<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO
__________
COMMISSION FILE NUMBER 000-24677
BINDVIEW DEVELOPMENT CORPORATION
(Exact name of registrant as specified in its charter)
TEXAS 76-0306721
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5151 SAN FELIPE, 21st FLOOR, HOUSTON, TX 77056
(Address of principal executive offices) (Zip code)
(713) 561-4000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares of the registrant's Common Stock, no par value, outstanding
as of March 31, 2000, was 51,392,302.
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<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BINDVIEW DEVELOPMENT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT PAR VALUE)
<TABLE>
<CAPTION>
ASSETS MARCH 31, DECEMBER 31,
2000 (Unaudited) 1999
---------------- --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 79,055 $ 72,150
Short-term investments 547 4,834
Accounts receivable, net of allowance of $714 and $623 10,431 15,701
Deferred tax asset 8,639 3,069
Other current assets 783 1,142
------------ ------------
Total current assets 99,455 96,896
Property and equipment, net 10,221 8,485
Purchased software and related assets, net 1,128 1,177
Long-term investments 4,268 6,120
Other assets 699 564
------------ ------------
Total assets $ 115,771 $ 113,242
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,714 $ 3,077
Accrued liabilities 5,117 2,721
Accrued compensation 1,106 3,757
Deferred revenue 11,515 10,311
Current maturities of indebtedness -- 176
------------ ------------
Total current liabilities 22,452 20,042
------------ ------------
Long-term liabilities:
Indebtedness and other long-term liabilities -- 144
------------ ------------
Total long-term liabilities -- 144
------------ ------------
Shareholders' equity:
Convertible preferred stock, $0.01 par value, 20,000 shares authorized,
0 and 2,525 shares issued & outstanding, respectively -- --
Convertible preferred stock, $0.025 par value, 520 shares
authorized, 0 and 7 shares issued and outstanding, respectively -- --
Series A convertible preferred stock, $0.0001 par value, 5,000 shares
Authorized, 0 and 5,000 shares issued & outstanding, respectively -- 5
Series B convertible preferred stock, no par value, 8,000 shares
Authorized, 0 and 7,689 shares issued & outstanding, respectively -- 8
Series C convertible preferred stock, no par value, 10,030 shares
Authorized, 0 and 10,000 shares issued & outstanding -- 10
Common stock, no par value, 100,000 shares authorized,
51,392 and 47,535 shares issued and outstanding, respectively 1 1
Additional paid-in capital 116,438 109,471
Accumulated deficit (22,650) (15,975)
Notes receivable, shareholders (202) (202)
Accumulated other comprehensive loss (268) (262)
------------ ------------
Total shareholders' equity 93,319 93,056
------------ ------------
Total liabilities and shareholders' equity $ 115,771 $ 113,242
============ ============
</TABLE>
See notes to unaudited condensed consolidated financial statements.
2
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BINDVIEW DEVELOPMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
QUARTER
ENDED MARCH 31,
-------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Revenues:
Licenses $ 10,161 $ 9,097
Services 5,864 3,614
------------ ------------
Total revenues 16,025 12,711
------------ ------------
Cost of revenues:
Cost of licenses 553 261
Cost of services 635 531
------------ ------------
Total cost of revenues 1,188 792
------------ ------------
Gross profit 14,837 11,919
------------ ------------
Costs and expenses:
Sales and marketing 9,359 6,449
Research and development 6,260 3,857
General and administrative 2,427 1,526
Transaction and restructuring 5,581 2,286
------------ ------------
Operating loss (8,790) (2,199)
Other income, net 1,082 645
------------ ------------
Loss before income tax provision (7,708) (1,554)
Provision (benefit) for income tax (1,033) 1,057
------------ ------------
Net loss (6,675) (2,611)
Other comprehensive loss, net of tax:
Loss from foreign currency translation (6) (75)
------------ ------------
Comprehensive loss $ (6,681) $ (2,686)
============ ============
Loss per common share:
Basic $ (0.13) $ (0.06)
Diluted $ (0.13) $ (0.06)
Shares used in computing loss per common share:
Basic 50,519 45,805
Diluted 50,519 45,805
</TABLE>
See notes to unaudited condensed consolidated financial statements.
3
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BINDVIEW DEVELOPMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (6,675) $ (2,611)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization expense 1,288 704
Deferred income taxes (1,033) 1,109
Changes in assets and liabilities:
Decrease in accounts receivable 5,208 174
Decrease in other assets 339 496
Increase in accounts payable 1,867 1,409
Increase (decrease) in accrued liabilities (327) 1,489
Increase in deferred revenues 1,227 1,033
------------ ------------
Net cash provided by operating activities 1,894 3,803
------------ ------------
Cash flows from investing activities:
Purchase of property and equipment (2,982) (3,349)
(Purchase) maturity of investments, net 6,139 (10,600)
Other (98) 136
------------ ------------
Net cash provided by (used in)
investing activities 3,059 (13,813)
------------ ------------
Cash flows from financing activities:
Interest accrued on convertible debentures -- 86
Notes payable and long-term debt (320) 129
Payment of capital lease obligation (390) (13)
Proceeds from issuance of stock for employee stock purchase plan 462 --
Proceeds from exercise of stock options & warrant 1,945 924
------------ ------------
Net cash provided by financing activities 2,087 1,126
Effect of exchange rate changes on cash (135) (14)
------------ ------------
Net decrease in cash and cash equivalents (6,905) (8,898)
Cash and cash equivalents at beginning of period 72,150 51,718
------------ ------------
Cash and cash equivalents at end of period $ 79,055 $ 42,820
============ ============
Noncash financing and investing activities
Conversion of preferred stock to common stock 23
Tax benefit related to the exercise of employee stock options 4,537
Issuance of 350 shares of common stock related to the
acquisition of Curasoft 3,352
Conversion of convertible debentures and preferred stock into
common stock 7,658
</TABLE>
See notes to unaudited condensed consolidated financial statements.
4
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BINDVIEW DEVELOPMENT CORPORATION
STATEMENT OF SHAREHOLDERS' EQUITY
COMBINED FINANCIAL RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2000
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED
COMMON STOCK SERIES A
--------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Balance at December 31, 1999 47,535 $ 1 5,000 $ 5
Exercise of stock options & warrants 508 -- -- --
Tax benefit related to exercise -- -- -- --
of employee stock options
ESPP 48 -- -- --
Conversion of preferred A, B and C stock 3,251 -- (5,000) (5)
into common stock
Foreign currency translation adjustment -- -- -- --
Net (loss) for the three months ended -- -- -- --
March 31, 2000
-------- -------- -------- --------
Balance at March 31, 2000 51,342 $ 1 -- $ --
<CAPTION>
CONVERTIBLE CONVERTIBLE
PREFERRED PREFERRED
SERIES B SERIES C
---------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Balance at December 31, 1999 7,689 $ 8 10,000 $ 10
Exercise of stock options & warrants -- -- -- --
Tax benefit related to exercise -- -- -- --
of employee stock options
ESPP -- -- -- --
Conversion of preferred A, B and C stock (7,689) (8) (10,000) (10)
into common stock
Foreign currency translation adjustment -- -- -- --
Net (loss) for the three months ended
March 31, 2000 -- -- -- --
-------- -------- -------- --------
Balance at March 31, 2000 -- $ -- -- $ --
<CAPTION>
CUMULATIVE
ADDITIONAL COMMON NOTES OTHER TOTAL
PAID-IN STOCK ACCUMULATED RECEIVABLE COMPREHENSIVE SHAREHOLDERS'
CAPITAL TO BE ISSUED DEFICIT SHAREHOLDERS INCOME (LOSS) EQUITY
---------- ------------ ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1999 $109,471 $ -- $(15,975) $ (202) $ (262) $ 93,056
Exercise of stock options & warrants 1,944 -- -- -- -- 1,944
Tax benefit related to exercise
of employee stock options 4,538 -- -- -- -- 4,538
ESPP 462 -- -- -- -- 462
Conversion of preferred A, B and C stock
into common stock 23 -- -- -- -- --
Foreign currency translation adjustment -- -- -- -- (6) (6)
Net (loss) for the three months ended
March 31, 2000 -- -- (6,675) -- -- (6,675)
-------- -------- -------- -------- -------- --------
Balance at March 31, 2000 $116,438 $ -- $(22,650) $ (202) $ (268) $ 93,319
</TABLE>
See notes to unaudited consolidated financial statements
5
<PAGE> 6
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
BindView Development Corporation, a Texas corporation (the "Company" or
"BindView"), reflect all adjustments (consisting of normal recurring accruals)
which, in the opinion of management, are necessary for a fair presentation of
the results for the interim periods presented. These financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
These financial statements should be read in conjunction with Item 5 of this
report and the Company's annual audited financial statements and the
supplemental financial statements for the year ended December 31, 1999, which
are included in the Annual Report on Form 10-K and Amendment No. 1 to the
Company's Form 8-K.
Operating results for the three month period ended March 31, 2000 are not
necessarily indicative of the results that may be expected for the full year
ending December 31, 2000 or for other periods.
NOTE 2 - DESCRIPTION OF BUSINESS
The Company was incorporated in May 1990. Prior to 1995, the Company was known
as The LAN Support Group, Inc. The Company develops, markets and supports a
suite of IT risk management software products that manage the
security and integrity of complex, distributed client/server networks operating
on Microsoft Windows NT and Novell NetWare environments.
NOTE 3 - RECENT PRONOUNCEMENTS
In June 1998, the Financial Account Standards Board("FASB") issued Statement of
Financial Accounting Standards No. 133 ("FAS 133"), Accounting for Derivative
Instruments and Hedging Activities. FAS 133, as amended, is effective for all
fiscal years beginning after June 15, 2000. The Company will adopt FAS 133
effective January 1, 2001 and is evaluating the effect that such adoption may
have on its consolidated results of operations and financial position.
In December 1999, the Securities and Exchange Commission ("SEC") 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. In
March 2000, the SEC issued Staff Accounting Bulletin No. 101A ("SAB 101A"),
Amendment: Revenue Recognition in Financial Statements. SAB 101A delays the
implementation date of SAB 101 for registrants with fiscal years that begin
between December 16, 1999 and March 15, 2000. 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.
NOTE 4 - EARNINGS PER SHARE
Basic earnings per common share is computed using the weighted average number of
shares outstanding. As the Company reported a net loss for the three months
ended March 31, 1999, and March 31, 2000, diluted earnings per common share does
not differ from basic earnings per common share.
NOTE 5 - SHORT-TERM AND LONG-TERM INVESTMENTS
Short-term investments have original maturities of more than three months and a
remaining maturity of less than one year. Long-term investments have original
maturities of more than twelve months. These investments are stated at cost,
which approximates market, and it is the intent of the Company to hold these
securities until maturity.
NOTE 6 - RECENT ACQUISITIONS/TRANSACTION AND RESTRUCTURING EXPENSES
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. Transaction costs of
$1,533 and restructuring costs of $991 were incurred as a result of this merger
of which $238 was incurred in the second quarter of 1999.
At the time of the merger, management approved restructuring plans to eliminate
duplicate senior management positions and to close the Israeli operations of
Netect. The restructuring plans were based on management's best estimate of
those costs based on the information available at that time. The restructuring
expenses related to this plan include involuntary employee separation expenses
for approximately 15 former Netect employees, the costs to close Netect's
Israeli operations and other miscellaneous restructuring expenses. The
restructuring expense adjustment presented below of $238 occurred in the second
quarter of 1999 and relates to additional costs to close Netect's Israeli
operations that exceeded management's initial estimate. The transaction costs
related to the acquisition include investment banking fees of $590, accounting
and legal expenses of $565, transfer fees of $138, and other miscellaneous
transaction expenses of $240.
5
<PAGE> 7
The accrued restructuring expenses and amounts charged against the provision as
of March 31, 2000, were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) BEGINNING CASH ACCRUED EXPENSES AT
ACCRUAL EXPENDITURES ADJUSTMENT MARCH 31, 2000
---------- ------------ ---------- -------------------
<S> <C> <C> <C> <C>
Restructuring Expenses
Employee severance and 575 (813) 238 --
Related costs
Israeli office closing 119 (119) -- --
Other restructuring costs 59 (59) -- --
---------- ------------ ---------- -------------------
TOTAL $ 753 $ (991) $ 238 $ --
========== ============ ========== ===================
</TABLE>
The historical financial data included herein has been restated to reflect the
merger with Netect by combining the historical results for the Company and
Netect for all periods presented. There were no material transactions between
BindView and Netect during the periods prior to the merger.
Acquisition of Entevo Corporation
- ---------------------------------
On February 9, 2000 the Company merged with Entevo Corporation ("Entevo") 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. As a result of this merger, all of the outstanding convertible preferred
stock of Entevo were exchanged for the Company's common stock. Transaction costs
of $3,800 and restructuring costs of $1,781 were incurred as a result of this
merger.
At the time of the merger, management approved restructuring plans to eliminate
duplicate positions and integrate Entevo's and BindView's worldwide operations.
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 and relocation
expenses, contract cancellation provisions, product reorganization, integration
related expenses and other miscellaneous restructuring expenses. The transaction
costs related to the acquisition include investment banking fees of $2,473,
professional expenses of $929, product due diligence and transfer fees of $181,
and other miscellaneous transaction expenses of $217. The Company believes the
remaining reserve is sufficient to complete these remaining actions under the
plan.
The accrued restructuring expenses and amounts charged against the provision as
of March 31, 2000, were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) BEGINNING CASH ACCRUED EXPENSES AT
ACCRUAL EXPENDITURES MARCH 31, 2000
---------- ------------ -------------------
<S> <C> <C> <C>
Employee severance and 1,520 (186) 1,334
Relocation costs
Contract cancellation
provisions 93 -- 93
Product reorganization 82 -- 82
Integration and other
restructuring costs 86 (18) 68
---------- ------------ -------------------
TOTAL $ 1,781 $ (204) $ 1,577
========== ============ ===================
</TABLE>
The historical financial data included herein has been restated to reflect the
merger with Entevo by combining the historical results for the Company and
Entevo for all periods presented. There were no material transactions between
BindView and Entevo during the periods prior to the merger.
NOTE 7 - INCOME TAX
For the period ended March 31, 1999, the Company recognized a tax expense
for its income generated in the U.S. A tax benefit has not been recognized for
certain losses of the Company generated by Netect due to limitations on the
Company's ability to realize such benefits given the former structure of Netect
and the Company's plans for Netect's future operations. These factors, and the
non-deductibility of the transaction expenses incurred in connection with the
company's merger with Netect have resulted in the Company's effective tax rate
for this period exceeding 35%.
For the period ended March 31, 2000, a portion of the transaction and
restructuring expenses related to the acquisition of Entevo are non-deductible
for income tax purposes. In addition, the Company will generate a research
and development tax credit for federal income tax purposes during 2000. These
factors have resulted in the Company's effective tax benefit approximating 13%
for the current period.
The Company has net operating loss carryforwards at March 31, 2000 of
approximately $41,378 available to offset future taxable income that expire
between 2003 and 2020 resulting in a deferred tax asset of approximately
$14,313. 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 March 31, 2000
against the net operating loss carryforwards. The valuation allowance is
primarily related to pre-acquisition net operating losses of Netect and Entevo.
NOTE 8 - SEGMENT REPORTING
During 1999, the Company adopted Statement of Financial Accounting Standard No.
131 "Disclosures About Segments of an Enterprise and Related Information". The
Company currently operates in one segment as defined by this standard. The
adoption of this standard did not have a material impact on disclosures with
respect to the Company's financial condition or results of operations.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include those discussed in the "Risk Factors" set forth in the
Company's Annual Report on Form 10-K for the year ended December 31, 1999 and
those discussed herein under the heading "Cautionary Statements". The following
discussion should be read in conjunction with the unaudited condensed
consolidated financial statements and the accompanying notes.
The mergers with Netect on March 1, 1999, and with Entevo Corporation on
February 9, 2000, have been accounted for as pooling of interests. The
historical financial data included herein has been restated to reflect these
mergers.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage of
selected items in the Condensed Consolidated Statement of Operations and
Comprehensive Loss to total revenues:
<TABLE>
<CAPTION>
PERCENT OF TOTAL NET REVENUES
QUARTER ENDED MARCH 31,
--------------------------
2000 1999
---------- ----------
<S> <C> <C>
Revenues:
Licenses 63.4 71.6
Services 36.6 28.4
---------- ----------
Total revenues 100.0 100.0
---------- ----------
Cost of revenues:
Cost of licenses 3.4 2.0
Cost of services 4.0 4.2
---------- ----------
Total cost of revenues 7.4 6.2
---------- ----------
Gross profit 92.6 93.8
---------- ----------
Costs and expenses
Sales and Marketing 58.5 50.8
Research and Development 39.1 30.3
General and Administrative 15.1 12.0
Transaction and Restructuring(1) 34.8 18.0
---------- ----------
Operating loss (54.9) (17.3)
Other income,net 6.8 5.1
---------- ----------
Loss before income tax provision (48.1) (12.2)
Provision (benefit) for income tax (6.4) 8.3
---------- ----------
Net loss (41.7) (20.5)
========== ==========
</TABLE>
Notes: (1) 1999 amount represents a $2,286 non-recurring charge related to costs
associated with the Netect merger and restructuring. 2000 amount represents
a $5,581 non-recurring charge related to costs associated with the Entevo merger
and restructuring.
REVENUES
The Company's revenues are derived from the sale of software products and
related services including subscription contracts. The Company's revenues
increased $3.3 million or 26% in the first quarter of 2000 over the comparable
quarter of the prior year.
The Company's license revenues increased $1.1 million or 12% in the first
quarter of 2000 over the comparable quarter of the prior year. The increase in
the Company's license revenues over these periods is a result of continued
market acceptance of the BindView EMS product family and revenues generated from
new product acquisitions and introductions. The results of the quarter may not
be indicative of results for the full year. No assurances can be made that
revenues will continue to increase at the rates reflected in quarter-to-quarter
and year-to-year comparisons.
The Company's service revenues increased $2.3 million or 62% in the first
quarter of 2000 over the comparable quarter of the prior
7
<PAGE> 9
year. The increase in the Company's service revenues over these periods is a
result of an increase in purchases and renewals of subscription contracts by the
Company's growing installed customer base. Because revenues from subscription
contracts are recognized ratably over the contract term, this increase in these
revenues as a percentage of total revenues results in greater deferred revenue
recognition. The costs associated with these services, are recognized as they
are incurred. This may negatively impact the Company's operating margins during
periods in which the Company incurs infrastructure ramp-up costs in response to
increases in purchases and renewals of subscription contacts.
COST OF REVENUES
Cost of licenses includes product manuals, packaging, distribution and media
costs for the Company's software products. The Company's cost of licenses
increased $292,000 or 112% in the first quarter of 2000 over the comparable
quarter of the prior year. The cost of licenses has increased primarily due to
increases in product shipments and the cost of product packaging and
documentation. The Company believes these costs will remain relatively constant
as a percentage of total revenue, although there will continue to be quarterly
fluctuations due to the timing of certain expenses.
Cost of services includes personnel and other costs related to technical support
and professional services. The Company's cost of services increased $104,000 or
20% in the first quarter of 2000 over the comparable quarter of the prior year.
The cost of services has increased primarily due to increases in the cost of
technical support staff providing support to the Company's growing customer base
and increases in the cost of professional services staff providing customer
training and implementation services.
COSTS AND EXPENSES
Sales and marketing expenses consist primarily of salaries, commissions and
bonuses earned by sales and marketing personnel, general office expenses, travel
and entertainment and promotional expenses. The Company's sales and marketing
expenses increased $2.9 million or 45% in the first quarter of 2000 over the
comparable quarter of the prior year. The increase in the sales and marketing
expenses is related to the hiring of additional personnel in connection with the
building of the Company's telesales and field sales force and the additional
facilities and computer systems required by these additional personnel. Sales
and marketing expenses increased to 58% of revenues in the first quarter of 2000
compared to 51% of revenue in the corresponding period of 1999. The increase in
sales and marketing expenses as a percentage of revenues is related to 1) the
ramp up of sales and marketing expenses associated with Entevo over these
periods and 2) additional costs related to the integration of sales territories
and the sales commission structure as a result of the acquisition of Entevo's
telesales and field sales operations. Due to the seasonal nature of revenues,
the Company anticipates that for the remaining fiscal quarters of 2000, sales
and marketing expenses will decrease as a percentage of revenues but increase in
absolute dollars as the Company continues to invest in marketing campaigns
relative to the sales growth and continue to expand its domestic and
international sales efforts.
Research and development expenses consist primarily of salaries and benefits for
product development, product management and quality assurance personnel,
payments to contract programmers and expendable equipment purchases. The
Company's research and development expenses increased $2.4 million or 62% in the
first quarter of 2000 over the comparable quarter of the prior year. The
increase in the research and development expenses is related to increased
personnel, additional facilities and an increase in the computer systems and
software development tools required by the additional personnel. Research and
development expenses increased to 39% of revenues in the first quarter of 2000
compared to 30% in the corresponding period of 1999. This increase in research
and development expenses as a percentage of revenue is related to 1) the ramp up
of research and development expenses associated with Entevo over these periods
and 2) the development of new product lines requiring additional research and
development effort relative to the respective license revenue generated by these
products. The Company believes that a significant research and development
investment is essential for it to maintain and grow its market position and
continue to expand its product line. Accordingly, the Company anticipates it
will continue to devote substantial resources to product research and
development for the foreseeable future, and that research and development
expenses will increase in absolute dollars.
General and administrative expenses consist primarily of salaries, personnel and
related costs for the Company's executive, administrative, finance and
information services staff. The Company's general and administrative expenses
increased $901,000 or 59% in the first quarter of 2000 over the comparable
quarter of the prior year. The increase in the general and administrative
expenses is related to an increase in the bad debts expense, increased
staffing, increased facilities costs and associated expenses necessary to manage
and support the Company's increased scale of operations. General and
administrative expenses increased to 15% of revenues in the first quarter of
2000 compared to 12% in the corresponding period of 1999. This increase in
general and administrative expenses as a percentage of revenue is a result of
duplicative staff associated with the Entevo acquisition. The Company expects
that for the remainder of 2000 general and administrative expenses will decline
as a percentage of total revenue.
8
<PAGE> 10
TRANSACTION AND RESTRUCTURING EXPENSES
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. Transaction costs of
$1,533 and restructuring costs of $991 were incurred as a result of this merger
of which $238K was incurred in the second quarter of 1999.
At the time of the merger, management approved restructuring plans to eliminate
duplicate senior management positions and to close the Israeli operations of
Netect. The restructuring plans were based on management's best estimate of
those costs based on the information available at that time. The restructuring
expenses related to this plan include involuntary employee separation expenses
for approximately 15 former Netect employees, the costs to close Netect's
Israeli operations and other miscellaneous restructuring expenses. The
restructuring expense adjustment presented below of $238 was incurred in the
second quarter of 1999 and relates to additional costs to close Netect's
Israeli operations that exceeded management's initial estimate. The transaction
costs related to the acquisition include investment banking fees of $590,
accounting and legal expenses of $565, transfer fees of $138, and other
miscellaneous transaction expenses of $240.
The accrued restructuring expenses and amounts charged against the provision as
of March 31, 2000, were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) BEGINNING CASH ACCRUED EXPENSES AT
ACCRUAL EXPENDITURES ADJUSTMENT MARCH 31, 2000
---------- ------------ ---------- -------------------
<S> <C> <C> <C> <C>
Restructuring Expenses
Employee severance and 575 (813) 238 --
Related costs
Israeli office closing 119 (119) -- --
Other restructuring costs 59 (59) -- --
---------- ------------ ---------- -------------------
TOTAL $ 753 $ (991) $ 238 $ --
========== ============ ========== ===================
</TABLE>
The historical financial data included herein has been restated to reflect the
merger with Netect by combining the historical results for the Company and
Netect for all periods presented. There were no material transactions between
BindView and Netect during the periods prior to the merger.
Acquisition of Entevo Corporation
- ---------------------------------
On February 9, 2000 the Company merged with Entevo Corporation ("Entevo") 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. As a result of this merger, all of the outstanding convertible preferred
stock of Entevo were exchanged for the Company's common stock. Transaction costs
of $3,800 and restructuring costs of $1,781 were incurred as a result of this
merger.
At the time of the merger, management approved restructuring plans to eliminate
duplicate positions and integrate Entevo's and BindView's worldwide operations.
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 and relocation
expenses, contract cancellation provisions, product reorganization, integration
related expenses and other miscellaneous restructuring expenses. The transaction
costs related to the acquisition include investment banking fees of $2,473,
professional expenses of $929, product due diligence and transfer fees of $181,
and other miscellaneous transaction expenses of $217. The Company believes the
remaining reserve is sufficient to complete these remaining actions under the
plan.
The accrued restructuring expenses and amounts charged against the provision as
of March 31, 2000, were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) BEGINNING CASH ACCRUED EXPENSES AT
ACCRUAL EXPENDITURES MARCH 31, 2000
------------ ------------ -------------------
<S> <C> <C> <C>
Employee severance and
Relocation costs 1,520 (186) 1,334
Contract cancellation
provisions 93 -- 93
Product reorganization 82 -- 82
Integration and other
restructuring costs 86 (18) 68
------------ ------------ ------------
TOTAL $ 1,781 $ (204) $ 1,577
============ ============ ============
</TABLE>
9
<PAGE> 11
The historical financial data included herein has been restated to reflect the
merger with Entevo by combining the historical results for the Company and
Entevo for all periods presented. There were no material transactions between
BindView and Entevo during the periods prior to the merger.
OTHER INCOME, NET
The Company had other income of $1.1 million in the first quarter of 2000
compared to $645,000 in the corresponding period of 1999. This increase is
primarily due to an increase in interest income related to higher interest rates
over the periods presented and positive cash flow from operating activities.
PROVISION FOR INCOME TAXES
The effective tax rate was approximately 13% for the period ended March 31,
2000 loss and exceeded 35% for the period ended March 31, 1999 loss. Certain
transaction expenses recorded in connection with the Company's mergers with
Netect and with Entevo are not deductible for federal income tax purposes and
adversely impacted both periods' rates. The Company's generation of a research
and development tax credit positively impacted both periods' rates. Valuation
allowances booked on net operating losses adversely impacted the period ended
March 31, 1999's effective tax rate.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital increased to $77.0 million at March 31, 2000 from
$76.9 million at December 31, 1999. The Company's cash, cash equivalents,
short-term and long-term investments balance increased to $83.9 million at March
31, 2000 from $83.1 million at December 31, 1999.
The Company believes that the net proceeds of its initial and secondary
offerings completed in 1998, together with existing cash, cash equivalents,
short-term investments and cash flow from operations will be sufficient to meet
its normal working capital requirements for at least the next 12 months.
Thereafter, the Company may require additional funds to support its working
capital requirements or for other purposes and may seek to raise such additional
funds through public or private equity financing or from other sources. There
can be no assurance that additional financing will be available at all or that,
if available, such financing will be obtainable on terms favorable to the
Company or that any additional financing would not be dilutive.
The Company currently intends to use the net proceeds of its initial and
secondary public offerings for working capital and general corporate purposes,
including financing accounts receivable and capital expenditures made in the
ordinary course of business, as well as for possible acquisitions of businesses,
products and technologies that are complementary to those of the Company. There
can be no assurance that the Company will be able to identify any acquisitions
of businesses, products or technology that are complimentary to those of the
Company or are on terms that are acceptable to the Company. Possible
acquisitions of businesses, products and technologies could require the use of
substantial amounts of capital, some of which might require the issuance of
additional equity or debt securities. Pending such uses, the net proceeds will
continue to be invested in government securities and other short-term,
investment-grade, interest-bearing instruments.
10
<PAGE> 12
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. All statements
other than statements of historical facts included in this Report, including
without limitation, statements regarding the Company's 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 purposes of this Item 5, references to the
"Company", "BindView", "we", "us" and "our" refer to BindView Development
Corporation and its subsidiaries.
OUR QUARTERLY FINANCIAL RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS
Our quarterly revenues, expenses and operating results may fluctuate
significantly due to a number of factors, including:
o demand for our products;
o size and timing of significant orders and their fulfillment;
o our ability to develop and upgrade our technology;
o changes in our level of operating expenses;
o our ability to compete in a highly competitive market;
o undetected software errors and other product quality problems;
o changes in our sales incentive plans and staffing of sales
territories; and
o changes in the mix of domestic and international revenues and the
level of international expansion.
Generally, we do not operate with a backlog because we ship our products and
recognize revenue shortly after orders are received. At the time we ship our
products we have satisfied all of the criteria of Statement of Position No. 97-2
"Software Revenue Recognition," or Statement of Position No. 98-9 "Modification
of SOP97-2 Software Revenue Recognition," and therefore we recognize the related
license revenue. As a result, orders booked throughout a quarter substantially
impact product revenues in that quarter. Our sales also fluctuate throughout the
quarter as a result of customer buying patterns. We base our expenses to a
significant extent on our expectations of future revenues. Most of our expenses
are fixed in the short term and we may not be able to quickly reduce spending if
our revenues are lower than we had projected. If our revenue levels do not meet
our projections, we expect our operating results to be adversely and
disproportionately affected.
Our quarterly operating results also are subject to certain seasonal
fluctuations. Year-end customer buying patterns and compensation policies based
on annual revenue quotas have caused our revenues to be strongest in the fourth
quarter of the year and to decrease in the first quarter of the following year.
In future periods, we expect that these seasonal trends may cause first quarter
revenues to be significantly lower than the level achieved in the preceding
fourth quarter.
Prior to January 1, 1998, we provided telephone support free of charge and sold
product upgrades separately or through subscription contracts. We now require
our customers to purchase a subscription policy in order to receive product
upgrades and technical support. Unlike software license revenues that we
generally recognize upon shipment of the product, we recognize subscription
contract revenues ratably over the life of the contract term. As a result, if we
derive a larger percentage of our revenues from subscription contracts, we will
experience an increase in deferred revenue that is likely to decrease our
operating margins. Decreased operating margins may materially adversely affect
our business, operating results and financial condition.
As a result, we believe quarter-to-quarter comparisons of our revenues, expenses
and results of operations are not necessarily meaningful. You should not rely on
our quarterly revenues, expenses and results of operations to predict our future
performance.
11
<PAGE> 13
CAUTIONARY STATEMENTS
In addition to the other information in this Quarterly Report on Form 10-Q,
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:
o demand for our products;
o size and timing of significant orders and their fulfillment;
o our ability to develop and upgrade our technology;
o changes in our level of operating expenses;
o our ability to compete in a highly competitive market;
o undetected software errors and other product quality problems;
o changes in our sales incentive plans and staffing of sales
territories; and
o 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) or 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.
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.
12
<PAGE> 14
We have a limited operating history. We have a limited operating history
based on our primary products and an even more limited operating history with
new and acquired 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:
o providers of security analysis and audit products, such as Axent
Technologies, Inc., ODS Networks, Inc., ISS Group, Inc.,
PentaSafe, Inc. and Network Associates Inc.;
o providers of stand-alone inventory and asset management products, such
as Tally Systems Corp.;
o providers of LAN desktop management suites, such as Intel Corporation,
Hewlett-Packard Company and Microsoft Corporation;
o providers of event notification and response technology, such as
Attention Software, Inc.;
o providers of Windows NT management and migration tools, such as
Mission Critical Software, FastLane Technologies Inc., and NetIQ
Corporation;
o 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;
o 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
o 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:
o greater resources that can be devoted to the development, promotion
and sale of their products;
o more established sales channels;
o greater software development experience; and
o 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.
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.
13
<PAGE> 15
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. A majority of our revenues are from the sale of our
NOSadmin and NETinventory products. We anticipate that these products, along
with product 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 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 increased our product
offerings and have also focused more of our selling effort on products for the
customer's entire enterprise and as a result, have found that our sales cycle to
enterprises has ranged from six to twelve months. In addition, we are currently
transitioning our telesales force into a direct sales model. Our ability to
effectively transition our sales force to this model can directly impact the
length of our sales cycle. The sales cycle to enterprises is typically longer
for a number of reasons, including:
o 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
o 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.
14
<PAGE> 16
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 16%, 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:
o establish additional international direct telesales offices;
o expand the management and support organizations for our international
sales channel;
o hire additional personnel;
o customize our products for local markets;
o recruit additional international resellers where appropriate; and
o 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.
15
<PAGE> 17
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 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 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
The following exhibits are filed with this Quarterly Report.
10 -- Employment Agreement between BindView and Richard P. Gardner
11 -- Statement Regarding Computation of Loss Per Common Share
27 -- Financial Data Schedule.
(b) Reports on Form 8-K:
The Company filed a Form 8-K dated February 23, 2000 and Form 8-K/A dated
April 21, 2000 to report its merger with Entevo Corporation.
16
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BINDVIEW DEVELOPMENT CORPORATION
By: /s/ RICHARD P. GARDNER
------------------------------------------
Richard P. Gardner
President and Chief Executive Officer
(duly authorized officer)
May 15, 2000
By: /s/ SCOTT R. PLANTOWSKY
------------------------------------------
Scott R. Plantowsky
Vice-President and Chief Financial Officer
(principal financial officer)
May 15, 2000
17
<PAGE> 19
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
10 -- Employment Agreement between BindView and Richard P. Gardner
11 -- Statement Regarding Computation of Loss Per Common Share
27 -- Financial Data Schedule.
</TABLE>
18
<PAGE> 1
EXHIBIT 10
BINDVIEW DEVELOPMENT CORPORATION
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT (this "Agreement") is made between
BindView Development Corporation, a Texas corporation ("the Company"), and
RICHARD P. GARDNER ("Gardner"). Unless otherwise indicated, all references to
Sections are to Sections in this Agreement. This Agreement is effective as of
the "Effective Date" set forth in Schedule 1 below.
W I T N E S S E T H:
WHEREAS, the Company desires to obtain the services of
Gardner, and Gardner desires to be employed by the Company upon the terms and
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises, the
agreements herein contained and other good and valuable consideration, receipt
of which is hereby acknowledged, the parties hereto agree as of the date hereof
as follows:
1. EMPLOYMENT. Subject to (i) the terms and conditions hereinafter set
forth and (ii) the approval of this Agreement and election of Gardner by the
Company's Board of Directors ("Board"), the Company hereby agrees to employ
Gardner, and Gardner hereby agrees to serve the Company, as President and Chief
Executive Officer ("Employment").
2. SCOPE OF EMPLOYMENT.
(a) During the Employment, Gardner will serve as President and
Chief Executive Officer and, subject to his election in accordance with the
Company's by-laws and with applicable law, as a member of the Board. In that
connection, Gardner will (i) devote his full time, attention, and energies to
the business of the Company and will diligently and to the best of his ability
perform all duties incident to his employment hereunder; (ii) use his best
efforts to promote the interests and goodwill of the Company; and (iii) perform
such other duties commensurate with his office as the Board of Directors of the
Company may from time-to-time assign to him.
(b) Section 2(a) shall not be construed as preventing Gardner
from (i) serving on corporate, civic or charitable boards or committees, or (ii)
making investments in other businesses or enterprises; provided in no event
shall any such service, business activity or investment require the provision of
substantial services by Gardner to the operations or the affairs of such
businesses or enterprises such that the provision thereof would interfere in any
respect with the performance of Gardner's duties hereunder.
3. COMPENSATION AND BENEFITS DURING EMPLOYMENT. During the Employment,
the Company shall provide compensation and benefits to Gardner as follows.
(a) The Company shall pay Gardner, subject to the terms and
conditions of this Agreement, a base salary at the rate of not less than the
"Initial Salary" set forth in Schedule 1, payable in accordance with the normal
payroll practices of the Company but in no less than equal bi-weekly
installments, less withholding required by law or agreed to by Gardner.
(b) As additional compensation for services hereunder, Gardner
shall be entitled to an annual bonus ("Bonus") with an "On-Target Amount" of not
less than the amount set forth in Schedule 1. The actual Bonus amount in any
given year will be determined by and contingent upon the Company's
<PAGE> 2
achievement of financial performance objectives set by the Company from time to
time for determining payment of bonuses to its senior executives. Each Bonus
will be paid at the same time and in the same manner as the payment of bonuses
to other senior executives of the Company. If the Company in its discretion
makes a partial interim payment of an Bonus for an interim period (e.g., a
quarterly partial payment), any amount so paid will be credited to the Company's
obligation to pay the annual Bonus for that fiscal year. If the sum of such
interim payments in respect of a Bonus, if any, for a given fiscal year exceed
the actual amount of the annual Bonus for that year, Gardner need not refund the
difference to the Company.
(c) Gardner shall, upon satisfaction of any eligibility
requirements with respect thereto, be entitled to participate in all employee
benefit plans of the Company, including without limitation those health, dental,
accidental death and dismemberment, and long term disability plans, 401(k)
plans, pension or profit-sharing plans, stock option plans, and similar
benefits, of the Company now or hereafter in effect that are made available to
executive officers of the Company and on the same terms as offered to other
executive officers of the Company.
(d) The Company shall maintain for Gardner the "Specific
Benefits" summarized in Schedule 1, if any.
(e) The Company will reimburse Gardner for reasonable business
expenses incurred by Gardner in connection with the Employment in accordance
with the Company's then-current policies and IRS guidelines.
(f) During the Employment Gardner shall be entitled to sick
leave, holidays, and an annual vacation, all in accordance with the regular
policy of the Company for its executives (but in no event less than the "Minimum
Annual Vacation" set forth in Schedule 1), during which time his compensation
and benefits shall be paid or provided in full. Each such vacation shall be
taken by Gardner at such times as may be mutually agreed upon by Gardner and the
Company.
4. POST-EMPLOYMENT COMPENSATION AND BENEFITS. In the event of any
termination of the Employment, by the Company, by Gardner, or by Gardner's
death, the Company and Gardner will have the following obligations concerning
compensation and benefits.
(a) Any amounts payable under Section 3 which shall have been
earned but not yet paid, including without limitation vacation pay, shall be
paid by the Company to Gardner.
(b) If the Employment is terminated because of (i) the death
of Gardner, or (ii) by the Company because of the inability of Gardner to
perform his duties hereunder, by reason of physical or mental injury or illness,
incapacitating him for a continuous period exceeding three months, excluding any
leaves of absence approved by the Company ("Disability"), then the Company will
pay to Gardner, or to Gardner's heirs, assigns, successors-in-interest, or legal
representatives) any and all salary, other benefits or incentive payments
earned, accrued or provided to or by Gardner under this Agreement, or granted to
Gardner by the officers and/or board of directors of the Company, through the
date of Gardner's death or disability and not already paid. In the event of such
termination, any vesting of Gardner's stock options will be in accordance with
the BindView Development Corporation Omnibus Incentive Plan, as it may be
amended by the Board from time to time (the "Plan").
(c) Except for termination under Section 4(b), if the
Employment is terminated (i) by the Company other than for Cause as defined
below, or (ii) by Gardner with Good Reason as defined below, then Gardner will
be entitled to the following post-termination benefits.
<PAGE> 3
(1) Fifty percent (50%) of all unvested options in
the Company's common stock held by Gardner on the date of termination of the
Employment by the Company or by Gardner ("Termination Date") shall vest and
become immediately exercisable on the Termination Date; provided, however, that
in the event of a Change of Control as defined below, one hundred percent (100%)
of all unvested options in the Company's common stock held by Gardner on the
Termination Date shall vest and become immediately exercisable on the
Termination Date.
(2) The Company shall pay Gardner a separation
payment within 30 days after the Termination Date. The amount of the separation
payment will be either (i) 36 times the average of Gardner's monthly base salary
for the 12 months immediately preceding the Termination Date, or such shorter
period over which Gardner was continuously employed by the Company, or (ii) 12
times the average of Gardner's monthly base salary for the 12 months immediately
preceding the Termination Date, or such shorter period over which Gardner was
continuously employed by the Company, if the vested portion(s) of Gardner's
option(s) in the Company's stock have appreciated by at least $10 million, as
defined below. The vested portion(s) of Gardner's option(s) in the Company's
stock will be deemed to have appreciated by $10 million if the closing market
price of the Company's publicly-traded stock on the Termination Date (or the
previous trading day if the Termination Date is not a trading day) exceeds a
price that would result in Gardner making a profit of $10 million (before any
applicable (i) commissions and other costs of sale and (ii) applicable taxes),
if he were to exercise his option(s) as to all vested portion(s) (taking into
account all acceleration of vesting, if any) and sell all resulting shares at
such price, whether or not Gardner's option(s) have in fact been exercised as to
such vested portion(s) and whether or not Gardner has previously sold any shares
as to which the option(s) have in fact been exercised.
HYPOTHETICAL EXAMPLE: Suppose that (i) as of the Termination
Date the vested portions of Gardner's options, after all
acceleration of vesting as of the Termination Date, are for 1
million shares of the Company's common stock at a hypothetical
strike price of $80 per share, and (ii) the closing price of
the Company's common stock on the Termination Date was a
hypothetical $92 per share. In that case, the vested portions
of Gardner's options in the Company's stock will be deemed to
have appreciated by $12 million (i.e., $92 per share minus $80
per share, times 1 million shares).
(3) The Company shall maintain Gardner as a
participant in, or provide benefits comparable to those of, the health insurance
benefit plan specified under Section 3(c) for a period of six (6) months after
the Termination Date.
(d) Other than as provided herein, after termination of the
Employment, the Company shall not be obligated to make the payments, nor to
provide the benefits, specified in Section 3.
(e) After termination of the Employment for any reason,
Gardner shall pay any amount or amounts then owed by Gardner to the Company.
(f) "Cause" means either (i) the willful commission by Gardner
of an act constituting a dishonest or other act of material misconduct, or
conviction of a fraudulent act or a felony under the laws of any state or of the
United States to which the Company or Gardner is subject, and such act results
(or is intended to result directly or indirectly) in Gardner's substantial gain
or personal enrichment to the material and demonstrable detriment of the
Company; or (ii) the material breach by Gardner of any representation or
covenant made herein; or (iii) the commission of repeated breaches of this
Agreement by Gardner where the Company notifies Gardner in writing of each such
breach, and prior to termination, the Company
<PAGE> 4
gives Gardner thirty (30) days advance written notice of its intention to
terminate the Employment for Cause at the end of such thirty-day period.
Any act, or failure to act, based upon authority
given pursuant to a resolution duly adopted by the Board or based upon the
advice of counsel for the Company shall be conclusively presumed to be done, or
omitted to be done, by Gardner in good faith and in the best interests of the
Company and thus shall not be deemed grounds for termination for Cause.
(g) "Good Reason" means the occurrence of any of the
following, other than with Gardner's prior written consent:
(1) any removal of Gardner from, or any failure to
reelect or to reappoint Gardner to, the office of Chief Executive Officer or
Director of the Company;
(2) a reduction by the Company in the amount of
Gardner's base salary below the Initial Salary as determined under this
Agreement, or the failure of the Company to pay such base salary to Gardner at
the time and in the manner specified in Section 3;
(3) the discontinuance by the Company of the annual
bonus referred to in Section 3(b), or the failure of the Company to pay such
bonus to Gardner at the time and in the manner specified therein; or
(4) the failure by the Company to comply with its
obligations under Section 10(b) (concerning assumption of this Agreement by any
successor or assign of the Company).
(h) A "Change of Control" of the Company shall have occurred
if, after the date hereof:
(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
<PAGE> 5
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
(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.
(i) "Voting Stock" means shares of 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.
5. CONFIDENTIAL INFORMATION.
(a) Gardner acknowledges that the law provides the Company
with protection for its trade secrets and confidential information. Gardner will
not disclose, directly or indirectly, any of the Company's confidential business
information or confidential technical information to anyone without
authorization from the Company's management. Gardner will not use any of the
Company's confidential business information or confidential technical
information in any way, either during or after the Employment with the Company,
except as required in the course of the Employment.
(b) Gardner will strictly adhere to any obligations that may
be owed to former employers insofar as Gardner's use or disclosure of their
confidential information is concerned.
(c) Information will not be deemed part of the confidential
information restricted by this Section 5 if Gardner can show that: (i) the
information was in Gardner's possession or within Gardner's knowledge before the
Company disclosed it to Gardner; or (ii) the information was or became generally
known to those who could take economic advantage of it; or (iii) Gardner
obtained the information from a party having the right to disclose it to Gardner
without violation of any obligation to the Company, or (iv) Gardner is required
to disclose the information pursuant to legal process (e.g., a subpoena),
provided that Gardner notifies the Company immediately upon receiving or
becoming aware of the legal process in question. No combination of information
will be deemed to be within any of the four exceptions in the previous sentence,
however, whether or not the component parts of the combination are within one or
more
<PAGE> 6
exceptions, unless the combination itself and its economic value and principles
of operation are themselves within such an exception.
(d) All originals and all copies of any drawings, blueprints,
manuals, reports, computer programs or data, notebooks, notes, photographs, and
all other recorded, written, or printed matter relating to research,
manufacturing operations, or business of the Company made or received by Gardner
during the Employment are the property of the Company. Upon termination of the
Employment, whether or not for Cause, Gardner will immediately deliver to the
Company all property of the Company which may still be in Gardner's possession.
Gardner will not remove or assist in removing such property from the Company's
premises under any circumstances, either during the Employment or after
termination thereof, except as authorized by the Company management.
(e) For a period of one (1) year after the date of termination
of the Employment, Gardner will not, either directly or indirectly, hire or
employ or offer or participate in offering employment to any person who at the
time of such termination or at any time during such year following the time of
such termination was an employee of the Company without the prior written
consent of the Company.
6. OWNERSHIP OF INTELLECTUAL PROPERTY. The following provisions apply
except to the extent expressly stated otherwise in Schedule 1.
(a) The Company will be the sole owner of any and all of
Gardner's Inventions that are related to the Company's business, as defined in
more detail below.
(b) For purposes of this Agreement, "Inventions" means all
inventions, discoveries, and improvements (including, without limitation, any
information relating to manufacturing techniques, processes, formulas,
developments or experimental work, work in progress, or business trade secrets),
along with any and all other work product relating thereto.
(c) An Invention is "related to the Company's business"
("Company-Related Invention") if it is made, conceived, or reduced to practice
by Gardner (in whole or in part, either alone or jointly with others, whether or
not during regular working hours), whether or not potentially patentable or
copyrightable in the U.S. or elsewhere, and it either: (i) involves equipment,
supplies, facilities, or trade secret information of the Company; (ii) involves
the time for which Gardner was or is to be compensated by the Company; (iii)
relates to the business of the Company or to its actual or demonstrably
anticipated research and development; or (iv) results, in whole or in part, from
work performed by Gardner for the Company.
(d) Gardner will promptly disclose to the Company, or its
nominee(s), without additional compensation, all Company-Related Inventions,
including without limitation all "Computer Software" (defined as all computer
programs, associated documentation, and copies thereof) that is so related.
(e) Gardner will assist the Company, at the Company's expense,
in protecting any intellectual property rights that may be available anywhere in
the world for such Company-Related Inventions, including signing U.S. or foreign
patent applications, oaths or declarations relating to such patent applications,
and similar documents.
(f) To the extent that any Company-Related Invention is
eligible under applicable law to be deemed a "work made for hire," or otherwise
to be owned automatically by the Company, it will be deemed as such, without
additional compensation to Gardner. In some jurisdictions, Gardner may have a
right, title, or interest ("Right," including without limitation all right,
title, and interest arising under patent law, copyright law, trade-secret law,
semiconductor chip protection law, or otherwise, anywhere in the world,
<PAGE> 7
including the right to sue for present or past infringement) in certain
Company-related Inventions that cannot be automatically owned by the Company. In
that case, if applicable law permits Gardner to assign Gardner's Right(s) in
future Company-Related Inventions at this time, then Gardner hereby assigns any
and all such Right(s) to the Company, without additional compensation to
Gardner; if not, then Gardner agrees to assign any and all such Right(s) in any
such future Company-Related Inventions to the Company or its nominee(s) upon
request, without additional compensation to Gardner.
(g) To the extent that Gardner retains any so-called "moral
rights" or similar rights in a Company-Related Invention as a matter of law,
Gardner authorizes the Company or its designee to make any changes it desires to
any part of that Company-Related Invention; to combine any such part with other
materials; and to withhold Gardner's identity in connection with any business
operations relating to that Company-Related Invention; in any case without
additional compensation to Gardner.
7. NONCOMPETITION. As a condition to, and in consideration of, the
Company's entering into this Agreement, and giving Gardner access to certain
confidential and proprietary information, which Gardner recognizes is valuable
to the Company and, therefore, its protection and maintenance constitutes a
legitimate interest to be protected by the provisions of this Section 7 as
applied to Gardner and other employees similarly situated to Gardner, Gardner
hereby agrees as follows:
(a) During, and for "a reasonable period of time" after any
termination of, the Employment, and within "a reasonable territory," defined in
Sections 7(b) and 7(c), Gardner will not for any reason, directly or indirectly,
by any means or device, for himself or on behalf of or in conjunction with any
person, partnership or corporation (i) compete with the Company in the
development or marketing of systems-management and/or security-management
software products which manage distributed client/server networks operating in
the Microsoft Windows NT, Novell NetWare, or UNIX (including without limitation
LINUX) environments, (ii) solicit any customers of the Company to purchase the
products or services which, as of the date of such termination, would compete
directly or indirectly, with those which were offered by the Company or were
reasonably foreseeable to be offered by the Company during such period of time
or (iii) work on or develop, directly or indirectly, for any competitor of the
Company any programs or software similar to those developed or sold by the
Company during Gardner's Employment. The aforementioned period of time specified
in this paragraph will be extended by the duration of any period when Gardner is
committing any act prohibited by this Agreement.
(b) As used in this Agreement, "a reasonable period of time"
means one year, except as otherwise provided herein. If Gardner violates the
covenants set forth in Section 7(a), and the Company brings an action for
injunctive or other relief, the Company shall not be deprived of the benefit of
the full reasonable period of time. Accordingly, the covenants set forth in the
preceding paragraph shall be deemed to have a duration of the reasonable period
of time specified by this Agreement, with such period commencing upon the later
of (i) the termination of the Employment and (ii) if the Company brings a action
to enforce the covenants contained in Section 7(a), the date of entry by a court
of competent jurisdiction of a final judgment enforcing such covenants.
(c) As used in this Agreement, "a reasonable territory", in
view of the international nature of the markets in which the Company competes,
means the United States of America and any foreign market in which the Company's
products are sold during the Employment or are reasonably foreseeable to be sold
during the reasonable period of time.
<PAGE> 8
(d) The covenants set forth in Section 7(a) will accrue to the
benefit of the Company, regardless of the reason(s) for the termination of the
Employment; provided, however, that in the event of a termination of employment
of Gardner following a Change of Control or for Good Reason, the term
"reasonable period of time" will mean six (6) months.
(e) Gardner acknowledges that the obligations of this
Agreement are directly related to the Employment and are necessary to protect
the Company's legitimate business interests. Gardner acknowledges that the
Company's need for the covenants set forth in this Agreement is based on the
following: (i) the substantial time, money and effort expended and to be
expended by the Company in developing technical designs, computer program source
codes, marketing plans and similar confidential information; (ii) the fact that
Gardner will be personally entrusted with the Company's confidential and
proprietary information; (iii) the fact that, after having access to the
Company's technology and other confidential information, Gardner could become a
competitor of the Company; and (iv) the highly competitive nature of the
Company's industry, including the premium that competitors of the Company place
on acquiring proprietary and competitive information.
(f) Notwithstanding the foregoing, Gardner may acquire an
ownership interest, directly or indirectly, of not more than 5% of the
outstanding securities of any corporation which is engaged in a business
competitive with the Company and which is listed on any recognized securities
exchange or traded in the over the counter market in the United States;
provided, that such investment is of a totally passive nature and does not
involve Gardner devoting time to the management or operations of such
corporation.
8. EMPLOYEE HANDBOOKS, ETC. From time to time, the Company may
establish, maintain and distribute employee manuals or handbooks or personnel
policy manuals, and officers or other representatives of the Company may make
written or oral statements relating to personnel policies and procedures. Such
manuals, handbooks and statements do not constitute a part of this Agreement nor
a separate contract, but are intended only for general guidance.
9. LEGAL FEES AND EXPENSES. In the event of a lawsuit, arbitration, or
other dispute-resolution proceeding between the Company and Gardner arising out
of or relating to this Agreement, the prevailing party, in the proceeding as a
whole and/or in any interim or ancillary proceedings (e.g., opposed motions,
including without limitation motions for preliminary or temporary injunctive
relief) will be entitled to recover its reasonable attorneys' fees and expenses
unless the court or other forum determines that such a recovery would not serve
the interests of justice.
10. SUCCESSORS.
(a) This Agreement shall inure to the benefit of and be
binding upon (i) the Company and its successors and assigns and (ii) Gardner and
Gardner's heirs and legal representatives, except that Gardner's duties and
responsibilities under this Agreement are of a personal nature and will not be
assignable or delegable in whole or in part.
(b) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "the Company" shall mean the Company
as hereinbefore defined and any successor to its
<PAGE> 9
business and/or assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law, or otherwise.
11. ARBITRATION.
(a) Except as set forth in paragraph (b) of this Section 11 or
to the extent prohibited by applicable law, any dispute, controversy or claim
arising out of or relating to this Agreement will be submitted to binding
arbitration before a single arbitrator in accordance with the National Rules for
the Resolution of Employment Disputes of the American Arbitration Association in
effect on the date of the demand for arbitration. The arbitration shall take
place before a single arbitrator, who will preferably but not necessarily be a
lawyer but who shall have at least five years' experience in working in or with
computer software companies. Unless otherwise agreed by the parties, the
arbitration shall take place in the city in which Gardner's principal office
space is located at the time of the dispute or was located at the time of
termination of the Employment (if applicable). The arbitrator is hereby directed
to take all reasonable measures not inconsistent with the interests of justice
to expedite, and minimize the cost of, the arbitration proceedings.
(b) To protect Inventions, trade secrets, or other
confidential information, and/or to enforce the noncompetition provisions of
Section 7, the Company may seek temporary, preliminary, and/or permanent
injunctive relief in a court of competent jurisdiction, in each case, without
waiving its right to arbitration.
(c) At the request of either party, the arbitrator may take
any interim measures s/he deems necessary with respect to the subject matter of
the dispute, including measures for the preservation of confidentiality set
forth in this Agreement.
(d) Judgment upon the award rendered by the arbitrator may be
entered in any court having jurisdiction.
12. CERTAIN REDUCTION OF PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment, benefit
or distribution by the Company or its affiliates to or for the benefit of
Gardner (whether paid or payable or distributed or distributable pursuant to the
terms of this Agreement or otherwise) (a "Payment") would be nondeductible by
the Company or any of its affiliates for federal income tax purposes because of
Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), then
the aggregate present value of amounts payable or distributable to or for the
benefit of Gardner pursuant to this Agreement (such payments or distributions
pursuant to this Agreement are hereinafter referred to as "Agreement Payments")
shall be reduced to the Reduced Amount. The "Reduced Amount" shall be an amount
expressed in present value which maximizes the aggregate present value of
Agreement Payments without causing any Payment to be nondeductible by the
Company or any of its affiliates because of Section 280G of the Code. For
purposes of this Section 12, present value shall be determined in accordance
with Section 280G(d)(4) of the Code.
(b) All determinations required to be made under this Section
12 shall be made by PricewaterhouseCoopers LLP (the "Accounting Firm"), which
shall provide detailed supporting calculations both to the Company and Gardner
within 20 business days after the Termination Date (or such earlier or other
time as is requested by the Company) and an opinion to Gardner that he has
substantial authority not to report any excise tax imposed under section 4999 of
the Code on his federal income tax return with
<PAGE> 10
respect to the Agreement Payments (as eliminated or reduced, if applicable,
under such initial determination). Any such determination by the Accounting Firm
shall be binding upon the Company and Gardner. If the Agreement Payments are to
be eliminated or reduced under such initial determination, Gardner shall
determine which and how much of the Agreement Payments shall be eliminated or
reduced consistent with the requirements of this Section 12, provided that, if
Gardner does not make such determination within ten business days of the receipt
of the calculations made by the Accounting Firm, the Company shall elect which
and how much of the Agreement Payments shall be eliminated or reduced consistent
with the requirements of this Section 12 and shall notify Gardner promptly of
such election. Within five business days thereafter, the Company shall pay to or
distribute to or for the benefit of Gardner such amounts as are then due to
Gardner under this Agreement.
(c) As a result of the uncertainty in the application of
Section 280G of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Agreement Payments will have been
made by the Company which should not have been made ("Overpayment") or that
additional Agreement Payments which will not have been made by the Company could
have been made ("Underpayment"), in each case, consistent with the calculations
required to be made hereunder. In the event that the Accounting Firm, based upon
the assertion of a deficiency by the Internal Revenue Service against Gardner
which the Accounting Firm believes has a high probability of success determines
that an Overpayment has been made, any such Overpayment paid or distributed by
the Company to or for the benefit of Gardner shall be treated for all purposes
as a loan ab initio to Gardner which Gardner shall repay to the Company together
with interest at the applicable federal rate provided for in Section 1274(d) of
the Code; provided, however, that no such loan shall be deemed to have been made
and no amount shall be payable by Gardner to the Company if and to the extent
such deemed loan and payment would not either reduce the amount on which Gardner
is subject to tax under Section 1 and Section 4999 of the Code or generate a
refund of such taxes. If the Accounting Firm, based upon controlling precedent
or other substantial authority, determines that an Underpayment has occurred,
any such Underpayment shall be promptly paid by the Company to or for the
benefit of Gardner together with interest at the applicable federal rate
provided for in Section 1274(d) of the Code.
13. OTHER PROVISIONS.
(a) Gardner represents that, except for an Invention and
Non-Disclosure Agreement with BMC Software, Inc. which has previously been
provided to the Company, he has no obligations, contractual or otherwise,
inconsistent with Gardner's obligations set forth in this Agreement.
(b) All notices and statements with respect to this Agreement
must be in writing. Notices to the Company shall be delivered to the Chairman of
the Board or any vice president of the Company. Notices to Gardner may be
delivered to Gardner in person or sent to Gardner's then-current home address as
indicated in the Company's records.
(c) This Agreement sets forth the entire agreement of the
parties concerning the subjects covered herein; there are no promises,
understandings, representations, or warranties of any kind concerning those
subjects except as expressly set forth in this Agreement.
(d) Any modification of this Agreement must be in writing and
signed by all parties; any attempt to modify this Agreement, orally or in
writing, not executed by all parties will be void.
(e) If any provision of this Agreement, or its application to
anyone or under any circumstances, is adjudicated to be invalid or unenforceable
in any jurisdiction, such invalidity or unenforceability
<PAGE> 11
will not affect any other provision or application of this Agreement which can
be given effect without the invalid or unenforceable provision or application
and will not invalidate or render unenforceable such provision or application in
any other jurisdiction.
(f) This Agreement will be governed and interpreted under the
laws of the United States of America and of the State of Texas law as applied to
contracts made and carried out in Texas by residents of Texas.
(g) No failure on the part of any party to enforce any
provisions of this Agreement will act as a waiver of the right to enforce that
provision.
(h) Termination of the Employment, with or without cause, will
not affect the continued enforceability of this Agreement.
(i) Section headings are for convenience only and shall not
define or limit the provisions of this Agreement.
(j) This Agreement may be executed in several counterparts,
each of which is an original. It shall not be necessary in making proof of this
Agreement or any counterpart hereof to produce or account for any of the other
counterparts. A copy of this Agreement signed by one party and FAXed to another
party shall be deemed to have been executed and delivered by the signing party
as though an original. A photocopy of this Agreement shall be effective as an
original for all purposes.
Executed to be effective as of the Effective Date.
BINDVIEW DEVELOPMENT CORPORATION, BY: EMPLOYEE
By: /s/ ERIC J. PULASKI By: /s/ RICHARD P. GARDNER
----------------------- ---------------------------
Eric J. Pulaski Richard P. Gardner
Chairman of the Board
<PAGE> 1
EXHIBIT 11
BINDVIEW DEVELOPMENT CORPORATION
STATEMENT REGARDING COMPUTATION OF LOSS PER COMMON SHARE
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
QUARTER
ENDED MARCH 31,
-----------------------------
2000 1999
---------- ----------
<S> <C> <C>
Net loss $ (6,675) $ (2,611)
========== ==========
Shares used in basis calculation
Total basic shares 50,519 45,805
Additional shares for diluted computation:
Effect of stock options 6,281 5,686
Effect of warrants 75 238
Effect of convertible preferred stock and
debentures 1,409 666
Exclusion of share equivalents that are
anti-dilutive because a loss was incurred (7,765) (6,590)
---------- ----------
Total diluted shares 50,519 45,805
========== ==========
Loss per common share
Basic $ (0.13) $ (0.06)
Diluted $ (0.13) $ (0.06)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 79,055
<SECURITIES> 547
<RECEIVABLES> 11,145
<ALLOWANCES> 714
<INVENTORY> 0
<CURRENT-ASSETS> 99,455
<PP&E> 17,414
<DEPRECIATION> 7,193
<TOTAL-ASSETS> 115,771
<CURRENT-LIABILITIES> 22,452
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 93,318
<TOTAL-LIABILITY-AND-EQUITY> 115,771
<SALES> 16,025
<TOTAL-REVENUES> 16,025
<CGS> 1,188
<TOTAL-COSTS> 23,627
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (7,708)
<INCOME-TAX> (1,033)
<INCOME-CONTINUING> (6,675)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,675)
<EPS-BASIC> (0.13)
<EPS-DILUTED> (0.13)
</TABLE>
