)
Purchase of investments................................... (160,659) (10,187) --
Maturities of short-term.................................. 159,892 -- --
Disposal of property and equipment........................ -- 201 --
Cash acquired in business acquisition..................... -- 156 --
Other..................................................... (79) (397) (94)
--------- ------- --------
Net cash used by investing activities.............. (6,027) (15,367) (1,559)
--------- ------- --------
Cash flows from financing activities:
S Corporation distributions............................... -- -- (1,274)
Notes payable and long-term debt.......................... -- 73 83
Proceeds from issuance of convertible preferred stock and
common stock warrants................................... -- 39 18,024
Proceeds from issuance of common stock.................... -- -- 559
Proceeds from issuance of debentures...................... -- 3,949 3,099
Purchases of treasury stock............................... -- -- (14,017)
Proceeds from initial public offering..................... -- 30,025 --
Proceeds from secondary offering.......................... -- 6,412 --
Proceeds from exercise of stock warrants, net............. -- 4,246 --
Proceeds from exercise of stock options................... 2,656 2,076 6
--------- ------- --------
Net cash provided by financing activities.......... 2,656 46,820 6,480
Effect of exchange rate changes on cash..................... (95) 40 --
--------- ------- --------
Net increase in cash and cash equivalents................... 13,319 38,813 8,276
Cash and cash equivalents at beginning of period............ 48,010 9,197 921
--------- ------- --------
Cash and cash equivalents at end of period.................. $ 61,329 $48,010 $ 9,197
========= ======= ========
Supplemental disclosures for cash flow information:
Cash paid during the year for interest.................... $ -- $ -- $ 9
Cash paid during the year for income taxes................ $ -- $ -- $ --
Noncash financing and investing activities:
Issuance of 1,006 shares of common stock in 1997 to
satisfy 1993 acquisition liability...................... $ -- $ -- $ 272
Issuance of warrant to purchase 875 shares of common stock
in 1997 to satisfy bonus obligation..................... $ -- $ -- $ 550
Issuance of 350 shares of common stock related to the
acquisition of Curasoft ................................ $ 3,352 -- --
Tax benefit related to the exercise of employee stock
options................................................. $ 6,176 $ 3,462 --
Conversion of convertible debentures and preferred stock
into common stock....................................... $ 7,658 -- --
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
35
<PAGE> 37
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND PAR VALUE)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS
BindView Development Corporation (the Company), a Texas corporation, was
incorporated in May 1990. Previous to 1995, the Company was known as The LAN
Support Group, Inc. Pursuant to the sale of convertible preferred stock, the
Company's Subchapter S election terminated on October 16, 1997.
The Company develops, markets and supports a suite of systems 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.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of BindView
Development Corporation and its wholly-owned subsidiaries. In March of 1999,
BindView merged with Netect, Ltd. ("Netect") in a pooling of interests
transaction. The financial data included in these financial statements have been
restated to reflect the merger with Netect. All significant intercompany
transactions have been eliminated.
REVENUE RECOGNITION
The Company licenses its software products under perpetual licenses and
recognizes its license revenue upon meeting each of the following criteria: (i)
execution of a written purchase order, license agreement or contract; (ii)
delivery of software or, if the customer has previously received evaluation
software, delivery of the software license authorization code; (iii) issuance of
the related license, with no significant vendor obligations or customer
acceptance rights outstanding; (iv) the license fee is fixed or determinable;
and (v) collectibility is assessed as being probable. Revenues from perpetual
licenses are recorded as license revenue in the accompanying Consolidated
Statement of Operations and Comprehensive Income (Loss). Service revenues
include subscription contracts and professional services. Customers are
generally required to purchase a one year subscription agreement in conjunction
with their initial licensing of the Company's products. Subscription contracts
are purchased separately by customers at their discretion after the first
anniversary of a license sale. Subscription revenues are recognized ratably over
the contract term. Revenues from subscription contracts and other related
services are reported as service revenue in the accompanying Consolidated
Statement of Operations and Comprehensive Income (Loss). The Company recognizes
revenue in accordance with the Statement of Position No. 97-2 "Software Revenue
Recognition" and Statement of Position No. 98-9 "Modification of SOP 97-2,
Software Revenue Recognition, with respect to certain transactions."
Deferred revenue is comprised primarily of subscription revenue and other
services. The portion of subscription contract revenues that have not yet been
recognized as revenues is reported as deferred revenue in the accompanying
consolidated balance sheet. Deferred subscription revenue which has not been
collected is not recognized.
Prior to January 1, 1998, postcontract customer support, consisting solely
of telephone technical support, was included in the product sale to the
Company's customers. During that period, the costs of providing this support was
accrued and charged to expense at the time the revenue was recognized.
Subsequent to January 1, 1998, post contract customer support is provided under
subscription contracts.
ADVERTISING COSTS
Advertising costs are expensed as incurred.
36
<PAGE> 38
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RESEARCH AND DEVELOPMENT
Research and development costs are charged to operations when incurred. In
accordance with the provisions of Statement of Financial Accounting Standards
(SFAS) No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased
or Otherwise Marketed", the Company capitalizes costs incurred in the
development of software once technological feasibility has been determined. The
Company currently considers technological feasibility to have been established
once a working model of a product has been produced and tested. Amortization of
capitalized software development costs is based on a straight line basis over
the product's useful life ranging between three and seven years. To date, costs
incurred by the Company's development staff and capitalizable subsequent to the
establishment of technological feasibility have not been material and are
included in capitalized software in the accompanying Consolidated Balance Sheet.
Capitalized software also includes the cost of developed products obtained
by the Company as a result of its business combinations with other companies. In
December 1998, the Company completed its acquisition of Curasoft, Inc. and
recorded $1,381 in capitalized software development costs as part of its
purchase price allocation (Note 13).
SOFTWARE DEVELOPED FOR INTERNAL USE
The Company adopted Statement of Position 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use" (SOP 98-1) in 1999.
This standard requires that certain costs related to the development or purchase
of internal-use software be capitalized and amortized over the estimated useful
life of the software. SOP 98-1 also requires that costs related to the
preliminary project stage and the post-implementation/operations stage of an
internal-use computer software development project be expensed as incurred. The
adoption of SOP 98-1 did not result in the capitalization of costs during 1999.
STOCK-BASED COMPENSATION
The Company measures compensation expense for its stock-based employee
compensation plans using the intrinsic method, as prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees".
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the fair market value of the Company's stock at the date of the grant
over the amount the employee must pay to acquire the stock, and is recognized
over the related vesting period. The Company provides proforma disclosure of the
effect on net income and earnings per share as if the provisions of SFAS No.
123, "Accounting for Stock-Based Compensation" had been applied in measuring
compensation expense.
OTHER INCOME
Other income consists primarily of interest earned on cash and cash
equivalents and short-term and long-term investments.
INCOME TAXES
Prior to October 16, 1997, the Company had elected to be treated as an S
Corporation for federal income tax purposes. Accordingly, all federal income tax
liability prior to that date was the responsibility of the shareholders.
The provision for income taxes is computed based on income earned from the
termination date of the Company's S election on October 16, 1997. The asset and
liability approach is used to account for income taxes. This approach requires
the recognition of deferred income tax assets and liabilities for the expected
future tax consequences of temporary differences between the carrying amounts
and the tax bases of the assets and liabilities.
37
<PAGE> 39
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The pro forma results of operations of the Company reflect a pro forma
charge in lieu of income taxes prior to October 16, 1997.
EARNINGS PER SHARE
The Company's earnings per share data is presented in accordance with SFAS
No. 128, "Earnings Per Share". Basic earnings per share is computed using the
weighted average number of shares outstanding. Diluted earnings per share is
computed using the weighted average number of shares outstanding adjusted for
the incremental shares attributed to outstanding securities with a right to
purchase or convert into common stock (Note 11).
CASH AND CASH EQUIVALENTS
The Company considers investments with original maturity dates of three
months or less from the date of purchase to be cash equivalents.
INVESTMENTS
The Company's investments are classified as held to maturity as the Company
has the intent and ability to hold the investments until maturity. These
investments are reported at amortized cost. 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 one year.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of cash equivalents, investments, accounts receivable,
accounts payable and deferred revenues reflected in the December 31, 1999 and
1998 Consolidated Balance Sheet approximate their carrying value due to their
short maturities.
The fair value of $7,572 related to convertible debentures reflected in the
December 31, 1998 Consolidated Balance Sheet was estimated using discounted cash
flow analysis, based on Netect's incremental borrowing rates for similar types
of borrowing arrangements.
CONCENTRATION OF CREDIT RISK
Financial instruments which subject the Company to concentrations of credit
risk consist primarily of cash equivalents, short-term investments and accounts
receivable. The Company maintains its cash equivalent balance in money market
funds invested in U.S. Treasury Certificates or in U.S. dollar linked
instruments with major banks. These funds are not FDIC insured. The Company has
not experienced any losses in such funds and believes it is not exposed to any
significant credit risk on cash equivalents. The Company's investment policies
restrict its investments to low risk, highly liquid securities. The Company also
performs periodic evaluations of its investment policies to review its
investment credit risk.
Management believes that concentrations of credit risk with respect to
accounts receivable are limited due to the large number of customers comprising
the Company's customer base and their dispersion across many different
industries and geographic regions. The Company performs ongoing credit
evaluations of its customers to minimize credit risk. Approximately 17%, 10% and
13% of the Company's sales were made on an export basis, primarily to customers
in Europe and the United Kingdom in 1999, 1998 and 1997, respectively.
RECEIVABLES
Trade finance receivables arise in the ordinary course of business. During
1999, the Company transferred $4,975 in trade finance receivables to a financing
institution on a non-recourse basis. The Company records
38
<PAGE> 40
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
such transfers as sales of the related accounts receivable when the Company is
considered to have surrendered control of such receivables under the provisions
of Statement of Financial Accounting Standards (SFAS) No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities."
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed by
applying the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are amortized over the lives of the respective leases or
the service lives of the improvements, whichever is shorter.
LONG-LIVED ASSETS
The Company reviews the impairment of long-lived assets and certain
identifiable intangibles whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. An impairment loss
would be recognized when estimated future cash flows expected to result from the
use of the asset and its eventual disposition is less than its carrying value
amount. The Company has not identified any such impairment losses.
FOREIGN CURRENCY
Assets and liabilities of the Company's foreign operations are translated
into United States dollars at the exchange rate in effect at the balance sheet
date, and revenue and expenses are translated at the average exchange rate for
the period. The functional currency of those subsidiaries is their local
currency, which is the primary currency in which they operate. Cumulative
translation adjustments are reported as a separate component of comprehensive
income (loss). To date, adjustments resulting from the process of translating
foreign subsidiaries financial statements into U.S. dollars have not been
significant.
COMPREHENSIVE INCOME (LOSS)
The Company's only component of other comprehensive income is foreign
currency translation adjustments. Changes in the Company's cumulative
translation adjustment have been characterized as other comprehensive income in
the accompanying Consolidated Statement of Operations and Comprehensive Income.
SEGMENT REPORTING
The Company adopted SFAS 131, "Disclosures about Segments of an Enterprise
and Related Information" in 1998. The management approach required by SFAS 131
designates the internal reporting that is used by management for making
operating decisions and assessing performance as the source of the Company's
reportable segments. SFAS 131 also requires disclosure about products and
services, geographic areas and major customers. The Company believes it operated
in one reportable segment as defined by SFAS 131 for the years ended December
31, 1999, 1998 and 1997.
USE OF ESTIMATES
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets, liabilities, sales and expenses, and
the disclosure of contingent assets and liabilities. Actual results could differ
from those estimates.
39
<PAGE> 41
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RECENT PRONOUNCEMENTS
In June 1998, the FASB issued SFAS 133 "Accounting for Derivative
Instruments and Hedging Activities." The pronouncement establishes accounting
and reporting standards for derivative instruments. The pronouncement was to
become effective for fiscal years beginning after June 15, 1999. During June
1999, FASB issued SFAS 137 -- an amendment of SFAS 133 which delayed the
effective date of SFAS 133 to fiscal years beginning after June 15, 2000. The
Company has historically not engaged in significant derivative instrument
activity. Adoption of SFAS 133 is not expected to have a material effect on the
Company's financial position or operational results.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition in Financial
Statements. SAB 101 provides guidance on applying generally accepted accounting
principles to revenue recognition issues in financial statements. The Company
will adopt SAB 101 as required in the second quarter of 2000 and is evaluating
the effect that such adoption may have on its consolidated results of operations
and financial position.
2. INVESTMENTS
Investments considered held to maturity at December 31, 1999, consisted of
the following:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED
AMORTIZED COST MARKET VALUE HOLDING LOSSES HOLDING GAINS
-------------- ------------ -------------- -------------
<S> <C> <C> <C> <C>
Short-term corporate bonds....... $ 751 $ 749 $ 2 $ --
Government agency bonds.......... 2,020 2,013 7 --
Asset backed securities.......... 6,120 6,093 27 --
Certificate of deposit........... 2,063 2,061 2 --
------- ------- --- -----
Total corporate $10,954 $10,916 $38 $ --
bonds................
======= ======= === =====
</TABLE>
All of the investments at December 31, 1999 are scheduled to mature in 2000
and 2001. Market value is based upon quoted market prices for the investments.
Investments considered held to maturity at December 31, 1998, consisted of the
following:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED
AMORTIZED COST MARKET VALUE HOLDING LOSSES HOLDING GAINS
-------------- ------------ -------------- -------------
<S> <C> <C> <C> <C>
Government agency bonds.......... $ 2,019 $ 2,013 $ 6 $ --
Certificates of deposit.......... 2,063 2,061 2 --
Asset backed securities.......... 6,105 6,092 13 --
------- ------- --- -----
$10,187 $10,166 $21 $ --
======= ======= === =====
</TABLE>
40
<PAGE> 42
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment balances are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
ESTIMATED -----------------
USEFUL LIVES 1999 1998
------------ ------- -------
<S> <C> <C> <C>
Computer equipment and software..................... 3 years $ 9,233 $ 6,042
Office furniture and other equipment................ 3-10 years 1,665 1,259
Leasehold improvements.............................. Lease terms 2,061 761
------- -------
12,959 8,062
Less -- accumulated depreciation.................... (5,389) (2,720)
------- -------
$ 7,570 $ 5,342
======= =======
</TABLE>
Depreciation expense totaled $2,806, $1,198 and $716 in 1999, 1998 and
1997, respectively.
4. CAPITALIZED SOFTWARE
Capitalized software costs are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1999 1998
------ ------
<S> <C> <C>
Capitalized software........................................ $1,669 $1,669
Less -- accumulated amortization............................ (492) (295)
------ ------
$1,177 $1,374
====== ======
</TABLE>
Amortization expense for capitalized software totaled $197, $7 and $130, in
1999, 1998 and 1997 respectively.
5. CONVERTIBLE DEBENTURES
Convertible debentures for $3,960 and $3,178 were issued by Netect in 1998
and 1997, respectively, to certain investors. These debentures earned interest
at 8% accrued annually and payable upon conversion or redemption. In accordance
to the terms set forth in the agreement, the debentures were converted into
common stock of the Company at a rate of $7.24 per share in connection with the
merger of Netect into the Company.
6. INCOME TAXES
Effective October 16, 1997, the Company elected to be treated as a C
Corporation for federal income tax purposes. Accordingly, no federal income tax
expense was recorded by the Company prior to October 16, 1997 because operating
results are reported in the individual income tax returns of the shareholders.
The components of income (loss) before income taxes are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1999 1998 1997
------- ------- --------
<S> <C> <C> <C>
Continuing operations
Domestic.......................................... $18,872 $ 5,350 $(11,676)
Foreign........................................... (5,564) (4,269) (1,852)
------- ------- --------
Total income (loss) before income taxes...... $13,308 $ 1,081 $(13,528)
======= ======= ========
</TABLE>
41
<PAGE> 43
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's income tax provision (benefit) is comprised of the following
(in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1999 1998 1997
------ ------ -------
<S> <C> <C> <C>
Current income tax expense
Federal.............................................. $ -- $ -- $ --
State................................................ -- -- --
Foreign.............................................. -- -- --
------ ------ -------
Total current income tax expense................ -- -- --
Deferred income tax expense
Federal.............................................. $6,187 $2,910 $(3,060)
State................................................ 112 435 (90)
Foreign.............................................. -- (400) --
------ ------ -------
Total deferred income tax expense............... $6,299 $2,945 $(3,150)
------ ------ -------
Total income tax provision (benefit)............ $6,299 $2,945 $(3,150)
====== ====== =======
</TABLE>
The overall income tax provision (benefit) for 1999, 1998 and 1997 resulted
in effective tax rates of 47.3%, 272.4% and 23.3%, respectively. A
reconciliation of the federal statutory rate and the Company's provision for
income taxes is as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1999 1998 1997
------ ------ -------
<S> <C> <C> <C>
Income tax provision (benefit) at the applicable federal
statutory rate.......................................... $4,658 $ 378 $(4,735)
State income taxes, net of federal benefit................ 112 50 (68)
Research and development credit........................... (700) (500) --
Non-deductible in-process research and development........ -- 870 --
Non-deductible transaction expenses....................... 349 -- --
Tax obligation allocated to S Corporation shareholders.... -- -- (765)
S Corporation income from January 1, 1997 through October
16, 1997................................................ -- -- 1,595
Valuation allowance....................................... 1,892 2,330 900
Other..................................................... (12) (183) (77)
------ ------ -------
Total provision (benefit) for income taxes...... $6,299 $2,945 $(3,150)
====== ====== =======
</TABLE>
42
<PAGE> 44
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred tax assets and liabilities at December 31, 1998 and 1999 are
comprised of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1999 1998
------ ------
<S> <C> <C>
Assets
Net operating loss carryforwards.......................... $7,435 $6,375
Research and development credit carryforward.............. 1,075 500
Allowance for bad debts................................... 170 70
Other..................................................... 15 --
------ ------
Total..................................................... 8,695 6,945
Liabilities
Differences in basis for long-lived assets................ (404) (370)
------ ------
Total....................................................... 8,291 6,575
Less: Valuation allowance -- foreign losses................. (5,222) (3,330)
------ ------
Total deferred tax asset.................................... $3,069 $3,245
====== ======
</TABLE>
The Company has net operating loss carryforwards at December 31, 1999 of
approximately $21,150 available to offset future taxable income that expires
between 2003 and 2019 resulting in a deferred tax asset of approximately $7,435.
Based on the historical earnings generated by the Company and certain
limitations that may limit the utilization of net operating loss carryforwards,
management has provided a valuation allowance of $5,222 at December 31, 1999
against the net operating loss carryforwards. The Company's ability to utilize
the net operating loss carryforwards related to its acquisitions may be subject
to certain limitations.
7. STOCK COMPENSATION EXPENSE
PHANTOM STOCK PLAN TERMINATION
In 1996, the Company implemented a phantom stock plan which granted phantom
stock units to certain employees. Each phantom stock unit provided the
participant with the right to receive shares of Company common stock upon the
occurrence of a change in control of the Company, an initial public offering of
the Company's common stock, liquidation of the Company or a sale of
substantially all of the Company's assets (the "Events"). Since the number of
shares of Common Stock a participant might receive would not be known until one
of the Events occurred, the Company had treated the Phantom Stock Plan in
accordance with Financial Accounting Standards Board Interpretation No. 28 (FIN
28) and accordingly had not recognized stock compensation expense upon the grant
of the units. Stock compensation expense was recognized by the Company in
October 1997 when the plan participants voted to have the Company terminate the
Plan in connection with the sale of Convertible Preferred Stock and Warrants and
the number of shares to be issued under the Plan were known.
The Company granted 6,598 phantom stock units during 1996. No grants were
made during 1997. The Company terminated the Phantom Stock Plan in October 1997
and issued 3,514 shares of common stock on October 13, 1997 and 6,376 shares of
common stock on October 16, 1997 to retire the Phantom Stock Plan. The Company
recognized a related stock compensation charge of $14,712 in October 1997.
On October 16, 1997, the Company issued 2,608 common stock options under
the Company's 1997 Employee Stock Option Plan with an exercise price of $1.43
per share to former participants in the Phantom Stock Plan (Note 8). No
compensation expense has been recorded related to these options as the exercise
price is equal to the fair market value of the Company's common stock on the
date of grant.
43
<PAGE> 45
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OFFICER WARRANTS
In November 1997, the Company issued a warrant to purchase 875 shares of
common stock at a price of $1.43 per share to an officer to terminate a
provision of the stock option agreement with that officer. The Company
recognized compensation expense of $550 during the fourth quarter of 1997 based
upon the fair value of the warrant issued.
8. SHAREHOLDERS' EQUITY
ISSUANCE OF COMMON STOCK TO SATISFY ACQUISITION LIABILITY
In April 1997, the Company issued 1,006 shares to satisfy its 1993
obligation incurred related to an employment agreement and the acquisition of
certain technology rights.
ISSUANCE OF CONVERTIBLE PREFERRED STOCK AND WARRANTS
In October 1997, the Company issued 2,528 shares of $0.01 par value
convertible preferred stock and warrants to purchase 1,500 shares of common
stock, at $2.00 per share in exchange for $18,002 of cash. The warrants were
immediately exercisable and had an expiration date of April 16, 2000. In the
event of a liquidation of the Company, the Company's preferred stock had a
liquidation preference over its common stock. The preferred stock had a
liquidation value of $7.12 per preferred share and was convertible at the option
of the holder into common stock on a 5-for-1 basis. As a result of the Company's
initial public offering in July of 1998, the Company's preferred stock
automatically converted into common stock.
In February 1997, Netect issued to a certain investor a warrant to purchase
124 shares of common stock, at $8.07 per share.
In October 1997 and July 1998, Netect issued 4 and 3 shares of $0.025 par
value convertible preferred stock and warrants to purchase 114 and 12 shares of
common stock, at less than $0.01 per share in exchange for $22 and $39,
respectively. In the event of a liquidation of the Company, the Company's
preferred stock had a liquidation preference over its common stock. The
preferred stock had a liquidation value of $14.48 per preferred share and was
convertible at the option of the holder into common stock on a 2-for-1 basis.
These preferred shares had a preferred compound annual dividend of 8% based on
the original purchase price of $14.48 per share.
In November 1997, Netect issued a warrant to purchase 72 shares of common
stock at a price of less than $0.01 per share to its former Chief Executive
Officer. This warrant was issued in conjunction with the termination agreement
with that officer.
In connection with the merger of Netect into the Company, all outstanding
Netect warrants and preferred shares were exchanged for shares of Company common
stock.
TREASURY STOCK TRANSACTIONS
The Company repurchased 9,844 shares of common stock for $1.43 per share in
October 1997. These treasury shares were retired by the Company in September
1998.
INITIAL PUBLIC OFFERING
On May 15, 1998, the Company filed a registration statement permitting the
Company to sell 5,518 shares of its common stock to the public and 1,124
additional shares to cover over-allotments. The registration statement also
permitted certain stockholders of the Company to sell 1,982 shares to the
public. The registration statement became effective on July 23, 1998. With the
exercise of the over-allotment, the initial public offering resulted in proceeds
to the Company of approximately $30,025, net of approximately
44
<PAGE> 46
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$3,189 in underwriting fees and offering expenses. The Company received no
proceeds from the sale of shares by selling stockholders in the initial public
offering.
SECONDARY OFFERING
On November 25, 1998, the Company filed a registration statement permitting
the Company to sell 600 shares of its common stock to the public and 90
additional shares to cover over-allotments. The registration statement also
permitted certain stockholders of the Company to sell 5,400 shares to the public
and 810 additional shares to cover over-allotments. The registration statement
became effective on December 4, 1998. With the exercise of the over-allotment,
the secondary offering resulted in proceeds to the Company of approximately
$6,412, net of approximately $833 in underwriting fees and offering expenses.
The Company received no proceeds from the sale of shares by selling stockholders
in the secondary public offering.
STOCK OPTION PLANS
Incentive Stock Option Plan
In 1996, the Company's Board of Directors adopted the Incentive Stock
Option Plan. At December 31, 1999, there were 2,482 shares of common stock
reserved by the Board of Directors for issuance under this plan. Options on 475,
928 and 524 shares were exercisable at December 31, 1999, 1998 and 1997 with a
weighted average exercise price per share of $4.34, $0.53 and $0.40,
respectively.
Nonqualified Stock Option Plan
In 1996, the Company's Board of Directors adopted the Nonqualified Stock
Option Plan. At December 31, 1999, there were 1,105 shares of common stock
reserved by the Board of Directors for issuance under this plan. Options on 540,
1,034 and 438 shares were exercisable at December 31, 1999, 1998 and 1997, with
a weighted average exercise price per share of $0.76, $1.12 and $0.67,
respectively.
1997 Employee Stock Option Plan
In 1997, the Company's Board of Directors adopted the 1997 Employee Stock
Option Plan. At December 31, 1999, there were 1,720 shares of common stock
reserved by the Board of Directors for issuance under this plan. Options on
1,132 and 1,130 shares were exercisable at December 31, 1999 and 1998, with a
weighted average exercise price per share of $1.43 and $1.43, respectively.
There were no options exercisable at December 31, 1997.
1998 Omnibus Incentive Plan
In 1998, the Company's Board of Directors adopted the 1998 Omnibus
Incentive Plan. At December 31, 1999, there were 3,541 shares of common stock
reserved by the Board of Directors for issuance under this plan. Options on 245
and 58 shares were exercisable at December 31, 1999 and 1998, with a weighted
average exercise price per share of $9.29 and $2.44, respectively. There were no
options exercisable at December 31, 1997.
Non-Employee Director Plan
In 1998, the Company's Board of Directors adopted the Non-Employee Director
Plan. At December 31, 1999, there were 340 shares of common stock reserved by
the Board of Directors for issuance under this plan. Options on 60 shares were
exercisable at December 31, 1999, with a weighted average exercise price per
share of $1.92. There were no options exercisable at December 31, 1998 or 1997.
45
<PAGE> 47
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
International Employee Stock Option Plan and Section 102 share Option Plan
In 1998, Netect's Board of Directors adopted the International Employee
Stock Option and Section 102 share Option Plans. At December 31, 1999, there
were 88 shares of common stock reserved by the Board of Directors for issuance
under these plans. Options on 14 and 20 shares were exercisable at December 31,
1999 and 1998, with a weighted average exercise price per share of $2.25 and
$2.25, respectively. In connection with the merger of Netect into the Company,
these options were exchanged for options to purchase the Company's common stock
using the exchange ratio, which is reflected in the amounts disclosed herein.
All Stock-Based Compensation Plans
Substantially all options reserved under the Company's Incentive Stock
Option Plan, the Nonqualified Stock Option Plan and the 1997 Employee Stock
Option Plan have been issued. Options granted under the Incentive Stock Option
Plan, Nonqualified Stock Option Plan, 1998 Omnibus Incentive Plan and Non-
Employee Director Plan generally vest 20% per year over five years. Options
granted under the International Employee Stock Option Plan and the Section 102
share Option Plan generally vest 25% per year over four years. Options granted
under the 1997 Employee Stock Option Plan vest at varying rates through the year
2001. Options must be exercised no later than ten years from the date of grant.
Stock options have been granted at the fair market value of the Company's stock
at the date of grant.
The following table summarizes combined activity under the stock option
plans for each of the three years ended December 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
PRICE
OPTIONS PRICE PER SHARE PER SHARE
------- --------------- ---------
<S> <C> <C> <C>
Options outstanding, December 31, 1996............. 2,792 $0.38 - $ 1.24 $ 0.79
Options granted.................................. 6,782 $0.55 - $ 1.43 $ 1.01
Options lapsed or canceled....................... (426) $0.38 - $ 1.43 $ 0.49
Options exercised................................ (20) $ 0.38 $ 0.38
------
Options outstanding, December 31, 1997............. 9,128 $0.38 - $ 1.43 $ 0.96
Options granted.................................. 3,192 $1.93 - $13.75 $ 5.35
Options lapsed or canceled....................... (232) $0.48 - $ 5.00 $ 1.52
Options exercised................................ (2,182) $0.38 - $ 5.00 $ 0.96
------
Options outstanding, December 31, 1998............. 9,906 $0.38 - $13.75 $ 2.36
Options granted.................................. 3,662 $9.16 - $22.25 $11.25
Options lapsed or canceled....................... (1,400) $0.58 - $13.75 $ 3.25
Options exercised................................ (2,892) $0.38 - $11.50 $ 1.20
------
Options outstanding, December 31, 1999............. 9,276 $0.38 - $22.25 $ 5.97
======
</TABLE>
46
<PAGE> 48
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes significant ranges of outstanding and
exercisable options at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------ --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
SHARES IN REMAINING EXERCISE SHARES IN EXERCISE
THOUSANDS LIFE IN YEARS PRICE THOUSANDS PRICE
--------- ------------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
under $1.25...................... 2,185 6.6 $ .64 962 $ 0.66
$1.26 - $2.50.................... 2,306 7.9 $ 1.63 1,310 $ 1.48
$2.51 - $5.00.................... 573 6.1 $ 4.99 52 $ 4.98
$5.01 - $10.00................... 1,322 9.5 $ 9.63 30 $ 8.93
$10.01 - $12.50.................. 2,535 9.1 $11.37 85 $11.11
Over $12.51...................... 355 9.5 $16.21 27 $13.75
----- --- ------ ----- ------
9,276 8.1 $ 5.97 2,466 $ 1.79
===== === ====== ===== ======
</TABLE>
Stock Based Compensation Disclosures
For periods prior to the Company's initial public offering, the minimum
value of stock based compensation was calculated in accordance with Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation". The following weighted average assumptions using the Black-
Scholes model were used to calculate pro forma stock based compensation for the
three years ended December 31, 1999 (the minimum value method used in 1997 does
not include volatility):
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Expected life (in years).................................... 6 4 4
Interest rate............................................... 6% 5% 6%
Volatility.................................................. 87% 77% N/A
Dividend yield.............................................. 0% 0% 0%
</TABLE>
Stock based compensation costs would have reduced pretax income by $8,355,
$1,097 and $164 in 1999, 1998 and 1997, respectively ($5,430, $757 and $107
after tax and $0.11, $0.05 and $0.01 per diluted share in 1999, 1998 and 1997,
respectively) if such compensation in that year had been recognized as
compensation expense on a straight-line basis over the vesting period of the
grant.
9. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company conducts its operations in leased facilities under operating
leases expiring at various dates through 2004. The leases are cancelable upon
payment of six months rent and reimbursement of the unamortized balance of the
leasehold allowance. Total lease expense amounted to approximately $2,551, $795
and $642 at December 31, 1999, 1998 and 1997, respectively.
The minimum rental commitments under operating leases at December 31, 1999
were: $3,905 in 2000, $3,648 in 2001, $3,661 in 2002, $2,645 in 2003 and $302 in
2004 and beyond.
10. 401(K) PLAN
Effective January 1, 1995, the Company adopted a 401(k) plan which is
available to all full-time employees. Employees contribute to the plan through
payroll deductions. The Company matches 50% of the participant's contribution up
to a maximum of 6% of a participant's compensation. Additionally, the Company
47
<PAGE> 49
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
may make a discretionary contribution as determined by the Board of Directors.
Total Company contributions were $1,166, $546 and $174 in 1999, 1998 and 1997,
respectively.
11. NET INCOME PER SHARE
As a result of the Company's change from an S Corporation to a C
Corporation in October 1997, presentation of pro forma net loss per share is
necessary for the year ended December 31, 1997. Shares issued as a result of the
1,006 shares issued in 1997 to satisfy a 1993 acquisition liability have been
treated as if they had been effective and outstanding as of January 1, 1996 and
included in weighted average shares outstanding. Shares to be issued in
connection with the Curasoft acquisition (Note 13) were not material to the
weighted shares outstanding for 1998. For the years ended December 31, 1999,
1998 and 1997, options and warrants to acquire 239, 909 and 5,931 shares at
weighted average exercise prices of $17.48, $10.73 and $1.68 per share,
respectively were not included in the computations of diluted earnings per share
because the exercise prices were greater than the average market price of the
common shares.
The computation of basic and diluted net income (loss) per share and pro
forma basic and diluted net income (loss) per share follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
------- --------- --------
<S> <C> <C> <C>
Net income (loss).................................... $ 7,009 $ (1,864)
======= =========
Pro forma net loss................................... $ (9,613)
========
Shares used in basic calculation (in thousands):
Total basic shares................................. 45,183 28,196 17,524
Additional shares for diluted computation:
Effect of stock options............................ 5,150 6,518 1,186
Effect of warrants................................. 38 1,090 30
Effect of convertible debentures................... 111 666 74
Effect of convertible preferred stock.............. -- 7,074 2,638
Effect of phantom stock............................ -- -- 10,150
Exclusion of share equivalents that are
anti-dilutive because a loss was incurred....... -- (15,348) (14,078)
------- --------- --------
Total diluted shares....................... 50,482 28,196 17,524
======= ========= ========
Basic net income (loss) per share.................... $ 0.15 $ (0.07)
Diluted net income (loss) per share.................. $ 0.14 $ (0.07)
Pro forma basic net loss per share................... $ (0.55)
Pro forma diluted net loss per share................. $ (0.55)
</TABLE>
12. SEGMENT DATA
The Company manages its business primarily on an overall products and
services basis; the Company has one reportable segment. The reportable segment
provides products and services as described in Note 1. The accounting policies
of the segment are those described in the "Summary of Significant Accounting
Policies" in Note 1. The Company evaluates the performance of its segment based
on segment profit. Revenues related to operations in the United States totaled
$56,397, $34,636, and $18,163 for the years ended December 31, 1999, 1998, and
1997, respectively. Revenues to customers located in other foreign countries
totaled $11,551, $3,848, and $2,714 for the years ended December 31, 1999, 1998,
and 1997, respectively. No single customer accounted for more than 10% of
revenue in 1999, 1998, or 1997. Long-lived assets within the United States
48
<PAGE> 50
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
totaled $9,007 and $5,534 at December 31, 1999 and 1998, respectively.
Long-lived assets in other foreign countries totaled $177 and $143 at December
31, 1999 and 1998, respectively.
13. ACQUISITION OF CURASOFT, INC.
In December 1998, the Company committed to deliver 350 shares of its common
stock in exchange for all of the outstanding equity interests in Curasoft, Inc.
in a transaction accounted for as a purchase. The aggregate consideration in the
transaction was valued at $3,352. Incremental costs incurred and capitalized in
connection with the acquisition were $140. The Company delivered the shares
related to this acquisition in March of 1999. At December 31, 1999, the Company
was obligated to make and expense an earnout payment of $1,200 to certain former
owners of Curasoft based on the achievement of revenue targets related to an
existing product, as well as their continued employment with the Company. The
Company is not obligated to any other future earnout payments related to this
acquisition.
The Company allocated the purchase price to assets and liabilities acquired
in the transaction based on their relative fair values as determined by an
independent valuation firm. These acquired assets will be amortized over their
estimated useful lives. The Company has allocated $1,381 of the purchase price
to the existing Curasoft ENR product family which provides fully integrated
event notification and response solutions for scheduling, notification,
dispatch, escalation, and response.
To determine the fair market value of the acquired net assets, the Company
relied primarily on the income approach, whereupon fair market value is a
function of the future revenues expected to be generated by an asset, net of all
related expenses. The future net revenue stream was discounted to the present
value at an 18% rate based on the estimated level of risk associated with
achieving the forecasted revenues. The income approach focuses on the income
producing capability of the acquired assets and represents the present value of
the future economic benefits expected to be derived from these assets.
The purchase price allocation resulted in an immediate write-off of $2,488
for purchased in-process research and development costs related to a Curasoft
product ("CuraSLAM") undergoing development at the acquisition date. CuraSLAM
has been designed as a stand-alone product by Curasoft and is not related to the
Curasoft ENR product family. This product is currently being designed to enable
customers to improve the service levels of their computing environments and will
help customers better align business processes with their IT functions. This
product is expected to be integrated with current and future BindView products.
The Company determined that the purchased in-process technology had not reached
technological feasibility and had no alternative future use based on the status
of design and development activities.
To determine the fair value of the purchased in-process research and
development activities, the Company utilized values determined by an independent
valuation firm, which applied the percentage of completion approach. Prior to
the acquisition, Curasoft conducted in-depth market research, designed the
product architecture, substantially completed the coding of the user interface
and began the coding of the other modules. The Company has estimated that the
development effort of this product was 50% complete at the date of acquisition.
The percentage completed of 50% was applied to the estimated fair value of the
completed product to determine the in-process research and development charge
upon acquisition. The estimated fair value of the completed product was
determined using the future revenue streams expected from the product, net of
related expenses, discounted at a rate based upon the specific level of risk
associated with achieving the forecasted revenues.
The management of the Company conducted due diligence and performed an
assessment of remaining tasks and risks to achieve completion. The development
activities required to complete the acquired in-process technologies included
additional design, coding, quality assurance procedures and customer beta
testing. The challenges facing the Company to complete the development of this
product on schedule include 1) the management of a development office away from
its principle offices in Houston, Texas, 2) the ability to
49
<PAGE> 51
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
adequately staff this office, 3) the ability to effectively integrate the
product with the Company's existing products and 4) the validation of the
product and its features by potential customers. If the development of the
product is delayed, this could adversely impact its availability date and
time-to-market and therefore, its ability to market the product. If the product
is available for general distribution during the first half of 2000, the Company
anticipates generating material net cash inflows from this product in 2001.
Allocation of the purchase price in the transaction is as follows:
<TABLE>
<S> <C>
Common stock to be issued................................... $3,352
Transaction costs........................................... 140
------
Total to be allocated............................. $3,492
======
Allocation:
Cash acquired............................................. $ 157
Other current assets...................................... 239
Capitalized software...................................... 1,381
Other non-current assets.................................. 41
Current liabilities....................................... (394)
Deferred taxes............................................ (420)
Purchased in-process technology........................... 2,488
------
Total allocated................................... $3,492
======
</TABLE>
ACQUISITION OF NETECT, LTD.
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 2,322 shares of
common stock, based upon an exchange ratio of 0.800044202 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. 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.
Transaction costs of $1,533 and restructuring cost of $991 were incurred as
a result of this merger. 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 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 Company has completed substantially all of the actions related to the
restructuring plans. The Company believes the remaining reserve is sufficient to
complete the remaining actions under the plan.
50
<PAGE> 52
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The accrued restructuring expenses and amounts charged against the
provision as of December 31, 1999, were as follows:
<TABLE>
<CAPTION>
BEGINNING CASH ACCRUED EXPENSES AT
RESTRUCTURING EXPENSES ACCRUAL ADJUSTMENT EXPENDITURES DECEMBER 31, 1999
- ---------------------- --------- ---------- ------------ -------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Employee severance and related
costs............................ $575 $238 $(780) $33
Israeli office closing............. 119 -- (119) --
Other restructuring costs.......... 59 -- (59) --
---- ---- ----- ---
Total.................... $753 $238 $(958) $33
==== ==== ===== ===
</TABLE>
14. SUBSEQUENT EVENTS
On January 26, 2000 the Company announced a stock dividend. Stockholders of
record as of the close of business on February 9, 2000 received one additional
share of BindView common stock for each share of common stock held on the record
date. All share amounts included within this document have been adjusted
retroactively to give effect to this stock dividend.
On February 9, 2000 the Company merged with Entevo Corporation in a stock
for stock transaction accounted for as a pooling of interests. Entevo provides
directory management solutions that help organizations deploy, integrate,
administer and maintain enterprise directory services in Windows NT and Windows
2000 environments. In connection with the merger, the Company issued 4,181
shares of common stock, based upon an exchange ratio of 0.1205909 shares of
BindView common stock for each share of Entevo common stock and 0.17210298
shares of BindView common stock for each share of Entevo Series C Preferred
Stock. There were no material transactions between the Company and Entevo during
the periods prior to the merger.
51
<PAGE> 53
BINDVIEW DEVELOPMENT CORPORATION
SUPPLEMENTAL COMBINED BALANCE SHEET
(IN THOUSANDS, EXCEPT PAR VALUE)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 72,150 $ 51,718
Short-term investments.................................... 4,834 10,187
Accounts receivable, net of allowance of $623 and $204,
respectively............................................ 15,701 6,595
Deferred tax assets....................................... 3,069 3,245
Other current assets...................................... 1,142 1,796
-------- --------
Total current assets............................... 96,896 73,541
Property and equipment, net................................. 8,485 5,880
Capitalized software and related assets, net................ 1,177 1,400
Long-term investments....................................... 6,120 --
Other assets................................................ 564 624
-------- --------
Total assets....................................... $113,242 $ 81,445
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 3,077 $ 1,988
Accrued liabilities....................................... 2,721 2,080
Accrued compensation...................................... 3,757 1,185
Deferred revenue.......................................... 10,311 5,301
Current maturities of indebtedness........................ 176 56
-------- --------
Total current liabilities.......................... 20,042 10,610
-------- --------
Commitments and contingencies (Note 10)
Convertible debentures...................................... -- 7,572
Indebtedness and other long-term liabilities................ 144 157
-------- --------
Total long-term liabilities........................ 144 7,729
-------- --------
Total liabilities.................................. 20,186 18,339
-------- --------
Shareholders' equity:
Convertible preferred stock, $0.01 par value, 20,000
shares authorized, 0 and 2,528 shares issued and
outstanding, respectively............................... -- --
Convertible preferred stock, $0.025 par value, 520 shares
authorized, 7 and 4 shares issued and outstanding,
respectively............................................ -- --
Series A convertible preferred stock, $0.0001 par value,
5,000 shares authorized, 5,000 and 5,000 shares issued
and outstanding, respectively (liquidation value
$2,500)................................................. 5 5
Series B convertible preferred stock, no par value, 8,000
shares authorized, 7,689 and 7,689 shares issued and
outstanding, respectively (liquidation value $7,189).... 8 8
Series C convertible preferred stock, no par value, 10,030
shares authorized, 10,000 shares issued and outstanding
(liquidation value $15,000)............................. 10 --
Common stock, no par value, 100,000 shares authorized,
47,535 and 43,020 shares issued and outstanding,
respectively............................................ 1 1
Additional paid-in capital................................ 109,471 75,514
Common Stock to be issued, 350 shares..................... -- 3,352
Accumulated deficit....................................... (15,975) (15,534)
Notes receivable, shareholders............................ (202) (202)
Accumulated other comprehensive loss...................... (262) (38)
-------- --------
Total shareholders' equity......................... 93,056 63,106
-------- --------
Total liabilities and shareholders' equity......... $113,242 $ 81,445
======== ========
</TABLE>
The accompanying notes are an integral part of these supplemental combined
financial statements.
52
<PAGE> 54
BINDVIEW DEVELOPMENT CORPORATION
SUPPLEMENTAL COMBINED STATEMENT OF OPERATIONS AND
COMPREHENSIVE LOSS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1999 1998 1997
------- ------- --------
<S> <C> <C> <C>
Revenues:
Licenses.................................................. $53,200 $31,400 $ 17,821
Services.................................................. 18,539 8,427 3,451
------- ------- --------
Total revenues.................................... 71,739 39,827 21,272
------- ------- --------
Cost of revenues:
Cost of licenses.......................................... 1,497 974 644
Cost of services.......................................... 2,357 1,233 729
------- ------- --------
Total cost of revenues............................ 3,854 2,207 1,373
------- ------- --------
Gross profit................................................ 67,885 37,620 19,899
------- ------- --------
Costs and expenses:
Sales and marketing....................................... 34,974 22,229 10,619
Research and development.................................. 19,298 11,706 4,975
General and administrative................................ 7,294 5,253 3,994
Acquisition related earnout............................... 1,200 -- --
Merger and restructuring.................................. 2,524 -- --
Purchased in-process research and development............. -- 2,488 --
Stock compensation expense................................ -- -- 15,262
------- ------- --------
Operating income (loss)..................................... 2,595 (4,056) (14,951)
Other income, net........................................... 3,263 1,236 95
------- ------- --------
Income (loss) before income tax provision................... 5,858 (2,820) (14,856)
Provision (benefit) for income taxes........................ 6,299 2,945 (3,150)
------- ------- --------
Net loss.................................................... (441) (5,765) (11,706)
Other comprehensive income (loss), net of tax:
Gain (loss) from foreign currency translation............. (224) 1 (39)
------- ------- --------
Comprehensive loss........................................ $ (665) $(5,764) $(11,745)
======= ======= ========
Basic loss per share........................................ $ (0.01) $ (0.19)
Diluted loss per share...................................... $ (0.01) $ (0.19)
Pro forma information:
Net loss as reported................................... $(11,706)
Pro forma benefit in lieu of income taxes.............. (765)
--------
Pro forma net loss..................................... $(10,941)
========
Pro forma basic net loss per share..................... $ (0.60)
Pro forma diluted net loss per share................... $ (0.60)
</TABLE>
The accompanying notes are an integral part of these supplemental combined
financial statements.
53
<PAGE> 55
BINDVIEW DEVELOPMENT CORPORATION
SUPPLEMENTAL COMBINED STATEMENT OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONVERTIBLE CONVERTIBLE CONVERTIBLE
PREFERRED PREFERRED PREFERRED COMMON
COMMON STOCK SERIES A SERIES B SERIES C STOCK
--------------- --------------- --------------- --------------- TO BE
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT DELIVERED
------ ------ ------ ------ ------ ------ ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997..................... 16,700 $1 -- $-- -- $-- -- $-- $ --
Issuance of common stock...................... 222 -- -- -- -- -- -- -- --
S Corporation distributions................... -- -- -- -- -- -- -- -- --
Sale of Series A preferred stock at $0.50 per
share (net of expenses)..................... -- -- 4,920 5 -- -- -- -- --
Issuance of common stock to satisfy 1993
employment and acquisition liability........ 1,006 -- -- -- -- -- -- -- --
Issuance of common stock pursuant to
termination of Phantom Stock Plan........... 9,890 -- -- -- -- -- -- -- --
Transfer of S Corporation Accumulated deficit
upon Conversion to C Corporation............ -- -- -- -- -- -- -- -- --
Issuance of convertible preferred Stock
(2,532 shares).............................. -- -- -- -- -- -- -- -- --
Issuance of warrant to purchase Common stock
(875 shares)................................ -- -- -- -- -- -- -- -- --
Purchase of treasury stock (9,844 shares)..... -- -- -- -- -- -- -- -- --
Exercise of stock options..................... 20 -- -- -- -- -- -- -- --
Cumulative translation adjustment............. -- -- -- -- -- -- -- -- --
Net loss...................................... -- -- -- -- -- -- -- -- --
------ -- ----- --- ----- --- ------ --- -------
Balance at December 31, 1997................... 27,838 1 4,920 5 -- -- -- -- --
Exercise of stock options..................... 2,182 -- -- -- -- -- -- -- --
Exercise of stock warrants.................... 2,376 -- -- -- -- -- -- -- --
Sale of Series A preferred stock at $0.50 per
share....................................... -- -- 80 -- -- -- -- -- --
Sale of Series B preferred stock at $0.935 per
share (net of expenses)..................... -- -- -- -- 7,154 7 -- -- --
Conversion of notes payable to Series B
preferred stock at $0.935 per share......... -- -- -- -- 535 1 -- -- --
Issuance of common stock in exchange for notes
receivable.................................. 488 -- -- -- -- -- -- -- --
Issuance of convertible preferred stock (3
shares)..................................... -- -- -- -- -- -- -- -- --
Issuance of common stock and warrants......... 8 -- -- -- -- -- -- -- --
Tax benefit related to exercise of employee
stock options............................... -- -- -- -- -- -- -- -- --
Conversion of preferred stock................. 12,640 -- -- -- -- -- -- -- --
Initial public offering....................... 6,642 -- -- -- -- -- -- -- --
Secondary offering............................ 690 -- -- -- -- -- -- -- --
Shares to be issued to acquire business
(350 shares)................................ -- -- -- -- -- -- -- -- 3,352
Retirement of treasury stock.................. (9,844) -- -- -- -- -- -- -- --
Cumulative translation adjustment............. -- -- -- -- -- -- -- -- --
Net loss...................................... -- -- -- -- -- -- -- -- --
------ -- ----- --- ----- --- ------ --- -------
Balance at December 31, 1998................... 43,020 1 5,000 5 7,689 8 -- -- 3,352
Exercise of stock options..................... 2,967 -- -- -- -- -- -- -- --
Issuance of stock warrants.................... -- -- -- -- -- -- -- -- --
Sale of Series C preferred stock at $1.50 per
share (net of expenses)..................... -- -- -- -- -- -- 10,000 10 --
Tax benefit related to exercise of employee
stock options............................... -- -- -- -- -- -- -- -- --
Issuance pursuant to business acquired........ 350 -- -- -- -- -- -- -- (3,352)
Conversion of convertible debentures and
preferred stock............................. 1,198 -- -- -- -- -- -- -- --
Cumulative translation adjustment............. -- -- -- -- -- -- -- -- --
Net income.................................... -- -- -- -- -- -- -- -- --
------ -- ----- --- ----- --- ------ --- -------
Balance at December 31, 1999................... 47,535 $1 5,000 $ 5 7,689 $ 8 10,000 $10 $ --
====== == ===== === ===== === ====== === =======
<CAPTION>
RETAINED ACCUMULATED
ADDITIONAL COMMON EARNINGS OTHER
PAID-IN SHAREHOLDER STOCK (ACCUMULATED COMPREHENSIVE TREASURY
CAPITAL RECEIVABLE WARRANT DEFICIT) INCOME (LOSS) STOCK
---------- ----------- ------- ------------ -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997..................... $ 227 $ -- $ -- $ 2,621 $ -- $ --
Issuance of common stock...................... 902 -- -- -- -- --
S Corporation distributions................... -- -- -- (1,316) -- --
Sale of Series A preferred stock at $0.50 per
share (net of expenses)..................... 2,439 -- -- -- -- --
Issuance of common stock to satisfy 1993
employment and acquisition liability........ 272 -- -- -- -- --
Issuance of common stock pursuant to
termination of Phantom Stock Plan........... 14,092 -- -- -- -- --
Transfer of S Corporation Accumulated deficit
upon Conversion to C Corporation............ (633) -- -- 633 -- --
Issuance of convertible preferred Stock
(2,532 shares).............................. 18,024 -- -- -- -- --
Issuance of warrant to purchase Common stock
(875 shares)................................ -- -- 550 -- -- --
Purchase of treasury stock (9,844 shares)..... -- -- -- -- -- (14,017)
Exercise of stock options..................... 6 -- -- -- -- --
Cumulative translation adjustment............. -- -- -- -- (39) --
Net loss...................................... -- -- -- (11,706) -- --
-------- ----- ----- -------- ----- --------
Balance at December 31, 1997................... 35,329 -- 550 (9,768) (39) (14,017)
Exercise of stock options..................... 2,076 -- -- -- -- --
Exercise of stock warrants.................... 4,796 -- (550) -- -- --
Sale of Series A preferred stock at $0.50 per
share....................................... 40 -- -- -- -- --
Sale of Series B preferred stock at $0.935 per
share (net of expenses)..................... 6,641 -- -- -- -- --
Conversion of notes payable to Series B
preferred stock at $0.935 per share......... 500 -- -- -- -- --
Issuance of common stock in exchange for notes
receivable.................................. 202 (202) -- -- -- --
Issuance of convertible preferred stock (3
shares)..................................... 39 -- -- -- -- --
Issuance of common stock and warrants......... 9 -- -- -- -- --
Tax benefit related to exercise of employee
stock options............................... 3,462 -- -- -- -- --
Conversion of preferred stock................. -- -- -- -- -- --
Initial public offering....................... 30,025 -- -- -- -- --
Secondary offering............................ 6,412 -- -- -- -- --
Shares to be issued to acquire business
(350 shares)................................ -- -- -- -- -- --
Retirement of treasury stock.................. (14,017) -- -- -- -- 14,017
Cumulative translation adjustment............. -- -- -- -- 1 --
Net loss...................................... -- -- -- (5,766) -- --
-------- ----- ----- -------- ----- --------
Balance at December 31, 1998................... 75,514 (202) -- (15,534) (38) --
Exercise of stock options..................... 2,688 -- -- -- -- --
Issuance of stock warrants.................... 30 -- -- -- -- --
Sale of Series C preferred stock at $1.50 per
share (net of expenses)..................... 14,053 -- -- -- -- --
Tax benefit related to exercise of employee
stock options............................... 6,176 -- -- -- -- --
Issuance pursuant to business acquired........ 3,352 -- -- -- -- --
Conversion of convertible debentures and
preferred stock............................. 7,658 -- -- -- -- --
Cumulative translation adjustment............. -- -- -- -- (224) --
Net income.................................... -- -- -- (441) -- --
-------- ----- ----- -------- ----- --------
Balance at December 31, 1999................... $109,471 $(202) $ -- $(15,975) $(262) $ --
======== ===== ===== ======== ===== ========
<CAPTION>
TOTAL
SHAREHOLDERS'
EQUITY
-------------
<S> <C>
Balance at January 1, 1997..................... $ 2,849
Issuance of common stock...................... 902
S Corporation distributions................... (1,316)
Sale of Series A preferred stock at $0.50 per
share (net of expenses)..................... 2,444
Issuance of common stock to satisfy 1993
employment and acquisition liability........ 272
Issuance of common stock pursuant to
termination of Phantom Stock Plan........... 14,092
Transfer of S Corporation Accumulated deficit
upon Conversion to C Corporation............ --
Issuance of convertible preferred Stock
(2,532 shares).............................. 18,024
Issuance of warrant to purchase Common stock
(875 shares)................................ 550
Purchase of treasury stock (9,844 shares)..... (14,017)
Exercise of stock options..................... 6
Cumulative translation adjustment............. (39)
Net loss...................................... (11,706)
--------
Balance at December 31, 1997................... 12,061
Exercise of stock options..................... 2,076
Exercise of stock warrants.................... 4,246
Sale of Series A preferred stock at $0.50 per
share....................................... 40
Sale of Series B preferred stock at $0.935 per
share (net of expenses)..................... 6,648
Conversion of notes payable to Series B
preferred stock at $0.935 per share......... 501
Issuance of common stock in exchange for notes
receivable.................................. --
Issuance of convertible preferred stock (3
shares)..................................... 39
Issuance of common stock and warrants......... 9
Tax benefit related to exercise of employee
stock options............................... 3,462
Conversion of preferred stock................. --
Initial public offering....................... 30,025
Secondary offering............................ 6,412
Shares to be issued to acquire business
(350 shares)................................ 3,352
Retirement of treasury stock.................. --
Cumulative translation adjustment............. 1
Net loss...................................... (5,766)
--------
Balance at December 31, 1998................... 63,106
Exercise of stock options..................... 2,688
Issuance of stock warrants.................... 30
Sale of Series C preferred stock at $1.50 per
share (net of expenses)..................... 14,063
Tax benefit related to exercise of employee
stock options............................... 6,176
Issuance pursuant to business acquired........ --
Conversion of convertible debentures and
preferred stock............................. 7,658
Cumulative translation adjustment............. (224)
Net income.................................... (441)
--------
Balance at December 31, 1999................... $ 93,056
========
</TABLE>
The accompanying notes are an integral part of these supplemental combined
financial statements.
54
<PAGE> 56
BINDVIEW DEVELOPMENT CORPORATION
SUPPLEMENTAL COMBINED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ (441) $ (5,765) $(11,706)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization expense................... 3,385 1,430 915
Loss on disposition of property and equipment........... 147 -- --
Stock compensation expense.............................. 48 3 14,642
Increase in provision for bad debts..................... 470 9 170
Purchased in-process research and development........... -- 2,488 --
Deferred income taxes................................... 6,299 2,945 (3,150)
Interest payable........................................ -- 392 42
Changes in assets and liabilities, net of acquired
business:
(Increase) in accounts receivable..................... (9,404) (1,887) (2,604)
(Increase) decrease in other current assets........... 686 (1,588) 365
Increase in accounts payable.......................... 1,001 901 790
Increase in accrued liabilities....................... 3,196 1,081 1,581
Increase in deferred revenue.......................... 4,982 3,151 1,459
-------- -------- --------
Net cash provided by operating activities.......... 10,369 3,160 2,504
-------- -------- --------
Cash flows from investing activities:
Purchase of property and equipment........................ (5,903) (5,441) (1,755)
Purchase of investments................................... (160,659) (9,675) (512)
Proceeds from investments................................. 159,892 -- --
Disposal of property and equipment........................ -- 201 --
Cash acquired in business acquisition..................... -- 156 --
Other..................................................... (69) (397) (221)
-------- -------- --------
Net cash used by investing activities.............. (6,739) (15,156) (2,488)
-------- -------- --------
Cash flows from financing activities:
S Corporation distributions............................... -- -- (1,316)
Notes payable and long-term debt.......................... -- 73 83
Loans payable, net........................................ 265 492 7
Restricted cash........................................... -- (10) (52)
Payment of capital lease obligation....................... (56) (64) (5)
Proceeds from issuance of convertible preferred stock and
common stock warrants................................... 14,062 6,727 20,468
Proceeds from issuance of common stock.................... -- -- 559
Proceeds from issuance of debentures...................... -- 3,949 3,099
Purchases of treasury stock............................... -- -- (14,017)
Proceeds from initial public offering..................... -- 30,025 --
Proceeds from secondary offering.......................... -- 6,412 --
Proceeds from exercise of stock warrants, net............. -- 4,246
Proceeds from exercise of stock options................... 2,656 2,076 6
-------- -------- --------
Net cash provided by financing activities.......... 16,927 53,926 8,832
Effect of exchange rate changes on cash..................... (125) 20 (9)
-------- -------- --------
Net increase in cash and cash equivalents................... 20,432 41,950 8,839
Cash and cash equivalents at beginning of period............ 51,718 9,768 929
-------- -------- --------
Cash and cash equivalents at end of period.................. $ 72,150 $ 51,718 $ 9,768
======== ======== ========
Supplemental disclosures for cash flow information:
Cash paid during the year for interest.................... $ -- $ -- $ 9
Cash paid during the year for income taxes................ $ -- $ -- $ --
Noncash financing and investing activities:
Issuance of 1,006 shares of common stock in 1997 to
satisfy 1993 acquisition liability...................... $ -- $ -- $ 272
Issuance of warrant to purchase 876 shares of common stock
in 1997 to satisfy bonus obligation..................... $ -- $ -- $ 550
Issuance of 350 shares of common stock related to the
acquisition of Curasoft ................................ $ 3,352 -- --
Tax benefit related to the exercise of employee stock
options................................................. $ 6,176 $ 3,462 --
Conversion of convertible debentures and preferred stock
into common stock....................................... $ 7,658 -- --
</TABLE>
The accompanying notes are an integral part of these supplemental combined
financial statements.
55
<PAGE> 57
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND PAR VALUE)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS
BindView Development Corporation (the Company), a Texas corporation, was
incorporated in May 1990. Previous to 1995, the Company was known as The LAN
Support Group, Inc. Pursuant to the sale of convertible preferred stock, the
Company's Subchapter S election terminated on October 16, 1997.
The Company develops, markets and supports a suite of systems 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.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of BindView
Development Corporation and its subsidiaries. All significant intercompany
transactions have been eliminated.
In December, 1998, the Company acquired Curasoft, Inc. in a purchase
business combination. In March of 1999, BindView merged with Netect, Ltd.
("Netect") in a pooling of interests transaction. In February of 2000, BindView
merged with Entevo Corporation ("Entevo") in a pooling of interests transaction
(Note 15). These supplemental combined financial statements have been prepared
to give effect to the restatement of the Company's financial statements to
reflect the pooling of interest transaction with Entevo combining the historical
financial data of the Company and Entevo for all periods presented, even though
the merger with Entevo was consummated after December 31, 1999. These
supplemental combined financial statements are expected to become the historical
consolidated financial statements of the Company for periods after February 9,
2000.
REVENUE RECOGNITION
The Company licenses its software products under perpetual licenses and
recognizes its license revenue upon meeting each of the following criteria: (i)
execution of a written purchase order, license agreement or contract; (ii)
delivery of software or, if the customer has previously received evaluation
software, delivery of the software license authorization code; (iii) issuance of
the related license, with no significant vendor obligations or customer
acceptance rights outstanding; (iv) the license fee is fixed or determinable;
and (v) collectibility is assessed as being probable. Revenues from perpetual
licenses are recorded as license revenue in the accompanying Supplemental
Combined Statement of Operations and Comprehensive Loss. Service revenues
include subscription contracts and professional services. Customers are
generally required to purchase a one year subscription agreement in conjunction
with their initial licensing of the Company's products. Subscription contracts
are purchased separately by customers at their discretion after the first
anniversary of a license sale. Subscription revenues are recognized ratably over
the contract term. Revenues from subscription contracts and other related
services are reported as service revenue in the accompanying Supplemental
Combined Statement of Operations and Comprehensive Loss.
Deferred revenue is comprised primarily of subscription revenue and other
services. The portion of subscription contract revenues that have not yet been
recognized as revenues is reported as deferred revenue in the accompanying
Supplemental Combined Balance Sheet. Deferred maintenance revenue which has not
been collected is not recognized.
Prior to January 1, 1998, postcontract customer support, consisting solely
of telephone technical support, was included in the product sale to the
Company's customers. During that period, the costs of providing this
56
<PAGE> 58
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
support was accrued and charged to expense at the time the revenue was
recognized. Subsequent to January 1, 1998, postcontract customer support is
provided under subscription contracts.
ADVERTISING COSTS
Advertising costs are expensed as incurred.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to operations when incurred. In
accordance with the provisions of Statement of Financial Accounting Standards
(SFAS) No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased
or Otherwise Marketed", the Company capitalizes costs incurred in the
development of software once technological feasibility has been determined. The
Company currently considers technological feasibility to have been established
once a working model of a product has been produced and tested. Amortization of
capitalized software development costs is based on a straight line basis over
the product's useful life ranging between two and seven years. To date, costs
incurred by the Company's development staff and capitalizable subsequent to the
establishment of technological feasibility have not been material and are
included in capitalized software in the accompanying Supplemental Combined
Balance Sheet.
Capitalized software also includes the cost of developed products obtained
by the Company as a result of its business combinations with other companies. In
December 1998, the Company completed its acquisition of Curasoft, Inc. and
recorded $1,381 in capitalized software development costs as part of its
purchase price allocation (Note 14).
SOFTWARE DEVELOPED FOR INTERNAL USE
The Company adopted Statement of Position 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use" (SOP 98-1) in 1999.
This standard requires that certain costs related to the development or purchase
of internal-use software be capitalized and amortized over the estimated useful
life of the software. SOP 98-1 also requires that costs related to the
preliminary project stage and the post-implementation/operations stage of an
internal-use computer software development project be expensed as incurred. The
adoption of SOP 98-1 did not result in the capitalization of costs during 1999.
STOCK-BASED COMPENSATION
The Company measures compensation expense for its stock-based employee
compensation plans using the intrinsic method, as prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees".
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the fair market value of the Company's stock at the date of the grant
over the amount the employee must pay to acquire the stock, and is recognized
over the related vesting period. The Company provides supplemental disclosure of
the effect on net income and earnings per share as if the provisions of SFAS No.
123, "Accounting for Stock-Based Compensation" had been applied in measuring
compensation expense.
OTHER INCOME
Other income consists primarily of interest earned on cash and cash
equivalents and short-term and long-term investments.
57
<PAGE> 59
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES
Prior to October 16, 1997, the Company had elected to be treated as an S
Corporation for federal income tax purposes. Accordingly, all federal income tax
liability prior to that date was the responsibility of the shareholders. The
shareholders of Entevo terminated their S Corporation election effective July
11, 1997.
The provision for income taxes is computed based on income earned from the
termination dates of the Subchapter S elections. The asset and liability
approach is used to account for income taxes. This approach requires the
recognition of deferred income tax assets and liabilities for the expected
future tax consequences of temporary differences between the carrying amounts
and the tax bases of the assets and liabilities.
The pro forma results of operations of the Company reflect a pro forma
charge in lieu of income taxes prior to C Corporation status becoming effective.
EARNINGS PER SHARE
The Company's earnings per share data is presented in accordance with SFAS
No. 128, "Earnings Per Share". Basic earnings per share is computed using the
weighted average number of shares outstanding. Diluted earnings per share is
computed using the weighted average number of shares outstanding adjusted for
the incremental shares attributed to outstanding securities with a right to
purchase or convert into common stock (Note 12).
CASH AND CASH EQUIVALENTS
The Company considers investments with original maturity dates of three
months or less from the date of purchase to be cash equivalents.
INVESTMENTS
The Company's investments are classified as held to maturity as the Company
has the intent and ability to hold the investments until maturity. These
investments are reported at amortized cost. 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 one year.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of cash equivalents, investments, accounts receivable,
accounts payable and deferred revenues reflected in the December 31, 1999 and
1998 Supplemental Combined Balance Sheet approximate their carrying value due to
their short maturities.
The fair value of $7,572 related to convertible debentures reflected in the
December 31, 1998 Consolidated Supplemental Balance Sheet was estimated using
discounted cash flow analysis, based on incremental borrowing rates for similar
types of borrowing arrangements.
CONCENTRATION OF CREDIT RISK
Financial instruments which subject the Company to concentrations of credit
risk consist primarily of cash equivalents, short-term investments and accounts
receivable. The Company maintains its cash equivalent balance in money market
funds invested in U.S. Treasury Certificates or in U.S. dollar linked
instruments with major banks. These funds are not FDIC insured. The Company has
not experienced any losses in such funds and believes it is not exposed to any
significant credit risk on cash equivalents. The Company's investment policies
restrict its investments to low risk, highly liquid securities. The Company also
performs periodic evaluations of its investment policies to review its
investment credit risk.
58
<PAGE> 60
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Management believes that concentrations of credit risk with respect to
accounts receivable are limited due to the large number of customers comprising
the Company's customer base and their dispersion across many different
industries and geographic regions. The Company performs ongoing credit
evaluations of its customers to minimize credit risk. Approximately 17%, 10% and
13% of the Company's sales were made on an export basis, primarily to customers
in Europe and the United Kingdom in 1999, 1998 and 1997, respectively.
RECEIVABLES
Trade finance receivables arise in the ordinary course of business. During
1999, the Company transferred $4,975 in trade finance receivables to a financing
institution on a non-recourse basis. The Company records such transfers as sales
of the related accounts receivable when the Company is considered to have
surrendered control of such receivables under the provisions of SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities."
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed by
applying the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are amortized over the lives of the respective leases or
the service lives of the improvements, whichever is shorter.
LONG-LIVED ASSETS
The Company reviews the impairment of long-lived assets and certain
identifiable intangibles whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. An impairment loss
would be recognized when estimated future cash flows expected to result from the
use of the asset and its eventual disposition is less than its carrying value
amount. The Company has not identified any such impairment losses.
FOREIGN CURRENCY
Assets and liabilities of the Company's foreign operations are translated
into United States dollars at the exchange rate in effect at the balance sheet
date, and revenue and expenses are translated at the average exchange rate for
the period. The functional currency of those subsidiaries is their local
currency, which is the primary currency in which they operate. Cumulative
translation adjustments are reported as a separate component of comprehensive
income (loss). To date, adjustments resulting from the process of translating
foreign subsidiaries financial statements into U.S. dollars have not been
significant.
COMPREHENSIVE LOSS
The Company's only component of other comprehensive loss is foreign
currency translation adjustments. Changes in the Company's cumulative
translation adjustment have been characterized as other comprehensive income
(loss) in the accompanying Supplemental Combined Statement of Operations and
Comprehensive Loss.
SEGMENT REPORTING
The Company adopted SFAS 131, "Disclosures about Segments of an Enterprise
and Related Information" in 1998. The management approach required by SFAS 131
designates the internal reporting that is used by management for making
operating decisions and assessing performance as the source of the Company's
reportable segments. SFAS 131 also requires disclosure about products and
services, geographic areas and major customers. The Company believes it operated
in one reportable segment as defined by SFAS 131 for the years ended December
31, 1999, 1998 and 1997.
59
<PAGE> 61
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
USE OF ESTIMATES
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets, liabilities, sales and expenses, and
the disclosure of contingent assets and liabilities. Actual results could differ
from those estimates.
RECENT PRONOUNCEMENTS
In June 1998, the FASB issued (SFAS 133) "Accounting for Derivative
Instruments and Hedging Activities." The pronouncement establishes accounting
and reporting standards for derivative instruments. The pronouncement was to
become effective for fiscal years beginning after June 15, 1999. During June
1999, the FASB issued SFAS 137 -- an amendment of SFAS 133 which delayed the
effective date of SFAS 133 to fiscal years beginning after June 15, 2000. The
Company has historically not engaged in significant derivative instrument
activity. Adoption of SFAS 133 is not expected to have a material effect on the
Company's financial position or operational results.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition in Financial
Statements. SAB 101 provides guidance on applying generally accepted accounting
principles to revenue recognition issues in financial statements. The Company
will adopt SAB 101 as required in the second quarter of 2000 and is evaluating
the effect that such adoption may have on its consolidated results of operations
and financial position.
2. INVESTMENTS
Investments considered held to maturity at December 31, 1999, consisted of
the following:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED
AMORTIZED COST MARKET VALUE HOLDING LOSSES HOLDING GAINS
-------------- ------------ -------------- -------------
<S> <C> <C> <C> <C>
Short-term corporate bonds....... $ 751 $ 749 $ 2 $ --
Government agency bonds.......... 2,020 2,013 7 --
Asset backed securities.......... 6,120 6,093 27 --
Certificate of deposit........... 2,063 2,061 2 --
------- ------- --- -----
Total corporate $10,954 $10,916 $38 $ --
bonds................
======= ======= === =====
</TABLE>
All of the investments at December 31, 1999 are scheduled to mature in 2000
and 2001. Market value is based upon quoted market prices for the investments.
Investments considered held to maturity at December 31, 1998, consisted of the
following:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED
AMORTIZED COST MARKET VALUE HOLDING LOSSES HOLDING GAINS
-------------- ------------ -------------- -------------
<S> <C> <C> <C> <C>
Government agency bonds.......... $ 2,019 $ 2,013 $ 6 $ --
Certificates of deposit.......... 2,063 2,061 2 --
Asset backed securities.......... 6,105 6,092 13 --
------- ------- --- -----
$10,187 $10,166 $21 $ --
======= ======= === =====
</TABLE>
60
<PAGE> 62
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment balances are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
ESTIMATED -----------------
USEFUL LIVES 1999 1998
------------ ------- -------
<S> <C> <C> <C>
Computer equipment and software..................... 3 years $10,172 $ 6,485
Office furniture and other equipment................ 3-10 years 2,037 1,556
Leasehold improvements.............................. Lease terms 2,230 830
------- -------
14,439 8,871
Less -- accumulated depreciation.................... (5,954) (2,991)
------- -------
$ 8,485 $ 5,880
======= =======
</TABLE>
Depreciation expense totaled $3,162, $1,396 and $785 in 1999, 1998 and
1997, respectively.
4. CAPITALIZED SOFTWARE
Capitalized software costs are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1999 1998
------ ------
<S> <C> <C>
Capitalized software........................................ $1,722 $1,722
Less -- accumulated amortization............................ (545) (322)
------ ------
$1,177 $1,400
====== ======
</TABLE>
Amortization expense for capitalized software totaled $223, $33 and $130,
in 1999, 1998 and 1997 respectively.
5. CREDIT AGREEMENTS AND FINANCING ARRANGEMENTS
On December 23, 1998, Entevo entered into a loan agreement with a
commercial bank. The agreement established a $1,000 revolving line of credit
(the "Revolving Line") and a $500 term loan facility for equipment financing
(the "Equipment Line").
The availability of the Revolving Line and the Equipment Line expired on
December 22, 1999 and was not renewed. As of December 31, 1999 the Company had
borrowings totaling $176 under the Equipment Line. Subsequent to the Company's
merger in February 2000 (Note 15), all amounts outstanding under the loan
agreement were repaid, the agreement was terminated, and the bank's security
interest in the Company's assets was terminated.
Entevo's capital lease obligations approximate $50 at December 31, 1999.
6. CONVERTIBLE DEBENTURES
Convertible debentures for $3,960 and $3,178 were issued by Netect in 1998
and 1997, respectively, to certain investors. These debentures earned interest
at 8% accrued annually and payable upon conversion or redemption. In accordance
to the terms set forth in the agreement, the debentures were converted into
common stock of the Company at a rate of $7.24 per share in connection with the
merger of Netect into the Company.
61
<PAGE> 63
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES
Effective October 16, 1997, the Company elected to be treated as a C
Corporation for federal income tax purposes. Effective July 11, 1997, Entevo
elected to be treated as a C Corporation for federal income tax purposes.
Accordingly, no federal income tax expense was recorded by the companies through
these dates because operating results are reported in the individual income tax
returns of the shareholders.
The components of income (loss) before income taxes are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1999 1998 1997
------- ------ --------
<S> <C> <C> <C>
Continuing operations
Domestic.............................................. $11,396 $1,199 $(13,214)
Foreign............................................... (5,538) (4,019) (1,642)
------- ------ --------
Total income (loss) before income taxes....... 5,858 (2,820) $(14,856)
======= ====== ========
</TABLE>
The Company's income tax provision (benefit) is comprised of the following
(in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1999 1998 1997
------ ------ -------
<S> <C> <C> <C>
Current income tax expense............................... -- -- --
Federal................................................ $ -- $ -- $ --
State.................................................. -- -- --
Foreign................................................ -- -- --
------ ------ -------
Total current income tax expense............... -- -- --
Deferred income tax expense..............................
Federal................................................ $6,187 $3,140 $(3,060)
State.................................................. 112 435 (90)
Foreign................................................ -- (630) --
------ ------ -------
Total deferred income tax expense.............. $6,299 $2,945 $(3,150)
------ ------ -------
Total income tax provision (benefit)........... $6,299 $2,945 $(3,150)
====== ====== =======
</TABLE>
62
<PAGE> 64
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The overall income tax provision (benefit) for 1999, 1998 and 1997 resulted
in effective tax rates of 107.5%, (104.4)% and 21.2%, respectively. A
reconciliation of the federal statutory rate and the Company's provision for
income taxes is as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1999 1998 1997
------ ------ -------
<S> <C> <C> <C>
Income tax provision (benefit) at the applicable federal
statutory rate.......................................... $2,050 $ (987) $(5,200)
State income taxes, net of federal benefit................ 112 50 (68)
Foreign tax (rate differential)........................... (9) (88) (74)
Research and development credit........................... (700) (500) --
Non-deductible in-process research and development........ -- 870 --
Non-deductible transaction expenses....................... 349 -- --
Tax obligation allocated to S Corporation shareholders.... -- -- (765)
S Corporation income from January 1, 1997 through October
16, 1997................................................ -- -- 1,595
Valuation allowance....................................... 4,434 3,741 1,438
Other..................................................... 63 (141) (76)
------ ------ -------
Total provision (benefit) for income taxes...... $6,299 $2,945 $(3,150)
====== ====== =======
</TABLE>
Deferred tax assets and liabilities at December 31, 1998 and 1999 are
comprised of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1999 1998
------- ------
<S> <C> <C>
Assets
Net operating loss carryforwards.......................... $11,705 $8,103
Research and development credit carryforward.............. 1,075 500
Allowance for bad debts................................... 170 70
Other..................................................... 15 --
------- ------
12,965 8,673
Liabilities
Accrued liabilites
Differences in basis for long-lived assets................ (404) (370)
------- ------
Total............................................. 12,561 8,303
Less: Valuation allowance................................... (9,492) (5,058)
------- ------
Total deferred tax asset.................................... $ 3,069 $3,245
======= ======
</TABLE>
The Company has a federal net operating loss carryforward at December 31,
1999 of approximately $33,700 available to offset future taxable income that
expires between 2003 and 2019 resulting in a deferred tax asset of $11,705.
Based on the historical earnings generated by the Company and certain
limitations that may limit the utilization of net operating loss carryforwards,
management has provided a valuation allowance of $9,492 at December 31, 1999
against the net operating loss carryforwards. The Company's ability to utilize
the net operating loss carryforwards related to its acquisitions may be subject
to certain limitations.
The Company does not provide for foreign withholding and income taxes on
undistributed earnings amounting to approximately $656 through 1999,
cumulatively, for a foreign subsidiary, as such earnings are intended to be
permanently invested in those operations. The ultimate tax liability related to
repatriation of
63
<PAGE> 65
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
such earnings is dependent upon future tax planning opportunities and cannot be
estimated at the present time. The earnings of that subsidiary are exempt from
taxation under local laws.
8. STOCK COMPENSATION EXPENSE
PHANTOM STOCK PLAN TERMINATION
In 1996, the Company implemented a phantom stock plan which granted phantom
stock units to certain employees. Each phantom stock unit provided the
participant with the right to receive shares of Company common stock upon the
occurrence of a change in control of the Company, an initial public offering of
the Company's common stock, liquidation of the Company or a sale of
substantially all of the Company's assets (the "Events"). Since the number of
shares of Common Stock a participant might receive would not be known until one
of the Events occurred, the Company had treated the Phantom Stock Plan in
accordance with Financial Accounting Standards Board Interpretation No. 28 (FIN
28) and accordingly had not recognized stock compensation expense upon the grant
of the units. Stock compensation expense was recognized by the Company in
October 1997 when the plan participants voted to have the Company terminate the
Plan in connection with the sale of Convertible Preferred Stock and Warrants and
the number of shares to be issued under the Plan were known.
The Company granted 6,598 phantom stock units during 1996. No grants were
made during 1997. The Company terminated the Phantom Stock Plan in October 1997
and issued 3,514 shares of common stock on October 13, 1997 and 6,376 shares of
common stock on October 16, 1997 to retire the Phantom Stock Plan. The Company
recognized a related stock compensation charge of $14,712 in October 1997.
On October 16, 1997, the Company issued 2,608 common stock options under
the Company's 1997 Employee Stock Option Plan with an exercise price of $1.43
per share to former participants in the Phantom Stock Plan (Note 9). No
compensation expense has been recorded related to these options as the exercise
price is equal to the fair market value of the Company's common stock on the
date of grant.
OFFICER WARRANTS
In November 1997, the Company issued a warrant to purchase 875 shares of
common stock at a price of $1.43 per share to an officer to terminate a
provision of the stock option agreement with that officer. The Company
recognized compensation expense of $550 during the fourth quarter of 1997 based
upon the fair value of the warrant issued.
9. SHAREHOLDERS' EQUITY
ISSUANCE OF COMMON STOCK TO SATISFY ACQUISITION LIABILITY
In April 1997, the Company issued 1,006 shares to satisfy its 1993
obligation incurred related to an employment agreement and the acquisition of
certain technology rights.
ISSUANCE OF CONVERTIBLE PREFERRED STOCK, WARRANTS AND RESTRICTED STOCK
In October 1997, the Company issued 2,528 shares of $0.01 par value
convertible preferred stock and warrants to purchase 1,500 shares of common
stock, at $2.00 per share in exchange for $18,002 of cash. The warrants were
immediately exercisable and had an expiration date of April 16, 2000. In the
event of a liquidation of the Company, the Company's preferred stock had a
liquidation preference over its common stock. The preferred stock had a
liquidation value of $7.12 per preferred share and was convertible at the option
of the holder into common stock on a 5-for-1 basis. As a result of the Company's
initial public offering in July of 1998, the Company's preferred stock
automatically converted into common stock.
In February 1997, Netect issued to a certain investor a warrant to purchase
124 shares of common stock, at $8.07 per share.
64
<PAGE> 66
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
In October 1997 and July 1998, Netect issued 4 and 3 shares of $0.025 par
value convertible preferred stock and warrants to purchase 114 and 12 shares of
common stock, at less than $0.01 per share in exchange for $22 and $39,
respectively. In the event of a liquidation of the Company, the Company's
preferred stock had a liquidation preference over its common stock. The
preferred stock had a liquidation value of $14.48 per preferred share and was
convertible at the option of the holder into common stock on a 2-for-1 basis.
These preferred shares had a preferred compound annual dividend of 8% based on
the original purchase price of $14.48 per share.
In November 1997, Netect issued a warrant to purchase 72 shares of common
stock at a price of less than $0.01 per share to its former Chief Executive
Officer. This warrant was issued in conjunction with the termination agreement
with that officer.
In 1998, Entevo issued an aggregate of 488 shares of common stock to two
founders of Entevo pursuant to the terms of restricted stock purchase agreements
which vested fully in 1998. The common stock was issued at $0.415 per share in
consideration of full recourse promissory notes from the founders. The
promissory notes bear interest at an annual rate of 6% and are due in five
years.
In July 1999, a loan agreement was amended to provide Entevo with a $1,500
revolving line of credit without covenant restrictions for the period from July
1, 1999, through the earlier of the sale of Entevo's Series C Preferred Stock or
September 30, 1999. In consideration for the covenant waiver provisions of the
amendment, Entevo issued to the bank a warrant to purchase 30 shares of the
Company's Series C Preferred Stock at an exercise price of $1.50 per share. The
fair value of these warrants were treated as interest expense during the period.
The warrant expires on September 27, 2004.
In January 1998, Entevo issued a common stock purchase warrant covering 75
shares of common stock at an exercise price of $0.415 per share. The warrant was
issued in connection with a Master License Agreement through which the Company
acquired certain license rights to various software products owned by the
warrant holder, which was also a significant customer during 1997. The fair
value of the warrant was $52, which has been reflected in the accompanying
Supplemental Combined Balance Sheet as capitalized software development costs.
The holder exercised this warrant on January 26, 2000 by payment of the exercise
price of $31.
In October 1999, Entevo issued a warrant to purchase 26 shares of the
Company's common stock, at an exercise price of $12.44 per share. The warrant is
immediately exercisable and has an expiration date of April 22, 2004.
ISSUANCE OF ENTEVO SERIES A, B AND C CONVERTIBLE PREFERRED STOCK
During 1998 and 1997, Entevo issued a total of 5,000 shares of Series A
convertible preferred stock (the "Series A Preferred Stock") to various
investors for $2,500 ($.50 per share) (the "Series A Preferred Stockholders").
On April 28, 1998, Entevo received loans totaling $500 from two of its
Series A Preferred Stockholders. The loans were for $250 each and bore interest
at 8.5%, and matured on May 28, 1998. The loans were convertible into
convertible preferred stock.
On June 3, 1998, Entevo sold 7,689 shares of Series B convertible preferred
stock (the "Series B Preferred Stock") to various investors ("Series B Preferred
Stockholders") for a total of $7,189 ($0.935 per share). In connection with the
sale of the Series B Preferred Stock, the $500 of loans received in April 1998
was converted into Series B Preferred Stock. The Series B Preferred Stock was
sold pursuant to the terms of the Series B Preferred Stock Purchase Agreement,
other related agreements, and certain amendments to Entevo's Articles of
Incorporation.
In October 1999, Entevo completed the sale of 10,000 shares of Series C
convertible preferred stock (the "Series C Preferred Stock") to various
investors ("Series C Preferred Stockholders") for a total of $15,000
65
<PAGE> 67
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
($1.50 per share). The Series C Preferred Stock was sold pursuant to the terms
of the Series C Preferred Stock Purchase Agreement, other related agreements,
and certain amendments to Entevo's Certificate of Incorporation ("Purchase
Agreements").
The Series A Preferred Stockholders, the Series B Preferred Stockholders,
and Series C Preferred Stockholders are referred to collectively as the
"Preferred Stockholders" and the Series A Preferred Stock, Series B Preferred
Stock, and Series C Preferred Stock is collectively referred to as the
"Preferred Stock." Each Series of Preferred Stock had the right as a separate
class, to convert into commons stock or the receive proceeds equal to three
times their original investment upon a change of control of Entevo.
The Preferred Stockholders also had certain other rights and privileges
under the respective Purchase Agreements, including voting rights, the right to
Board representation, antidilution protection, registration rights,
participation rights and co-sale rights.
TREASURY STOCK TRANSACTIONS
The Company repurchased 9,844 shares of common stock for $1.43 per share in
October 1997. These treasury shares were retired by the Company in September
1998.
INITIAL PUBLIC OFFERING
On May 15, 1998, the Company filed a registration statement permitting the
Company to sell 5,518 shares of its common stock to the public and 1,124
additional shares to cover over-allotments. The registration statement also
permitted certain stockholders of the Company to sell 1,982 shares to the
public. The registration statement became effective on July 23, 1998. With the
exercise of the over-allotment, the initial public offering resulted in proceeds
to the Company of approximately $30,025, net of approximately $3,189 in
underwriting fees and offering expenses. The Company received no proceeds from
the sale of shares by selling stockholders in the initial public offering.
SECONDARY OFFERING
On November 25, 1998, the Company filed a registration statement permitting
the Company to sell 600 shares of its common stock to the public and 90
additional shares to cover over-allotments. The registration statement also
permitted certain stockholders of the Company to sell 5,400 shares to the public
and 810 additional shares to cover over-allotments. The registration statement
became effective on December 4, 1998. With the exercise of the over-allotment,
the secondary offering resulted in proceeds to the Company of approximately
$6,412, net of approximately $833 in underwriting fees and offering expenses.
The Company received no proceeds from the sale of shares by selling stockholders
in the secondary public offering.
STOCK OPTION PLANS
Incentive Stock Option Plan
In 1996, the Company's Board of Directors adopted the Incentive Stock
Option Plan. At December 31, 1999, there were 2,482 shares of common stock
reserved by the Board of Directors for issuance under this plan. Options on 475,
928 and 524 shares were exercisable at December 31, 1999, 1998 and 1997 with a
weighted average exercise price per share of $4.34, $0.53 and $0.40,
respectively.
Nonqualified Stock Option Plan
In 1996, the Company's Board of Directors adopted the Nonqualified Stock
Option Plan. At December 31, 1999, there were 1,105 shares of common stock
reserved by the Board of Directors for issuance under
66
<PAGE> 68
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
this plan. Options on 540, 1,034 and 438 shares were exercisable at December 31,
1999, 1998 and 1997, with a weighted average exercise price per share of $0.76,
$1.12 and $0.67, respectively.
1997 Employee Stock Option Plan
In 1997, the Company's Board of Directors adopted the 1997 Employee Stock
Option Plan. At December 31, 1999, there were 1,720 shares of common stock
reserved by the Board of Directors for issuance under this plan. Options on
1,132 and 1,130 shares were exercisable at December 31, 1999 and 1998, with a
weighted average exercise price per share of $1.43 and $1.43, respectively.
There were no options exercisable at December 31, 1997.
1998 Omnibus Incentive Plan
In 1998, the Company's Board of Directors adopted the 1998 Omnibus
Incentive Plan. At December 31, 1999, there were 3,541 shares of common stock
reserved by the Board of Directors for issuance under this plan. Options on 245
and 58 shares were exercisable at December 31, 1999 and 1998, with a weighted
average exercise price per share of $9.29 and $2.44, respectively. There were no
options exercisable at December 31, 1997.
Non-Employee Director Plan
In 1998, the Company's Board of Directors adopted the Non-Employee Director
Plan. At December 31, 1999, there were 340 shares of common stock reserved by
the Board of Directors for issuance under this plan. Options on 60 shares were
exercisable at December 31, 1999, with a weighted average exercise price per
share of $1.92. There were no options exercisable at December 31, 1998 or 1997.
International Employee Stock Option Plan and Section 102 Share Option Plan
In 1998, Netect's Board of Directors adopted the International Employee
Stock Option and Section 102 Share Option Plans. At December 31, 1999, there
were 88 shares of common stock reserved by the Board of Directors for issuance
under these plans. Options on 14 and 20 shares were exercisable at December 31,
1999 and 1998, with a weighted average exercise price per share of $2.25 and
$2.25, respectively. In connection with the merger of Netect into the Company,
these options were exchanged for options to purchase the Company's common stock
using the exchange ratio, which is reflected in the amounts herein.
1997 Entevo Stock Plan and 1998 Indian Stock Option Plan
In 1997, Entevo's Board of Directors adopted the 1997 Entevo Stock Plan and
in 1998 the 1998 Indian Stock Option Plan. At December 31, 1999, there were 249
shares of common stock reserved by the Board of Directors for issuance under
these plans. Options on 65 shares were exercisable at December 31, 1999, with a
weighted average exercise price per share of $.50. Certain local regulatory
restrictions apply to the Indian Stock Option Plan. In connection with the
merger of Entevo into the Company, these options were exchanged for options to
purchase, the Company's common stock using the exchange ratio, which is
reflected in the amounts disclosed herein.
All Stock-Based Compensation Plans
Substantially all options reserved under the Company's Incentive Stock
Option Plan, the Nonqualified Stock Option Plan and the 1997 Employee Stock
Option Plan have been issued. Options granted under the Incentive Stock Option
Plan, Nonqualified Stock Option Plan, 1998 Omnibus Incentive Plan and Non-
Employee Director Plan generally vest 20% per year over five years. Options
granted under the International
67
<PAGE> 69
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Employee Stock Option Plan, the Section 102 Share Option Plan, 1997 Entevo Stock
Plan and 1998 Indian Stock Option Plan generally vest 25% per year over four
years. Options granted under the 1997 Employee Stock Option Plan vest at varying
rates through the year 2001. Options must be exercised no later than ten years
from the date of grant. Stock options have been granted at the fair market value
of the Company's stock at the date of grant.
The following table summarizes combined activity under the stock option
plans for each of the three years ended December 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
PRICE PER PRICE PER
OPTIONS SHARE SHARE
------- ------------ ---------
<S> <C> <C> <C>
Options outstanding, January 1, 1997.................... 2,792 $0.38-$ 1.24 $ 0.79
Options granted....................................... 6,835 $0.41-$ 1.43 $ 1.01
Options lapsed or canceled............................ (427) $0.41-$ 1.43 $ 0.49
Options exercised..................................... (20) $0.38-$ 0.41 $ 0.38
------
Options outstanding, December 31, 1997.................. 9,180 $0.38-$ 1.43 $ 0.96
Options granted....................................... 3,356 $0.41-$13.75 $ 5.12
Options lapsed or canceled............................ (286) $0.41-$ 5.00 $ 1.31
Options exercised..................................... (2,183) $0.38-$ 5.00 $ 0.96
------
Options outstanding, December 31, 1998.................. 10,067 $0.38-$13.75 $ 2.33
Options granted....................................... 3,839 $0.83-$22.25 $10.82
Options lapsed or canceled............................ (1,463) $0.41-$13.75 $ 3.13
Options exercised..................................... (2,918) $0.38-$11.50 $ 1.20
------
Options outstanding, December 31, 1999.................. 9,525 $0.38-$22.25 $ 5.85
======
</TABLE>
The following table summarizes significant ranges of outstanding and
exercisable options at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------ --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
SHARES IN REMAINING EXERCISE SHARES IN EXERCISE
THOUSANDS LIFE IN YEARS PRICE THOUSANDS PRICE
--------- ------------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
under $1.25........................... 2,337 6.6 $ 0.64 1,027 $ 0.65
$1.26-$2.50........................... 2,359 7.9 $ 1.69 1,311 $ 1.48
$2.51-$5.00........................... 617 06.4 $ 4.87 52 $ 4.98
$5.01-$10.00.......................... 1,322 9.5 $ 9.63 30 $ 8.93
$10.01-$12.50......................... 2,535 9.1 $11.37 84 $11.11
Over $12.51........................... 355 9.5 $16.21 27 $13.75
----- --- ------ ----- ------
9,525 8.1 $ 5.85 2,531 $ 1.75
===== === ====== ===== ======
</TABLE>
Stock Based Compensation Disclosures
For periods prior to the Company's initial public offering, the minimum
value of stock based compensation was calculated in accordance with Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation". The following weighted average assumptions using the
Black-Scholes model
68
<PAGE> 70
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
were used to calculate stock based compensation for the three years ended
December 31, 1999 (the minimum value method used in 1997 does not include
volatility):
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Expected life (in years).................................... 6 4 4
Interest rate............................................... 6% 5% 6%
Volatility.................................................. 87% 77% N/A
Dividend yield.............................................. 0% 0% 0%
</TABLE>
Stock based compensation costs would have reduced pretax income by $8,387,
$1,097 and $164 in 1999, 1998 and 1997, respectively ($5,680, $757 and $107
after tax and $0.12, $0.05 and $0.01 per diluted share in 1999, 1998 and 1997,
respectively) if such compensation in that year had been recognized as
compensation expense on a straight-line basis over the vesting period of the
grant.
10. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company conducts its operations in leased facilities under operating
leases expiring at various dates through 2001. The leases are cancelable upon
payment of six months rent and reimbursement of the unamortized balance of the
leasehold allowance. Total lease expense amounted to approximately $2,677, $795
and $642 at December 31, 1999, 1998 and 1997, respectively.
The minimum rental commitments under operating leases at December 31, 1999
were: $4,230 in 2000, $3,648 in 2001, $3,661 in 2002, $2,645 in 2003 and $302 in
2004 and beyond.
11. 401(k) PLAN
Effective January 1, 1995, the Company adopted a 401(k) plan which is
available to all full-time employees. Employees contribute to the plan through
payroll deductions. The Company matches 50% of the participant's contribution up
to a maximum of 6% of a participant's compensation. Additionally, the Company
may make a discretionary contribution as determined by the Board of Directors.
Total Company contributions were $1,166, $546 and $174 in 1999, 1998 and 1997,
respectively.
12. NET INCOME PER SHARE
As a result of the Company's change from an S Corporation to a C
Corporation in October 1997, presentation of pro forma net income per share is
necessary for the year ended December 31, 1997. Shares issued as a result of the
1,006 shares issued in 1997 to satisfy a 1993 acquisition liability have been
treated as if they had been effective and outstanding as of January 1, 1996 and
included in weighted average shares outstanding. Shares to be issued in
connection with the Curasoft acquisition (Note 14) are not material to the
weighted shares outstanding for 1998. For the years ended December 31, 1999,
1998 and 1997, options and warrants to acquire 239, 909 and 5,931 shares at
weighted average exercise prices of $17.48, $10.73 and $1.68 per share,
respectively were not included in the computations of diluted earnings per share
because the exercise prices were greater than the average market price of the
common shares.
69
<PAGE> 71
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The computation of basic and diluted loss per share and pro forma basic and
diluted net loss per share follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1999 1998 1997
------- -------- --------
<S> <C> <C> <C>
Net loss.............................................. $ (441) $ (5,765)
======= ========
Pro forma net loss.................................. $(10,941)
========
Shares used in basic calculation (in thousands):
Total basic shares.................................. 48,095 30,096 18,138
Additional shares for diluted computation:
Effect of stock options............................. 5,259 6,582 1,186
Effect of warrants.................................. 111 1,160 30
Effect of convertible debentures.................... 111 666 74
Effect of convertible preferred stock............... -- 7,074 2,638
Effect of phantom stock............................. -- -- 10,150
Exclusion of share equivalents that are
anti-dilutive because a loss was incurred........ (5,481) (15,482) (14,078)
------- -------- --------
Total diluted shares........................ 48,095 30,096 18,138
======= ======== ========
Basic net loss per share.............................. $ (0.01) $ (0.19)
Diluted net loss per share............................ $ (0.01) $ (0.19)
Pro forma basic net loss per share.................... $ (0.60)
Pro forma diluted net loss per share.................. $ (0.60)
</TABLE>
13. SEGMENT DATA:
The Company manages its business primarily on an overall products and
services basis; the Company has one reportable segment. The reportable segment
provides products and services as described in Note 1. The accounting policies
of the segment are those described in the "Summary of Significant Accounting
Policies" in Note 1. The Company evaluates the performance of its segment based
on segment profit. Revenues related to operations in the United States totaled
$59,543, $35,844, and $18,507 for the years ended December 31, 1999, 1998, and
1997, respectively. Revenues to customers located in other foreign countries
totaled $11,551, $3,848, and $2,714 for the years ended December 31, 1999, 1998,
and 1997, respectively. No single customer accounted for more than 10% of
revenue in 1999, 1998, or 1997. Long-lived assets within the United States
totaled $9,403 and $5,937 at December 31, 1999 and 1998, respectively.
Long-lived assets in other foreign countries totaled $477 and $546 for the years
ended December 31, 1999 and 1998, respectively.
14. ACQUISITIONS
ACQUISITION OF CURASOFT, INC.
In December 1998, the Company committed to deliver 350 shares of its common
stock in exchange for all of the outstanding equity interests in Curasoft, Inc.
in a transaction accounted for as a purchase. The aggregate consideration in the
transaction was valued at $3,352. Incremental costs incurred and capitalized in
connection with the acquisition were $140. The Company delivered the shares
related to this acquisition in March of 1999. At December 31, 1999, the Company
expensed an obligation to make an earnout payment of $1,200 to certain former
owners of Curasoft based on the achievement of revenue targets related to an
existing product, as well as their continued employment with the Company. The
Company is not obligated to any other future earnout payments related to this
acquisition.
70
<PAGE> 72
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The Company allocated the purchase price to assets and liabilities acquired
in the transaction based on their relative fair values as determined by an
independent valuation firm. The Company has allocated $1,381 of the purchase
price to the existing Curasoft ENR product family which provides fully
integrated event notification and response solutions for scheduling,
notification, dispatch, escalation, and response.
To determine the fair market value of the acquired net assets, the Company
relied primarily on the income approach, whereupon fair market value is a
function of the future revenues expected to be generated by an asset, net of all
related expenses. The future net revenue stream was discounted to the present
value at an 18% rate based on the estimated level of risk associated with
achieving the forecasted revenues. The income approach focuses on the income
producing capability of the acquired assets and represents the present value of
the future economic benefits expected to be derived from these assets.
The purchase price allocation resulted in an immediate write-off of $2,488
for purchased in-process research and development costs related to a Curasoft
product ("CuraSLAM") undergoing development at the acquisition date. CuraSLAM
has been designed as a stand-alone product by Curasoft and is not related to the
Curasoft ENR product family. This product is currently being designed to enable
customers to improve the service levels of their computing environments and will
help customers better align business processes with their IT functions. This
product is expected to be integrated with current and future BindView products.
The Company determined that the purchased in-process technology had not reached
technological feasibility and had no alternative future use based on the status
of design and development activities.
To determine the fair value of the purchased in-process research and
development activities, the Company utilized values determined by an independent
valuation firm, which applied the percentage of completion approach. Prior to
the acquisition, Curasoft conducted in-depth market research, designed the
product architecture, substantially completed the coding of the user interface
and began the coding of the other modules. The Company has estimated that the
development effort of this product was 50% complete at the date of acquisition.
The percentage completed of 50% was applied to the estimated fair value of the
completed product to determine the in-process research and development charge
upon acquisition. The estimated fair value of the completed product was
determined using the future revenue streams expected from the product, net of
related expenses, discounted at a rate based upon the specific level of risk
associated with achieving the forecasted revenues.
The management of the Company conducted due diligence and performed an
assessment of remaining tasks and risks to achieve completion. The development
activities required to complete the acquired in-process technologies included
additional design, coding, quality assurance procedures and customer beta
testing. The challenges facing the Company to complete the development of this
product on schedule include 1) the management of a development office away from
its principle offices in Houston, Texas, 2) the ability to adequately staff this
office, 3) the ability to effectively integrate the product with the Company's
existing products and 4) the validation of the product and its features by
potential customers. If the development of the product is delayed, this could
adversely impact its availability date and time-to-market and therefore, its
ability to market the product. If the product is available for general
distribution during the first half of 2000, the Company anticipates generating
material net cash inflows from this product in 2001.
71
<PAGE> 73
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Allocation of the purchase price in the transaction is as follows:
<TABLE>
<S> <C>
Common stock to be issued................................... $3,352
Transaction costs........................................... 140
------
Total to be allocated............................. $3,492
======
Allocation:
Cash acquired............................................. $ 157
Other current assets...................................... 239
Capitalized software...................................... 1,381
Other non-current assets.................................. 41
Current liabilities....................................... (394)
Deferred taxes............................................ (420)
Purchased in-process technology........................... 2,488
------
Total allocated................................... $3,492
======
</TABLE>
ACQUISITION OF NETECT, LTD.
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 2,322 shares of
common stock, based upon an exchange ratio of 0.800044202 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. 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.
Transaction costs of $1,533 and restructuring cost of $991 were incurred as
a result of this merger. 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 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 Company has completed substantially all 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 December 31, 1999, were as follows:
<TABLE>
<CAPTION>
BEGINNING CASH ACCRUED EXPENSES AT
RESTRUCTURING EXPENSES ACCRUAL ADJUSTMENT EXPENDITURES DECEMBER 31, 1999
- ---------------------- --------- ---------- ------------ -------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Employee severance and related
costs $575 $238 $(780) $33
Israeli office closing 119 -- (119) --
Other restructuring costs 59 -- (59) --
---- ---- ----- ---
Total $753 $238 $(958) $33
==== ==== ===== ===
</TABLE>
72
<PAGE> 74
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
15. SUBSEQUENT EVENTS
On January 26, 2000 the Company announced a stock dividend. Stockholders of
record as of the close of business on February 9, 2000 received one additional
share of BindView Common Stock for each share of Common Stock held on the record
date. All share amounts included within this document have been adjusted
retroactively to give effect to this stock dividend.
On February 9, 2000 the Company merged with Entevo Corporation in a stock
for stock transaction accounted for as a pooling of interests. Entevo provides
directory management solutions that help organizations deploy, integrate,
administer and maintain enterprise directory services, in Windows NT and Windows
2000 environments. In connection with the merger, the Company issued 4,181
shares of common stock, based upon an exchange ratio of 0.1205909 shares of
BindView common stock for each share of Entevo common stock and 0.17210298
shares of BindView common stock for each share of Entevo Series C Preferred
Stock. There were no material transactions between the Company and Entevo during
the periods prior to the merger.
73
<PAGE> 75
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
/s/ RICHARD P. GARDNER
------------------------------------
President and Chief Executive
Officer
March 30, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated below.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ERIC J. PULASKI Chairman of the Board and March 30, 2000
- ----------------------------------------------------- Chief Technology Officer
Eric J. Pulaski
/s/ RICHARD P. GARDNER Director, President and March 30, 2000
- ----------------------------------------------------- Chief Executive Officer
Richard P. Gardner (Principal Executive
Officer)
/s/ SCOTT R. PLANTOWSKY Director, Vice President March 30, 2000
- ----------------------------------------------------- and Chief Financial
Scott R. Plantowsky Officer (Principal
Financial and Accounting
Officer)
/s/ PETER L. BLOOM Director March 30, 2000
- -----------------------------------------------------
Peter L. Bloom
/s/ RICHARD A. HOSLEY II Director March 30, 2000
- -----------------------------------------------------
Richard A. Hosley II
/s/ JOHN J. MOORES Director March 30, 2000
- -----------------------------------------------------
John J. Moores
/s/ LELAND D. PUTTERMAN Director March 30, 2000
- -----------------------------------------------------
Leland D. Putterman
</TABLE>
74
<PAGE> 76
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Additions - Charges Balance at
January 1 Charged to expense against reserve December 31
---------- ------------------ --------------- -----------
<S> <C> <C> <C> <C>
Accounts receivable -
allowance for
doubtful accounts:
1997 $ 25 $ 170 $ - $ 195
1998 195 9 - 204
1999 204 370 51 523
Deferred tax asset
valuation allowance:
1997 $ - $ 100 $ - $ 100
1998 100 900 - 1,000
1999 1,000 2,330 - 3,330
</TABLE>
<PAGE> 77
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.1 -- Share Purchase Agreement dated as of January 29, 1999,
among BindView, Netect, Ltd. the holders of all of the
share capital of Netect, Ltd. and rights to acquire share
capital of Netect, Ltd. and Paul E. Blondin, as
Shareholders' Representative (incorporated by reference
to Exhibit 2.1 to BindView's Current Report on form 8-K
(File No. 000-24677), dated March 1, 1999).
3.1 -- Amended and Restated Articles of Incorporation of
BindView (incorporated by reference to Exhibit 3.1 to
Amendment No. 4 to the Registration Statement on Form S-1
of BindView (Reg. No. 333-52883), filed with the
Commission on July 23, 1998 (the "Form S-1")).
3.2 -- Bylaws of BindView (incorporated by reference to Exhibit
3.1 to the Form S-1).
4.1 -- Reference is hereby made to Exhibits 3.1 and 3.2
(incorporated by reference to Exhibit 4.1 to the Form
S-1).
10.1+ -- Incentive Stock Option Plan (incorporated by reference to
Exhibit 10.1 to the Form S-1).
10.2+ -- Stock Option Plan (incorporated by reference to Exhibit
10.2 to the Form S-1).
10.3+ -- 1997 Incentive Plan (incorporated by reference to Exhibit
10.3 to the Form S-1).
10.4*+ -- Omnibus Incentive Plan, as amended.
10.5*+ -- 1998 Non-Employee Director Stock Option Plan, as amended.
10.6 -- Agreement to Sublease dated June 25, 1998 between
BindView and Halliburton Energy Services, Inc.
10.7 -- Lease Agreement dated June 20, 1995 between BindView and
School Employees Holding Corp., including all amendments
thereto (incorporated by reference to Exhibit 10.7 to the
Form S-1).
10.8+ -- Amended and Restated Employment Agreement, dated June 24,
1999, between BindView and Marc R. Caminetsky
(incorporated by reference to BindView's Quarterly Report
on Form 10-Q (File No. 000-24677) for the quarter ended
June 30, 1999 (the "6/30/99 10-Q").
10.9+ -- Amended and Restated Employment Agreement, dated June 24,
1999, between BindView and Paul J. Cormier (incorporated
by reference to Exhibit 10.2 to the 6/30/99 10-Q).
10.10 -- Registration Rights Agreement dated October 16, 1997
among BindView, General Atlantic Partners 44 L.P., GAP
Coinvestment Partners, L.P., JMI Equity Fund III, L.P.
and Eric J. Pulaski (incorporated by reference to Exhibit
10.10 to the Form S-1).
10.11 -- Registration Rights Agreement dated November 7, 1997
among BindView and Scott R. Plantowsky (incorporated by
reference to Exhibit 10.11 to the Form S-1).
10.12+ -- Employee Agreement dated September 26, 1996 between the
Registrant and David E. Pulaski (incorporated by
reference to Exhibit 10.14 to the Form S-1).
10.13 -- Form of Indemnification Agreement (incorporated by
reference to Exhibit 10.16 to the Form S-1).
23.1* -- Consent of PricewaterhouseCoopers LLP.
27.1* -- Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 10.4
BINDVIEW DEVELOPMENT CORPORATION
OMNIBUS INCENTIVE PLAN
(INCLUDING AMENDMENTS THROUGH OCTOBER 1999 AND
GIVING EFFECT TO THE ONE-FOR-ONE STOCK DIVIDEND
PAID ON FEBRUARY 17, 2000)
<PAGE> 2
BINDVIEW DEVELOPMENT CORPORATION
OMNIBUS INCENTIVE PLAN
TABLE OF CONTENTS
ARTICLE I - PLAN Section
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
Committee....................................................2.6
Company......................................................2.7
Corporate Plan...............................................2.8
Corporate Plan Options.......................................2.9
Employee....................................................2.10
Exchange Act................................................2.11
Fair Market Value...........................................2.12
Incentive Option............................................2.13
1996 ISO Plan...............................................2.14
1996 ISO Plan Options.......................................2.15
1997 Incentive Plan.........................................2.16
1997 Incentive Plan Options.................................2.17
1998 Incentive Plan Options.................................2.18
Non-Employee Director.......................................2.19
Nonqualified Option.........................................2.20
Option......................................................2.21
Option Agreement............................................2.22
Outside Director............................................2.23
Plan........................................................2.24
Plan Year...................................................2.25
Reload Option...............................................2.26
Restricted Stock............................................2.27
Restricted Stock Agreement..................................2.28
Restricted Stock Purchase Price.............................2.29
Stock.......................................................2.30
Stock Award.................................................2.31
-i-
<PAGE> 3
10% Stockholder.............................................2.32
Voting Stock................................................2.33
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
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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
Indemnification of the Committee 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
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......................9.13
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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 "COMMITTEE" means the Compensation Committee of the Board of
Directors or such other committee designated by the Board of Directors. The
Committee shall be comprised solely of at least two members who are both
Non-Employee Directors and Outside Directors.
2.7 "COMPANY" means BindView Development Corporation.
2.8 "CORPORATE PLAN" means the BindView Development Corporation Stock
Option Plan.
2.9 "CORPORATE PLAN OPTIONS" means options granted under the Corporate
Plan to purchase stock.
2.10 "EMPLOYEE" means a person employed by the Company or any Affiliate
to whom an Option or a Stock Award is granted.
2.11 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended from time.
2.12 "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 Committee equal to
(x),
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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 Committee.
2.13 "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.
2.14 "1996 ISO PLAN" means the BindView Development Corporation
Incentive Stock Option Plan.
2.15 "1996 ISO PLAN OPTIONS" mean Options granted under the 1996 ISO
Plan.
2.16 "1997 INCENTIVE PLAN" means the BindView Development Corporation
1997 Incentive Plan.
2.17 "1997 INCENTIVE PLAN OPTIONS" mean Options granted under the 1997
Incentive Plan.
2.18 "1998 INCENTIVE PLAN OPTIONS" mean Options granted pursuant to
Section 4.2 of the Plan.
2.19 "NON-EMPLOYEE DIRECTOR" means a "Non-Employee Director" as that
term is defined in Rule 16b-3 under the Securities Exchange Act of 1934.
2.20 "NONQUALIFIED OPTION" means an option granted under this Plan
other than an Incentive Option.
2.21 "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.
2.22 "OPTION AGREEMENT" means the written agreement which sets out the
terms of an Option, as amended from time to time.
2.23 "OUTSIDE DIRECTOR" means a member of the Board of Directors
serving on the Committee who satisfies the definition of outside director in
Section 162(m) of the Code.
2.24 "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.
2.25 "PLAN YEAR" means the Company's fiscal year.
2.26 "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
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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.
2.27 "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 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 Committee consistent with the terms of the Plan.
2.28 "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.
2.29 "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 Committee. It may be greater than or
less than the Fair Market Value of the Stock on the date of the Stock Award.
2.30 "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.
2.31 "STOCK AWARD" means an award of Restricted Stock.
2.32 "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.
2.33 "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
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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 Committee shall determine from time
to time. However, no member of the Committee shall be eligible to receive any
Option, or Stock Award or to receive stock, stock options, or stock
appreciation rights under any other plan of the Company or any of its
Affiliates, if to do so would cause the individual not to be a Non-Employee
Director or Outside Director. The Board of Directors may designate one or more
individuals who shall not be eligible to receive any Option or Stock Award
under this Plan or under other similar plans of the Company.
ARTICLE IV
GENERAL PROVISIONS RELATING TO OPTIONS AND STOCK AWARDS
4.1 AUTHORITY TO GRANT OPTIONS AND STOCK AWARDS. The Committee 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 Committee.
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 8,000,000 shares. The maximum number of shares subject to Options
which may be issued to any Employee under the Plan during each Plan Year is
2,500,000 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
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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 Committee 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 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.
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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 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
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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
(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.
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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 Committee.
ARTICLE V
OPTIONS
5.1 TYPE OF OPTION. The Committee 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 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 Committee 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 Committee 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 Committee, 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
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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 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 Committee 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 Committee 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 Committee, 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
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<PAGE> 16
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 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 Committee may provide that a legend or restriction be printed
on the certificate as the Committee 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 Committee 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.
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<PAGE> 17
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.
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
Committee, 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,
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<PAGE> 18
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 Committee may grant Reload
Options to Employees. The time of grant of a Reload Option shall be the time
the Employee surrenders the 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 Committee, 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 Committee 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
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<PAGE> 19
Stock Agreement. The Committee 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 Committee, 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 Committee, 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 Committee 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,
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<PAGE> 20
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.
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 Committee
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 Committee. All
questions of interpretation and application of the Plan, Options or Stock
Awards shall be subject to the determination of the Committee. A majority of
the members of the Committee shall constitute a quorum. All determinations of
the Committee 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 Committee 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,
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<PAGE> 21
(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.
The actions of the Committee 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.
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<PAGE> 22
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.
9.3 FORFEITURE. Notwithstanding any other provisions of this Plan, if
the Committee 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 Committee 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
Committee, 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,
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<PAGE> 23
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 Committee 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 Committee 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.
9.6 INDEMNIFICATION OF THE COMMITTEE AND THE BOARD OF DIRECTORS. With
respect to administration of this Plan, the Company shall indemnify each
present and future member of the Committee and the Board of Directors against,
and each member of the Committee 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 Committee
and/or the Board of Directors, whether or not he continues to be a member of
the Committee 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 Committee or
the Board of Directors. However, this indemnity shall not include any expenses
incurred by any member of the Committee 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 Committee 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 Committee 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 Committee and the Board of Directors and shall be in addition to all
other rights to which a member of the Committee 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.
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<PAGE> 24
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.
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.
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EXHIBIT 10.5
BINDVIEW DEVELOPMENT CORPORATION
1998 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
<PAGE> 2
BINDVIEW DEVELOPMENT CORPORATION
1998 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
TABLE OF CONTENTS
Page
----
1. Purpose......................................................1
2. Effective Date of Plan.......................................1
3. Administration...............................................1
4. Dedicated Shares.............................................1
5. Grant of Options.............................................1
6. Eligibility..................................................1
7. Option Grant Size and Grant Dates............................2
8. Option Price; Fair Market Value..............................2
9. Duration of Options..........................................2
10. Amount Exercisable...........................................2
11. Exercise of Options..........................................3
12. Non-Transferability of Options...............................3
13. Termination of Directorship of Optionee......................3
14. Requirements of Law..........................................4
15. No Rights as Stockholder.....................................4
16. No Obligation to Retain Optionee.............................4
17. Changes in the Company's Capital Structure...................4
18. Termination and Amendment of Plan............................6
19. Written Agreement............................................6
20. Indemnification of Board.....................................6
21. Forfeitures..................................................7
22. Gender.......................................................7
23. Headings.....................................................7
24. Governing Law................................................7
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<PAGE> 3
BINDVIEW DEVELOPMENT CORPORATION
1998 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
1. PURPOSE. The BindView Development Corporation 1998 Non-Employee
Director Stock Option Plan (the "Plan") of BindView Development Corporation (the
"Company") is for the benefit of members of the Board of Directors of the
Company who, at the time of their service, are not employees of the Company or
any of its affiliates, by providing them an opportunity to become owners of the
Common Stock, no par value, of the Company (the "Stock"), thereby advancing the
best interests of the Company by increasing their proprietary interest in the
success of the Company and encouraging them to continue in their present
capacity.
2. EFFECTIVE DATE OF PLAN. The Plan is effective January 5, 1998, if
within one year of that date it shall have been approved by the holders of at
least a majority of the outstanding shares of voting stock of the Company voting
in person or by proxy at a duly held shareholders' meeting, or if the provisions
of the corporate charter, bylaws or applicable state law prescribes a greater
degree of shareholder approval for this action, the approval by the holders of
that percentage, at a duly held meeting of shareholders, or in either case by a
consent in lieu of a meeting if permitted by the corporate charter, bylaws and
applicable law.
3. ADMINISTRATION. The Plan shall be administered by the Board of
Directors of the Company (the "Board"). Subject to the terms of the Plan, the
Board shall have the power to construe the provisions of the Plan, Options, and
Stock issued hereunder, to determine all questions arising hereunder, and to
adopt and amend such rules and regulations for administering the Plan as the
Board deems desirable.
4. DEDICATED SHARES. The total number of shares of Stock with respect
to which initial grants (collectively, the "Options") may be granted under this
Plan shall not exceed, in the aggregate, 100,000 shares; provided, that the
class and aggregate number of shares of Stock which may be granted hereunder
shall be subject to adjustment in accordance with the provisions of Paragraph
17. The shares of Stock may be treasury shares or authorized but unissued shares
of Stock. In the event that any outstanding Option shall expire or is terminated
or canceled for any reason, the shares of Stock allocable to the unexercised
portion of that Option may again be subject to an Option or Options under the
Plan.
5. GRANT OF OPTIONS. All Options granted under the Plan shall be
Nonqualified Options which are not intended to satisfy the requirements of
Section 422 of the Internal Revenue Code of 1986, as amended. No options shall
be granted under the Plan subsequent to January 4, 2008.
6. ELIGIBILITY. The individuals who shall be eligible to receive
Options under the Plan shall be each member of the Board who is not an employee
of the Company or any affiliate of the Company ("Eligible Director").
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<PAGE> 4
7. OPTION GRANT SIZE AND GRANT DATES.
On the day the Eligible Director is first elected or appointed to be a
director (whichever is applicable), the Eligible Director shall be granted an
Option to purchase 20,000 shares of stock on the terms and conditions set forth
herein. Notwithstanding the provisions of Section 17, the number of shares which
may subsequently be awarded pursuant to this Section 7 shall not increase but
may be decreased if appropriate under Section 17. If service of an Eligible
Director who previously received an initial grant terminates and the Director is
subsequently elected or appointed to the Board, that Director shall not be
eligible to receive a second grant.
If the General Counsel of the Company determines, in his sole
discretion, that the Company is in possession of material, nonpublic information
about the Company or any of its subsidiaries, he may suspend granting of the
initial grant to each Eligible Director until the second trading day after
public dissemination of that information, and the determination by the General
Counsel that issuance of the Options is then appropriate.
8. OPTION PRICE; FAIR MARKET VALUE. The price at which shares of Stock
may be purchased by each Eligible Director (the "Optionee") pursuant to his
initial grant, shall be 100% of the "Fair Market Value" of the shares of Stock
on the date of grant of the initial grant.
For all purposes of this Plan, the "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; (d) for any
Options issued prior to the initial public offering of the Stock, the initial
public offering price; or (e) if none of the foregoing is applicable, 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 that amount as determined
by the Board.
9. DURATION OF OPTIONS. The term of each Option shall be ten years from
the date of grant. No Option shall be exercisable after the expiration of ten
years from the date the Option is granted.
10. AMOUNT EXERCISABLE. Each Option hereunder shall become exercisable
on a cumulative basis in 20% increments on and after each annual anniversary of
the grant of the Option. However, upon a Change of Control, each Option shall
become immediately exercisable. For this purpose, 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
-2-
<PAGE> 5
(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
(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
-3-
<PAGE> 6
(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.
"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.
11. EXERCISE OF OPTIONS. Options shall be exercised by the delivery of
written notice to the Company setting forth the number of shares 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, (d) any combination of (a), (b), or (c), and/or (e) any other form which
is acceptable to the Board, and specifying the address to which the certificates
for the shares are to be mailed. As promptly as practicable after receipt of
written notification and payment, the Company shall deliver to the Eligible
Director certificates for the number of shares with respect to which the Option
has been exercised, issued in the Eligible Director's name. If shares of Stock
are used in payment, the Fair Market Value of the shares of Stock tendered must
be less than the option price of the shares being purchased, and the difference
must be paid by check. Delivery 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 Eligible Director, at the address specified
by the Eligible Director.
Whenever an Option is exercised by exchanging shares of Stock owned by
the Optionee, the Optionee shall deliver to the Company certificates registered
in the name of the Optionee representing a number of shares of Stock legally and
beneficially owned by the Optionee, 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 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.
12. NON-TRANSFERABILITY OF OPTIONS. Options shall not be transferable
by the Optionee other than by will or under the laws of descent and
distribution, and shall be exercisable, during the Optionee's lifetime, only by
him. Notwithstanding any provision in this Plan to the contrary, an Eligible
Director may transfer an Option to an Immediate Family Member or an entity
controlled by an Eligible Director or an Immediate Family Member, provided,
however, no further transfer shall be made except by operation of law or a
transfer back to such Eligible Director or such other transfer which may be
approved by the Board. For this purpose "Immediate Family Member" means an
-4-
<PAGE> 7
Eligible Director's children, grandchildren or spouse, or a trust for the
benefit of such Immediate Family Members.
13. TERMINATION OF DIRECTORSHIP OF OPTIONEE. If, before the date of
expiration of the Option, the Optionee shall cease to be a director of the
Company, the Option shall terminate on the earlier of the date of expiration or
90 days after the date of ceasing to serve as a director. In this event, the
Optionee shall have the right, prior to the termination of the Option, to
exercise the Option if he was entitled to exercise immediately prior to ceasing
to serve as a director.
Upon the death or disability of the Optionee while serving as a
director, his options shall become fully vested and, in the case of death his
executors, administrators, or any person or 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 earlier of the date of expiration of the Option
or 12 months following the date of his death, to exercise the Option, in whole
or in part.
14. REQUIREMENTS OF LAW. The Company shall not be required to sell or
issue any Stock under any Option if issuing that Stock would constitute or
result in a violation by the Optionee 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, the Company shall not
be required to issue any Stock unless the Company has received evidence
satisfactory to it to the effect that the holder of that Option will not
transfer the Stock except in accordance with applicable law, including receipt
of an opinion of counsel satisfactory to the Company to the effect that any
proposed transfer complies with applicable law. The determination by the Company
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 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 the issuance
of shares under it, to comply with any law or regulation of any governmental
authority.
15. NO RIGHTS AS STOCKHOLDER. No Optionee shall have any rights as a
stockholder with respect to Stock covered by any Option until the date a stock
certificate is issued for the Stock, and, except as otherwise provided in
Paragraph 17 hereof, no adjustment for dividends, or otherwise, shall be made if
the record date thereof is prior to the date of issuance of such certificate.
16. NO OBLIGATION TO RETAIN OPTIONEE. The granting of any Option shall
not impose upon the Company or its stockholders any obligation to retain or
continue to retain any Optionee or nominate any Optionee for election to
continue in his capacity as a director of the Company. The right of the Company,
the Board of Directors, and the Stockholders to terminate the service of any
Optionee as a director shall not be diminished or affected by reason of the fact
that one or more Options have been or would be granted to him.
-5-
<PAGE> 8
17 CHANGES IN THE COMPANY'S CAPITAL STRUCTURE. The existence of
outstanding Options 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 Optionee 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
with respect to which Options may be granted under the Plan shall be adjusted by
substituting for the total number and class of shares of Stock then available
for grant, 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 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,
-6-
<PAGE> 9
(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
(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.
-7-
<PAGE> 10
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.
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.
18. TERMINATION AND AMENDMENT OF PLAN. The Board of Directors of the
Company may amend, terminate or suspend the Plan at any time, in its sole and
absolute discretion; provided, however, to the extent required to qualify the
Plan under Rule 16b-3 promulgated under Section 16 of the Securities Exchange
Act of 1934, as amended, no amendment shall be made more than once every six
months that would change the amount, price or timing of the initial grants,
other than to comport with changes in the Internal Revenue Code of 1986, as
amended, the Employee Retirement Income Security Act or the rules and
regulations promulgated thereunder; and provided, further, to the extent
required to qualify the Plan under Rule 16b-3, no amendment that would (a)
materially increase the number of shares of the Stock that may be issued under
the Plan, (b) materially modify the requirements as to eligibility for
participation in the Plan, or (c) otherwise materially increase the benefits
accruing to participants under the Plan, shall be made without the approval of
the Company's stockholders.
19. WRITTEN AGREEMENT. Each Option granted hereunder shall be embodied
in a written agreement, which shall be subject to the terms and conditions of
this Plan and shall be signed by the Optionee and by the Chairman of the Board,
the Vice Chairman, the President or any Vice President of the Company for and in
the name and on behalf of the Company.
20. INDEMNIFICATION OF BOARD. With respect to administration of the
Plan, the Company shall indemnify each present and future member of the Board of
Directors against, and each member of the Board of Directors shall be entitled
without further act on his part to indemnity from the Company for, all expenses
(including 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 of Directors, whether or not he
continues to be a member of the Board of Directors at the time of incurring the
expenses. However, this indemnity shall not include any expenses incurred by any
member of the Board of Directors (a) 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
-8-
<PAGE> 11
performance of his duty as a member of the Board of Directors, or (b) in respect
of any matter in which any settlement is effected, to an amount in excess of the
amount approved by the Company on the advice of its legal counsel. In addition,
no right of indemnification under this Plan shall be available to or enforceable
by any member of 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 of Directors and shall be in addition
to all other rights to which a member of the Board of Directors may be entitled
as a matter of law, contract, or otherwise.
21. FORFEITURES. Notwithstanding any other provision of this Plan, if,
before or after termination of the Optionee's capacity as a director of the
Company, there is an adjudication by a court of competent jurisdiction that the
Optionee committed fraud, embezzlement, theft, commission of felony, or proven
dishonesty in the course of his advisory relationship to the Company and its
affiliates which conduct materially damaged the Company or its affiliates, or
disclosed trade secrets of the Company or its affiliates, then any outstanding
options which have not been exercised by Optionee shall be forfeited. In order
to provide the Company with an opportunity to enforce this Section, an Option
may not be exercised if a lawsuit alleging that an action described in the
preceding sentence has taken place until a final resolution of the lawsuit
favorable to the Optionee.
22. 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.
23. HEADINGS. Headings 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.
24. GOVERNING LAW. The provisions of this Plan shall be construed,
administered, and governed under the laws of the State of Texas.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (File No. 333-59825, effective July 24, 1998, File No.
333-66331, effective October 29, 1998, Amendment No. 1 thereto dated February
22, 1999, File No. 333-76527, effective April 19, 1999, File No. 333-79919,
effective June 3, 1999 and File No. 333-31330, effective February 29, 2000) of
BindView Development Corporation of our report dated January 26, 2000, except as
to Note 14, which is as of February 9, 2000 and except as to the pooling of
interests with Entevo Corporation which is as of March 29, 2000, relating to the
financial statements and financial statement schedule, which appears in this
Form 10-K.
/s/ PRICEWATERHOUSECOOPERS LLP
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
March 30, 2000
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